The Business Case for ESG in Healthcare

On one hand, healthcare facilities play a critical role in protecting, improving, and preserving the health of communities they serve. They also play an essential role in disaster relief amid hurricanes and other severe weather events. On the other hand, awareness is growing that these same organizations are major consumers of energy and producers of waste—undermining their mission and goals.

Guidehouse expert Derek Rushing, a former hospital CEO, recently discussed how provider organizations are thinking about environmental, social, and governance (ESG) initiatives in healthcare. Operating 24 hours a day while using sterile supplies and generating biohazards, the challenges at hospitals are readily apparent. However, with the COVID-19 pandemic, staffing shortages and other economic pressures have been top of mind. Consequently, it is not surprising that it has been difficult for healthcare organizations to make environmental sustainability a priority.

According to a Guidehouse analysis, even the top 50 health systems lag when it comes to ESG executive leadership roles, with only 27% having appointed a chief sustainability officer. Likewise, only 24% of them publicly report their ESG efforts. These are practices that have been proven to reduce carbon footprints and improve environmental sustainability in other industries.

Pressure is rising for healthcare leaders to do more.

Here’s six reason why:

1. Quality Improvement

Everyone in healthcare is driven by the desire to improve patient outcomes. In a recent edition of NEJM Catalyst, Guidehouse expert Joe Bialowitz, points to a variety of ways in which low-carbon models of care can lead to better quality outcomes for patients: “Improved healing conditions in a more energy-efficient hospital with ample daylight, dimmable lighting, constant temperatures, and fewer drafts; less-stressful and less resource-intensive interventions within a shared decision-making and well-managed multidisciplinary chronic disease management program; or intravenous general anesthesia, which has a significantly lower life-cycle climate impact than all forms of inhaled anesthesia and also reduces postoperative nausea and vomiting.

2. Health Equity

Perhaps one of the most alarming realizations in examining sustainability is the impact on health equity. Low-income neighborhoods that typically border on energy, waste, and chemical plants disproportionately suffer the consequences of degraded air and water quality. Healthcare is now appreciating that they may be contributing to the asthma, cancer, and other ailments that plague the underserved in their communities.

3. Federal Priorities

The U.S. Department of Health and Human Services (HHS) recently released a draft plan to tackle environmental health issues with additional impact on climate change and communities most affected by extreme weather. The plan highlights the need to reduce the healthcare industry’s own environmental footprint, which is responsible for 8.5% of national carbon emissions. HHS is now inviting hospitals and health systems to submit pledges to reduce greenhouse gas emissions drastically (50% by 2030 and to net zero by 2050) and increase their climate resilience. These efforts to link healthcare emissions to public health are strongly supported by HHS Secretary Xavier Becerra, who has said: “Reducing emissions and fighting climate change’s catastrophic and chronic impact on vulnerable people is key to building a healthier nation.

4. Energy Costs

The average hospital consumes more than twice the energy per square foot compared to other commercial buildings. With energy costs rising, the impact of deferred maintenance, antiquated systems, and inefficient usage takes an increasing toll. Tacking on to costs are the risks—a December 2021 Moody’s Outlook for Healthcare stated, “Policies to meet net-zero carbon emission commitments will heighten credit risk and raise the cost of capital for carbon-intensive sectors; disclosure around climate issues will be in focus.

5. Local Ordinances and Incentives

Many municipalities are embracing renewable energy through a mixture of initiatives. Some have added requirements to new construction which is readily apparent during the permitting process. More importantly, many now provide incentives to facilities that upgrade equipment, convert rooftop space to solar, or take other measures to leverage renewable energy sources.

6. Consumer and Employee Expectations

As with many other movements, businesses take notice when consumers change their behavior. What began for many as cost-saving measures have become brand-building opportunities. Not only have “greener” organizations become more appealing to consumers, they are also capitalizing on these qualities for recruiting and boosting employee satisfaction.

The rationale for sustainability in healthcare is clear.

Still, organizations struggle with where to start. However, by examining their current practices and quantifying the impact, opportunities for improvement can quickly appear. Building on initial wins, the pathway to ESG excellence in healthcare can become clearer.