Investing for Health: Paving the way to better risk management

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Every day, businesses, shareholders, and investors evaluate the risks associated with potential investments. When opportunities are presented, leaders must manage and mitigate risk and make the case for a strong financial return. But how are they ensuring they have the right view data to fully understand and calculate risk?

In a major way, the global pandemic has highlighted the obvious but often overlooked fact that supporting the safety and health of employees, customers and supply chain workers is critical to executing a sustainable and resilient business. More than ever before, the intangible non-financial factors of a business—like employee health and productivity—are being used to assess the risk and possible success of an investment. Traditionally referred to as environmental, social and governance (ESG) factors, many of these non-financial elements have a tremendous impact on the success of organizations.

To unpack the issue of risk management and the importance of ESG factors, IWBI convened an expert panel discussion with Witold Henisz, Professor of Management at the University of Pennsylvania’s Wharton School, Kristen Sullivan, partner at Deloitte & Touche, and Sasha Njagulj, global head of ESG at CBRE Global Investors.

The session was moderated by Sarah Welton and Jason Hartke, who help lead the Investing for Health initiative at IWBI, and kicked off with a grounding question. “How has financial and non-financial disclosure changed over the years? How are you seeing health start to be integrated into ESG reporting?” Welton asked.

For Sullivan, the market’s attention to ESG has been amplified, and Deloitte is working to better understand the risks involved in investment opportunities.

“There’s just an evolving understanding of how investments are made—how you calculate return. It’s not all black and white. And having a little bit of license to use different tools and practices to focus on intentional measurements like ESG and how it impacts productivity and engagement is crucial,” Sullivan says.

The rising tide of ESG
Recent events around the world have put into stark relief the importance of acknowledging the value of human capital and ensuring that prioritizing the health, safety and well-being of the people who support our businesses are prioritized, Henisz notes.

“The conversations we’ve been having with COVID-19 and Black Lives Matter in the last few months will draw attention to the human element of corporations and to the importance of health—the importance of well-being,” Henisz urges. “But, will we really do that? Will we be able to calculate that for a company and in an era where unemployment is at a post-war high? Will laborers have that voice—where they can say we’ll leave or we won’t stay? Or do they feel compelled to go and deliver a package or go work in the hospital even if they’re not given the personal protective equipment they need? So, if we want to attract the best workers, we really need to be investing in ESG.”

By most metrics, organizations that account for ESG factors—including the health and safety of their people—are becoming commonplace, and those that don’t include these elements in their business strategy are being left behind, suggests Njagulj.

“We believe that sustainability is one of the a critical drivers of financial performance. We are now at the point where if you don’t perform well in ESG you will likely lose clients. You will can lose business. This is indisputable,” Njagulj says.

When thinking of ESG, Njagulj notes that each factor isn’t independent of the other. They are collectively essential to an organization’s success and should be considered as part of a larger whole.

“When we talk about E, S and G they’re considered separate, but really each one is they are interconnected. The impact of something like climate change is going to directly affect the well-being of people,” Njagulj says. “It’s also a well-being social issue priority that we establish climate change resilience in our portfolios and that we try to prevent it as much as we can. My advice is to see ESG as integral to a portfolio.”

Embracing corporate purpose and intentional stakeholders
For Henisz, the increased attention paid to ESG has influenced the conversation in a number of ways, and the outcomes from that have been truly interesting.

“This new focus on ESG has led to a real revolution when it comes to data. People weren’t talking about health, personal protective equipment, etc. And we’re now starting to see people building a corporate culture around health—and corporate purpose,” Henisz says.

Sullivan notes the emphasis on creating a culture of health that’s been sprouting emerging through the increased attention paid to ESG factors and their impact on successful businesses.

“This concept of corporate purpose and all the attention that we’ve seen around it has introduced the idea of the intentional stakeholder model. But how do you actually operationalize that and translate that into meaningful high quality performance information for an organization,” Sullivan asks. “I think that’s where we’ve seen this shift. When you think about the needs of a broader universe of stakeholders, you know where the dependencies are in the business in terms of human capital, natural capital, social and relationship capital considerations and how it impacts the business.”

Ultimately, markets are reflecting the importance of health on the ability of businesses around the world to operate. Prioritizing the safety and well-being of your organization’s most valuable resource—its people—is critical not only to foster resilience but for your business’ bottom line as well. As one of the moderators, IWBI’s Jason Hartke, said, “As our session title reflects, health really is at the heart of resilience. I’d even say, health is the new resilience.”

IWBI is committed to supporting the development of spaces and organizations focused on human well-being and safety. The IWBI’S WELL Building Standard —a free resource from IWBI—offers a way to evaluate, benchmark and implement the processes, policies and strategies necessary to support and promote health and well-being throughout their institutions.