Occupational health and safety are key components of any company’s sustainability profile and warrant investors’ attention. A company’s failure to maintain a safe work environment can be expensive, both for the company and investors. The direct costs associated with an unsafe work environment include increased workers’ compensation premiums, potential legal expenses associated with litigation, increased regulatory penalties, and compliance costs. According to the 2011 Liberty Mutual Workplace Safety Index, the overall direct workers’ compensation cost of the most debilitating (non-fatal) injuries in 2009 was $50.1 billion.(1) There are indirect costs associated with occupational health and safety as well. These costs include diminished productivity, decreased worker morale and damage to a company’s reputation or brand image, as was apparent in the April 2010 explosion at Massey Energy’s (NYSE: MEE) Upper Big Branch coal mine, which killed 29 miners in what was considered the worst U.S. mining disaster in 40 years.(2) By August 2010, Massey Energy’s stock price had fallen by almost half. (Alpha Natural Resources, Inc. (NYSE: ANR) acquired Massey Energy in June 2011.(3))

Overall, occupational health and safety is improving in U.S. markets. According to the U.S. Bureau of Labor Statistics (U.S. Department of Labor), the number of workplace fatalities in 2010 (4,547) marks the lowest number of on-the-job fatal injuries in almost two decades.(4) Similarly, non-fatal cases involving days away from work have also decreased in recent years.(5) Lower productivity throughout the economic downturn may have been a contributing factor in these metrics, but overall incident data has been trending downward even since before the recent recession.

While this trend is encouraging, investment risks remain. According to the Occupational Safety and Health Administration’s (OSHA) 2010 annual report, between FY2006 and FY2010 violations of national health and safety laws rose by 15.3%. Additionally, the number of willful violations increased 217.1% between FY2006 and FY2010. (According to OSHA, this change was “partly attributed to the large number of willful violations that were issued to BP North America and BP Huskey in FY 2010.”(6)) Willful violations, which are considered the most serious health and safety violations, indicate that the “employer either knows that what he or she is doing constitutes a violation, or is aware that a hazardous condition existed and made no reasonable effort to eliminate it.”(7) (Between FY2006 and FY2010, total inspections also rose by 6.2%, primarily resulting from increased inspections of employers in industries that “experienced the greatest number of workplace injuries and illnesses.”(8))

Investors need to be aware of the implications related to a company’s compliance with health and safety laws and regulations. The explosion on BP’s Deep Water Horizon drilling rig in April 2010, which killed 11, is a stark reminder of the importance that occupational health and safety has on an investment portfolio. According to Times Topics (New York Times), “BP is a much smaller company than it was before the accident, having sold $30 billion, or about 20 percent, of its assets to pay for costs and claims related to the accident. Its stock price is still well below where it was before the accident.”(9)

In the wake of this tragedy, investors have begun to examine similar occupational health and safety risks in their portfolios. In 2011, shareholders of ConocoPhillips (NYSE: COP) filed a shareholder resolution seeking a report identifying steps the company has taken to reduce the risk of safety accidents. The resolution noted recent safety concerns at oil refining operations in general and the results of OSHA’s National Emphasis Program for the refining industry, which is reported to have revealed an “industry-wide pattern of non-compliance with safety regulations.”(10)

The weight of the ConocoPhillips proposal is significant. Generally, the U.S. Securities & Exchange Commission (SEC) will allow companies to exclude shareholder proposals from their annual proxy statement if the issue is determined to be relating to a company’s ordinary business operations. In January 2011, the staff of the SEC determined that the proposal should not be omitted from the company’s proxy materials, saying that, “it does not appear that ConocoPhillips' public disclosures compare favorably with the guidelines of the proposal.”(11) Despite ConocoPhillips’ efforts to have the proposal removed from its proxy, the SEC declined to provide the company with what is called “no-action relief” under SEC Rule 14a-8(i)(10), which deals with proposals that the company believes it has already implemented.(12)

While it is clear that greater scrutiny is being placed on companies in high risk industries that are not adequately addressing occupational health and safety concerns, similar concerns remain at companies that may not have obvious health and safety risks. In February 2012, a subcontractor operating a packaging facility owned by The Hershey Company (NYSE: HSY) was fined $283,000 for intentionally failing to report 42 serious injuries over a four year period. According to an article in the New York Times, the actions of the company’s contractors and subcontractors resulted in a “black eye” for Hershey. OSHA officials had been tipped off to the safety violations after learning of protests by student workers on an international exchange program that worked in the factory.(13) While Hershey was not cited by OSHA for the safety violations, its image and brand have been tied to this event.

Occupational health and safety is hardly a new issue. In 1970, the Occupational Safety and Health Act was enacted. According to the U.S. Department of Labor, the act “established for the first time a nationwide, federal program to protect almost the entire work force from job-related death, injury and illness.”(14) Since that time, the agency has been making the business case for health and safety issues in the workplace and administering related federal laws and regulations. Today, increased access to information allows investors to examine a company’s occupational health and safety policies and performance. Some companies currently disclose some level of information related to the development and implementation of safety management systems, or at a minimum, compliance programs. In addition, some companies are also providing standard safety statistics such as lost-time rate, accident severity rate and fatalities. For example, medical device manufacturer Baxter International, Inc. (NYSE: BAX) reports detailed information regarding health and safety performance and also reports its annual workers’ compensation cost estimates as part of its sustainability reporting(15)

In addition to internal policies and programs, OSHA has a cooperative program called the Voluntary Protection Program (VPP), which seeks to “recognize employers and workers in the private industry and federal agencies who have implemented effective safety and health management systems and maintain injury and illness rates below national Bureau of Labor Statistics averages for their respective industries.”(16) For example, several divisions of steel manufacturer Nucor Corporation (NYSE: NUE) have obtained approval to participate in the VPP because of the company’s commitment to occupational health and safety. Nucor’s annual President's Safety Award recognizes divisions “that are 67 percent below the Bureau of Labor Statistics' (BLS) national average for this industry. Despite the strict criteria, it is typical for at least 50 percent of Nucor's divisions to win this award each year.”(17)

Clearly, occupational health and safety management policies and related performance data are no longer just for plant managers. As an investor, Pax World favors companies that disclose standard safety statistics and set measurable safety performance targets. For companies based in the U.S., Pax World examines their OSHA record in terms of the frequency of documented safety violations, the type of safety violations and the size of associated penalties relative to the number of operating facilities in the U.S. and the size of the company’s U.S. workforce. Pax World also examines forward-looking indicators such as companies’ safety certifications, including OHSAS 18000, an international occupational health and safety management system, and OSHA’s VPP. For companies operating in other countries, Pax World uses comparable information from in-country regulatory bodies and voluntary organizations when it is available.

Pax World views occupational health and safety as a key component to any company’s sustainability profile, and one of the most important sustainability indicators available to investors. Pax World recognizes that accidents do occur, and that even companies with good safety programs and policies may have some violations. However, Pax Word generally seeks to avoid investing in companies that exhibit a history of health and safety problems as well as those that do not demonstrate efforts to mitigate risks in this area.

The issues highlighted above are illustrative and do not necessarily reflect the full range of the social, environmental or governance criteria Pax World may apply in analyzing a particular security for investment. The availability of information about a company, issues associated with a particular industry, changing social conditions or other circumstances may affect the manner in which Pax World’s sustainability criteria are applied in a particular situation.


(1) Liberty Mutual Research Institute for Safety - “2011 Liberty Mutual Workplace Safety Index.”

 (2) Bloomberg News, “Massey Found to Be ‘Profoundly Reckless’ in Coal-Mine Blast That Killed 29.”

(3) New York Times, “Shareholders Approve Massey Energy Sale to Alpha.”

(4) U.S. Bureau of Labor Statistics, U.S. Department of Labor - http://www.bls.gov/iif/oshwc/cfoi/cfch0009.pdf

(5) U.S. Bureau of Labor Statistics, U.S. Department of Labor - “Occupational injuries and illnesses: industry data.”

(6) Occupational Safety and Health Administration, U.S. Department of Labor - “2010 Annual Enforcement Summary.”

(7) Occupational Safety and Health Administration, U.S. Department of Labor - “OSH Act, OSHA Standards, Inspections, Citations and Penalties” - http://www.osha.gov/doc/outreachtraining/htmlfiles/introsha.html

(8) Occupational Safety and Health Administration, U.S. Department of Labor, “2010 Annual Enforcement Summary.”

(9) New York Times Times Topics: BP plc - http://topics.nytimes.com/top/news/business/companies/bp_plc/index.html

(10) U.S. Securities & Exchange Commission - “Notice of 2011 Annual Stockholders Meeting and Proxy  Statement.”

(11) U.S. Securities & Exchange Commission - http://sec.gov/divisions/corpfin/cf-noaction/14a-8/2011/aflcio013111-14a8.pdf

(12) U.S. Securities & Exchange Commission Staff Legal Bulletin - http://www.sec.gov/interps/legal/cfslb14.htm

(13) New York Times “Hershey’s Packer Is Fined Over Its Safety Violations.”

(14) U.S. Department of Labor - “The Occupational Safety and Health Administration A History of its First Thirteen Years 1971-1984."

(15) Baxter International, Inc. - “2010 Sustainability Report."

(16) Occupational Safety and Health Administration, U.S. Department of Labor, “Voluntary Protection Program."

(17) Occupational Safety and Health Administration, U.S. Department of Labor, “Nucor Corporation's Philosophy of Making Safety #1 Priority Contributes to Increased Number of Facilities Receiving VPP Recognition."