Putting ESG at the heart of healthcare governance

ESG starts with good governance. In the immediate future, prioritizing environmental impact, social indicators and corporate governance alongside the traditional financial metrics of performance will likely require a fundamental shift in how organizations operate. Navigating this shift, in turn, will require leaders to reimagine many elements of corporate decision-making that fall under the “G” aspect of ESG.

All too often, ESG issues are viewed as a side concern. With the forthcoming regulations, like the Corporate Sustainability Reporting Directive (CSRD) in Europe, many organizations are looking to understand the necessary compliance measures. In my work as an audit partner for KPMG in the Netherlands, I am helping healthcare organizations prepare for this by conducting CSRD quick scan assessments on the most relevant topics related to ESG and healthcare, such as:

• Waste reduction
• Quality of care
• Organizational real estate sustainability
• Sustainable employment of staff

To date, I have conducted CSRD quick scan assessments at 20 large healthcare organizations in the Netherlands. Through this work, I have identified a number of consistent trends related to ESG in healthcare organizations, insights that may be of interest to those in other jurisdictions.

• First, there is a lack of knowledge about the content and impact of the incoming regulation among key leaders within Dutch health organizations.
• Second is that these organizations often address ESG issues through individual initiatives, and almost never incorporate them into their total risk and compliance approaches.
• Finally, when Dutch healthcare organizations do address ESG, they tend to do so very narrowly. Spurred by global emission-cutting targets, many focus only on the “E” aspect of ESG, particularly energy use.

Weaving ESG into the fabric of healthcare organizations should start with boards and management teams setting the tone from the top. Corporate governance considerations such as board composition, resource allocation, incentive structures and supply chain management can all be used as tools to reduce environmental impact, boost social equity, or both. Using corporate governance to prioritize ESG considerations can create a positive feedback loop that reinforces organizational performance against those goals in the long term.

At the largest academic tertiary referral hospital in the Netherlands Dr. Joke Boonstra is working to embed ESG and sustainability into her organization.

While healthcare organizations in some regions are addressing new sustainability reporting standards, similar standards are emerging or have emerged in various jurisdictions worldwide. Australia has a national regulatory system that requires organizations including hospitals to report their greenhouse gas emissions, energy consumption and production. In the U.K., all healthcare providers must have three-year sustainability plans in place. In the U.S. federal regulation is being finalized and is expected to require public companies to report climate-related risks and emissions data. In the face of increasing regulatory action it will be important for healthcare organizations to understand ESG readiness, prepare for reporting requirements and be ready to deliver on environmental and social obligations.

ESG assurance requires the same rigor as demanded in financial statement audits, including understanding the strong link between financial and non-financial information. Around the world, KPMG audit professionals can help bridge this gap and provide assurance using frameworks, and metrics to ensure that organizations meet the increasing requirements mandated by regulators and expected by stakeholders. 

Looking at healthcare organizations through the lens of ESG can give leaders a chance to think about how they want to be seen by society. Organizations with a strong reputation for upholding ESG principles may be better able to attract and retain talent, which can be a significant advantage in tight labor markets. Healthcare organizations are responsible for nearly five percent of global carbon emissions², so efforts should be made to reduce the sector’s carbon footprint.

As other sectors embrace ESG, healthcare organizations with a strong track record may benefit from downstream effects. It is conceivable that in insurance-funded healthcare systems, insurers may offer financial incentives to providers with higher ESG ratings. For companies looking to raise finance, a strong ESG rating may open up more sources of funding.

Above all else, a focus on ESG measures, far from being incidental to the delivery of healthcare, may often improve it: a cleaner environment, a cooler planet and more equitable societies all contribute to better health.

• Good governance can be used to ensure that the principles of ESG are applied in a sustainable way, such as setting the tone from the top, and engaging employees as ambassadors.
• A strong track record on ESG can create other benefits for healthcare organizations such as talent attraction and retention or access to broader sources of finance.
• Healthcare organizations should be proactive in preparing for new regulations in the European Union and elsewhere that will require them to report on their performance on environmental, social and governance metrics. Undertaking an organizational ESG maturity assessment, is a great first step for organizations looking to take action.