The growing importance of ESG in healthcare

In recent years, Environmental, Social, and Governance (ESG) factors have gained significant traction across various industries, and the healthcare sector is no exception. As concerns about climate change, social equity in healthcare access, diversity in clinical trials, and other corporate social responsibility issues continue to mount, stakeholders in the healthcare industry are prioritizing ESG credentials. In this blog post, we'll delve into why ESG is becoming increasingly important in healthcare, what ESG compliance entails in this sector, and the benefits of integrating sustainability into healthcare governance.

Why is ESG increasingly important in the healthcare sector?

According to a 2024 survey by Ipsos Mori, the pressure on the life sciences industry is intensifying due to various factors. Investors, regulators, and procurement policies are now incorporating ESG considerations into their decision-making processes. Investors are no longer solely focused on financial performance but are also evaluating non-financial performance when assessing investment opportunities. Similarly, European procurement policies are giving prominence to ESG criteria, thereby elevating the importance of ESG practices in the pharmaceutical industry.

Furthermore, regulatory expectations are evolving, with regulators and payers anticipated to demand organizations demonstrate a meaningful focus on ESG issues and considerations throughout the asset development, launch, and commercialization phases. This shift underscores the growing recognition among healthcare leaders that they are accountable to all stakeholders and that ESG reporting is imperative.

Moreover, segments of sustainability-conscious consumers are emerging and expanding. Ipsos' global sustainability segmentation study revealed that a significant proportion of consumers prioritize environmental sustainability and are willing to support sustainable brands, even if it means paying more. As consumers become more discerning about the environmental and social impacts of products and services, healthcare organizations must align with ESG principles to maintain competitiveness and consumer trust.

What does ESG compliance look like in healthcare?

Healthcare organizations are increasingly expected to adhere to ESG principles in their operations and need to adhere to new sustainability reporting standards and regulations. 

European Union

For instance, In the European Union, the Corporate Sustainability Reporting Directive (CSRD) introduces a standardized framework mandating non-financial data reporting for companies within the European Union, significantly broadening the range of entities subject to compulsory disclosure. Replacing the Non-Financial Reporting Directive (NFRD), the CSRD aims to enhance the accuracy and transparency of sustainability reporting, with adherence to the European Sustainability Reporting Standards (ESRS) being a central requirement. Hospital associations and patient care, falling within the scope of the CSRD are required to submit their initial reports by 2026, covering the fiscal year 2025.

United Kingdom

In the UK, healthcare providers must develop three-year sustainability plans. The NHS has identified that it must achieve net zero “by 2040 for the NHS Carbon Footprint, with an ambition for an 80% reduction (compared with a 1990 baseline) by 2028 to 2032.”

United States

Similarly, in the US, federal regulations are being finalized to require public companies to report climate-related risks and emissions data. The Health Sector Climate Pledge, which was launched by the Department of Health and Human Services (HSS) requires hospitals to reduce their GHG emissions by 50% by 2030. 

To summarize, ESG compliance in healthcare involves rigorous risk management and assurance processes akin to financial statement audits. It requires organizations to understand the interplay between financial and non-financial information and ensure compliance with emerging regulatory requirements. Audit professionals play a crucial role in providing assurance using frameworks and metrics to meet regulatory expectations and stakeholder demands.

What are the benefits of integrating ESG factors into healthcare governance?

Integrating ESG factors into healthcare governance offers numerous benefits.

Enhanced reputation

Healthcare organizations with strong ESG credentials are perceived as socially responsible entities, enhancing their reputation among stakeholders. Investors are more likely to support healthcare organizations with robust ESG practices, leading to increased investment and financial stability.

Financial incentives and access to funding

A strong ESG rating can open up access to broader sources of funding, providing healthcare organizations with greater financial flexibility for innovation and growth initiatives.

Improved health outcomes

Environmental sustainability initiatives, such as reducing carbon emissions and promoting energy efficiency, can lead to cleaner air and water, ultimately benefiting public health. Social initiatives aimed at addressing healthcare disparities and promoting equitable access to care can positively impact population health and well-being.

Contribution to environmental sustainability

Healthcare organizations are significant contributors to global greenhouse gas emissions, making efforts to reduce their carbon footprint crucial for environmental sustainability. Sustainability initiatives, such as energy conservation, waste reduction, and green building practices, can mitigate the environmental impact of healthcare operations.

Promotion of social equity and inclusion

ESG integration in healthcare governance can drive initiatives aimed at promoting social equity and inclusion within the organization and broader community. Diversity and inclusion efforts in clinical trials and workforce diversity programs can enhance representation and access to healthcare services for marginalized populations.

How can you get started?

Implementing ESG practices at your organization may seem like a daunting task, but with the right tools and processes, it doesn't have to be challenging.

Here's what you should do to get started:

1. Assess current practices: Begin by conducting a comprehensive assessment of your organization's current operational practices to understand its environmental impact. Identify areas where improvements can be made, such as greenhouse gas emissions, energy consumption, waste management, and water usage. This assessment will serve as the foundation for developing your sustainability strategy.

2. Create a sustainability team: Establish a dedicated sustainability team or committee within your organization, comprising representatives from various departments and disciplines. This team will be responsible for driving sustainability initiatives, coordinating efforts, and ensuring accountability across the organization. If you already have a team in place, ensure it is appropriately staffed and empowered to lead sustainability efforts effectively.

3. Select an ESG management software provider: Choose an Environmental, Social, and Governance (ESG) management software provider that aligns with your organization's needs, goals, and budget. ESG management software can streamline data collection, analysis, and reporting, making it easier to track progress, identify opportunities for improvement, and demonstrate transparency to stakeholders. Evaluate different providers based on factors such as functionality, user-friendliness, scalability, and customer support.

4. Develop an ESG strategy: Based on the findings of your assessment and in consultation with your sustainability team, develop a comprehensive sustainability strategy that outlines ESG metrics, objectives, and action plans. Consider factors such as resource allocation, stakeholder engagement, regulatory compliance, and long-term sustainability impact. Your strategy should be aligned with your organization's mission, values, and strategic priorities, and should include specific targets and timelines for achieving sustainability goals.

5. Monitor ESG performance: Establish robust monitoring and reporting mechanisms to track progress towards your ESG goals regularly. This may involve implementing key performance indicators (KPIs), collecting relevant data, analyzing trends, and generating regular reports. Monitoring progress allows you to track the success of your ESG efforts, and areas for improvement, enabling you to adjust your strategy accordingly and ensure ongoing alignment with your organization's sustainability objectives.