Injuries cost business 6% of their profit

At The Safety Conference in Sydney in October 2009, Dr Ian Woods, a senior research analyst for AMP Capital Investors, will advise Australian employers that the cost of workplace injuries on their businesses could be around 6% of their profit.

According to a media release in support of the conference

Dr Woods signals three occupational health and safety costs of concern to investors: workers’ compensation premiums, indirect costs, and the costs of alleviating workplace incidents.

“The indirect and unbillable costs associated with workplace injuries are like an iceberg,” he says.  “They represent a huge percentage of the total cost that’s impossible to assess until you run into trouble.”

“The disruption to production caused by workplace injuries cost Australian businesses an estimated $490 million in 2000-01.  The extra administration cost another $360 million.  Incidents can also trigger loss of goodwill, strikes, recruitment issues and dozens of other immeasurable costs.  The United Kingdom’s Health and Safety Executive indicated that the cost of uninsured losses is 10 times the business cost of insurance premiums paid for the same period.

“An injury with $1,000 in direct claims costs will also bring about $5,000 of indirect costs.  Assuming a 5% profit margin, that equates to $100,000 of turnover.  This simple return on investment (ROI) illustrates how valuable preventive measures are to financial bottom lines.

“Still, there is more to investing than just the economic case for improving OH&S performance.  As well as the economic costs, inequality of benefits, costs and suffering are key issues.”

Some of the concepts sound familiar.  Around the turn of the century there was increasing interest in corporate social responsibility and ethical investments and OHS was mentioned regularly as a corporate element that investors would seriously consider.

A good example of the feeling at the time can be seen in a 2002 interview for SafetyAtWork magazine, Paul Gilding of ECOS Corporation* talked about workplace safety.  He was asked about linking workplace safety with sustainable business.

Pages from Safe Companies Ecos Corporation March 2002 coverPG: This is a real fascination for us.  We first came across workplace safety as a major issue for one of our clients, DuPont, where safety culture is so embedded in their business that you can’t walk into their offices without picking it up.  We realised that, as sustainability experts, we had hardly ever come across that issue.  The people who talk about sustainability also talk about corporate social responsibility, human rights in developing countries, climate change, biotechnology, ethics, every issue you could think of but they very rarely, except in a token way, talk about workplace safety.

We first thought why should this be a sustainability issue and then we thought why wouldn’t it be?  We’re talking about the way corporations behave, the effect they have on society, the effect they have on the community they work in, yet we’re not talking about the fact that they are killing and hurting their own people.  This is a surprising omission when it is so fundamental to sustainability.

This perspective has transformed into the widespread advocacy of “safety culture”.

2i14-3 horstAround 2001 Westpac Banking Corporation was developing an OHS index that measured the share performance of the top 100 companies.  Interest in this has faded over the last ten years to such an extent that it is difficult to locate any reference to it.  However, the Westpac index was discussed at many OHS conferences at that time and gained overseas attention as shown in these comments by the former Director of EU-OSHA, Hans-Horst Konkolewsky to Safety At Work magazine in 2001. [Full interview is available]

Q: One of Australia’s major banks, Westpac, is establishing an OHS index that shows relations between this index, the All Ordinaries share index and a company’s share performance. Have you seen this sort of thing in the European region?

HHK: We haven’t seen it explicitly. This bank has taken the lead. I saw on my way to Australia that there seems to be an F4 investment initiative to assess companies’ performance but more broadly with environmental performance, social performance, child labour issues, but also safety and health.

This is one of the many ways we can improve awareness and create a preventive culture starting through the investment area. In Europe, we have had quite a number of different approaches where companies have issued social statements or accounts where they have informed about their employees’ satisfaction with their work, working conditions, customer satisfaction with servicing, their relationship to the society, activities related to employment problems and so on. There are a number of examples that point in the same direction.

I must say that I believe that this can be a rather strong movement if investors and customers, through their demands and market mechanisms, can improve safety and health.

A capital-idea coverA more detailed report that places OHS strongly within the CSR discipline is a 2002 report, now available through an Australian Government website, called “A capital idea -Realising value from environmental and social performance“.

Dr Wood’s presentation will build on these reports and the work of overseas OHS organisations in trying to provide a cost estimate for workplace injuries.  Let’s hope that there are specifics and that there is enough audience enthusiasm to generate a sustainable interest.

Kevin Jones

* cannot verify that this report is still available online

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