Charting the Future of Investing for Health

Original article written by Rachel Hodgdon, President and CEO, International WELL Building Institute. Read original article

Human Capital Has Everything to Do with Profitability

When it comes to maximizing returns and boosting profitability in the near and long term, investing in people is the formula. Look no further than the last 18 months. While some companies were able to successfully navigate the pandemic, many others were not. If your organization had an established work-from-home protocol, your employees made a faster and smoother transition when office buildings were shut down. If your company supported paid sick leave, you had a significant edge in protecting your employees and their families. If your benefits and programs supported physical and mental health, employees were more likely to experience post-traumatic growth as opposed to post-traumatic stress. If you invested in improved air quality and other workplace strategies for slowing the spread of airborne diseases, you helped bridge the confidence gap in bringing people back to work.

These leading actions have offered material advantages during the difficult and unprecedented times of the current pandemic, but they are also evergreen strategies that cut directly to performance in all circumstances. Right now, human and social capital management is the difference between losing to the “great resignation” or winning the “great retention.” Ninety percent of an organization’s annual operating expenses are related to their people. Smart organizations have long realized that even modest improvements in areas like productivity, health and well-being, absenteeism, cognitive performance, recruitment and retention have a substantial effect on financial performance.

One study compared the appreciation of 45 companies who received high scores in a health and wellness assessment against the S&P 500 over a period of six years. While the average company in the study appreciated by 159%, the companies with strong health and well-being performance appreciated by 235%.

According to Mona Naqvi, Global Head of ESG Capital Markets Strategy for S&P Dow Jones Indices, “Companies are being put under the microscope like never before regarding public health issues and the way they treat their employees. COVID-19 is providing us the roadmap and the blueprint to better integrate a more systemic and holistic understanding of health as it relates to the markets. This crisis has demonstrated the materiality of public health and how companies must lead moving forward.”

But many companies are without a roadmap for measuring and reporting on human and social capital performance. And you can’t manage what you don’t measure.

Unpacking the Winning Formula: Investing for Health

More than two years ago, to better highlight how people-first strategies affect corporate performance, the International WELL Building Institute (IWBI) launched its Investing for Health initiative focused on elevating human health and well-being by demonstrating the materiality of health to a business’ bottom line. This signature effort brought together a powerful network of investors, companies and capital market influencers to highlight and unpack how investing for health is a key competitive advantage for organizations around the world.

In the wake of the COVID-19 crisis, this is exactly the type of shift investors now expect. “We’re already seeing a much stronger intentionality among investors as we think about how we’re going to recover from this crisis,” said Amit Bouri, CEO of the Global Impact Investing Network. “How do we build back better? In doing so, how do we think about a more integrated way of not only investing to provide better healthcare, but more importantly to provide better health and well-being across the board? Investors play a critical role in driving that future.”

Most ESG frameworks are severely lacking on matters of human capital, and organizations have struggled with the lack of standardized metrics on employee health and well-being to include in their ESG reporting. While most companies report little to nothing around these themes, those that do capture key metrics don’t see them properly valued in their ESG performance. Put simply, the returns on human capital investments aren’t being measured or managed.

A company might, for example, improve ventilation across its offices, but not evaluate that investment by gauging if employees are demonstrating greater productivity and cognitive performance, or necessitating fewer sick days. An organization might deploy active design strategies and healthy food offerings to combat obesity but lack the metrics to track and report on the impact of these interventions on healthcare costs and absenteeism. Even if companies do monitor the performance benefits of these health-focused improvements, their ESG scores are unlikely to reflect it.

At the same time, the returns to society more broadly are rarely reflected on corporate balance sheets. Because of this, investors often don’t have the information they need to identify and reward companies leading the way.

12 Competencies for Measuring Health and Well-being for Human and Social Capital

Over the last 10 years, IWBI has helped our customers apply the WELL Standard to more than 35,000 buildings and spaces in 109 countries. Through their experiences, we’ve come to understand the tension between managing investment in people and measuring it. To help organizations better track, manage and demonstrate leadership, we partnered with our global research advisors, survey provider network and Investing for Health collaborators to develop the 12 Competencies for Measuring Health and Well-being for Human and Social Capital.

For organizations, these competencies serve two vital functions: internally, they help leaders consistently identify what metrics to track and determine where they’re leading and where they’re lagging, while externally, they enable reporting against the 12 Competencies to better inform investors, prospective employees and interested stakeholders alike.

The 12 Competencies offers companies a research-based framework for creating the conditions, culture and accountability necessary for an organization’s employees and stakeholders to thrive. In many respects, WELL functions as a roadmap for organizations to operationalize the 12 Competencies Progress is most noticeable among our corporate clients who are applying WELL offerings at an enterprise scale. Though the WELL Standard was first conceived of as a leadership pathway for individual buildings, over the past two years, most of our adoption has come from companies enrolling in WELL at the enterprise scale often for the express purpose of improving their ESG performance, particularly within the “S” or Social pillar.

Progress Abounds

In July 2020, the Hong Kong Stock Exchange implemented major updates to its ESG Reporting Guide to include mandatory requirements for reporting on specific ESG matters related to eight social pillars. That same summer, U.S. lawmakers introduced legislation that would direct the U.S. Securities and Exchange Commission (SEC) to require specific human capital reporting, particularly metrics focused on measuring worker health and well-being. And standard-setting agencies such as SASB and IIRC are considering expanding their human capital reporting metrics to include items such as worker well-being.

But leading-edge companies aren’t waiting for regulatory bodies or indices to mandate or even incentivize this shift. Rather than just saying people are their greatest asset, they are acting on it and embracing the fundamental truth that high-performing businesses require high-performing people.