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What ESG means for healthcare

Dec 01, 2022

Environmental, social and governance (ESG) practices have become a growing focus for business. As the concept proves itself in traditional corporate circles, healthcare is taking notice.

When organizations prioritize ESG — and effectively communicate that commitment — they build stakeholder affinity. Whether you’re trying to sway public opinion, recruit talent, lure investors or forge new public-private partnerships, perceptions matter.

Moreover, the power of ESG is that it isn’t just about “doing the right thing.” A commitment to ESG can have a real, meaningful impact on an organization’s financial and operational performance.

Here, we dive into why ESG is a trending issue in healthcare and what ESG might look like in this sector.

ESG in healthcare: Why now?

ESG efforts aren’t just good for society, they’re good for business. Evidence suggests that organizations with a strong ESG strategy tend to perform better than organizations without one. Healthcare leaders are finding that ESG can add value throughout the organization.

Public perception

Healthcare is sometimes criticized as prioritizing profits over people. A focus on ESG can you’re your organization combat those negative perceptions by building more rigor into how you track and communicate community impact.

Nonprofit rationale

Likewise, nonprofit providers may find themselves having to defend their tax-exempt status to auditors and government leaders. ESG data can help nonprofits better respond to those concerns.

Talent perception

Generally, people want to work for companies doing good in the world. High-demand talent may be more drawn to organizations that show a commitment to social well-being — in both the organization’s internal talent practices and in its contribution to the wider community.

Investors and donors

Increasingly, investors and lenders are using ESG data to assess a company’s strength and future performance. Now, some major donors are also conducting ESG due diligence as they consider their gifts.

Federal priorities

Proposed ESG reporting rules from the U.S. Securities and Exchange Commission could affect big pharma, life sciences and for-profit providers. Even if your organization isn’t subject to mandatory ESG reporting now, you may feel a trickledown effect as large players reach down to vendors and partners to meet their own reporting goals.

Likewise, the U.S. Department of Health and Human Services (HHS) has released a draft plan to address environmental health disparities. The HHS has also established a Health Sector Climate Pledge and is asking hospitals to voluntarily reduce emissions by 50% by 2030 and achieve net-zero by 2050.

Value drivers

Research suggests ESG influences an organization’s financial performance and risk management in a variety of other ways, including quality improvement, cost reduction, reduced regulatory and legal risk and reduced reputational risk.

Overall, a strong ESG program can be an indicator that your organization is managing its risks, reducing costs and proactively evolving to serve community needs.

Healthcare is already committed to individual and community well-being, so ESG practices align well with that mission. Organizations may find that coordinating their efforts under one ESG framework can be a way to hold the organization accountable to growth and improvement.

Environmental

U.S. healthcare accounts for an estimated 8.5% of the nation’s greenhouse gas emissions. How is the hospital or healthcare organization managing its environmental impact? Recognize that small changes can deliver both environmental and cost savings. Strategies may include:

  • Optimizing your data center and reducing your digital carbon footprint.
  • Reducing single-use waste in food service.
  • Sourcing from net-zero manufacturers.
  • Adding electric vehicles to the fleet.
  • Alternate anesthesia options that are less harmful to the environment.
  • Sustainable building design, construction and maintenance.

Social

How is the healthcare organization fostering well-being for everyone in its circle of influence (employees, customers, community)? As healthcare providers are inherently mission-driven organizations, you’re likely already making a commitment to social welfare. Organizing these efforts under an ESG framework can help leadership better set focus and expectations.

  • Internal: Diversity and inclusion in hiring and promotion, labor standards, pay equity
  • External: Reaching underserved communities, eliminating health disparities and striving for health equity

Governance

While governance issues may feel like an uncompelling story in the corporate environment, this is another area where healthcare has a wealth of opportunity ahead. From strengthening an organization’s HIPAA and cybersecurity practices to ethics and price transparency, governance issues like these can be a real and present concern for stakeholders in the healthcare sector:

  • Data privacy
  • Ethical use of patient data
  • Billing and price transparency
  • Minimizing unnecessary tests and procedures

How Wipfli can help

If you’re interested in exploring ESG and learning how it can benefit healthcare, contact Wipfli. We can help establish a right-size ESG approach that fits your organization’s resources and goals.

We have over 40 years of experience in the healthcare industry. Our professionals pair real-world industry experience with skills in finance, strategic planning and operational improvement.

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Author(s)

Robert D. Cedergren, CPA, CGMA, CITP, CISM, CISA, CGEIT
Partner In Charge, Risk Advisory Services
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