Friday, 16 February 2007

'elf n safety

Here's an interesting piece about the HSE's CHaSPI project. This is an index that investors, and others, could use to measure companies' management of health and safety. The article was written by an Amicus rep and pension fund trustee called Jim Osborne.

On July 20th 2005 the HSE launched its Corporate Health & Safety Performance Index (CHaSPI). This is an extremely important initiative and CHaSPI will provide an extremely valuable tool for pension trustees provided that certain conditions are created.

Trustees have a vital role to play in creating the conditions for CHaSPI to succeed. It is unfortunate that many members of the TUC Pension Trustee Network remain unconvinced that “corporate responsibility”, of which health & safety in the workplace is an important component, can make a positive impact on their schemes’ investment returns.

This article will set out the reasons why trustees must discard their scepticism about incorporating corporate responsibility considerations into investment and throw their wholehearted support behind CHaSPI to ensure that it becomes a success. In those conditions CHaSPI will, in time, provide the necessary data which will prove incontrovertibly that good health & safety performance not only has a positive impact on fundamental measures of financial performance (cost control, profitability etc) but also has a positive effect on long term share values.

Health & safety in the workplace is a well established objective of the trade union movement – it is one of the movement’s core values. The reason why there is a lack of clear evidence linking health & safety performance to share price is that the majority of actors in capital markets do not incorporate health & safety performance appropriately into their investment analysis and stock selection decisions. We have to remember that these individuals and institutions are the agents of pension trustees. Despite this they apply their own values to the process of investment analysis. It is time for the representatives of the real shareholders – pension trustees – to insist that our values are the ones that are duly applied in the investment decision making process. By doing so we will create the conditions in which the evidence linking health & safety and long term share value will emerge. CHaSPI will be a vital tool which will provide the basis for that evidence.

What is CHaSPI?

The following is a brief summary of CHaSPI – for further details visit the website detailed in Tom's message.

CHaSPI is both a framework for companies to report their health & safety performance and a system for evaluating the performance by producing a “score”. The overall health and safety performance is scored out a maximum of 10.

The reporting and scoring system uses a number of criteria which are weighted and involves answering a number of detailed assessment questions under each of the weighted criteria. Companies reporting health and safety performance using CHaSPI are carrying out a self assessment.

The final score is subject to a verification statement which states whether the information input to the assessment has been verified internally and/or externally and by who (internal verification by a Director and by employee safety representative(s), externally via independent external audit).

CHaSPI has taken three years to develop by a process of collaboration between the HSE and a variety of stakeholders including a number of institutional investors and the TUC. There were two regional consultative conferences in early 2004 (in London and Edinburgh) to seek views and comments from a wider audience. An initial model was piloted, some changes made before further testing and a final validation process undertaken to confirm the validity of the factors used and their weightings and the robustness of the final model.

How can trustees use CHaSPI?

A key feature of CHaSPI is the compactness of the information it produces – a score out of 10 is easy to understand.

The model provides a framework for comparing the health & safety performance of companies in the same industrial sector and for monitoring changes in the level of performance at company level over time.

The time and effort trustees need to devote to monitoring the health & safety performance of their investments or potential investments is minimal given the simplicity of the scoring system. Unlike many other indexes CHaSPI is completely open for public access and will be free of charge. It can be accessed by anyone with an interest in workplace health & safety, including pension trustees, investment managers and analysts, union safety reps, employees, insurers, regulators, etc.

Use of CHaSPI will enable trustees to identify and investigate underperformance in health & safety against industrial sector benchmarks and take steps to ensure their influence as owners is brought to bear to encourage improved health & safety performance.

How can trustees promote the use of CHaSPI?
· for reporting by companies
· for analysis by investment managers

The success of CHaSPI depends upon common use by companies to report their health & safety performance. It is likely to provide a ready-made framework for reporting health & safety performance under the Operating & Financial Review (OFR), which is a requirement of companies from 2006.
It is expected that the companies who participated in the piloting and testing of CHaSPI during the development phase will report their performance using CHaSPI but it is critical to the success of CHaSPI that there is widespread take up by UK companies.

Trustees can play an important part in encouraging companies to report using CHaSPI by instructing their investment managers to promote its use through their regular dialogue with companies in whom they invest on our behalf.

Trustees can also influence the way CHaSPI is used by their investment managers in evaluating companies by encouraging them to incorporate analysis of health & safety performance using CHaSPI into their stock selection processes, into their engagement policies and priorities, and also into their voting policies.

If health & safety considerations become an integral part of stock selection and engagement/voting policies it is inevitable that companies who deliver the highest levels of health & safety performance will see demand for their shares rise, with the consequential effect that their long term share values will tend to outperform the rest. The evidence of a correlation between health & safety performance and share values, which is currently not available, will emerge in time if these conditions are created.

CHaSPI, Health & Safety and trustees’ fiduciary duty

Trustees often receive conventional advice that health & safety and other “corporate responsibility” considerations are not consistent with trustees’ fiduciary duty. Such advice is clearly of dubious quality, particularly regarding the relationship between health and safety and financial performance. Few people these days, including few company CEOs, disagree that good health & safety delivers improved financial performance at the operating level.

Furthermore, the lack of a clear correlation between health & safety performance and share value at present is the product of a lack of investor demand for the stock of companies with good health & safety performance rather than any objective factors that are capable of causing a disconnection between them. If institutional investors begin to assign an appropriate value to health & safety performance in their investment analysis, in response to their clients (which means us), the correlation between health & safety and share price will emerge (as it already has done in the correlation now proven between good corporate governance and long term share value).

The message is clear – incorporating considerations of health & safety performance into trustees’ investment policies and principles, and promotion of the use of CHaSPI is entirely and unequivocally consistent with trustees’ fiduciary duty. In fact there is a strong case to argue that not doing so would constitute a breach of that duty.

Some suggested questions for trustees to ask their investment managers.

· Did you participate in the development, piloting or testing of CHaSPI?

· Do you regard CHaSPI as a valid tool for the assessment of health & safety performance and as a suitable tool for incorporation into your investment analysis processes? Please explain your answer.

· How have you integrated CHaSPI into your investment analysis and stock selection processes?

· How are you encouraging companies to use CHaSPI to report their health & safety performance?

· How are you using information derived from CHaSPI within your processes of engagement with companies?

· How will you use CHaSPI within your voting policy guidelines?

· Will you vote against the re-election of Directors who have Board responsibility for health & safety where performance has been poor?
Please explain your policy in this regard.

The TUC Trustee Network must act

Whilst the TUC Trustee Network has no authority to issue instructions to members of the network, trustees are strongly encouraged to take the necessary steps to ensure the success of CHaSPI and to bring about improved workplace health & safety throughout UK PLC by using our influence as the ultimate, real owners of companies. It is important to do this because workplace health and safety is a major objective of the trade union movement and one of our core values. Despite the fact that doing this may be branded by critics as “politicising the investment process” taking these steps is entirely consistent with the fiduciary duty of trustees. It should be recognised that the way investment decisions are currently made by advocates of the status quo are themselves values-based and, therefore, just as “political” as the changes which will result from incorporating health & safety into the investment process.

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