ESG and health care: Where does it fit?

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One of the hottest organizational topics is the rapid emergence of Environmental, Social and Governance (ESG) as a mission and operational priority. ESG represents support for corporate social responsibility within an organization. While ESG reporting criteria was originally used to influence investment philosophy, publicly-traded companies are increasingly using ESG efforts to strengthen their brand and relationships with various stakeholder groups. The health care sector is well-positioned to formally join this movement by growing existing community health efforts and adopting best practices to systematically operationalize ESG principles.

Understanding ESG’s roots

ESG traces its origins back to the 1800s, when churches were encouraging their members not to invest in “sin” stocks such as tobacco, alcohol and weapons. Over time, ESG has influenced civil rights movements, the Vietnam War and the dismantling of apartheid. Today, many organizations, majority publicly-traded and for-profit, attach the ESG label to their efforts around waste reduction, energy conservation, diversity and inclusion, and charitable giving, among many others.

Mandated reporting being debated

The pressure to adopt ESG, at least by non-profit organizations, is currently light and purely voluntary. However, that might change. At the time of the writing of this article, legislation has been introduced and passed by the U.S. House of Representatives to require ESG reporting for publicly-traded companies. The U.S. Senate has not taken a vote. The U.S. Government Accountability Office (GAO) reports and scrutiny from some lawmakers question the justification for tax-exempt status for health care organizations. Form 990 reporting requirements already exist for charity care and community health needs assessments, among other things. In addition, required ESG-like reporting may not be far away for non-profits.

Operationalizing ESG throughout an organization

Some are finding that ESG may require more than what they are doing currently, especially in areas like waste reduction, energy conservation and diversity of governing boards. This is leading to ESG becoming an operational and governance priority, then leading to the question, “where does it fit?” What department(s) within a health care organization are best suited to own responsibility for ESG programs? ESG is meant to be a broad-based, organization-wide commitment, rooted in the organization’s mission. Board leadership and support is imperative, but implementation and coordination of various parts of the ESG commitment can be challenging, especially for organizations still dealing with unprecedented pandemics and workforce challenges. As a result, ESG programs are best operated by a coordinated team of representatives from various parts of the organization, including (but not limited to) human resources, supply chain, facilities, finance, communications, community outreach and DEI.

Uncovering existing ESG efforts

For health care organizations assessing where ESG fits among and around existing efforts, they often realize they have an ESG program without the ESG label. This is especially true for non-profit health care providers, which also have IRS tax exemption on the basis of having a charitable purpose for their existence. These organizations, already bound by community benefit standards flowing from their tax-exempt status, provide free care, assess and address community health needs and offer various community outreach programs, among many other efforts.

In conclusion, ESG is a positive force in our business climate and aligns well with what health care organizations already do. Organizations simply need to assess how to capture that alignment in their own way and within their own communities.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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