I recently collaborated with Moss Adams for a virtual discussion on the impact of various climate regulations in the healthcare industry. Our conversation equipped healthcare organizations with essential tools for ESG compliance and navigating climate-related regulations.
Together with Kristen Olko and Madison Poitras, we explored the intersection of Environmental, Social, and Governance (ESG) principles within the healthcare industry. Our discussion focused on the implications of new climate regulations, the challenges healthcare organizations face, and practical strategies for compliance and operational improvement.
Overview of ESG in Healthcare
ESG Integration: We emphasized the importance of integrating ESG principles into healthcare operations, highlighting how environmental sustainability, social responsibility, and robust governance can drive long-term success.
Regulatory Landscape: The discussion covered key regulations such as California’s Senate Bill 253 and Senate Bill 261, which mandate greenhouse gas emissions reporting and climate-related financial risk disclosures for large corporations.
- Senate Bill 253: Requires large corporations to disclose greenhouse gas emissions across Scope 1, Scope 2, and Scope 3. The California Air Resources Board (CARB) has until July 1, 2025, to adopt implementing guidelines, with Scope 1 and 2 disclosed starting in 2026, and CARB establishing a schedule for Scope 3 in 2027. This bill applies to entities with over $1 billion in revenue and includes detailed reporting standards based on the Greenhouse Gas Protocol.
- Senate Bill 261: Targets companies with over $500 million in revenue, mandating biannual reports on climate-related financial risks and adaptation measures, beginning January 1, 2026. This bill focuses on acute and chronic physical risks and transition risks associated with a low-carbon economy, using the Task Force on Climate-Related Financial Disclosures (TCFD) framework.
Practical Steps for Compliance
Carbon Accounting: We discussed the basics of carbon accounting, breaking down Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased energy), and Scope 3 (all other indirect emissions). Accurate carbon accounting is crucial for compliance and strategic planning.
Data Collection: Emphasized the importance of gathering accurate data from upstream and downstream activities. This includes emissions from suppliers and the disposal of medical waste.
Vendor Partnerships: Highlighted the need to partner with third-party vendors for accurate emissions calculations and reporting. These partnerships can streamline the data collection process and ensure compliance with regulatory standards.
Challenges and Solutions
Rising Costs: Addressed the financial challenges of implementing ESG strategies, particularly the high energy consumption and waste disposal costs in healthcare. We suggest exploring creative solutions to reduce waste and improve energy efficiency.
Impact on Patient Care: Discussed how climate change affects patient care, especially in marginalized communities. Extreme weather events can increase patient load, disrupt healthcare services, and increase the demand for emergency care.
Impact on Hospitals/Medical Facilities: In addition to extreme weather events increasing quantity of patients and impacting the types of ailments, extreme weather events may also disrupt communication, electricity, and other infrastructure. Successful healthcare facilities need to anticipate these challenges and implement solutions ahead of time, including obtaining generators and the air permits to operate them and having proper flood and erosion control in place, as well as other alternatives to business as usual.
Internal Controls: Stressed the importance of establishing robust internal control systems to ensure the accuracy and reliability of ESG data. This includes integrating ESG metrics into existing financial systems and ensuring continuous monitoring and review.
Lessons Learned
Start Early: Advised starting the ESG compliance process early to allow ample time for data collection, verification, and strategy development. It takes generally two (2) years or more of data collection and analysis to have a defensible carbon emission inventory. Early preparation can mitigate risks and uncover opportunities for operational improvements.
Legal and Financial Risks: Highlighted the potential legal and financial risks of non-compliance, including regulatory penalties and litigation. Ensuring accurate and defensible ESG reporting can protect organizations from these risks.
Opportunities for ROI: Encouraged viewing ESG compliance as an opportunity for return on investment. By identifying and implementing efficiency improvements, healthcare organizations can reduce costs and enhance sustainability, and make fans out of skeptics.
Our discussion underscored the critical role of ESG principles in the healthcare sector. By proactively addressing climate risks, improving data accuracy, and integrating ESG into strategic planning, healthcare organizations can navigate regulatory challenges and drive long-term success.