Five Things Healthcare Business Executives Should Know About ESG

It’s imperative for healthcare organizations to lead on climate change action; here’s a primer on what to do now.

The World Health Organization (WHO) says climate change is the “single biggest health threat facing humanity.” Healthcare leaders should lead in delivering health. That means addressing the most critical health threat full on. We are the most trusted industry in a disintegrating world; with trust comes responsibility. We must live up to that responsibility and lead our communities in reducing greenhouse gas emissions, and we must lead by example. This is the imperative we face.

In the broader context, scientists agree: if the world does not cut greenhouse gas emissions (at a minimum) 43% by 2030, we will suffer the worst effects of climate change. We are already suffering many of them. Healthcare organizations have historically embraced the social pillar of environmental, social and governance (ESG) leadership.  The healthcare industry will feel the impact of climate change consequences more than other industries because it’s a societal safety net. Climate change effects will overwhelm healthcare providers with demand for care, supply chain disruption and a resulting inability to serve their communities.

For-profit healthcare systems, payers and life sciences firms already are ahead in focusing on the need for robust ESG progress as they respond to science, proposed SEC requirements and investor demands for ESG. Not-for-profit healthcare organizations and their boards are not far behind in calling for ESG action.

However, the scope of the “E” in ESG has changed. While recycling programs, local food programs, chemical reduction, waste avoidance and other important first-generation environmental programs can and should continue, they aren’t sufficient. Without climate action at the center of the “E,” healthcare executives aren’t addressing the real risks their organizations face.

Community health relies on a healthy natural ecosystem. Healthcare systems unwittingly contribute to the erosion of shared natural resources and thus undermine community health by consuming fossil fuels necessary to deliver care. Meaningful ESG work for providers requires executing a plan that dramatically cuts a healthcare system’s greenhouse gas emissions. This plan is often called a decarbonization plan and without one, ESG policies have no bite.

5 Things Healthcare Business Executives Should Know About ESG

Given your board’s fiduciary responsibilities, its members may already be pushing for your system to tackle ESG. Here are some of the issues healthcare executives need to understand to work alongside board members in reducing climate change risks to the organization and the communities it serves:

Borrowing will cost more without evidence of ESG action. 

Institutional investors now include evaluations of ESG programs when making equity and bond investments. Healthcare is recognized as a major carbon emitter, with research indicating the US healthcare system alone contributes about a quarter of the world healthcare industry’s greenhouse gas emissions. Expect bond ratings to be higher, and interest rates more advantageous, for healthcare systems that show they are taking substantive ESG actions.

Effective community health equity strategies require a strong climate risk mitigation strategy.

Research shows air, land and water pollution and climate change-driven extremes of heat and cold disproportionately affect socially vulnerable communities that already often face significant health equity challenges and barriers to receiving care. Climate change is inherently the ultimate social justice issue. People who can afford to pollute can also afford to insulate themselves, to a degree, from the effects of climate change. People without the resources to pollute also suffer the most from those effects. Climate mitigation steps your organization takes may not have a direct, immediate impact on your community.  Yet your organization’s climate risk mitigation work, combined with that of others, is critical to achieving the world’s greenhouse gas reduction goals. Many healthcare providers are their communities’ largest employer and as such, have great influence over partners and suppliers and their willingness to mitigate climate risk.

Decarbonization is on the regulatory radar.

The Department of Health and Human Services is soliciting voluntary pledges to reduce emissions for now. Given the strong bonds between population health, social determinants of health and the adverse effects of climate change, it’s within the realm of possibility for the Centers for Medicare & Medicaid Services (CMS) to link reimbursements and bonuses to climate change preparedness. Researchers have already drafted possible metrics CMS could use. In addition, states and local jurisdictions increasingly are requiring disclosure and decarbonization. Chicago, Boston, Denver and Pittsburgh are among the cities either requiring or developing building emissions standards; California and New York are among the states leading such efforts. Expect details of ESG efforts to become required in community benefit and CMS reports.

ESG strategies also must incorporate supply chain and workforce resiliency and should be part of a risk management assessment and strategy.

Healthcare organizations have a twofold challenge with their supply chains: mitigating climate risk so they always have access to required supplies and ensuring their supply chain partners also are reducing their emissions. Your organization’s ESG actions likely also will increasingly influence its ability to attract top talent. Finding effective ways to aid your workforce in coping with both slow and acute climate disasters should be built into your workforce resiliency strategy. That could include training clinicians to recognize insect-borne diseases likely to increase as insects expand their range, and having housing available to shelter employees and their families in the wake of natural disasters.

Proven best practices and climate risk mitigation strategies for healthcare already exist.

By joining the Healthcare Anchor Network (HAN), healthcare providers can collaborate with other organizations about effective tools and strategies for climate risk mitigation. Additional organizations that can support healthcare organizations on their ESG journeys include the United Nations Global Compact, Practice Greenhealth and the US Green Building Council.

First Steps to Take

ESG work done today will put your healthcare system in a stronger position as industry reimbursement models shift from fee-for-service to value-based reimbursement and as care delivery moves to patient homes. Healthier populations will enable your system to focus more on supporting health and wellness, care management and coaching and nonacute-care revenue streams.

• Begin with developing a climate risk mitigation plan. Initially, it should identify low-hanging fruit; many guidelines are available to aid in this work, such as the AHA Sustainability Roadmap and ASHE Energy to Care Identify new expertise to bring in-house to support ESG efforts and gain support for them from stakeholders throughout the institution.
• Progress steadily to more difficult and advanced steps. These include not investing in any new equipment that burns fossil fuels on site. The issue is avoiding locking in emissions from a long-lived piece of equipment that will be too expensive to replace before the end of its useful life. Other steps: Start moving your vehicle fleet to all-electric as fast as possible. Think about how to reuse and repurpose existing facilities as care shifts to the home and neighborhood facilities. Ensure engineering for new construction aligns with your ESG plan.
• Concurrently, carry out a climate hazard risk assessment and a baseline greenhouse gas inventory to identify the risks your organization and your community face and where you’re starting from.
• In parallel with measuring, assess financing possibilities, including energy procurement strategies, utility rebates, and most important and immediate, opportunities from bipartisan Infrastructure Investment and Jobs act, which are starting to roll out.
• Understand state and local regulatory drivers for your organization’s risk mitigation work.
• Identify those projects necessary to reduce your scope 1 (emissions from sources you own or control) and scope 2 emissions (related to the energy your organization purchases) by 50% by 2030.
• Determine how to pay for essential actions, recognizing that what is necessary is often financially beneficial, although, as noted by Eric Berzon, vice president and assistant treasurer at Kaiser Permanente, simple payback calculations may not be sophisticated enough to capture the expected ROI of an ESG investment or strategy.
• Create a statement of environmental stewardship. The statement should align with your institution’s health mission and explain your plan and aspirations, e.g., procurement and materials management policies, internal greenhouse gas reduction efforts, waste reduction and management. Board members should contribute to and approve this statement.
• Join HAN or other organizations designed to support best practice sharing and intra-institutional support.
• Finally, embed ESG into your strategy, mission and purpose. Measure, report and hold the organization accountable to ESG principles. Take a proactive approach to telling your story to employees, customers, shareholders, investors, suppliers, and other stakeholders.

Again, Healthcare leaders have a critical responsibility — to lead our communities in reducing greenhouse gas emissions, including, leading by example. This is the imperative we face.