Michael Fine, Partner, Wyatt Tarrant & Combs LLP, and Robin Cantor, Managing Director, Berkeley Research Group, discuss how health care organizations can incorporate environmental, social, and governance (ESG) principles into their corporate strategies, with a focus on environmental principles. They cover why health care organizations are expanding their focus on environmental initiatives, options for health care organizations to access financing for environmental initiatives and opportunities under the Inflation Reduction Act, and how adopting ESG strategies can be a form of risk management.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Michael Fine, Partner, Wyatt Tarrant & Combs LLP, and Robin Cantor, Managing Director, Berkeley Research Group, discuss how health care organizations can incorporate environmental, social, and governance (ESG) principles into their corporate strategies, with a focus on environmental principles. They cover why health care organizations are expanding their focus on environmental initiatives, options for health care organizations to access financing for environmental initiatives and opportunities under the Inflation Reduction Act, and how adopting ESG strategies can be a form of risk management.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
This episode of A H L A speaking of health law is brought to you by A H L A members and donors like you. For more information, visit American health law.org.
Speaker 2:Hello and welcome to our podcast. My name is Mike Fine . I'm a partner with the law firm Wyatt Tarrant Combs in Louisville, Kentucky. I advise healthcare organizations on a whole host of corporate and tax related issues, and it's a pleasure to be speaking with you. Today with me is Robin Cantor from Berkeley Research Group, and today we're gonna be talking about expanding e s g opportunities and incentives, as well as challenges for healthcare organizations. Robin, where do we find you today?
Speaker 3:Well , uh, I , I'm, I'm based in the Washington DC office of , uh, Berkeley Research Group, but I am actually in , uh, Maryland where I live. So you find me in Shadyside, Maryland today.
Speaker 2:Lovely area of Maryland. Uh, having lived in DC four separate times, I , I've never actually lived in the Maryland side. I've , I've only, I've lived in the district and , and Virginia. So , uh, thank you for joining today. Te tell me a little bit about your background here and , and let our audience know how your practice intersects with E S G and, and, and what you do.
Speaker 3:Sure. Well, first, first I just wanna start out and say that , um, uh, I am a , uh, an economist and managing director at Berkeley Research Group. Uh, Berkeley is a , uh, global consulting firm, and they , uh, tend to concentrate in , um, certain areas , uh, to help clients in disputes and investigations, corporate finance and strategy and operations. And , um, we're , uh, now 44 offices , uh, big and 1400 employees, and we're on eight continents. So , um, have , have grown quite a bit since the firm was founded in 2010 . Uh, my own background, I , uh, as I, as I mentioned, I'm an economist. I , uh, received my degree in economics from Duke University. And , um, I have always , uh, practiced in the area of economics at the interface of science and technology. And, and most of the work that I do is , uh, involves evidence-based analysis for , uh, different matters that involve either energy or environmental or healthcare questions. And I , uh, co-lead the class action litigation and the environmental advisory practice at B R G . And with that background in environmental and energy , uh, and healthcare , uh, I have been asked and, and work with a number of colleagues to really develop the E S G practice at , um, Berkeley Research Group. So my background also includes experience , um, where I was at Oak Ridge National Laboratory , uh, which is one of the Department of Energy's , uh, multipurpose laboratory laboratories. And I was , uh, on the research strategies committee for the Science Advisory Board of E P a . I mean, that was all terrific background for thinking about these issues that come up under environmental, social, and governance, that, that umbrella , uh, that we see emerging to deal with many of these issues.
Speaker 2:We're , we're so lucky to have you here today, is E S G and related issue are , and those related issues, are they part of the top 10 that healthcare organizations need to be thinking about?
Speaker 3:I , I , I think , um, I, I have to say , uh, uh, just absolutely yes , uh, to that question. And I, I think that it's, it's very easy to support that, yes, because you can , uh, you know, pick up the paper, look , uh, at any listing of conferences that are coming out from profe professional societies, all there is so much attention right now to E S G , and it's, it obviously isn't just the us , it's , um, internationally. So Europe is , uh, really seems to be leading a lot of the effort here in what we're gonna see in the way of , uh, structure for E S G reporting and issues. And , um, other parts of the, the world are , um, also , uh, very focused and very proactive on this front.
Speaker 2:In many ways, the rest of the world is ahead of us on these issues. And I'll note the farming industry just had a big conference in Frankfurt, and here, I don't mean Frankfurt, Kentucky, I mean, Frankfurt, Germany, where E S G dominated what the pharma industry was thinking about. So, totally agree with you on that. As I mentioned today, we're gonna take a different approach on this topic. Other than a brief mention, we're not really gonna talk about E S G from a definitional standpoint. And while we're gonna highlight a lot of opportunities for healthcare organizations, we focus on some of the IRA credits that are available. We're gonna mention a lot of other opportunities that exist that have not been touched on by some of the prior discussions. So, Robin , just to level set here, what types of activities are typically considered among E S G strategies?
Speaker 3:Well, with respect to the environmental strategies, I think that, of course , uh, immediately focuses on a company's energy, use their water, use, their pollution, their waste , um, their use of natural resources. But it also , uh, will entail the , um, different initiatives or programs that they have launched to address environmental, or not just environmental , uh, issues, but also the energy efficiency issues as well. And , um, the social , uh, tends to be more focused on , uh, issues of the product safety, the employee treatment , um, what kind of impact they might have on communities , uh, charitable initiatives. But it's , it is , it is the one area that many healthcare organizations have tended to report about. Uh, the , some , I saw one report that said 90% of the public statements coming from healthcare organizations , uh, addressed social issues. And so social issues have always been front and center with many healthcare organizations, but there's a lot that crosses over from the environmental , uh, to the social issues. And we'll, we'll talk about that , uh, a little bit more. The governance, of course, gets into the issue of how the organization con is governed and conducts itself, the board diversity , uh, executive compensation, the ownership, and , uh, ethics questions.
Speaker 2:And for most of our time here today, we're gonna be focusing on the e In your mind, what , what is elevating the importance of an attention to the E E S G for healthcare organizations right now?
Speaker 3:Well, I think that , um, there's a number of compelling reasons why healthcare organizations are expanding their focus on the e uh, I think first and foremost, especially just in the last few days, but certainly over , uh, the last couple of years, we've seen really very impactful , uh, weather events and extreme weather events that have affected healthcare organizations as, as it's affected , um, any other organization and communities. And , uh, again, I think that , uh, aspect of it, the, the, the vulnerability and the resilience , um, uh, that healthcare organizations need to build into, they , they need to reduce vulnerability, but obviously build resilience into their system. I think that has increased the attention on what are they doing with , uh, their own programs to make sure that, for example, if there is an extreme weather event, they don't lose all their energy services. I mean, that, that , um, is something that, that clearly will be front and center. But also , uh, what we are seeing is that when you think about recruitment, retention and other community goals , uh, for healthcare organizations, things that used to be in the S category now can be greatly facilitated with , uh, investments in the e category, whether that's , uh, greater energy efficiency or lower environmental impact. Um, it can , uh, really affect the, the view of the healthcare organization to various communities that they, that they are interacting with. And that includes not only their employees, but also would include the communities in which they exist. So there is , uh, a number of things that we know , uh, the certain facts that are worth mentioning here quickly. Um, we do know that the u he , US healthcare industry, their expenditures account for about 20% of , uh, U S G D P . So they're very important in the , in the context of if you're trying to change the economy, make the economy , um, more resilient, less dependent on , uh, uh, uh, fossil fuels. If you're trying to decarbonize the economy, then healthcare will clearly be important. We also know that about 35% of the , um, of those expenditures from healthcare , uh, with the greatest greenhouse, greenhouse gas emissions , uh, that is coming from hospital care. So hospitals are , uh, large facilities using a lot of energy and , um, with a tremendous amount of opportunity to modify the energy and the environmental impacts. And then we also know that , uh, the nonprofit organizations account for about half of the US hospitals, but as, as I've said , um, traditionally the hos healthcare organizations have have focused on the s in the E S G and , um, not so much the e part of it, but there are now a number of efforts , um, at , uh, HHS at , uh, national Academy of Medicine of at C M S D O E E P A , all these different , um, agencies are looking at , uh, what, what, what can healthcare organizations, what can hospitals do , uh, to improve their e performance? And one of the most important , uh, components of that particular movement , uh, has been to , uh, have a 2022 h h s climate pledge. So I think , um, this has been mentioned before in some of the discussions, but importantly, this pledge , uh, requires an organization to reduce their , uh, uh, greenhouse gas emissions by 50% by 2030. And they, they need to use a baseline that is no earlier than 2008. So compared to some baseline, you're reducing your emissions by 50% and then achieve what's called net zero by 2050 . And that just means that your, whatever emissions you do have are either zero now, or they are , uh, balanced out by , uh, extractions or, or , or credits that you might be taking , uh, for admissions. And they have to publicly account for this goal every year. So that, that's a , I think, an a very important re reporting requirement. And the other part of this pledge is that they do have to conduct a, what's called a Scope three emissions, a , an inventory of their Scope three emissions by the end of 2024 . So Scope three emissions are tied to the supply chain. And , um, and we'll talk , uh, uh, later about what this means with respect to a challenge. But I think this is another aspect of the, of the pledge that is important for the healthcare organizations. And we also , uh, see that , um, there are now initiatives that have been launched to assist and support healthcare organizations in decar decarbonizing their operations. And one of those, an important one is the , uh, H H s and , uh, and n a m have launched the Action Collaborative on decarbonizing the US health sector in, in , and they did this in the fall of 2021. And it's a public-private partnership of healthcare leaders that are committed to the sector's environmental impact, while strengthening the sustainability and the resilience. And they have , um, uh, provided a , a quite a number, I , I think it's more than a dozen now, a number of webinars for organizations where you can go and you can learn about the different programs or, or different data sources or address particular issues to really facilitate this effort to decarbonize. So they, they have , um, provided , uh, tools and resources and , uh, uh, I think very good , uh, informational support for meeting these goals.
Speaker 2:Absolutely. Yeah. The National Academy of Medicine's Action Collaborative has something like 110 healthcare organizations that have already signed up to support those efforts. So there's certainly interest there from the healthcare community, but these environmental related projects are capital intensive with hospital margins being slashed, particularly since the Coronavirus pandemic. Often the financing is a big constraint, especially for nonprofit healthcare organizations that don't have the same access to capital that for-profit organizations might. What are some of the options here and opportunities that healthcare organizations could be considering now?
Speaker 3:Well, I, I'm gonna , I'll cover some of them. Um, I think at a very high level, because I am not a , um, tax advisor or a , uh, someone, I , I'm an economist and I would , uh, be involved in the evaluation or due diligence of some of these pro how these programs might work for a pro project, but not , uh, I'm not an expert on the functioning of the , uh, programs , uh, directly,
Speaker 2:If only lemme just mention a tax person available who could chime in here and perhaps add some anecdotes as we review these opportunities.
Speaker 3:Right , exactly. Exactly. Um , but lemme mention the, the , uh, HUD has , uh, in , from its Office of Residential Care facilities, they have what's known as the Section 2 32 Green Mortgage Insurance Program. Uh, and this is providing substantially reduced mortgage rates to residential care facilities to, and, and , and to the extent that the funds are used to promote healthy, green and energy efficient healthcare facilities. Um , there is a discussion on , uh, going back to the , uh, uh, uh, H H S and nam , the, the Action collaborative that you can find , um, uh, discussion on how this program can function and be of use to healthcare organizations. But one of the things they did mention in that discussion was that it is likely to be extended to hospital programs as well, although I haven't seen , um, uh, that rollout yet. But , uh, this is a substantial reduction of 75 basis points in the , um, rates. And that certainly will be a , um, encouraging for these types of facilities to make these investments. There's also the new market tax credit , um, from treasury. Uh, it's not, it , it's not specifically , uh, designed for healthcare and decar decarbonize decarbonization activities, but can support these goals because it incentivizes private investment in low income and underserved communities and investors , uh, do receive re substantial tax credits. Uh, and healthcare businesses can receive favorable borrowing terms , uh, for projects that align with this decarbonization goal. Uh, and, and even projects, including hospital facilities.
Speaker 2:Right? And these are really complicated transactions. I, I've worked on a few of them. One where a healthcare organization was building its new headquarters campus in a historically underinvested in community, and they leveraged new markets tax credit to help support that construction. That building was gonna be lead certified, and it , it offered them opportunities that lowered their expense from a borrowing side and enabled them to do things they otherwise wouldn't have been able to. And , and I know hospitals look at the new market tax credits as well. A lot of opportunity there. Robin . Let , let's talk about some of the opportunities that are available to healthcare organizations under the Inflation Reduction Act. Talk to us a little bit about the opportunities under ira most interesting and available for healthcare organizations.
Speaker 3:So I think that one of the , uh, the areas that , uh, healthcare organizations will want to , uh, uh, address and consider for their projects , um, projects especially that would assist in decarbonizing their systems , uh, are the infl , the investment tax credit, and the , uh, production tax credits that are being offered to the organizations. And not only do these tax credits, these tax credits, number one, are , are substantial, but, but not only do they offer , um, incentives to focus on certain technologies that , um, will help de decarbonize like solar and wind technologies. Um, they also , uh, look at , um, uh, pr the , the concept of , uh, biomass and , uh, uh, thinking about combined heat and power. I mean, there's, there's an incentive here to expand this beyond the facilities themselves and also give some consideration to creating these microgrids, which , um, can be very important for local communities. But , uh, I, I don't, I'm not gonna speak to the specifics of the, the base , uh, incentives themselves, but what I do wanna point out is that there are substantial bonus credits that , um, organizations can , uh, use if they are , uh, making certain choices about where these facilities are cited. So, for example, if they're cited in energy communities, which are communities that , um, there's a, a , a specific designation of these communities , um, in i r s and , uh, uh, just released , uh, the, the , the, the , the conditions , uh, for the energy communities. But also you can go to the Department of Energy website and you can see where these , uh, communities are mapped across the country. It's a , uh, actually quite a number of communities that , um, are displayed. Uh, if they had a Brownfield site or if a , um, a certain proportion of the community's economic activity was tied to energy activities, then , um, these communities would be , uh, would, would essentially enable the healthcare organization to take an additional credit , um, uh, both for the investment tax credit and also the production tax credit. And there's additional incentives given if the facilities are located, or the project or the investment is located in low income communities. So , uh, when you combine all of these things, I believe that there can be as much as a 70% , uh, tax credit that would be available for an investment in a project , uh, that was consistent with the requirements.
Speaker 2:Yeah . For those who are keeping score at home notice 2023 dash 29 was that guidance that just came out from I R s , I think it was last week
Speaker 3:Yeah.
Speaker 2:Focused on the Energy Community's bonus credit program. And stay tuned for more here. This is a , a , a developing area of law, and we expect a lot more guidance coming from I r s and Treasury. So what's clear to me is that there are many ways to engage with these opportunities, limited only by an organization's imagination, but shall I also say limited by the resources that are available? How can a healthcare organization know that it's maximizing the potential? Are are there ways for them to due diligence these opportunities and figure out in which programs they should be participating?
Speaker 3:Well, I , I , I , I wanna , I wanna go back a moment to just bring up , uh, another thought on the opportunity. So , uh, there's, there's more in the IRA that also deals with , um, uh, credits. I , I , I don't, what I wanna bring out here is that , um, IRA also appropriates funds to 16 federal agencies to decarbonize the economy. And , um, E P A will receive 27 billion for the Greenhouse Gas reduction fund. Um, but 15 billion of that , uh, is targeted to be used to help low income and disadvantaged communities deploy or benefit from projects that reduce greenhouse gas emissions and other air pollution. And this requirement aligns with , uh, presidents Biden's Justice 40 initiative, which committed to delivering 40% of the bene benefit of certain federal investments to disadvantaged communities. Now, I bring that up because I think that is an important consideration on how the e and the S are getting married. Um, as we're thinking about e s g planning going forward , uh, environmental justice, if you will, is , uh, I think a, an important , uh, perhaps , uh, you know, additional , uh, consideration for health equity, which has always been an important area for healthcare organizations. So , uh, this focus now on environmental justice, which I would say is across many federal, state, and local , uh, perspectives, that that's something that the healthcare organizations will want to review and address as well. But going to your question about what are some of the challenges, I think one of the first challenges, and one that comes into play anytime organizations attempt to shift their perspective on a , um, a social or policy issue, is the, the path dependencies that may already be embedded in their organization. So, for example, if they have existing contracts with suppliers , um, if there are , uh, historical obligations for the community or , uh, with , uh, their , uh, business relationships, then those kinds of , uh, conditions can make an organization have , you know, be diff It can be difficult to turn or pivot in terms of your focus. And certainly in healthcare, regulatory hurdles can be one issue that healthcare organizations will have to deal with as they consider new products that , uh, might need to be reapproved , uh, for use if , if they're switching from one supplier , uh, and now to another where there is a different, for example, scope three , uh, emissions consequence. But one of the , uh, point I I'll make here on these past dependencies is that, at least in the literature, it's now been suggested that , um, some of these path dependencies have been relaxed because of the disruptions that were caused by the pandemic. So this might be a particularly good opportunity of time , uh, to be rethinking some of these relationships that might be a problem for moving forward with decarbonization. There's also a going to be a , a large demand for new data and new , uh, support resources as healthcare organizations attempt to measure their scope one, two, and three , uh, emissions. And again, we know that the Scope three emissions are very important for healthcare organizations. About 80% of their emissions , uh, come from Scope three, and that's the supply chain, and that is where they don't control the operations. So , uh, one, they will need to get some sense of what is the magnitude of those emissions, where are they coming from, what products, what activities, and then working with their supply chain to be able to reduce those emissions. And there's support resources in that area as well. Um, the e p A Energy Star program , uh, provides some energy use and benchmarking information , uh, about 3000 hospital properties contribute to that data set . It can be used for benchmarking operations. And they also, e p a also publishes emission factors for doing the supply chain analysis. And that can be used by an organization to at least , uh, scope out where they do it , like a , um, a hotspot analysis of where most of their emissions might be coming from and, and what they could do about that.
Speaker 2:Right . Yeah. As you've mentioned, scope one is what the hospital is using itself, correct. Scope two is any energy that it's developing or supplying. And then scope three is that supply chain
Speaker 3:Scope two. Scope two is what it purchases. So you know, it's purchase power agreements , um, you know, if it , if it's getting energy outside of the organization.
Speaker 2:Right. And , and a lot of the focus here is on that Scope three supply chain side. So, you know, given the focus on using these IRA incentives, taking advantage of the other opportunities that exist, organizations are committed to building an equitable clean energy economy. H how do healthcare organizations evaluate? How do they select, how do they report on these various projects, a as they pivot and lean into health equity and environmental justice?
Speaker 3:I think that , uh, first what I'd like to say is that whether it's IRA or any of the other programs , um, uh, to which the healthcare organizations might apply, they'll want to make a compelling argument for why their projects make sense and are actually contributing to the goals. And so I think that having some analysis or review of how this promotes the environmental justice goals will be very important. And, and there are tools , um, to identify and track the high impact projects that, that emphasize the environmental justice and also the economics. And , um, whether this is , is an internal problem for the healthcare organization as they try to sort through the , uh, number of projects that, that might look promising here, or it's part of their communication , uh, of the value of those projects. I think some of these tools can be very useful, and they, and these , they can be especially useful for understanding , uh, what are different impacts and burdens that communities have been experiencing at a very local level. So , uh, nearly every one of the main federal agencies that have been involved in the environmental justice movement have , um, a tool that they have provided mostly, you know, they're online tools, you can go use them . They, they're mapping tools. Um, they basically are combining the environmental monitoring data with demographic information. It's at a very detailed level. So it's , uh, I think that most of them are at the census track , perhaps even all of them. And , um, they produce , uh, either environmental justice indices. They give you information about relative positioning of the community, so how that community compares, for example, to the rest of the nation, or in some cases to the rest of the state. Uh, and some of the tools , uh, combine information to measure a burden in a particular category for the community. So there's , uh, there's the EJ screen screen tool, which is from E P a , um, the Council on Economic Quality, and , um, well , I'll just say C eq , um, they have released now a , uh, it was first a beta version, but it may have moved beyond that. Now. It's called the Climate and Economic Justice Screening Tool. Uh, the Department of Health and Human Services has the Environmental Justice Index, which , uh, again, when , uh, you use it, you can actually get information on health burdens. And then , uh, noaa, department of Energy and Department of Transportation also have tools. So there's a number of these tools out there. They, as I said before, they track environmental indicators , uh, to understand. It , it , it's like taking a snapshot of a particular community and understanding, you know, what , uh, what are their ozone LE levels, but where do they place, again, it's, it's a relative positioning , uh, information that you get. So, so where do they place relative to other , uh, the rest of the nation or, or the rest of the state? Uh, what for example, is, is there proximity to hazardous waste facilities? I mean, there's a long list that, that , uh, of indicators across the different tools. And you can use this to get a sense of not only what kind of environmental consequences or , or environmental outcomes or burdens , um, the community currently has been subject to, but also it gives you the sociodemographic information so you can identify whether it's a low income community. There's information about ages and education levels and , um, racial categories. And so there's a lot of information in there to be able to characterize the different communities. But beyond that , um, there may be additional things that you want to investigate with respect to screening these projects. And that, I would say goes beyond the environmental consequences and addresses some of the , um, economic impacts that may be created by the project. So the construction and the operation of , um, healthcare facilities and, and, and the projects they might undertake will have employment and revenue, and then additional economic impacts that , um, the , uh, healthcare organizations will want to examine. And to do that, they will need to use a model that is capable of making a prediction, going beyond what are these indices or indicators, and what changes will occur if this pro project is , um, is if an investment is made in this project. And there you can use these input output modeling tools that are available now. Now, some of them are , uh, commercial and you, you, you, you sign up for them. You, you, you , um, you know, pay for a project to be done. Um, but there is a tool from the e p A called the , um, environmentally extended IO model. And that model can be used not only to evaluate a project and has been used to evaluate things like the , um, uh, the , the value, for example, of a hospital , uh, investment. Uh, but it also can be used to document some of the Scope three emissions. So that tho those are resources that can be used to go beyond just the environmental consequences into some of the economic consequences. And then of course, there's third party verification and analysis that can be used as well to document the consequences of the project. But I think one important point here is that there is a need to keep things simple, and that many of the healthcare organizations will want to be able to use resources that perhaps , um, have been used for other purposes. So , uh, in the context of , uh, how certain decisions will be made or how , uh, uh, funding will, will be implemented , uh, I noticed that in the , uh, comments that went to the E P A on the , uh, greenhouse gas reduction fund , uh, setting up the green banks , there was , uh, from, I saw from healthcare organizations that they were saying, well , you should use some of the existing resources that we have in the industry. So they have these , um, community development financial institutions that , um, uh, receive funding. Uh, the new, the new market , uh, tax credit , uh, focuses on community development entities, but there are other programs from treasury that, that focus on these CDFIs. And so those are things that can be used as well to make this process , uh, work more smoothly.
Speaker 2:So we've been talking about these tools, and I know you work with organizations to help assess which tools might be most relevant for them and, and what they can use. There are also a lot of other risks and challenges here. One of those challenges is greenwashing . Tell us a little bit about what that means and, and why organizations need to be aware of it and thinking about greenwashing.
Speaker 3:Well, greenwashing , uh, refers to any kind of branding or disclosure activity that claims to promote sustainability or e s g performance and impact, but that the actual commission commitments , um, have not actually been made or there's no substantiation of the claims. So that, that's how a greenwashing , um, claim could be made. But what we are noticing now, so greenwashing claims in the past tended to refer to products. So were there certain claims being made about products, but what we are noticing now with greenwashing claims , um, whether it's in litigation or regulation, is that these greenwashing claims are being made , uh, much more broadly about the organization. So whether or not , uh, the organization has misrepresented upstream and downstream lifecycle impacts, or whether or not they have misrepresented third party attributes , um, you know, for example, to the extent that they misrepresented whether , whether or not they recycle , uh, their , the relationships they have with certain companies and general business practices. So it's much bro , broader, and, and these broader greenwashing claims can have potential impacts to brand recognition, excuse me, brand reputation , um, and or the, or changes to the brand reputation. Um, it can affect the enterprise value of the organization, it can lead to credit risk or increases in the cost of capital for an organization. Um , it can also affect business opportunities like merger and AC acquisitions and transactions , uh, if there are , uh, greenwashing claims. And then finally, it can also affect the competition across firms , uh, to the extent that the claims had led to one firm having , uh, an advantage over its competitors. So there's a , there's a number of impacts that are beyond worrying about, you know, what is happening with a particular product. And in, in the area of decarbonization , um, stakeholders have argued that in order to meet the E S G targets, organizations should not be able to use, or, or , um, accounts , if you will, the , uh, the reductions from vol , voluntary carbon offsets, because that essentially is , um, a , uh, uh, an inappropriate way to meet the goals. And I think that , uh, is also tied to some of the political challenges that E S G has received. Uh, I, there there have been many stories that have talked about , um, uh, different political perspectives on whether an e , not E S G is , um, doing it . It it involves something that's inappropriate for financial consideration for firms. And now it's my turn to ask you a question, Mike, and, and ask you what you're seeing in Kentucky.
Speaker 2:Yeah, absolutely. So we're seeing, and we're seeing this play out in a lot of other states because for at least the next two years, congress is likely deadlocked, and the chance of additional legislation in this area is very limited. So state governments are where we're seeing the political challenge to E S G play out. There's Grow E S G , there are anti E S G , it largely breaks down across party line. So what I'll point out is that organizations need to be aware of the political climate in their state states like Florida and Texas are examples of states where anti E S G policies are being advanced. There are Republican majority states like Kentucky and TA and North Dakota, where some pro E S G issues are being advanced, even though the politicians are anti E S G . And I think that those are states that are interesting to watch. There are more democratic leaning states like Minnesota and New Jersey, where pro e s G actions are underway. So healthcare organizations need to be aware of the context in which they sit . E S G , in my mind, it's about risk mitigation and that that's a performance issue. That, that, that's something that flows to the fiduciary obligations of board members. It flows to the fiduciary obligations of C-Suite and executives. If , if an organization can leverage E S G and become more competitive, drive more value to its shareholders or to its bottom line to reinvest in its activities, they're doing that because they're better managing the risks that exist, risks along environmental, social, and governance issues. And, and we have to be willing to accept and admit that these things are happening. Our , our climate is warming. Look , look at South Florida right now. It's underwater from just heavy rains. That , that's, that's something that's different. Those are risks that organizations in that area need to think about. Look at the cyclonic activity in parts of Tennessee and Kentucky. Look at the flooding activities in other parts of the state. Uh , there , there's so many issues that organizations need to wrap, wrap their, their minds around. And we have data that supports, if you're considering these E S G strategies, there's a positive correlation to your financial returns. McKinsey has reviewed something like 2000 academic studies here, and 70% of those found a positive relationship between E S G and financial returns.
Speaker 3:Well, I, I, I wonder then, can you speak to whether or not you're aware of any hospitals that are taking steps?
Speaker 2:Yeah, absolutely. O of course, you know, as a lawyer, they're ethical rules about talking about particular clients that I'm working with. So what I'll, I'll mention here as, as we work to close is just some publicly available information. And one case study in particular is Common Spirit Health, which has something like 125,000 employees, over 25,000 physicians and advanced practice clinicians. They operate 140 ish hospitals. They're one of the organizations that have adopted a net zero admissions goal. So by 2024, this is, this health system will be net zero. That's in line with the Paris Agreement, which is our International Treaty on climate, yet to be formally adopted by the us . But it's certainly driving the discussion globally. Uh , uh, according to a recent modern healthcare article, common Spirit is updating its hospital energy grid to use more renewable sources. They increase the use of solar power. They're installing co-generation energy systems, the repurpose methane from a local landfill to help power and heat their facilities. They're installing l e d lighting throughout various sites. That's a really cost effective step. Doesn't cost a lot of money, but it has a big impact. And as you noted, about 70% of common spirits emission come from its supply chain, and they're working with their vendors on this, that in fact, there , there was a note recently that they have been working with their I IV bag vendor to remove a chemical linked to mail infertility. So healthcare organizations are already doing these things, and now they have some credits that they can take advantage of. So in my mind, this is a win-win.
Speaker 3:Exactly . So do you have any parting thoughts ?
Speaker 2:Uh , uh, you know , ultimately what we're talking about here is human capital. There are compensation issues that are gonna be tied to E S G standards, sustainability, waste management. These are all risks that organizations need to be thinking about in their boardroom, and that's management's job as well. Oversight here is critical, and there's just no way of getting around it. You can't ignore E S G . These are conversations that you're having. And so, you know , I think leaders need to be aware of that and take responsibility for it, because the communities that you serve to which you need to be responsive, they're expecting to hear about what you're doing across E S G . Robin , how , how about you? Any pardon in words for our audience?
Speaker 3:Well, I , I do think that there has been a major shift in the connection between the E and the F of E S G , especially in the , um, context of healthcare organizations, health equity, and their financial objectives. And I, I think organizations at , at all levels are developing the data and the analytical support that that's needed for the measurement capabilities that effective commitments to E S G will require. Uh, I, I think the expanding resources provided by IRA and other funding sources are going to accelerate the improved climate related re resiliency in, in the healthcare industry. And that is certainly one area where it is , um, very sorely needed.
Speaker 2:Well, thank you Robin , so much for joining me today. I , I really enjoyed our conversation and stay tuned for more information in this developing area.
Speaker 3:Thank you.
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