Introduction
ESG encompasses Environmental, Social, and Governance issues. In simple terms, it represents the sustainability aspects considered by stakeholders. Regulators, investors, customers, and employees increasingly factor in ESG when evaluating companies for investment, bidding, employment, etc.
Many companies recognise the need to integrate sustainability into their business strategy, managing ESG risks and opportunities.
The new European regulation, CSRD, will mandate non-financial sustainability disclosures. Formal reporting for large listed companies currently subject to the EU Non-Financial Reporting Directive starts in 2025 for 2024 financial year, a year later for large companies, and from 2027 for listed SMEs.
Regardless of formal requirements, any company may receive sustainability data requests from customers, banks, investors and other stakeholders. I suspect that by 2030, the majority of SMEs and even micro-enterprises, especially those serving other businesses, will need to collect considerable amount of ESG data, especially carbon footprint of their products and services.
H&S under Social pillar of ESG
I suspect that a significant number of companies will highlight ESG as material in their materiality assessments, driven by its significance to customers, investors and employees. Consequently, they will include Health and Safety data in their ESG reporting and will have to follow Disclosure Requirement S1-14 – Health and safety indicators from the ESRS S1 Own Workforce reporting standard [1].
This standard will require disclosure of the following indicators:
(a) the percentage of own workers who are covered by the undertaking’s health and safety management system based on legal requirements and/or recognised standards or guidelines;
(b) the number of fatalities as a result of work-related injuries and work-related ill health;
(c) the number and rate of recordable work-related accidents;
(d) the number of cases of recordable work-related ill health; and
(e) the number of days lost to work-related injuries and fatalities from work-related accidents, work-related ill health and fatalities from ill health
This equates to 16 data points to be reported [2].
Recordable injuries include those resulting in death, days lost, restricted work, treatment beyond first aid, or serious injuries. This aligns pretty much with the OSHA recordable injury definition.
Cases of ill health will be based on the International Labor Organization's List of Occupational Diseases.
Additional sectoral standards may introduce more H&S disclosures. The following standards are being developed:
- Agriculture, Farming and Fishing
- Food and Beverage Services
- Mining, Coal and Quarrying
- Motor Vehicles
- Oil and Gas
- Power Production and Energy Utilities
- Road Transport
- Textiles, Accessories, Footwear and Jeweller
Formal regulatory reporting, under CSRD, poses both risks and opportunities for H&S. While standardisation of reporting aids comparison of companies and should drive workplace standards, there is a risk of numbers-driven management and potential creative reclassification of accidents. In addition, research shows that accident rates (point (c)) are susceptible to significant statistical randomisation and do not serve as a reliable predictor of a company's future health and safety success or failure [3].
Moreover, H&S indicators in ESRS S1, are mostly lagging indicators. This is disappointing, in my opinion, as lagging indicators reflect past events and may not provide timely insights into potential risks. Relying solely on lagging indicators may lead to a reactive safety approach rather than a proactive one, hindering overall safety improvement efforts.
Health and Safety in ESRS standards do not only apply to companies' own employees. H&S is also addressed in the context of working conditions in ESRS S2 for workers in the value chain. This is beneficial as it should lead to an enhancement of health and safety standards among workers in value chains.
Product safety falls under ESRS S4 for consumers and end-users.
Health and Safety practitioners already play a significant role within ESG. Besides the evident responsibility of supporting the company in managing health and safety risks, they are also actively involved in promoting a healthy work environment, equality, and diversity. This involvement has a positive impact on the company's image and stakeholder relations, influencing other social indicators within ESG.
H&S under Environmental pillar of ESG
Environmental management is not unfamiliar to H&S practitioners either. In companies where environmental aspects are intertwined with H&S risks, such as storage of chemicals or hazardous waste, the role of H&S practitioners in environmental issues becomes evident. This integration is often observed in companies with a high level of management system integration based on ISO 45001 and ISO 14001 standards.
Large companies, companies with significant environmental aspects and impacts or companies subject to environmental permitting regimes, frequently employ an individual or a unit responsible for environmental protection. These units will handle the collection of large data for environmental reporting mandated by the new standards, especially data related to carbon footprint. H&S practitioners, in those companies, are unlikely to be involved in environmental data collection activities.
In contrast, smaller companies or companies with insignificant environmental risks often assign the responsibility for environmental compliance to the same H&S practitioner. In these instances, there is a likelihood that H&S practitioners may bear the burden of collecting environmental data for the ESG purposes, which may be a substantial challenge. Those who have already had opportunity to calculate carbon footprint of their company, product or project, understand complexity of the undertaking.
H&S under Governance pillar of ESG
Health and Safety under the Governance pillar of ESG reflects how well a company manages and governs its health and safety practices, integrates them into decision-making processes, complies with regulations and transparently reports on performance.
Therefore, Corporate governance aspects are not overlooked by H&S practitioners. They support ethical business practices, regulatory compliance, and transparency, forming a sustainable foundation for ESG-compliant management.
Conclusion
In conclusion, the integration of ESG principles, encompassing environmental, social, and governance factors, is increasingly vital for companies globally. The introduction of the CSRD regulation in Europe will mandate non-financial sustainability disclosures, including disclosures on Health and Safety.
The ESRS standards not only emphasise H&S for a company's own workforce but extend to workers throughout the value chain and consumers. While H&S practitioners currently manage reporting effectively, potential changes in sector standards may impact their responsibilities. Despite challenges, these practitioners play a pivotal role in fostering a safe and sustainable corporate environment, reflecting positively on a company's image and contributing significantly to its ESG compliance. As ESG continues to evolve, the expanding responsibilities of H&S practitioners underline their crucial contribution to the broader landscape of corporate sustainability.
References:
- EFRAG Draft ESRS, ESRS S1 Own Workforce, November 2022, Source: https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FSiteAssets%2F13%2520Draft%2520ESRS%2520S1%2520Own%2520workforce%2520November%25202022.pdf (accessed on 02/12/2023)Note: I understand that this draft has been adopted by the European Commission only with some high level modifications, so the H&S indicators quoted by me in this article should not change.
- https://media.nossadata.com/CSRD/ESRS/05-03%20Draft%20List%20of%20ESRS%20Data%20Points%20-%20Implementation%20Guidance.xlsx (accessed on 03/12/2023)
- Dr Matthew Hallowell et al., The statistical invalidity of TRIR as a measure of safety performance, November 2020, Source: http://matt.colorado.edu/papers/StatisticalInvalidityOfTRIR.pdf (accessed on 15/11/2023)