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Do Safer Companies Outperform Others in the Stock Market? Apparently “Yes”.

We’ve been wondering if safer companies actually outperform others.

Dr. Diane Chen of the Harvard School of Public Health pointed us to a fascinating study, “The Link Between Workforce Health and Safety and the Health of the Bottom Line” (Fabius et al, Journal of Occupational and Environmental Medicine, Vol. 55, No. 9, September 2013, web). The answer appears to be “yes”.

The study built a hypothetical investment portfolio of safe, healthy, publicly traded companies and compared their stock performance to the S&P 500. Lo and behold, according to the study the portfolio of safe, healthy companies outperformed the S&P 500 by 80% between 1999 and 2012 and by 4.6% on an annualized basis.

The research team examined the publicly traded winners of the annual Corporate Health Achievement Award (CHAA) as determined by the American College of Occupational and Environmental Medicine. The CHAA looks at 17 distinct factors ranging from executive leadership to workplace safety to workplace wellness. Of the 17 factors, 9 factors relate directly to workplace safety programs and executive leadership.

Applying the fundamentals of modern portfolio theory, the researchers constructed a hypothetical investment portfolio of the CHAA winners and demonstrated that this portfolio outperformed the S&P 500 by 80% between 1999 and 2012 and by 4.6% on an annualized basis. The research team stress tested their investment thesis with variants of the initial portfolio and arrived at similar results. Admittedly, while “correlation is not the same as causation, [the] results consistently and significantly suggest that companies focusing on the health and safety of their workforce are yielding greater value for their investors as well” according to the research team.

By instinct, safety and risk management professionals like Safety Partners understand that the robustness and maturity of an organization’s safety programs are linked to corporate performance, even for early stage biotech and life science companies. The paper draws the direct correlation in concrete financial terms. Very interesting!

Note: Safety Partners does not provide investment advice and is reporting on this research for educational purposes only.

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