Editor’s note: Health care leaders are operating in an environment of seismic change. From the climate crisis to the renewed focus on social justice to the drive for health equity, a myriad of forces is converging to pressure organizations into reimagining the way they do business and interact with their constituencies. To help health care organizations navigate the complex path forward, Manatt is planning a series of articles around ESG—a set of standards for assessing organizations based on three main criteria: environmental, social and governance. According to a recent article from the Corporate Finance Institute, ESG gives organizations a framework for understanding and measuring how sustainably they are operating—and how effectively they are managing their risks and opportunities related to environmental, social and governance factors. Taken together, these three criteria are the measure of an organization’s social responsibility. Our series kicks off with the article below, examining providers’ role in energy conservation and sustainability. Plus, watch your email for your invitation to our first ESG webinar later this fall.
How Will the Commitment and Goals Around Energy Conservation and Sustainability Be Integrated Into the Organization’s Mission and Vision?
Hospital leaders have a lot on their plates. After nearly three years of upheaval, many are—understandably—focused on recovery and repair. Given the overwhelming priorities of care delivery and health equity, news of important developments in climate and energy policy may have been set aside—but these developments are essential for hospitals to understand. In particular, two important events (the Supreme Court decision in West Virginia v. Environmental Protection Agency and the enactment of the Inflation Reduction Act (IRA)) have occurred against a steady drumbeat of news about the rising risks of climate change and the urgency of long-term efforts to promote conservation and sustainability.
Providers have an important role to play in energy conservation and sustainability. First, hospitals are large consumers of energy. Reducing energy consumption and retrofitting on-site infrastructure to clean energy sources can reduce emissions and costs. Second, hospitals are guardians of their surrounding communities’ health. For not-for-profit hospitals, this role is codified in requirements around community benefit and community needs assessments. Polluting local power generation has a disproportionate impact on surrounding communities in the form of cardiovascular disease, higher incidences of asthma, and other disease burdens.1 In recognition of hospitals’ important role in environmental sustainability, the Agency for Healthcare Research and Quality (AHRQ) recently released a toolkit on reducing carbon emissions specifically aimed at health care facilities.2
One precedent for hospitals’ environmental sustainability activities is their waste stream efforts. In addition to polluting energy use, hospitals are generators of waste, such as medications and contaminated materials, that can be hazardous and costly to dispose of—and hospital leaders understand that safe waste disposal is part of their mission. One report calculates the health burdens associated with health care waste, pollution and emissions as commensurate with the number of hospital deaths due to preventable medical errors, a frequent focus of attention.3 Unlike medical errors, hospitals’ opportunities to manage their emissions and waste extend well beyond their patient care activities to services as diverse as cafeteria contracts, building management and parking lot design.
While hospitals’ waste management experience provides one example of how to integrate attention to sustainability into their broader mission, there are some key differences between the two areas. Hospitals have managed their waste stream under state regulation since federal regulations promulgated by the Environmental Protection Agency (EPA) expired in 1991 (for some types of waste, federal agencies such as the Centers for Disease Control and Prevention (CDC), the Food and Drug Administration (FDA) and the Occupational Safety and Health Administration (OSHA) all play roles).4 Energy efficiency and sustainability are at a different, earlier stage, with a more limited, fragmented state and federal regulatory picture and more market-driven incentives for many investments.
Some hospitals and systems are taking the lead in energy efficiency. In April 2022, the Department of Health and Human Services (HHS) issued a call for hospitals and other health care entities to voluntarily pledge to halve their emissions by 2030 and eliminate them by 2050. At least 61 signatories, representing 650 hospitals, among others, have since joined the pledge.5 These hospitals will be important sources of learning as they move toward reduced emissions.
What Concrete Initiatives and Actions Should Be Included in the Plan?
Providers with more mature sustainability programs have a bevy of clean options, including on-site renewables and storage, combined heat and power (also known as CHP, or using waste heat to produce electricity), and ultimately full electrification. IRA can support all of these avenues.
Hospitals wanting to take advantage of IRA should first do an energy/emissions audit of facilities to gain visibility into their energy profiles. IRA incentives are not specific to hospitals but address a broad spectrum of functions related to commercial businesses that affect hospitals and health systems as well (hospitals with not-for-profit status can benefit from a direct payment alternative to tax credits6). However, these incentives are directed primarily at hospitals that are ready to take major steps toward full decarbonization, not those that are just starting out. Hospitals in earlier stages of transformation still face a complicated patchwork of private funding programs. The federal government has provided helpful guides,7 but hospitals with limited resources will benefit from more intensive technical assistance and support.
Hospitals should be particularly mindful of how their decarbonization and emissions reduction approach affects their local communities. If their strategy relies on purchasing renewable energy credits from distant renewable sources, such as remote solar or wind farms, while continuing to use polluting energy sources, such as on-site fossil fuel generators, they are missing opportunities to support environmental justice and reduce their communities’ exposure to particles with a proven role in perpetuating health inequities. In addition, all hospitals can use IRA to play an important role in their communities, by facilitating community homeowners’/renters’ use of incentives for residential improvements.
What Are the Potential Risks and Hurdles—and How Can They Be Overcome?
Prioritizing understanding and addressing climate issues. Health care leaders see the inevitability of climate change’s significance to their work, but that alone may not be enough to advance sustainability efforts. In a survey of clinicians, clinical leaders and executives at leading provider organizations, two-thirds of clinicians and clinical leaders and more than half of executives described a moderate or high recognition of the health effects of climate change, and two-thirds of U.S. respondents in the group said it was very or extremely important that their own organizations work to combat climate change. However, fewer than 20% of U.S. respondents reported that climate change was having a significant effect on their organization today.8 In addition, with a few exceptions (assessment of carbon footprint, institution of supply chain sustainability requirements and updated disaster planning), U.S. respondents were less likely than their international peers to report that their organizations had not taken key steps to reduce their impact on climate change and promote resilience.
Securing a stable regulatory environment and establishment of funding flow. Energy markets and policy are highly localized. Each market operates with different rules, incentives and grid conditions; this complexity drives up costs and requires sophisticated regulation and administration. However, the federal government may face challenges in its regulatory efforts due to the recent West Virginia v. Environmental Protection Agency decision. Although the decision does not directly address regulation of sustainability in the health care sector, it may have chilling effects on any federal regulation that comes without a direct congressional mandate,9 such as Medicare conditions of participation, rules governing investment in community benefits for nonprofit hospitals, and investments that count toward medical loss ratios for payers, which are routinely managed through the rulemaking process.
While the federal government’s rulemaking ability may have been indirectly hampered by West Virginia v. Environmental Protection Agency, the federal government still plays an important role as a payer and regulator of services, including having many levers and incentives that could sustain hospitals’ environmental efforts. More tangibly, the Federal Energy Regulatory Commission (FERC) is using its authority to create clear market signals for distributed resources to improve project economics.
Embracing new investment logic and innovative financing models. Transitioning to clean energy is an expensive proposition. One of IRA’s chief mandates is to draw down the cost of critical climate transitioning technologies. Historically, investments in energy improvement required large up-front expenditures, diverting essential cash away from mission-critical operations. Today, innovative third-party ownership models enable hospitals to capture energy savings (and corresponding emissions reductions) and associated cost efficiencies. Hospitals are a ripe market for these models, given their creditworthiness and the size of their energy systems.
Siloed and outdated governance/decision making. Decisions about energy can no longer be the exclusive purview of facilities departments. Climate is an existential threat to communities and requires a big enough investment to warrant the attention of senior leaders. These leaders need a new decision framework for investments.
In addition to potential limitations on federal regulation, changes in federal leadership could quickly alter approaches to incentives and regulations.
States have an important role to play, as well. For example, California has begun taking independent steps to bolster renewable energy options,10 and the New York Power Authority has provided grants and incentives for hospitals that participate in load-balancing activities. Hospitals can engage with their state governments to understand how state policies can bolster their decarbonization and sustainability efforts. In particular, hospitals can support efforts to remove complexity and outmoded regulatory frameworks that inhibit the proliferation of clean energy technologies. Supportive policies that increase the ability of solar, batteries, electronic vehicles and similar technologies to participate in servicing their local grids will be the single biggest lever that unlocks the potential of these resources.
How Can Organizations Ensure Compliance?
Given the lack of broad-based legal and regulatory decarbonization requirements for hospitals, compliance will depend on leadership’s willingness to prioritize these efforts. For example, members of hospital boards (or other governance structures) can review the results of energy audits and follow up with a gap assessment that identifies key priorities as well as timelines to address each priority. Priorities might include updating of ventilation systems, replacement of mechanicals or infrastructure with more energy-efficient equivalents or identification of new energy sources and execution of contracts.
Success will require a 360-degree approach with buy-in from board members to frontline staff, clinicians and administrators. Board members can guide the creation of a committee to give visibility to sustainability efforts. Monitoring guidelines should reflect the proportion of power purchased from clean sources, or generated from on-site sources, among other energy and waste reduction metrics. Organizations should set visible, audacious and public goals. Public commitment is a huge motivator.
New training and change management will increase the effectiveness of emissions reduction efforts. For example, organizations can install automated lighting in some locations, but for other locations, they also will need to build awareness and accountability among frontline staff to conserve without reducing patient comfort. As with any change management effort, internal communications must be sharp. Employees need to understand why these changes are important and how they will affect day-to-day work. Goals can be set from the highest levels of an organization, but whenever possible, strategies to implement those goals should emerge from the front lines. This approach ensures buy-in at all levels of the organization. If needed, organizations can consider tying compensation to measures related to ESG compliance.
Some advocacy organizations have developed playbooks that hospitals can use to guide their efforts, although hospitals will need to customize their recommendations to address their individual circumstances and needs.11
How Will Results/Success Be Measured?
Hospitals do not currently face reporting requirements around energy efficiency that are specifically related to their health care delivery function. However, they do encounter many of the same reporting requirements as other similarly situated large buildings. Many jurisdictions (more than 45 as of 2020, including entire states such as California and New Jersey, and large cities such as Atlanta, Boston and Chicago)12 require buildings to report their energy output on an annual basis. Programs such as Energy Star and organizations like the American Society for Health Care Engineering (ASHE)13 provide templates to facilitate such reporting. Nearly two-thirds of hospitals reportedly use the EPA’s Energy Star Portfolio Manager reporting system and benchmarking tool, which identifies scores that designate top performers.14
Industry-standard measurement and benchmarking programs may not take into account the full range of ways that hospitals affect greenhouse gas (GHG) emissions, some of which have no equivalents in other building types. For example, use of inhaled anesthetics in hospital operating rooms can have a measurable impact. An hour’s use of desflurane, the inhaled anesthetic with the greatest environmental impact, at higher concentrations is equivalent to driving 400 miles in a gasoline-powered car.15 The American Society of Anesthesiologists reports that hospitals can significantly reduce their operating rooms’ contributions to GHG emissions simply by substituting other inhaled gases for desflurane and managing fresh gas flow rates to minimize the amount of gases that are vented to the outdoors. Hospitals can track patterns of anesthesia use in their operating rooms to assess their efforts to increase efficiency.
How Will the Program and Its Outcomes Be Communicated to Relevant Stakeholders?
As discussed above, the success of any program depends not just on the willingness of leadership to prioritize efforts but on the support and commitment of the entire organization across every level and function. The focus on meeting energy and sustainability goals should be woven into the fabric of the hospital’s culture. The key to making that happen is consistent communication explaining the programs and their goals, tracking progress toward objectives and sharing the results of the organization’s joint efforts. Tools for internal communication include the following:
- Hold training programs across the organization, explaining why these issues are important, where the organization currently stands, and the exact steps and timelines being put into place to drive change. Consider holding the trainings by function so trainers can speak specifically to the concrete actions each function can take to help achieve larger goals. Attendees can participate in developing ideas for how they and others on their teams can make a difference.
- Publish monthly newsletters, updating clinicians and staff on key initiatives, new programs and progress toward objectives. Include spotlights on individuals or departments that have been particularly creative and/or effective in helping advance programs.
- Devote a section on the home page of the hospital’s intranet to the programs, with reminders and tips on compliance, as well as updates on program status and announcements of new initiatives.
- Keep the programs front and center of people’s attention with posters highlighting compliance reminders and spotlighting goals and status.
- Provide department leads with slides/information on the programs to incorporate into regular staff meetings, so they become part of the hospital’s routine and daily conversations.
- Consider an awards program to recognize individuals or teams that have made the greatest contributions or advances and host an event to honor winners.
It’s important in designing communications to demonstrate ongoing commitment. Given all that hospital leadership and staff have on their plates, it’s easy for these programs to fall to the bottom of priority lists without constant reminders to keep them visible.
With the critical role that hospitals play in their local communities, external communications also are important. Hospitals should share their programs with the communities they serve, with a focus on how these initiatives further the hospital’s role as “guardians of the community’s health.” A section on the hospital’s website devoted to energy and sustainability efforts, a regular department in patient newsletters focused on environmental issues, articles in local press around the initiatives, and social media are all avenues for sharing information, highlighting the hospital’s commitment to energy efficiency, and announcing progress and achievements.
1 https://www.cleanegroup.org/wp-content/uploads/The-Peaker-Problem.pdf
2 Reducing Healthcare Carbon Emissions: A Primer on Measures and Actions for Healthcare Organizations to Mitigate Climate Change (ahrq.gov)
3 Assessment of Environmental Sustainability and Corporate Social Responsibility Reporting by Large Health Care Organizations | Environmental Health | JAMA Network Open | JAMA Network
4 Medical Waste | US EPA
5 Biden-Harris Administration catalyzes private health sector commitments to reduce climate impacts and protect public health | HHS.gov
6 Clean Energy Tax Credits Get a Boost in New Climate Law | Article | EESI
7 Federal Resources to Support Emissions Reduction and Climate Resilience for Healthcare Stakeholders | HHS.gov; Better Buildings Financing Navigator | Better Buildings Initiative (energy.gov); Healthcare Energy Financing Primer | Better Buildings Initiative
8 The Growing Link Between Climate Change and Health | NEJM Catalyst
9 HHS, AMA dismayed by Supreme Court’s controversial EPA power plant ruling (fiercehealthcare.com)
10 California Approves a Wave of Aggressive New Climate Measures – The New York Times (nytimes.com)
11 https://climatecouncil.noharm.org/, Getting Leadership Support – Sustainability Roadmap
12 IMT-Benchmarking-Matrix_July-2022.pdf; note that where a city or county is located in a state with emissions reporting requirements and the city or county has separate, more stringent requirements, this estimate counts both jurisdictions separately.
13 Energy to Care | ASHE
14 Hospitals need to publicly report their greenhouse gas emissions – STAT (statnews.com)
15 Greening the Operating Room (asahq.org)
