Co-operators, Brookfield measure human capital in sustainability project

A4S focuses on sustainable decision-making, provides guide for employers

As a co-operative, the Co-operators Group has always made a point to focus on sustainability.

So when a Canadian chapter of the A4S (Accounting for Sustainability) CFO Leadership Network was formed a few years ago, there was a logical alignment with the insurance company.

Established by HRH the Prince of Wales in 2004, the A4S project is about making sustainable decision-making “business as usual.”

For the Co-operators, that meant implementing learnings from the A4S Essential Guide to Social and Human Capital Accounting. It defines human capital as the “knowledge, skills and attributes of the workforce and others across the value chain,” looking at issues such as job creation, reward and recognition, health and safety and privacy.

On the human capital side, the insurance company decided to look into its approach to mental health in the workplace. That’s been an important initiative for the co-operative, not only for employees but in helping group benefits clients, said Karen Higgins, CFO at the Co-operators Group in Guelph, Ont.

“As finance professionals, we know that we need to measure outputs and outcomes in order to improve the management of our business... “mental health is no different,” she said.

“And a business case obviously talks about why we would do this work, the costs associated with the work, but also… to the finance community, what are the benefits of this? And we want our business partners to think about projects in a way that if you’re going to spend money on it, what are (you) going to get back for that? And that’s really the heart of where finance played a key role with this work is attaching the metric to this initiative, and really putting a number to the benefit.”

As a result, the team did a cost-benefit analysis to make the business case to the executive management team.

“By connecting finance with the project team, with our HR business partners, and our group benefits disability partners, we were able to really put numbers to those benefits,” said Higgins.

“By establishing those benefits and the metrics associated with some at the very beginning of the project, then we were able to track them throughout and we will be able to track them on a go-forward basis… that was the genesis of what we call a mental-health scorecard, and the metrics that were associated with it.”

For example, the Co-operators looked into the savings employers could see from a reduced duration of a claim or fewer claims, she said.

“So rather than an employee being off for six months, maybe with appropriate support, different coverage, different treatment plans, they are only off for two months.”

However, it was difficult to find data to support that, because going back a few years, people might have gone off work with a mental health issue — but it wasn’t labelled as such, said Higgins.

“That was one challenge that we had, was just establishing what’s an appropriate baseline so that we could measure against that.”

Overall, it took some “pretty intensive thinking” about how the measurement would work, along with having finance and HR connecting for the project, she said.

“We have a really great working relationship already. But at times when they want to do something it was ‘OK, well, how are we going to measure that?’”

Interestingly, the Co-operators found that by increasing the coverage available through its benefit plan and boosting resources for employees, there were more claims, said Higgins.

“That is understandable, because we really have quite appropriately opened the door on an issue that needed the door opened. But, in reality, what we expected to have happened by now hasn’t happened at all. And we absolutely believe it will happen,” she said. “But in the interim period, the benefits aren’t yet being realized. Because employees feel safe about saying, ‘Look, I have an issue. And I need some help.’”

“Our ultimate objective of implementing this initiative and the strategy will be realized, but it will take a longer period of time.”

Having completed the project and committed to continuing to measure going forward, Higgins encouraged other employers to do the same.

“I would encourage other companies to read the guideline to think about how human and social capital should get measured… (It’s about) putting our money where our mouth is, in terms of employees being the most important resource that we have.”

“It isn’t something that gets measured,” she said. “We can measure all kinds of things depending on the organization and industry that you work on, but the value of our human capital, and even less so for social capital, is really important for organizations. It’s not going to land on the balance sheet somewhere but it really puts a number to something that doesn’t normally have a number attached to it… and as soon as that gets done, it takes on a different meaning within your overall framework of measurement within an organization.”

Providing guidance

Chartered Professional Accountants (CPA) of Canada’s mandate for sustainability was also well aligned with the A4S project, said Davinder Valeri, director of strategy, risk and performance at the Toronto organization, which opened up the Canadian chapter of the A4S CFO leadership Network in 2017.

“We’re trying to transform the way decisions are made from a finance perspective — we want to scale up action. And then we want to figure out how can we actually make an impact,” she said.

“Every organization has a mission (but) how do you — especially from the social and human capital accounting perspective — take that mission, and bring it down to what’s most valuable to your organization? And if people are what you say, with respect to adding the most value to your organization, how do you bring it down to that core denominator of people?”

The A4S guide provides tools and guidance to put numbers on issues that will drive successful organizations, said Valeri.

“For example, the talent pipeline — how would an organization figure out what to do with their talent? How do they know that they’ve got the skills for the future? How do they know they’re investing in the right kind of skills? And how do they understand the dependencies and the risks and opportunities that come associated with some of these issues?”

The A4S guides are full of practical examples, and they address how companies can account for social and human capital, and how to embed that into decision-making, she said.

It’s also important for companies to have key departments working together, said Valeri.

“When you embed sustainability into your whole decision-making, that means it’s not a silo, it has to be across the organization,” she said. “And it has to be multifaceted in that way.”

“So finance and HR, and even other departments… will have to work together because they have some common denominators that they need to work out. HR has some of the... confidential information; finance can convert that to some numbers and get some value to it.”

Brookfield dives deep

When Brookfield Asset Management decided to get involved with the social and human capital accounting guide, finance and HR had to work well together, said Brian Lawson, managing partner and CFO at Brookfield in Toronto.

“Fortunately, in our organization, the teams are integrated, and have a great relationship to begin with, so it was pretty easy to do that.”

The company decided to measure the value of its human capital in order to increase the effectiveness of how it organizes, develops and deploys its employee base. Instead of looking at the number or cost of employees, consideration was given to their overall value, he said.

“That then enables you to position that in terms of... the value of what you might ascribe to your client relationships, or your use of natural capital, or — in our case — financial capital, balance-sheet capital.”

It’s about being consistent with how a company can assess other forms of capital, said Lawson.

“You can’t stack them all beside each other and think of what each means as a percentage, or as a component of the overall organization, if you aren’t thinking about them or measuring them in the same way.”

In the end, the company found that the value of human capital in its asset-management business represents almost 60 per cent of its market capitalization, and the value of its roughly 1,700 asset-management employees was about twice the value of their cost.

“It’s pretty clear that the value of our employee base is one of the critical components of value… of the overall organization. And so for us to have the opportunity to explore that further, and perhaps look at it through a different lens, we felt that that would enable us to understand… the value and that component of value within the overall organization,” he said.

Looking ahead, ongoing discussion will be important to gain a deeper understanding of the value of its human capital and the way each team impacts value creation, said Lawson.

“It’s arguably a bit of a blunt instrument… there’s so many things, when you think about the value of your employee base, that you need to be careful about that element of it — that there’s going to be some things that you might miss and some things that might be hard to measure. But I’d say, directionally, it does enable you to think about your employee base, or human capital, and actually ascribe a value. It’s not going to be exactly right. But it enables you to think about it in the context of the other capitals.”

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