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Overhead shot of a femal technician working in her workshop

How can investment in EHS drive corporate success?

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8 minute read 06 Mar 2024
Related topics
Climate change and sustainability services

The new EY study examines links between companies’ EHS maturity and their financial, social and regulatory performance.

In brief

  • Companies that improve their EHS performance also typically improve their financial, social and regulatory performance.
  • Businesses with high performing EHS functions saw faster increases in their net income, revenue and market capitalization compared to average performers.
  • The analysis from EY suggests that the EHS function is often an underutilized asset that can help to achieve operational and financial excellence.

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EHS maturity: a catalyst for financial growth? 

Companies that enhance their Environmental, Health, and Safety (EHS) performance tend to also see improvements in financial, social, and regulatory domains, with the correlations being stronger in advanced economies, according to research from EY’s first EHS Maturity Study. Higher EHS performers also experienced more rapid growth in net income, revenue, and market value over a decade compared to their average counterparts. This correlation is consistent across various industries but is particularly pronounced in high-risk sectors like advanced manufacturing and mobility. The level of EHS maturity is contingent more on the specific practices of individual companies rather than on external factors like geographic location or industrial sector, highlighting that EHS excellence is within a company's control regardless of its size or region. 

This is important to note especially in the context of Luxembourg, a small yet influential country with ambitious environmental goals like reducing greenhouse gas emissions and fostering sustainable development practices. Thus, for Luxembourg, the focus on EHS is not just a matter of compliance or risk mitigation; it is an opportunity to lead by example in the integration of sustainable practices, thereby attracting investment and talent which prioritizes environmental stewardship and social responsibility.

Vanessa Müller
Vanessa Müller
Partner, Consulting, Ernst & Young Business Advisory Services Sarl
Portrait of Renaud Breyer
Renaud Breyer
EY Luxembourg Partner, Sustainability Leader

As ethical considerations increasingly influence consumer and investor decisions, the Environmental Health and Safety (EHS) function has become a powerful corporate symbol. However, does improved EHS performance also enhance financial performance? If EHS is indeed better for businesses, what are the key levers which have the biggest impact? The new EY Global EHS Maturity Study (pdf) explores this question, and the key factors impacting this relationship.

More than a mere compliance exercise, EHS embodies a company's dedication to stakeholder well-being, reflecting corporate values and principles. This EY study reveals that the underutilized EHS function can help to drive operational and financial excellence. Additionally, adopting specific low-cost, high-impact practices can uplift your company's financial, social, and regulatory performance.

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1

Chapter 1

EHS maturity and Financial, Societal and Regulatory performance

The relationship between companies’ EHS maturity and their performance across other indicators.

How EY can Help

Separating the “E - environmental” from the “HS - health and safety” in EHS, EY analyzed how companies’ environmental performance and success in the health and safety field improved financial, social, and regulatory success.

 

Environmental performance

The analysis found that a company that improves its environmental performance also typically improves its financial performance. This finding suggests that companies can address environmental challenges without compromising financial performance.

 

In a similar vein, the link between elevating environmental responsibility and social performance is evident. The analysis showed that improved environmental performance corresponds to lower employee turnover rates – supporting the idea that employees are more inclined to stay with environmentally conscious firms.

 

Lastly, the regulatory benefits of EHS are illustrated via the reduction in environmental controversies as environmental performance escalates. A decrease in controversies not only improves the company’s reputation, but also ties to superior financial results by facilitating smoother operations and minimizing risks.

 

Health and safety performance

EY statistical analysis found that companies that improve their health and safety performance also typically improve their financial, social, and regulatory performance.

 

The data indicated a clear correlation between reduced injury rates and increased net income. This suggests that robust health and safety practices not only protect employees but also bolster a company's financial performance through smoother operations, reduced costs, and enhanced reputation.

 

The statistical analysis also showed that companies that reduce their total injury rate see lower attrition. The study observed an association that suggests investing in employee well-being not only helps to ensure their health but also contributes to the stability and continuity of the workforce.

 

Moreover, the statistical analysis showed that decreasing the total injury rate can result in reduced EHS controversies involving employee health and safety, human rights, child labor, public health, customer safety, product quality, consumer complaints, and environmental issues. This minimization of controversies significantly lowers the risk of legal, reputational, and financial repercussions for the business.

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2

Chapter 2

Strong EHS practices can be found across different regions, industries

Various EHS practices are utilized regardless of geographic area or sector.

While the relationship between EHS Maturity and financial and operational performance varies widely among individual companies, EY research revealed various patterns when looking at correlation between geographic location, a company’s industry and their EHS maturity level.

Geographic variation

The pattern identified in the analysis suggests that while EHS practices hold importance across the globe, their potential impact on financial, social, and regulatory performance may be more prominent in more advanced economies. Companies in regions where the relationship between financial and EHS performance was the strongest tended to have the highest average level of EHS maturity.


Industry variation

Results are also found to vary by industry. In examining the relationship between the "E" of environmental, social, and governance (ESG) score and market capitalization within industry groupings, a notable trend emerges. Across the board, there is a consistent statistical finding that companies who increase their environmental score also tend to increase their market capitalization. However, the strength of this relationship varies among industries.

In higher EHS risk sectors, the potential financial consequences of poor EHS performance can be more pronounced. For instance, advanced manufacturing and mobility, where operations may involve significant environmental impact and workplace hazards, a lapse in EHS standards can lead to legal liabilities, accidents, and reputational damage. Consequently, investors and stakeholders may closely scrutinize EHS performance, making it a more influential factor in determining a company’s market capitalization. In contrast, lower EHS risk industries such as professional services may experience fewer immediate consequences for poor EHS performance, leading to a comparatively weaker or less obvious connection between EHS and financial outcomes.

Download the EY Global EHS Maturity Study 2024

Find out more about specific industries’ results in the full report.

Download

Comparing average and high-EHS-performing companies

This statistical analysis confirmed the hypothesis that moving from average to high EHS performance can bring financial benefits like increased revenue and net income. It can also foster social advantages, with lower employee turnover rates, and a potential reduction in the risk of legal and reputational issues by minimizing the frequency of controversies.

Improvements were found across all three performance metrics:

These findings emphasize how EHS commitments can align with long-term financial and productivity growth, social responsibility and regulatory compliance, making them a strategic imperative for businesses aiming to excel across both financial and nonfinancial metrics.

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3

Chapter 3

Seven levers to enhance your organization’s EHS maturity

Leaders can elevate in EHS as a strategic source of business value.

The survey identified that high-EHS-ranking companies employ a specific set of the EHS practices to enhance maturity. These practices are more prevalent amongst top-EHS-performing companies than the rest of the surveyed firms. One common practice of leading companies is to link their businesses’ EHS performance to executive pay and use EHS metrics to reward excellence.

Many practices employed by high-ranking companies align with the seven principles of the EY EHS Maturity Model, providing empirical proof that high-ranking firms do adopt these practices in line with the model's levers.

1. Strategy and planning

High performing organizations create inclusive EHS strategies, considering viewpoints from all types of employees and their risks, including third parties and contractors. An EHS strategy should embrace continuous improvement, remaining flexible to accommodate emergent risks and issues.

2. People and engagement

High performing organizations consider the cultural dimensions of the EHS function and how they can effectively engage with people to build capability. This function is most effective when seen as a strategic enabler and value driver for the business and is empowered to act autonomously.

3. Governance and leadership

An effective EHS function needs attention, resources and support from the highest levels of leadership. Making EHS performance a very important factor in executive compensation is associated with an increase in the number of corporate practices and attributes associated with high performance.

4. Systems and structures

High performing organizations use EHS systems (such as management systems and digital tools) which are suited to the needs of end users and aligned with the EHS risk profile. Systems are adaptive and responsive. Organisational structures support engagement and knowledge flow.

5. Assurance and reporting

High performing organizations track, report and process information effectively. These organisations tracked far more EHS metrics and tended to tie them to the function’s excellence.

6. Risk and opportunity

High performing organizations had more crisis management dimensions and were particularly distinguished by their breadth of risk management assets.

7. Digital technology

Organizations have much to gain by acquiring dedicated EHS technology to increase the performance of EHS data collection, processing, and analysis.

Many EHS practices are choices leaders can make and do not necessarily require large-scale investments. The analysis identifies that the EHS function is an asset that is not used to its full potential  for achieving operational as well as financial excellence. The call to action is clear: EHS can be embraced as a strategic source of value to navigate an ever-evolving business landscape while contributing positively to society.

2024 EY Global EHS Maturity Study

Find out how to embrace your company’s EHS function in the full report

Download the report

Summary

The new EY Global EHS Maturity Study reveals that EHS performance has a relationship with a company's financial performance and can be a significant symbol of corporate ethics. The study suggests that increasing investment where EHS functions are underutilized, could bolster operational excellence. Additionally, adopting these low-cost, high-impact practices can elevate an organization’s financial, social, and regulatory performance. Beyond compliance, EHS maturity displays a company's commitment to stakeholder well-being.

How EY can Help

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Related topics
Climate change and sustainability services

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.