ESG and health care: Where does it fit?
One of the hottest organizational topics is the rapid emergence of Environmental, Social and Governance (ESG) as a mission and operational priority. ESG represents committment to and support for corporate social responsibility within an organization. While ESG principles were 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 join this movement by capitalizing on 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, mostly 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.
Operationalizing ESG in health care organizations
For health care organizations assessing where ESG fits among and around existing efforts, they often realize they have ESG activities 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.
Some health care organizations 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.
Mandated reporting on the horizon
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. Recent reports from the U.S. Government Accountability Office (GAO) and scrutiny from some lawmakers are calling into 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. Required ESG-like reporting may not be far away for non-profits.
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.
This is for informational purposes only. It is not intended to be legal advice and does not create or imply an attorney-client relationship.Download PDF