I’m excited to write this month about ESG (environmental, social, and governance) data in healthcare, a topic I’ve been following as many of the top cloud providers have both ESG and healthcare SaaS (software-as-a-service) offerings.
It’s well-known that the COVID-19 pandemic brought to light endemic, far-reaching issues across the healthcare industry. The concerns stretch across the entire healthcare stakeholder spectrum to include patients, providers, payors, distributors, pharmaceutical companies, and governmental regulators. There’s an urgent need for multifaceted reform, which is exactly what ESG frameworks, with their aim to create a better future by advancing underrepresented causes, boosting customer loyalty, and unlocking more value, attempt to resolve.
ESG in Different Aspects of Healthcare
To illuminate how ESG data fosters sustainable practices in healthcare in the future, let’s explore different aspects of the industry:
Supply Chain Adaptation
ESG’s environmental component plays an essential part in how healthcare operates. There are many efforts to offset transportation’s environmental impact. Those efforts are focused on strategies like fuel efficiency and route optimization, and there are also practical concerns raised by both the Covid-19 pandemic and the recent Ukraine crisis.
By utilizing ESG data, healthcare leaders are beginning to understand how more diversified supply chains are crucial to offsetting risk to available healthcare resources. Disruptions of, say, everything from medicine and medical equipment to medical personnel and vital organs, due to closed borders, lockdowns, lack of resources (such as fuel, manpower, and vehicle maintenance parts), and other obstacles have intersected with environmental concerns. These concerns are now influencing healthcare business operations to adapt their operations in accordance with ESG frameworks for better outcomes.
Capital and Investment Opportunities
Healthcare stakeholders are now looking to ESG frameworks to inform their decision-making when it comes to securing investment capital, loans, and governmental funding. Here’s why:
- ESG poses financial ramifications as a relevant data point that lenders are using to evaluate risk. In fact, ESG data is now being considered an important part of financial due diligence and risk management — especially with governmental organizations moving to require healthcare companies to disclose emissions and environmental targets.
- Financial research firms such as Moody’s and S&P Global have shifted their focus from analyzing relevant data by industry to issuing ratings based on ESG-specified risks. These ratings are designed to steer investors’ capital allocation and decision-making processes, especially in regard to which healthcare companies are included or excluded from ESG-oriented mutual funds.
Addressing Underserved Communities
ESG’s social component plays into serving communities and healthcare companies that have historically been excluded due to systemic and racial inequalities.
As an example, with Black and Hispanic Americans accounting for a higher share of reported deaths during the COVID-19 pandemic than their respective shares of the population, ESG data is shaping how governmental budget allocation, along with other sources, is distributed to address these problems.
Similarly, rural and underprivileged communities are an ESG data primary focus, attempting to create better patient access, a higher standard of care, and a greater distribution of services. While many healthcare organizations may already be tracking this data, ESG data spotlights healthcare providers and companies, thereby motivating them to address how best to close the gap in disparities.
Staff Recruitment and Retention
Due to the COVID-19 pandemic’s long-lasting demands, the healthcare industry continues to struggle with recruiting and retaining skilled staff members.
With 14% of U.S. adults employed in the healthcare industry, ESG data is shedding light on how compensation and other factors have led to long-lasting differences in the overall quality of healthcare and performance.
ESG data’s transparency enables investors, governmental organizations, and organizations themselves to reevaluate how talent is recruited, compensated, and retained. With the highest healthcare turnover rates belonging to marginalized workers since the pandemic started, efforts are underway to shift the employment paradigm across the entire industry. ESG data has already become the catalyst for change even among the C-suite, where the compensation for CEOs is dependent in part on reaching DEI (diversity, equity, and inclusion) metrics.
Competitive Advantages
In today’s inflationary period and global financial crises, the healthcare industry has been met with new financial challenges that threaten standards of care — a clear metric for consumers when choosing among healthcare providers. Failure to adapt to these challenges has resulted in many providers being able to offer only limited care and even bankruptcy.
Poor ESG ratings derived from available data are becoming recognized as a competitive disadvantage, as public disclosure of ESG goals and measures helps stakeholders determine which organizations are sustainable investments and provide high healthcare standards. With providers able to publicly disclose their ability to meet ESG metrics, this transparency establishes a baseline against which progress and impact can be measured.
The result is that organizations that want to be sustainable in uncertain times can differentiate themselves by becoming ESG strategy early adopters to enhance their reputations with customers, staff, investors, and analysts.
Governmental Compliance
ESG’s governmental aspect is essential in healthcare, as companies play a crucial role in the communities they serve and derive a portion of their revenue from the government.
With precise data about how these companies are confronting ESG-related issues such as social inequity, tax avoidance, and corruption, investors and consumers are provided with governance statistics to remain compliant (like HIPAA’s cybersecurity compliance and other regulatory measures). For example, the pharmaceutical industry has been continually cited for governance issues, including price-fixing, kickbacks, and environmental violations (among many other violations).
With accurate ESG data, governmental entities such as the U.S. Securities and Exchange Commission (SEC) are considering a requirement for public companies to report on their ESG commitments for transparency; similarly, the U.S. Department of Health and Human Services has stepped in with the HHS Climate Pledge, a commitment to reduce organizational emissions by 50% by 2030.
Transparency and Accountability
Social awareness is a crucial component derived from ESG data, providing an accurate measure of accountability in times of social upheaval. And to do so, many healthcare organizations have used ESG data to create board committees and positions responsible for publicly reporting how inline healthcare organizations are adhering to a positive ESG framework.
Many for-profit and nonprofit organizations have already begun integrating ESG data into their operations. For example, multinational healthcare services company Tenet Healthcare announced in early 2022 that it had formed a board committee dedicated to addressing ESG matters. ProMedica, a healthcare services non-profit based in Ohio and Michigan, has launched an imperative to create a new ESG framework.
Final Thoughts
ESG data is a critical driver to capturing opportunity, mitigating risk, and assessing the actual value of stakeholders across the entire healthcare industry. By leveraging this data and providing accountability, the entire healthcare industry will be able to anticipate and overcome the future’s many challenges. With the healthcare industry representing nearly 20% of the U.S. economy (and similarly around the world), it is important for healthcare to adopt ESG frameworks to balance financing strategies and processes with social and environmental metrics.
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