Sustainability and ESG (environment, social, governance) in healthcare is increasingly in the spotlight. Jamie Foster spells out what it means for private hospitals, clinics and technology providers.
Organisations operating in the healthcare sector are increasingly focused on sustainability as an essential part of their activities
These ‘green’ initiatives are often badged under the environment, social, governance (ESG) banner.
This focus stems from a number of angles: the moral imperative and wish to limit the damaging effect of operations on the wider environment and community, together with the opportunity to support those communities, and the continuing trend for both customers and governments to set compulsory sustainability related thresholds which suppliers must reach before being appointed.
With the UK Government having set a binding target to reach net zero emissions by 2050, the need to treat ESG as more than a tick-box exercise is increasingly apparent. And so it is a carrot-and-stick approach, with many and varied angles of focus.
In this article, I look at what sustainability and ESG mean for private hospitals, clinics and technology providers, with a focus on the environmental aspect of ESG.
What is sustainability and ESG?
Many people use the terms ‘sustainability’ and ‘ESG’ interchangeably, and both are often used as shorthand for carbon reduction schemes or more generally green initiatives.
However, whereas sustainability is by definition a fairly vague concept, ESG is more clearly defined: environmental, social and governance. And, as a result, in many ways it is more helpful for companies to focus on ESG, since it can provide a framework for specific initiatives and criteria.
ESG is a huge area in its own right, and takes its starting point from the United Nations 17 Sustainable Development Goals, which range from the elimination of poverty, to clean sanitation, gender equality, climate action, sustainable cities and communities, and good health and well-being.
And so ESG can be seen as demonstrating a shift in emphasis from short-term profit maximisation as the primary objective of corporations towards a business model with positive societal impact covering three areas: ESG.
Securing investment and financing
Investment and financing are clearly important to support companies operating within the independent healthcare sector and more investors than ever are screening companies for ESG criteria when making investment decisions.
ESG activity is increasingly a material factor influencing asset valuations, investment decisions and, consequently, access to capital.
From a financing perspective, ‘green’ bonds and loans are available to fund environmentally focused projects, and sustainability linked loans incentivise borrowers to meet their sustainability commitments and reduce their environmental impact.
Likewise, other stakeholders –including employees and consumers – want to see firms considering these factors and shareholders are also demanding action.
As a result, healthcare companies are being required to respond, for example, through incorporation of sustainability linked financing into their business operations.
Net zero and the UK public sector
Achieving net carbon zero is becoming increasingly important from the perspective of governments and organisations alike worldwide.
In the UK, the NHS currently procures products from over 80,000 suppliers and, as such, is an essential customer for the independent sector. Its Greener NHS programme commits it to two targets:
- Reducing the NHS carbon footprint for emissions it controls directly to net zero by 2040, with an 80% reduction targeted between 2028 and 2032.
- Reducing the NHS carbon footprint plus – that is for emissions which it does not control directly, but can influence – to net zero by 2045, with an 80% reduction targeted between 2036 and 2039.
How will the NHS meet these targets? The answer lies in the fact that 60% of the NHS carbon footprint is based within the NHS supply chain, which means that the NHS will need to use public procurement as leverage to effect change.
For example, recent UK public Procurement Policy Notes (PPNs) reference the need to consider ‘green’ concerns:
PPN 06/20: Taking account of social value in the award of central government contracts, which is to be applied to the NHS from 2022;
PPN 05/21: which mandates that contracting authorities should consider national priority outcomes including ‘tackling climate change and reducing waste’ in all their procurement activities;
PPN 06/21: ‘Taking account of carbon reduction plans in the procurement of major government contracts’ mandates that, as a selection criteria, contracting authorities should require bidding suppliers to provide:
i) A carbon reduction plan, using a defined template, confirming the supplier’s commitment to achieving net zero by 2050 in the UK;
ii) Setting out the environmental management measures that they have in place and which will be in effect and utilised during the performance of the contract.
Building on this, the NHS has published a ‘Net Zero Supplier Roadmap’ which requires that, by the end of the decade, the NHS will no longer purchase from suppliers who do not meet or exceed its carbon zero commitments.
In view of these policy statements, the NHS, alongside wider government, is now affecting change through its supply chain contracts, which providers will need to be aware of when contracting with government bodies and the NHS.
Independent providers are clearly taking the move to carbon zero onboard, with the Independent Healthcare Providers Network (IHPN) announcing an industry-wide commitment for private healthcare providers to go beyond the NHS target to achieve net zero by 2035 – with a net zero supply chain by 2045.
Some members have committed beyond that ambitious target to achieve net zero by 2030.
The ESG agenda needs focus now. It is tempting to think of it as a long-term issue, but actually it is a short-term one requiring decisions and actions without delay.
Whether the imperative is moral, related to investment and financing or supplying to government and the NHS, businesses need to apply ESG to their wider decision-making and processes across all levels of the business and supply chain.
The good news, as demonstrated by the examples above, is that there are a multitude of ways in which these issues can be addressed and private hospitals, clinics and technology providers are already making the most of the many opportunities to do so.
Jamie Foster (right), a commercial lawyer with Hill Dickinson, specialises in the health and life sciences sector