A new risk class – psychosocial risk

September 2024 | EXPERT BRIEFING | RISK MANAGEMENT

financierworldwide.com

In the ever-evolving landscape of work health and safety (WHS), board members and senior executives are confronting a relatively new challenge: psychosocial risk. This term refers to the potential for personal harm that workers may experience due to organisational design, social conditions, governance or the work environment.

Unlike physical hazards, which are often more visible and tangible, psychosocial hazards are intangible and can be more challenging for organisations to identify and manage. These hazards can stem from a range of factors, including workplace culture, organisational change, job demands and control, traumatic events or material, the physical environment, and social interactions at work.

The emergence of psychosocial risk

The concept of psychosocial risk has gained prominence with growing community expectations and its impact on governments and safety regulators. As the groundswell for improvement and action has grown, the understanding of what constitutes a healthy and safe workplace has expanded.

Mental health issues and their impact on the psychological and physical health of workers, as well as productivity and performance have become a focal point for organisations worldwide. As a result, regulatory bodies are increasingly recognising the importance of proactively managing psychosocial risks, leading to the development of new laws and guidelines aimed at protecting workers’ psychological health and safety.

Regulatory obligations and implications

The evolving regulatory landscape means that organisations should now consider psychosocial risk management as part of their legal obligations under work health and safety laws. In Australia, there are specific legislative obligations on employers to eliminate psychosocial risks in the workplace or if it is not reasonably practicable to eliminate those risks, to minimise them so far as is reasonably practicable.

Understanding psychosocial risks

A psychosocial risk is a risk to the health and safety of a person arising from a psychosocial hazard. Psychosocial hazards can be categorised into the following key areas: (i) work design, including job demands, role clarity and job control; (ii) governance, including organisational change management, organisational justice, reward and recognition; (iii) social, including bullying and harassment, violence and aggression, poor support, and conflicts at work; and (iv) work environment, including remote or isolated work, traumatic events or material, and the physical environment.

The impact on organisations

The consequences of unmanaged psychosocial risks are far-reaching and impact workers in different ways. Workers can suffer from stress, anxiety or depression which can lead to reduced productivity and performance, more sick days, and being less engaged in their work. This can then lead to a decline in the overall performance and productivity, which can adversely impact the organisation’s brand and reputation. Moreover, a workplace that becomes known for not prioritising psychological health and safety may struggle to attract and retain talent.

The other challenge for business leaders in managing these risks is that the individual impact on individual workers is less predictable and more varied. Unlike, for example, worker harm arising from improper functioning and use of machinery can be straightforward to understand, the potential harm from psychosocial hazards can vary markedly, even when two people face the same conditions.

Proactive management of psychosocial risks

To get ahead of these risks, leaders are strongly encouraged to adopt a proactive approach. This involves several key steps: (i) mining of data from working groups across the spectrum of psychosocial hazards to understand the current state and where the organisation’s risk hot spots are; (ii) conducting a current risk assessment that is sufficiently robust to withstand a safety regulator’s review; (iii) clearly articulating risk appetite across the various hazards, including board and senior executive endorsement; (iv) identifying and implementing mitigating controls to manage the risk within appetite; (v) measuring and monitoring the effectiveness of controls; and (vi) reporting to organisation leaders to assist them to demonstrate they have and are taking reasonable steps to ensure the organisation is proactively managing the risk.

The engagement of the workforce throughout the risk management process is a critical element so there is a contemporary, grounded perspective on the underlying risks. Training and educating leaders, managers and workers should include not only identifying and reporting psychosocial hazards but driving support and ownership for the maintenance of the controls, including (but not limited to) any new policies and procedures.

It is not uncommon for HR and WHS risks to be managed outside of the three lines of defence model typically adopted by organisations. However, like any risk class, the approach to identifying risks, setting appetite, designing controls and monitoring their effectiveness should be integrated into the enterprise risk management framework.

The role of leadership

Leaders play a crucial role in managing psychosocial risks. They set the tone for the organisation’s culture and are responsible for ensuring the workplace promotes psychological health and safety. Leaders need to be equipped with the knowledge and skills to identify and address psychosocial risks. They should also foster an environment where workers feel comfortable discussing psychosocial hazards, psychological issues and seeking support.

Leaders should be cognisant that managing psychosocial risk involves ensuring sufficient allocation of time, costs and resources to proactively identify psychosocial hazards and assess and manage the psychosocial risks arising from such hazards. In large organisations, a common and effective way for leaders to exercise this due diligence is through well organised, insightful and action-oriented reporting. Providing both lead and lag indicators to measure the effectiveness of the risk environment.

Some innovative strategies

While still at an early point of this relatively new frontier of psychosocial risk management, a number of organisations have successfully implemented strategies to manage psychosocial risks, including using data analytics and technology, conducting contemporary and robust risk assessments in consultation with workers, innovative and high-impact training such as a psychosocial risk management mock court to demonstrate what can happen if organisations and their leaders fail to manage the risk proactively, implementing organisational design controls such as flexible working arrangements, telecommuting and job sharing, and detailed and interactive reporting dashboards for leaders on relevant lead and lag indicators.

Conclusion

As the focus of work health and safety regulators expands to include psychological risks, organisations should be considering how they adapt to manage this new class of risk. Psychosocial risks are complex and require a multifaceted approach that involves the commitment and support of leadership, effective management within the organisation to collaborate and coordinate, including WHS, HR, risk and operations, the engagement of workers and the implementation of effective strategies.

By proactively addressing psychosocial risks, organisations can not only comply with regulatory obligations but also create a healthier, more productive and more resilient workforce. The journey to managing psychosocial risks is ongoing, but with the right approach, leaders can protect the psychological health and safety of their workers and, in turn, ensure the continued success of their organisation.

Tony Morris, Philip Hardy and Scarlet Reid are partners at Ashurst. Mr Morris can be contacted on +61 403 241 497 or by email: tony.morris@ashurst.com. Mr Hardy can be contacted on +61 411 104 250 or by email: philip.hardy@ashurst.com. Ms Reid can be contacted on +61 416 147 544 or by email: scarlet.reid@ashurst.com.

Tony Morris, Philip Hardy and Scarlet Reid

Ashurst