Your five biggest questions about ESG Impact Spend answered

By Erin Cristales, Vizient

One of the scariest — and most necessary — words in healthcare is "investment." On one hand, financial constraints have made it trickier for providers to pour money into new initiatives; on the other, it's often the only surefire way to see long-term payoffs in patient outcomes and profitable growth.

That's why it's increasingly important to maximize every dollar spent by investing in strategies that drive meaningful change and create value for your organization and community.

Enter the concept of Environmental, Social and Governance (ESG) "impact spend."  

At Vizient, we define the term as allocating financial resources to initiatives that have positive social, environmental and economic impacts — or, as the United Nations might say, investing in projects that better people, places and planet. In fact, the work directly aligns to the UN Sustainable Development Goals to build a healthier, fairer and better world by 2030.

But with so many challenges currently plaguing providers, what are the major benefits of impact spend that can help alleviate some of these pain points — and justify a focus on environmental, social and governance initiatives?

"By prioritizing impact spend, organizations can drive positive change in areas like environmental sustainability, supplier diversity and community development while also aligning with the goals of external and internal stakeholders by promoting healthier environments, supporting local economies and fostering social equity," said Shaleta Dunn-Vick, vice president, ESG Impact Spend, who oversees Vizient's newly unified supplier diversity, environmental sustainability and governance programs in the spend management domain.

For healthcare organizations, investing in such initiatives can produce additional benefits such as:

• Operational efficiency and cost savings: By investing in environmentally preferred and diverse suppliers, organizations can achieve cost savings in various ways. For example, by choosing environmentally sustainable products and services, health systems can reduce energy consumption and waste, leading to lower operational costs. Additionally, healthier staff and patients (whether through the reduction of environmental degradation or creation of better economic opportunities for under-resourced communities) mean lower healthcare costs and fewer readmissions. According to a McKinsey study, MWBEs (Minority- and/or women-owned business enterprises) offer enterprises year-over-year cost savings of 8.5%, which is considerably higher than the average 3-7% annual procurement savings most companies generate.
• Broader choice of suppliers: Emphasizing impact spend allows healthcare organizations to expand their pool of suppliers, including those that prioritize environmental sustainability and diversity. This broader choice can lead to increased competition among suppliers, potentially driving down costs and improving the quality of products and services.
• Innovation and quality of care: Focusing on impact spend encourages the creation of innovative solutions that align with sustainability and diversity goals. This can lead to the development of new technologies, processes and products that are more efficient, environmentally friendly and socially responsible.
• Enhanced patient trust and community relations: Embracing impact spend can improve your system's reputation and strengthen relationships with stakeholders, including patients, employees, investors and the community. Demonstrating a commitment to sustainability and diversity can attract and retain customers, employees and investors who value these principles.
• Access to capital and funding: Healthcare systems with strong impact spend performance attract investment from ESG-focused funds and socially responsible investors. This can result in lower borrowing costs and better access to capital. Federal and local governments and organizations offer grants and incentives for healthcare providers that invest in sustainability and social responsibility initiatives.
  
  

OK, but what is the cost of implementing impact spend initiatives — specifically, is it more expensive?

The short answer is: It depends on two things. The first is your organization's mission and current practices. The second is how you define "cost."

"Whenever I get that question, I always ask, ‘What are your organization's priorities? And how do those priorities align to your mission?'" Dunn-Vick said. "It's important to consider the long-term benefits and potential cost savings over time that initiatives and investments like these can bring. In the end, it's prioritization and understanding the value and willingness to make investments in the right programs to achieve the outcomes healthcare systems are looking for."

The return on those investments, she said, comes not only in better patient outcomes, sustainable environmental and economic opportunities and lowered cost of patient care, but also in the benefits outlined above. And while there's a persistent perception that sustainability and supplier diversity programs equal increased expenses, that's not always the case. Impact spending should be seen as a strategic investment that pays off over time as opposed to an expense.

"There are many opportunities to identify cost savings through environmentally sustainable practices," said Cristina Indiveri, associate vice president, core tenet programs.

For example, one Midwestern health system improved operational costs by implementing basic sustainability projects that showed promising ROI, such as energy and water usage reductions. The organization then created a green revolving fund, where they reinvested the savings from these projects into other sustainability initiatives with a longer payback period. By using fewer resources, they were able to lower their utility bills and achieve cost savings.

Additionally, through leveraging the market power of healthcare systems that prioritize sustainable purchasing, prices for environmentally sustainable products can be incentivized to go down.

"When it comes to sourcing, Vizient brings sustainability into value analysis," said Rebecca Hou, program manager, environmental sustainability. "We recognize that sustainability doesn't exist in a vacuum. What we're able to show through tools like Environmental Sustainability Optimized Insights (ESOI) is that you don't have to spend more green to procure the greener product."

And, Indiveri added, "cost" can mean many different things, especially in healthcare. It might be more expensive to buy products free of phthalates and PVCs, but when you consider your mission as a healthcare organization, what is the human cost of potentially exposing employees and patients to those carcinogens?

"Prioritizing impact spend creates a multiplier effect," Indiveri said. "Sustainability supports the healing of patients, aligns with employee values, improves community health and creates resilient value chains while having significant economic rewards."

I'm on board, but how can I get institutional buy-in for impact spend initiatives and make a compelling case for their benefits?

First of all, highlight the advantages outlined already, including cost savings, improved patient outcomes, enhanced reputation and reduced environmental impact.

But here's the best news: There are so many more strategies to discuss, with some of the most innovative ideas coming from fellow providers who have implemented (and iterated) successful programs within their institutions.

"Our goal is to convene providers to share best practice, and we do that through our many councils, programming and events," Dunn-Vick said. "When you're sitting next to one of your colleagues from another system, ask them: What are some of the best practices you implemented when you stood up your environmental sustainability or supplier diversity strategy? What did you focus on first? How did you achieve executive buy-in? How were you utilizing the data within your organization to identify how your patients and staff were being affected?"

Other ways to gain buy-in include:

• Organizational goals: By showing how impact spend initiatives align with your organization's values and objectives, you can gain support from leadership and other stakeholders. There are success stories to point to, even in geographic regions that may not be well known for sustainability and among smaller community hospitals.
• Change management: Emphasize the need for a comprehensive change management strategy that involves all stakeholders in your organization. This includes a plan for inclusion of diverse and environmentally preferred suppliers, identifying their capabilities, aligning those capabilities with your organization's needs, and ensuring that suppliers have the necessary support to bid for opportunities. The strategy should also include and prioritize suppliers aligned to impact spend values.
• Addressable spend: Identify the areas across your organization where dollars are spent and focus on the addressable spend. This means targeting specific categories or purchases where you can make the most impact in terms of environmental sustainability or supplier diversity. By having a clear strategy for each category, providers can drive assurance, maintain a competitive supply chain and support the growth of diverse suppliers. Addressable spend should be evaluated year-over-year for inclusion of new categories and innovative options of supplier inclusion.
• Data and evidence: Gather and present data and evidence that supports the advantages of sustainable initiatives. This can include financial data, patient outcomes, environmental and diversity impact assessments and case studies from other organizations. Data-driven arguments are more likely to convince stakeholders of the benefits of impact spend initiatives.
• Engage stakeholders: Involve leadership, staff, patients and community members in the decision-making process. By involving stakeholders in the planning and implementation of sustainability initiatives, you can build support and create a sense of ownership. It's especially important to identify staff within your organization who are already passionate about issues like sustainability — for example, at one health system, a group of nurses bagged up recycling and dropped it off themselves because a recycling program hadn't yet been implemented within the organization. Bringing those kinds of passionate individuals together can create internal momentum that motivates all stakeholders.
• Collaborate externally: Actively engage with industry partners like NGOs and supplier task forces and councils. These platforms provide opportunities to share best practices, set goals, and drive value and innovation in impact spend initiatives.

"Collaboration demonstrates a commitment to collective action, which can attract support from stakeholders to accelerate action and broaden our impact," Indiveri said.

So, once I've implemented these initiatives, how can I create accountability for impact spend goals in my institution?

Step one is to align internal accountability to the Community Health Needs Assessment, which every system has to complete annually to maintain 501(c)(3) status.

Another essential step, Dunn-Vick said, is to involve clinicians in your goals around impact spend.

"When they understand your goals for environmental sustainability and supplier diversity, it supports them in making the best decisions," she said. "It's important to note that accountability can take on various forms because every system doesn't have the same areas of focus. But it's important to look at how impact spend aligns to every part of your organization."

Indiveri and Hou noted additional ways to create accountability, including:

• If you haven't already, hire environmental sustainability and supplier diversity directors to oversee impact spend initiatives and ensure that set goals are met.
• Establish regular reporting and tracking mechanisms to monitor progress toward goals and hold individuals and departments accountable for their contributions.
• Include scorecarding for supplier diversity, health equity and environmental sustainability in the value analysis process.

And, of course, data is a critical component for accountability.

“Whether it’s calculating emissions, diverse spend or sustainable purchasing, you need those numbers to make the right decisions for your organization,” Hou said.

Speaking of data … what are some resources available to help me implement and grow my organization's impact spend strategy?

First of all, take advantage of the existing resources and expertise that may already be available to you. Vizient provider customers, for example, have access to a range of resources that support impact spend efforts, including:

• Environmental Sustainability Optimized Insights (ESOI), an industry-first offering that provides line-item-level detail providers can use to pursue environmentally preferred opportunities and convert spend. The index uses data that provider customers already submit, so no additional work on their part is required. It also provides stacked rankings that allow hospitals to compare their progress to peer institutions.
• ES Provider Roadmap: The tool analyzes provider spend in medical/surgical categories using Vizient's 23 Standardized Environmentally Preferred Attributes and can be split into two sections: current state and EP opportunity.
• Climate Performance Solutions: In addition to customizable solutions based on a hospital's needs, priorities, experience, budget and geographical location, CPS provides a dedicated resource with a background in healthcare sustainability who is well-versed not only in environmental stewardship but also in identifying and addressing key opportunities and barriers within healthcare to implement change.
• ES Tracker: The downloadable tool allows you to record your organization's energy and resource consumption – past, present and future. Unique insights can point you to the most effective opportunities for addressing your environmental footprint.
• ES Toolkit: The set of downloadable resources helps hospitals and health systems understand key considerations for implementing environmentally preferred purchasing policies and programs, as well as set reasonable, meaningful and achievable targets that are financially viable, environmentally sound and health improving.
• Patent pending Vizient Vulnerability Index™: The multifaceted resource allows users to support SDOH at the neighborhood level, and unlike other indices that have a single index algorithm for the whole country, it adapts to the local relevance of each domain as it correlates to life expectancy. It also breaks down vulnerability into several domains such as food insecurity, transportation challenges and air quality.
• Supplier Connection: This platform incorporates multiple data modules allowing diverse suppliers to create profiles for increased visibility among Vizient provider customers and awarded suppliers seeking to identify diverse firms in particular product and services categories with varied geographic capabilities for potential contracting opportunities. The platform also yields access to providers' monthly diverse spend through Vizient's contract portfolio and quarterly supplier reported Tier 2 spend for performance analysis. Supplier Connection also provides outreach capabilities for sharing upcoming events with large audiences.
• Supplier Diversity Opportunities Report: The report provides aggregate purchasing volume through Vizient's national contract portfolio within a specific timeframe by product spend categories acknowledging areas of diverse contract penetration and conversion opportunities. In addition, the report shows providers' allocation of supplier-reported Tier 2 diverse spend.
• Diversity & Health Equity Consulting Solutions: This resource helps healthcare systems develop and implement an enterprise-wide supplier diversity, health equity or DEI strategy, policies and programs through a dedicated expert consultant team focused on organizational change, data and insights, and developing a blueprint to identify and achieve goals and compliance.
• Impact Spend Maturity Models: Tools that help healthcare systems evaluate their current state of impact spending and provide insights into potential future states. These models enable healthcare organizations to systematically progress towards more advanced and effective ESG impact spend practices.
• Supplier Diversity Toolkit: The toolkit provides resources for Vizient provider customers to launch, develop and manage Supplier Diversity programs. Components include documentation of best practices within healthcare, national and state advocacy and certification entities for recognition and partnership consideration, and resources for supplier capacity building through a mentor protege program. 
• Community Contracting: Community Contracting is a strategic place-based approach that leverages local businesses and resources to foster economic development and improve health equity. By prioritizing contracts and procurement opportunities for local, diverse and small enterprises, it harnesses the ability to build healthier communities through a more inclusive and equitable economy.
• Premium Platform Subscription: The tool provides comprehensive Tier 1 diverse supplier spend, on-demand reporting and economic impact data; supports Tier 2 program and spend data and analytics; allows access to more than 700,000 registered diverse suppliers; tracks construction and facilities projects for subcontractor spend, internal utilization and engagement and diverse supplier certification; and supports local spend and contracting, supplier risk tracking, P2P and more.

"It's so important to not only have data, but to understand the real results and impact that occur when you use insights to put it into action," Dunn-Vick said. "That's exactly what we're here to help providers do."

Learn more about the Vizient Supplier Diversity and Environmental Sustainability programs.

Check out the Vizient Corporate Social Responsibility Report, which details our focus on driving positive impacts across three interconnected pillars — people, places and planet — by leveraging our unique position in the healthcare industry to drive sustainability throughout the healthcare sector. Look for our 2024 report this summer.