Work, Health and Safety: What ‘Lost Time’ Doesn’t Tell You.

IGAP researcher Dr Sharron O’Neill argues that ‘Lost Time Injury Frequency Rates’ (LTIFRs) – traditionally the ‘gold standard’ in workplace safety reporting – can mask worrying trends in the severity and incidence of occupational injuries. Her analysis of injury data was recently reported in the cover article of the March 2013 issue of Inside Safety – ‘Losing Faith in Lost Time Injuries’ – by journalist Richard Collins .

????????????????????????????????????????????????????????????????????????????????????The article draws attention to three important limitations of LTIFR measures:

1. LTIFR only captures a subset of work-related injuries. By definition, lost time injuries are work-related injuries that prevent a worker from performing their usual work duties for at least one day. Hence, even serious injuries such as permanent loss of hearing are excluded where they involve no loss of work time.

2. Counting injuries does not measure safety risk – dangers at work and the possible consequences – or the effectiveness of hazard identification and management.

3. Research demonstrates that LTIFR performance can fall even when the incidence of severe injuries is rising. This explains how companies can experience a blowout in workers compensation costs despite workplace injury rates appearing to decline.

Given these limitations, Dr O’Neill raised concerns about the way the LTIFRs are being used as a proxy for anything from workplace safety to workplace culture and performance, and then used to inform a vast array of organisational decisions from workplace health and safety (WHS) strategy and policy to resource allocation and executive remuneration. She suggests that the divergent uses of LTIFRs is: “…part of the reason behind claims that [LTIFR] is so manipulated and produces dysfunctional outcomes – it’s like a square peg being forced into too many round holes.”

Instead, Dr O’Neill identifies a number of alternate measures that may be preferable in particular circumstances and urges decision-makers to look to those measures that best suit the context. For instance, lost time measures may be suitable for capturing the financial and productivity costs of workplace injuries. However, the effectiveness of an organisation’s safety policy and systems is better captured with metrics that reflect the control of latent risks and / or quantify both the severity and incidence of workplace injuries.

The importance of evaluating work health and safety in a valid and reliable way is underscored by both the human and economic consequences of poor safety management. Recent Australian Bureau of Statistics (ABS) statistics show 640,700 Australians sustained workplace injuries and illnesses in the 12 months preceding the (2009-10) survey, which equates to about 53 in every 1,000 people in work. Furthermore, Safe Work Australia estimates suggest workplace injury and illness is costing the Australian economy $60.6 billion per year, or approximately 4.8% of GDP.

The need to improve both the measurement and governance of WHS in Australia is a key driver for the WHS performance and governance research being conducted by the IGAP research centre. IGAP is currently working with the Safety Institute of Australia and the Institute of Chartered Accountants, Australia to develop a WHS reporting guide that can help organisations measure, report, interpret and improve their safety performance. In a separate study, IGAP is bringing together CPA Australia, Safe Work Australia and the Safety Institute of Australia to undertake a detailed examination of the role of accounting in WHS governance. Please refer to the IGAP Projects website or contact Dr O’Neill for further details.

Carbon Accounting: New Reporting and Assurance Challenges

The growing international impetus to address climate change means that it is increasingly important for organisations to understand and manage their environmental impacts. In a 2012 article, Nonna Martinov-Bennie reviewed the introduction of carbon management legislation in Australia, and explains the key reporting and assurance issues.

http://www.dreamstime.com/stock-images-co2-emissions-image17305254Carbon Legislation in Australia

The main climate change legislation in Australia is the Clean Energy Act 2011. The Clean Energy Act has four major initiatives: a carbon pricing mechanism, support for innovation in renewable energy, energy efficiency and enhancement in land management. Arguably, the policy with the most significant reporting implications – and also the most controversial – is the carbon pricing mechanism or ‘carbon tax’. The carbon pricing policy establishes an initial fixed price of $23 per tonne of CO2. This price will increase at 2.5% plus inflation until 2015, and then transition to a price determined by a carbon market. While the carbon price is new, it builds on an on-going legislative and reporting framework in Australia that began with the National Greenhouse and Energy Reporting Act in 2007.

Carbon pricing: key issues

As Martinov-Bennie explains, carbon reporting and pricing challenges business to improve their reporting and management in several key areas:

  • Reporting rigour: Because organisations’ survival has not historically depended on its control of environmental impacts, non-financial reporting has not attained the same rigour as financial reporting. By putting a cost on environmental performance, carbon pricing provides incentives for firms to bring environmental reporting standards and controls up to the same high standards.
  • Timely data: Emissions data is typically reported annually. However, the creation of a carbon price questions whether annual reporting is adequate. More frequent   reporting better reflects organisations’ costs and liabilities and can support more effective management of outputs. At least one large mining company is already moving to monthly reporting for operations of over 50-kt CO2.
  • Robust reporting systems: The current legislative framework requires secure data storage and audit trails of changes for five years. Most firms are reporting based on spreadsheets, but it is unlikely that this will be adequate over the long term.
  • Effective reporting teams: Producing effective carbon data requires organisations to create interdisciplinary teams that have the range of skills that effective carbon reporting requires.

Measuring carbon: organisational strategies

Martinov-Bennie also highlights new governance and measurement challenges involved in measuring carbon output:

  • Periodic or Continuous Carbon Reporting: Periodic reporting is the cheapest and most popular method of measuring carbon liability; however, it is also the least accurate. Organisations need to consider whether a more expensive continuous measurement system might better manage the risk of highly variable emissions.
  • Measuring the Right Activity: Accurately measuring carbon emissions requires a thorough and holistic understanding of production, especially when using contractors. For example, a landfill company that outsources emissions to a third party through gas flaring needs to report those emissions.

The future of carbon pricing in Australia?

Despite calls for certainty by the business community, the federal opposition in Australia has promised to repeal carbon pricing legislation if elected in September. However, while many commentators are predicting a change of government and policy, the long-term future of carbon pricing is uncertain. As a small, trade dependent nation, there are limits on Australia’s capacity to remain isolated if other nations move towards carbon reporting and assurance, as recent suggestions that China is considering a carbon pricing mechanism have highlighted.

Also, the long-term value for organisations in rigorous reporting and management of climate change data is not solely a consequence of the Clean Energy Act. Independent international initiatives to report environmental impacts, such as by the Global Reporting Initiative and the International Integrated Reporting Council, suggest growing pressure from stakeholders to report environmental outcomes. The growth in investment funds with sustainability criteria will also benefit firms who can report on their environmental management practices, and suggests a growing need for assurance of these reports.

Finally, as Martinov-Bennie’s article highlights, developing effective reporting of carbon outputs is one part of understanding and evaluating an organisation’s production process. From this perspective, carbon reporting and assurance is not solely an exercise in compliance, but also an opportunity to develop a more rigorous assessment of an organisation’s non-financial impacts and management strategies.

Integrated Reporting: Lessons from the Global Reporting Initiative?

???????????????????????????????????????????????????????????????????????????????On April 16, 2013 the International Integrated Reported Council (IIRC) will release a draft of ‘Version 1’ of its Integrated Reporting framework for public comment. This release marks a new stage in efforts to measure organisations’ performance on non-financial grounds, such as their use or ‘stewardship’ of social and environmental resources. While there have been many previous methods of social and environmental reporting, the distinctive idea of Integrated Reporting is to use simultaneous presentation of financial and non-financial information to show how organisations’ management of different types of resources – financial, human, and environmental – are interconnected, so that success or failure in one area (e.g. use of natural resources) has consequences for the whole. Integrated reporting has attracted significant support in a comparatively short period of time, including from major international organisations like Microsoft, Coca-Cola and Volvo in the IIRC’s pilot program and business network, and recognition from the peak international professional body in accounting: the International Federation of Accountants.

Will IR be successful over the long term? A useful starting point is the experience of the Global Reporting Initiative (GRI), which co-founded the IIRC in 2010. From small beginnings in 1997, the GRI has grown to become arguably the most well-known and widely used means of reporting social and environmental information. However, there has been considerable debate over the impact that the GRI is having on corporate reporting. On one hand, many studies have highlighted the extensive use of sustainability reporting by the world’s largest firms, with the GRI the most popular reporting mechanism. On the other hand, critics like David Levy, Halina Brown and Martin de Jong have argued that the adoption of GRI by businesses overall has been comparatively low. More importantly, they claim, the social and environmental measures developed by the GRI are not being widely used by investors and social institutions for their intended purposes.

It remains to be seen whether the fourth iteration of GRI due out in May – ‘G4’ – will address some or all of its critics’ concerns. However, regardless of your view on the GRI, the GRI debate raises important questions about how IR will deliver enough value to stakeholders to encourage use of integrated reports over the long term. One feature of the IIRC’s approach is to stress that IR can add value to companies by promoting dialogue across the organisation. The feedback on the IIRC’s pilot program suggests that at least those large international companies that are trialling IR view this approach positively. Yet while the abstract value of sustainability reporting (e.g. to organisational reputation) has been long discussed, it has proved more difficult to quantify these benefits, especially for the smaller to medium sized organisations which face relatively higher costs.

As the GRI debate also highlights, the usefulness of IR to investors will depend not only on the internal benefits of IR for any one organisation, but also on investors’ ability to compare organisations’ performance on social and environmental indicators. It remains to be seen whether the voluntary framework proposed by the IIRC is capable of meeting this objective, especially where organisations adopting IR have discretion over the indicators they choose to report.

Finally, while the IIRC has been making a strong case for the business benefits of IR, the IIRC’s focus on investors has at least temporarily sidelined the question of whether IR provides the type of transparency that broader groups of stakeholders require. As also raised in GRI debates, increasing organisations’ accountability for their use of social and environmental resources requires some mechanism of limiting their motivation or capacity to ignore or ‘greenwash’ information that presents their activities in an unfavourable light. If part of the public case for supporting IR is that it will increase public accountability in this sense, then one question future IIRC releases need to clarify is how the IR framework will perform this additional reporting function.

Dr Dale Tweedie, IGAP Research Fellow.

What is your view of the IIRC’s approach? Is integrated reporting likely to be useful to you or your organisation?