ESG: A Critical Priority For Healthcare Supply Chains in 2024 

• Marlin Doner, VP of Product Management

The U.S. healthcare industry has a tremendous impact on both the environment, generating 8.5% of total U.S. greenhouse gas (GHG) emissions, and socioeconomic health, as the largest source of U.S. jobs, representing 17.7% of gross domestic product.  

Then why have so few U.S. health systems and hospitals made documented progress in addressing environmental, social and governance (ESG) issues? 

One of the reasons is lack of accountability, but that’s changing. There are several recent initiatives and others on the horizon aimed at driving healthcare toward measurable ESG improvements, such as The Joint Commission’s Sustainable Healthcare Certification Program, effective January 1, 2024. 

It’s not just reputation at stake, but hard dollars as well. Healthcare organizations that show “their strong performance in ESG criteria” can access lower rates from lenders. Furthermore, experts predict ESG performance scoring will become a factor in future Medicare payments. So, what does this mean for healthcare supply chain?  

 With supplies being the second largest area of expense for health systems and hospitals, supplier diversity a key component of strengthening supply chain resiliency, and supply chain accounting for 70% of healthcare’s carbon footprint, every healthcare supply chain leader should be implementing, or at least exploring, impactful ESG initiatives. 

 In this article, I highlight common barriers to ESG improvements in the healthcare sector, offer evidence of the mounting pressures on healthcare organizations to report ESG performance metrics, and explain why supply chain is uniquely positioned to drive measurable ESG improvements in 2024 and beyond.

Table of contents

1. Common challenges to ESG investment
2. The pressure is on to prove ESG progress
3. Why supply chain is positioned to lead in ESG in 2024 

Common challenges to ESG investment  

For U.S. healthcare organizations faced with unprecedented economic and labor challenges, costs and competing priorities are significant barriers to ESG improvements. While ESG is something most health leaders would like to embrace, many can’t afford to allocate human and financial resources to these initiatives as they struggle to deliver care to their communities.  

Another major barrier to ESG improvements is identifying initiatives that will have a measurable impact. It’s one thing for a health system or hospital to say, “ESG is a priority” but another for an organization to back this statement with proof that they are reducing their environmental footprint or improving health equity in their community.  

Case in point: As of April 21, 2023, 166 organizations representing 872 hospitals had signed the White House-U.S. Department of Health and Human Services (HHS) Health Sector Climate Pledge, voluntarily agreeing to cut their greenhouse gas emissions by 50% by 2030 and achieve net zero emissions by 2050. But how many of these healthcare organizations are publicly reporting on their progress in meeting these goals?  

Researchers from Yale, Mount Sinai NYC, University of Texas, and the World Bank Group sum up the issue in their NEJM Catalyst article: 

“Despite the sector’s inherent commitment to improving health, there are large gaps in information and little consistency or comparability in environmental sustainability management and disclosure, and there is almost no accounting or reporting of social and governance performance.” 6

The pressure is on to prove ESG progress   

Reporting on ESG initiatives may soon shift from voluntary to mandatory in the healthcare sector as regulators and others demand proof of performance.

For example, the U.S. Securities and Exchange Commission’s (SEC) proposed climate disclosure requirements would require publicly listed companies, including healthcare organizations, to report on their GHG emissions and climate risk governance, strategy, risk management, and impacts.And some believe ESG reporting requirements for non-profit healthcare organizations are not far behind. 

On the social responsibility front, healthcare organizations that purchase items from suppliers engaged in human trafficking and/or forced labor practices could be held accountable under the U.S. Congress Trafficking Victims Protection Reauthorization Act (TVPRA).

The Association for Healthcare Resource & Materials Management (AHRMM) highlighted this risk during its August 2023 AHRMM23 Conference and offers resources on its website for members to assess and address it.

And just last month, The Joint Commission (TJC) announced its Sustainable Healthcare Certification Program, which will evaluate “whether hospitals and critical access hospitals have put in place key structures and processes to improve energy efficiency, decrease their carbon footprint, and decrease waste.” While initial participation in the program, effective January 1, 2024, will be voluntary, it’s reasonable to question how ESG improvements could impact accreditation status down the road.  

Why supply chain is positioned to lead in ESG in 2024 

The supply chain presents myriad opportunity for a health system or hospital to make measurable improvements in its social and environmental initiatives through the purchases it makes – from the selection of diverse suppliers to products with less packaging waste.  

But given financial, labor, and accountability barriers, healthcare organizations need to drive requisitioners and buyers toward responsible purchasing without the burden of added work and costs. At the same time, they also need to automatically capture metrics on this purchasing activity for voluntary and mandatory reporting.  

That’s where directed buying within the cloud-based GHX Marketplace comes in. As a single purchasing gateway for all clinical and nonclinical supplies and services, the online requisitioning tool directs users to preferred sources of supply, in this case, suppliers and products that align with the healthcare organization’s ESG goals.  

Within GHX Marketplace, buyers are presented with information to help them make socially and environmentally responsible purchasing decisions. As a result, ESG isn’t a separate task or added burden/expense but rather an integral part of existing supply chain workflows.  

GHX Marketplace captures and analyzes data on ESG purchases and provides to supply chain leaders metrics and reporting to prove to stakeholders (e.g., regulators, board members, shareholders, donors, payers, etc.) they are making progress toward meeting their goals. 

Next up: how to make ESG a supply chain strategic priority in 2024 

In my next post, I’ll present examples of how you can leverage directed buying to drive improvements in all three areas of ESG – lowering environment footprint, addressing the society impacts of healthcare delivery, and governing your work in these areas. 

Read it here: How to Make ESG a Supply Chain Priority for Healthcare in 2024

Sources

1. Senay, Emily & Cort, Todd & Perkison, William & Goldoni Laestadius, Jasminka & Sherman, Jodi. (2022). What Can Hospitals Learn from The Coca-Cola Company? Health Care Sustainability Reporting. NEJM Catalyst. 3. 10.1056/CAT.21.0362.

2. ESG in Health Care Part 1: ESG is nothing new. But it's here to stay. Advisory Board, https://www.advisory.com/blog/2022/10/esg-part-1# 

3. Creating an ESG strategy at healthcare organizations, GrantThornton, May 16, 2023, https://www.grantthornton.com/insights/articles/health-care/2023/creating-an-esg-strategy-at-healthcare-organizations 

4. Greening the healthcare supply chain: Strategies for cross-sector partnerships, Modern Healthcare, https://www.modernhealthcare.com/environmental-social-governance-and-sustainability-esg

5. HHS Bolsters Support and Resources for Health Sector Resilience and Emissions Reduction, HHS, April 21, 2023, https://www.hhs.gov/about/news/2023/04/21/hhs-bolsters-support-resources-health-sector-resilience-emissions-reduction.html 

6. ESG and health care: Where does it fit? Bricker & Eckler, February 18, 2022, https://www.bricker.com/insights-resources/publications/esg-and-health-care-where-does-it-fit 

Marlin Doner

VP of Product Management