ESG and Supply Chain Risk Management and Resiliency
How ESG fortifies the supply chain
The transformation happening within the supply chain is also related to the broader push for health systems to understand and follow ESG principles. Since the COVID-19 pandemic began, consumers, communities, employees and the federal government have raised their expectations for healthcare organizations to adopt and invest in socially responsible principles and values.
The environmental and social pillars of ESG in particular are heavily influenced by healthcare’s supply chain and the decisions that healthcare leaders make. The supply chain accounts for the largest percentage of healthcare’s carbon footprint–71%–and therefore, much can be done to improve environmental sustainability.
Additionally, as mission-based organizations that typically act as economic drivers in their communities, hospitals and health systems are becoming more inclined to allocate portions of their supply chain budget to supporting locally owned vendors as well as minority-owned and women-owned businesses. Other socially responsible considerations are also emerging from providers, such as avoiding purchasing from areas where forced labor occurs.
Supply chain’s important role in ESG is recognized by leadership at AdventHealth. The system is currently standing up a system-wide ESG strategy focused on sustainability headed by Marisa Farabaugh, who leads the supply chain for the system, and the chief investment officer.
“Supply chain and (the investment office) are two big stakeholders that are needed to be able to get movement on any (ESG) goals that are set,” Farabaugh said.
Typically, healthcare organizations start their environmental impact journey with the two areas where they can make the most impact: direct emissions and indirect emissions, which are called scope 1 and scope 2 emissions, said Britt Harter, partner at Guidehouse, a consultancy.
But to truly get to net zero carbon emissions, the supply chain, often called scope 3 emissions, must be incorporated into the strategy as well. Addressing scope 3 is more complicated because it relies heavily on the manufacturers who source and create the products.
“Overall, everyone is less mature” in reducing scope 3 emissions, Harter said.
Despite being in the early stages, there are effective actions hospitals and health systems can take to reduce the supply chain’s environmental impact. The first is directing revenue cycle teams to assess the scope of products they purchase and their carbon impacts. GPOs can be partners in this effort because they are usually already requesting this information from suppliers, said Joe Bialowitz, director at Guidehouse.
Indeed, Premier does ask suppliers for environmental impact information such as the recyclability of the products and the chemicals within them. As the years go on, Hargraves said the quality of the information from suppliers continues to improve.
For suppliers, the data collection component can be strenuous. Medline, which is both a distributor and manufacturer of healthcare supplies, advocates for standardization around data collection of sustainability metrics. Given the size and complexity of Medline’s supply chain, it receives a wide scope of requests for information from customers. A standard set of criteria would ease some of the burden of information gathering.
“There’s an opportunity for manufacturers, distributors and healthcare systems to come together and have a lot of dialogue around where the need is for transparency so that we can all rally around the same topics,” said Francesca Olivier, vice president of ESG at Medline. “That dialogue is important to ensuring that the questions being asked of manufacturers and distributors are in line with what we're capable of providing.”
Once a provider has a sense of the carbon impact from their supply chain, the next step is to focus on areas with the greatest impact.
“Your carbon footprint in your supply chain will be concentrated in a few product areas, so we're seeing organizations focus there first,” Harter said.
Purchasing products from vendors with sustainability as a central component is key as well. At CommonSpirit Health, sustainability of the supply chain begins in the initial conversations with prospective vendors, and they continue throughout the relationship. CommonSpirit is beginning to ask for the supplier's carbon disclosure rating, also known as the CDP score, and its science-based carbon goals.
“These two things together give us assurance that the supplier has meaningful decarbonization plans,” said Kelly Paul, director of training, education and communications at CommonSpirit.
Many suppliers can’t readily offer those metrics, Paul said, but the system is starting conversations with them to do so soon.
CommonSpirit's commitment to sustainability is anchored by commitment from the C-suite and board. This engagement will be pivotal in efforts to reach the health system’s target of net zero carbon emissions by 2040, but frontline caregivers are encouraged to be involved in the work as well.
One memorable example of frontline involvement comes from early in the COVID-19 pandemic when PPE shortages were common. A surgeon based in CommonSpirit’s Arizona market came up with the idea to design reusable isolation gowns, and the system embraced the idea, partnering with a Phoenix-based manufacturer. About 200,000 gowns were ultimately produced, and they were reused 125 times or more. Paul said the effort resulted in about $600,000 in cost savings for the system.
While the financial benefit is compelling, to keep sustainability of the supply chain a priority despite competing priorities, CommonSpirit also makes it a point to connect the work back to its mission.
“When we talk about sustainability, we focus on how it is impacting the health of our patients, the health of our community and the health of our planet—it’s all interconnected,” said Sister Mary Ellen Leciejewski, system vice president for environmental sustainability for CommonSpirit. “Then it becomes a priority, and it stays a priority.”
While some hospitals and health systems have years-old programs in place to purchase from diverse suppliers, 2020 was a turning point in elevating its importance.
For example, the social justice movements sparked by the death of George Floyd inspired the New York-based Mount Sinai Health System to take a more intentional approach to their supplier diversity efforts to reflect the community it serves.
“We are doing what should be done to advance Mount Sinai’s commitment to equity in all aspects of the organization,” said Patrice Gordon-Poyser, supplier diversity manager for Mount Sinai Health System.
Mount Sinai re-implemented a formal supplier diversity program in January 2021. In a joint statement emailed to all employees in February 2021, Mount Sinai’s president and CEO, its chief diversity and inclusion officer, and its chief financial officer announced the program and explained the system’s commitment to diversity in the supply chain.
Since then, Gordon-Poyser has been meeting with departments within Mount Sinai on a quarterly basis to discuss their supplier diversity spend in detail. The meetings also uncover opportunities to convert to diverse suppliers. A major part of Gordon-Poyser’s role is to identify contracts that are up for renewal and find diverse alternatives.
In regards to specific strategies for identifying diverse suppliers, Gordon-Poyser leverages several external tools, including from the New York State government, which certifies minority, women and service-disabled owned businesses. She said most states have similar programs healthcare leaders can leverage to identify diverse suppliers, and often GPOs have programs that can aid in the process.
The fact that seeking out diverse suppliers is Gordon-Poyser’s main job at Mount Sinai goes a long way toward ensuring it remains a stable priority. “Part of the reason it has been challenging for supplier diversity to be more ingrained in (healthcare) cultures is that it’s usually an additional task on top of someone's day-to-day job. Over time, other projects with a higher priority will come up and cause supplier diversity to be put on hold,” Gordon-Poyser said. “Having a dedicated resource is key to having a successful program.”
Working with diverse suppliers has also helped Mount Sinai weather product shortages. When hand sanitizer was hard to come by in spring 2020, Gordon-Poyser reached out to a woman-owned company, and the supplier was able to send Mount Sinai thousands of bottles of sanitizer quickly.
“These vendors have continued to step up to the plate, and they have continued to prove that they are capable of performing and exceeding our expectations,” she said.
Ultimately, Mount Sinai’s long-term goal is to have its supplier diversity spend on par with the healthcare industry standard. “We are ambitious in our pursuits,” she said.
This kind of ambition is key to tackling such a large-scale challenge, as is committed collaboration by various stakeholders. GPOs in particular have an important role to play. In addition to having about 400 contracts with diverse suppliers, Premier offers resources and tools to these businesses to help them scale and invest in supply development.
By activating and tapping into the resources available for supply diversification, health systems will see that ambitious goals are within reach.
COVID-19 has served as a wake-up call for the healthcare industry to re-think how they approach the supply chain. Modern Healthcare Custom Media spoke with supply chain executives at leading health systems about how they are transforming the way their departments approach the supply chain to ensure it can weather current and future challenges and unexpected shortages.
David Zuckerman, president and founder of Healthcare Anchor Network (HAN), sat down for a conversation with Modern Healthcare Custom Media about how supplier diversification is integral to health systems’ mission of improving health and lives.
The 2021 Practice Greenhealth Benchmark Report spotlights how healthcare organizations are advancing their environmental purchasing strategies, as well as where there are opportunities to deepen commitments.