The importance of valuing human capital in business
In this article, Louise Hosking, Director at Hosking Associates, explains what human capital is and explores the critical place it holds in the sustainable workplace.
The United Nations (UN) published definition of sustainability is:
“Meeting the needs of the present without compromising the ability of future generations to meet their own needs”
To understand more fully the term “human capital” and where health and safety appears in all of this, we first need to first consider the full definition of sustainability and look beyond the environment when we use the term. In its simplest terms this is about:
“People, Planet, Profit”
There must be a balance for a business to thrive and be truly sustainable. Whilst we like to believe health and safety is “our top priority” the reality is it must be a priority value in harmony with these other aspects.
We are facing a sustainability crisis because we are consuming stocks of natural, human and social capital faster than they are being produced. Unless we control consumption, we cannot sustain this in the long term – we will continue to be unsustainable and become more and more unstable at every level.
UN Sustainable Development Goals
The UN Sustainable Development Goals and the Paris Agreement provide the architecture for resolving many of these challenges. In September 2015, 193 member states of the UN adopted a plan over the following 15 years to end extreme poverty, fight inequality and justice, and protect our planet. To achieve these goals, we need to transform our current patterns of production, operation and consumption. This can only be undertaken by considering a whole sustainability model. We need to work collaboratively to be more transparent and more honest about where we are now to be realistic about where we need to be and how to get there. This has to start with our largest corporations.
The UN is calling for companies and their CEOs to align strategies, operations and long-term success with the importance of worker communities and the planet. At its heart, the UN Global Compact is a set of actions to support companies to achieve this by 2030. To achieve transparency, organisations that sign up are encouraged to create and publicly publish an annual “Communication on Progress” (COP) to inform stakeholders of their efforts to implement the principles of the UN Global Compact. Business leaders are encouraged to provide an annual statement of continued support from the Chief Executive, a description of practical actions, and measured outcomes against their targets.
Many of the UN goals relate directly to the work we promote as health and safety professionals.
The five capitals model: a framework for sustainability
The Five Capitals Model expands the concept of “People, Planet, Profit”.
- Natural Capital is the piece we will all recognise – environment, pollution, impact.
- Social Capital is about our moral values, trust, relationships and networks. It is about community, families, shared culture and cooperation. We need this to maintain human capital.
- Human Capital is about people, knowledge, and motivation.
- Manufactured Capital is about goods and fixed assets that allow production or business to be undertaken but is not an output, so tools, equipment, machines, and buildings.
- Financial Capital is about money and cash flow, which allow the other capitals to be owned or traded.
These “capitals” interconnect and when they are in balance, they create a sustainable ecosystem. When we restrict one it affects another.
The race is currently on to understand exactly which businesses are the most sustainable and to make these the most successful. These are organisations where a true value is placed on good work, people and communities – charging a fair rate for a fair job and considering the impact on the planet.
Include “human capital” in a sentence and it will definitely prompt reaction, particularly in the health and safety community, but this is a term used in finance which businesses understand. It is often seen as an intangible, subjective asset or quality not usually included in any balance sheet. However, work is being undertaken to understand more fully the true value human capital investment brings and we will see the results of this over the coming months.
Human capital is the economic value of a worker’s experience and skills. This includes things like education, training, intelligence, health, and personal or shared values such as loyalty and punctuality. Think of the person within a business with the drive, knowledge, passion and the energy to make incredible things happen – now see them as an asset (a value) to the business. This has a direct impact on improved performance and wellbeing. BUT google human capital, and health and safety is not considered – it is not being consistently captured in most financial or public reporting within our largest organisations so health and safety is not being given the importance it deserves. And remember, these large organisations have significant supply chains which span the globe so they are not being fully held to account for the hazards they push out from the centre, especially where they rely on suppliers in countries with little or no health and safety state regulation. Without clear and consistent reporting, they will not be held to account for the lives affected by the things they do or the things they choose not to do.
Health and safety professionals have a role to play in showing businesses how to create arrangements that encourage transparent reporting which boards and stakeholders can understand. Clear reporting and alignment with UN Sustainability Goals is not just for large organisations. With better reporting, there is greater accountability and customers will be able to make informed choices, which improves standards and rewards sustainable businesses.
There is not a people tree. People must be nurtured throughout their careers so they can achieve their personal ambitions and go beyond. Health and safety professionals have a role to create a narrative that translates into wise collective and personal risk choices being made with a wellbeing outcome. Health and safety professionals with modern leadership skills will learn to demonstrate the value they create moving the discussion away from health and safety as a cost for compliance.
People will solve our most challenging problems. People have the power to respond to climate change and people make the choices needed to create sustainability across all the capitals.
Evidence suggests that investments in human capital, including higher education, yield long-term economic rates of return that exceed most standard investments in technology or capital. The more skilled and empowered the workforce, the more productive it tends to be. There is work for us to do to establish more clearly links between absenteeism and the work we do, we need to listen more, collaborate more, consider more and be more empathetic – true #PowerSkills.
Businesses need safe, healthy, engaged workers to thrive – something the investment community is looking at more closely than ever before.
Environmental, Social and Governance (ESG)
Companies managed with a focus on sustainability should be better positioned (versus their less sustainable peers) to weather adverse conditions whilst still benefitting from positive market environments because they invest in prevention measures. We are currently experiencing adverse conditions, so there is an even greater focus on this, and we have seen ESG funds performing well. Investors, which include our pension fund holders, are asking a lot more questions as a result of the pandemic and the new focus on health. They want to know and understand which companies are doing well, and which are investing in human capital and their people. In a globally connected world, where we all leave a digital footprint, investors know those organisations with positive values are less likely to be a reputational risk. The desire for ethical investment will drive ethical values which creates interest to understand more about the issues we all care about as health and safety professionals. With clearer reporting of leading and lagging indicators, customers can make informed decisions and we will have a more transparent picture of standards across supply chains.
Good Governance lasts longer than any government and creates sustainable businesses attuned and in harmony with people, the planet and profits.
When I was an Environmental Health student I remember in my first week of lectures we were told that preventative measures to provide clean water, sanitation, decent homes, reduce pollution, provide safe food and places to work has saved more lives than any medical breakthrough. If this time has shown us anything it’s just how true these words from over three decades ago really are.
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