The need for Environmental, Social, and Governance (ESG) compliance in healthcare heightened during the Covid-19 pandemic as awareness of and desire to support public safety through socially responsible practices surged among stakeholders, from consumers to the federal government. To that end, the U.S. Securities and Exchange Commission (SEC) now desires ESG reporting requirements for public companies, with effects that will trickle down to privately held companies and not-for-profits.
While many values-based hospitals and healthcare systems inherently align with popular ESG principles, establishing a comprehensive ESG strategy fosters accountability and enables identifying additional avenues for improvement.
At Keter, we offer sustainable waste and recycling management services that assist healthcare facilities in responding to the growing sustainability crisis. We help hospitals and clinics save millions of pounds of waste, reduce errors, create savings, and write a new sustainability narrative for the healthcare industry.
ESG Implications for Healthcare
The implications of ESG in the healthcare industry are far-reaching. The purpose-driven nature of healthcare systems and hospitals would only succeed by addressing ESG principles, but not-for-profits face unique challenges with less access to funds needed to make the initial changes. However, creating and following through on ESG initiatives helps not-for-profit hospitals that face scrutiny over their tax-exempt status. These implications are only the beginning. Let’s discuss them a bit further.
Transparency and Accountability
When healthcare organizations prioritize transparency and accountability in their ESG efforts, they cultivate trust among stakeholders, including patients, employees, investors, and regulators. At times, the healthcare industry is accused of choosing profits over people. Transparency and accountability across ESG initiatives help to combat these negative perceptions.
Healthcare organizations can build trust and demonstrate their commitment to social and environmental well-being through rigorous tracking and communication of community impact. ESG data can help these organizations better respond to concerns and demonstrate their commitment to responsible business practices.
Additionally, as the desire to work for environmentally conscious employers heightens among workers, HR leaders gain more interest in ESG and how it can address ongoing hospital staffing issues.
Reporting and Accounting Changes
With increased pressure from regulatory bodies, investors, and governments on publicly traded companies to disclose ESG data, the demand for the healthcare industry to follow suit intensifies. ESG reporting will eventually become mandatory for healthcare organizations as donors and investors increasingly consider ESG criteria when making funding decisions.
What does this mean in practice for the healthcare industry? Some sustainability leaders hope to see medical insurance reimbursement rates tied to mandatory ESG reporting and measurement scores while other pressures mount surrounding the establishment of decarbonization strategies.
Why ESG in Healthcare
Is A Game Changer
ESG will make waves within healthcare, not only from the societal impact but also from an improved business one. Witold Henisz, Deloitte & Touche Professor of Management at the University of Pennsylvania, explained, "The power of the ESG framework, or at least the promise of it, is that it doesn’t just say these things matter; it says they matter for organizational and financial performance.”
Full transparency about your commitment to ESG practices positively influences how the public perceives your healthcare organization. When you demonstrate a commitment to social responsibility, environmental sustainability, and ethical practices, your healthcare facility can enhance its reputation and attract patients, new employees, and investors who value sustainability and ethical considerations.
As for federal priorities, the U.S. Department of Health and Human Services (HHS) has asked hospitals to voluntarily reduce their emissions by half by 2030 and reach net-zero emissions by 2050. This call comes as part of the Health Sector Climate Pledge initiative. Further, they’ve released their plans to confront environmental health inequalities.
Evident Financial Benefits
What was once a practice among investors in using ESG data to make financial decisions has transformed and inspired major donors to consider the sustainability of where their gifts will land. Healthcare facilities may also reap recruiting benefits and lower employee churn as workers increasingly desire to align themselves with planet-conscious employers.
How Healthcare Companies Adapt To ESG And The Changing Environment
To adapt to the changing landscape driven by ESG, healthcare companies need to embrace environmental obligations, social responsibilities, and governance and reporting practices.
With healthcare contributing 8.5% of U.S. greenhouse gas (GHG) emissions, there is an undeniable urgency to mitigate the environmental impact across healthcare operations. Other initiatives should include:
- Implementing sustainable waste management practices.
- Lowering energy consumption.
- Adopting eco-friendly technology practices.
Healthcare organizations actively contribute to the planet's well-being by prioritizing environmentally responsible practices while improving operational efficiency.
While the healthcare industry is known for its strong commitment to social responsibilities, there is still room for improvement. Establishing an ESG framework also provides a method to track and share how you’re making an impact.
Social aspects of the ESG framework encompass addressing healthcare disparities, emphasizing diversity and inclusion in hiring, and actively engaging with different communities. Healthcare organizations can invest in initiatives that improve health equity, support underserved populations, and enhance patient experiences. By focusing on social responsibilities, healthcare companies can nurture positive community and employee relationships while contributing to the well-being of society as a whole.
Governance and Reporting
Addressing governance concerns in the healthcare sector often involves tackling privacy and security issues, cost transparency, and reducing unnecessary medical interventions and testing.
How Does ESG Differ in the Pharmaceuticals and Life Sciences Industries?
The SEC's proposed ESG reporting rules are expected to impact for-profit pharmaceutical and life science industries sooner. On the other hand, it may take some time before not-for-profit hospitals and clinics are required to comply with these regulations. Hospitals should be aware, however, that vendors and partners across their product supply chains are receiving ESG-related questions.
These inquiries complete the reporting cycle for large entities as they seek to meet their goals holistically.