It’s time for healthcare to accelerate its climate journey

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Kavitha Hariharan, Director, Healthy Societies, Marsh McLennan Advantage, Adrienne Cernigoi.Research Manager, Marsh McLennan Advantage, Claudio Saffioti, Research Manager, Marsh McLennan Advantage, Cheryl Cosslett, Research Analyst, Marsh McLennan Advantage

• Climate change impacts on healthcare have created a crisis through damage to healthcare provision, including facilities and supply chains.
• Due to differing climate contexts, a systematic approach is needed for healthcare providers in different communities to understand and prioritize the varied climate change impacts on healthcare operations, finances and reputation.
• Proactively measuring and reporting on climate performance can result in greater access to capital and contracts, better terms and greater trust from lenders, financial institutions and governments.

Climate change impacts on healthcare are worldwide and greater than widely acknowledged. Consider the United Kingdom issuing a level 4 heat-health alert after record-breaking temperatures in July, the 50% spike in heat ailments this summer in India, or the $3.1 billion recovery costs for New York hospitals after Superstorm Sandy.

Climate impacts are intensifying to become one of the most significant health crises this century. Quite apart from increasing and changing healthcare needs, such as increased injuries and infectious disease spread, climate change places undue strain on healthcare providers’ operations through damaged facilities and disrupted supply chains. What’s more, climate change, directly and indirectly, aggravates pressing environmental, social and governance (ESG) issues in healthcare, including workforce burnout, health disparities and the availability of key resources like water.

An evolving climate context

Because healthcare providers have different exposures based on location, time horizon, types of assets and underlying vulnerabilities in their communities, they need a systematic approach to understand and prioritize climate impacts on their operations, finances and reputation. A first step is to understand which particular threats are faced where, as explored in a recent Marsh McLennan report, Feeling the heat: how healthcare providers can meet the climate challenge. They can also uncover unrealized opportunities such as pools of green capital, energy efficiencies and enhancing a sense of pride and purpose to retain talent.

Standardized climate-reporting frameworks can help drive structured analysis of risks and opportunities, given that tools to quantify climate risks for healthcare beyond property damage are in their infancy. For example, the Task Force for Climate-related Financial Disclosures (TCFD) is a relatively simple and adaptable framework, increasingly used by companies and regulators. Using TCFD, healthcare providers can assess both physical impacts driven by changes in climate and weather as well as risks linked to the transition to a low-carbon economy (see risk drivers below). Other tools such as scenario analysis can facilitate stress testing and help identify which risks may be most material to an organization.

Physical and transition risks

To healthcare providers, the most material hazard is physical damage to infrastructure and operations. Hospital buildings and infrastructure are often not designed or adapted to cope with heatwaves, storms, floods, and wildfires. What’s more, extreme weather events can strain even those that have been adapted. Technology and equipment failure, medicine and supply shortages or flooding floors limit functionality when hospitals need them most. And recovery and repair can take months or even years.

Though less suddenly than the surges seen during climate shocks, care needs and costs are also swelling due to the lagging effects of extreme weather and the accumulating effects of climate-related stresses such as rising temperatures and sea levels. As healthcare demand surges, the strains on staff and other resources can result in errors, delays or loss of care. Swelling costs and lost revenue, such as from deferred or foregone elective care during or after crises, can force healthcare providers to run at a loss or even bankrupt them.

Tightening regulations on greenhouse gas emissions – such as requirements on carbon pricing, energy standards and disclosure of climate risks – are likely to target the health sector in the near to medium term, creating transition risks. Moreover, lending costs, insurance premiums and penalties are rising for “dirty” operations. In the United States, the Office of Climate Change and Health Equity plans to use financial penalties for hospitals that do not comply with new sustainability standards.

Embracing climate opportunities

The same risk drivers, if acted upon, can create significant opportunities. For example, changing regulations and stakeholder expectations can create transition risks for unprepared healthcare providers but the same trend presents tremendous opportunities for those who take effective action. Proactively measuring and reporting on climate performance can result in greater access to capital and contracts, better terms and greater trust from lenders, financial institutions and governments.

• Decarbonization and adaptation investments make infrastructure climate-proof and lower operational costs. Reducing energy consumption and climate-proofing infrastructure can save millions – all while reducing a healthcare provider’s carbon footprint.
• Technology can boost resilience and efficiency. For instance, telemedicine and remote monitoring can both reduce emissions and continue care delivery during a climate shock and drones can transport emergency supplies.
• Green incentives and capital present enhanced access to funding opportunities. Some healthcare providers are starting to tap into environmental, social, and corporate governance (ESG) or sustainability-linked loans, subsidiesand tax incentives.
• ESG-related activities lower insurance costs. Perceived to have a lower risk profile, healthcare providers taking action on climate risks are negotiating more affordable insurance premiums.
• Sustainability initiatives help attract talent and boost workforce morale. ESG performance is already a source of competitive advantage with the workforce.
• Improved community resilience makes climate-driven care needs more manageable. Climate change exacerbates disparities in health outcomes, access and social determinants. Projects that meet community needs can also improve their resilience to climate impacts.

Mitigating climate change impacts on healthcare

Healthcare providers urgently need to understand the risks of an evolving climate context and unlock its opportunities, so they can build resilience to climate impacts as well as reduce their contribution to climate change. Some interventions will further adaptation and mitigation goals simultaneously, while others may present trade-offs for providers to articulate and negotiate.

Three strategies can help: aligning business strategy with the climate agenda, shaping corporate governance to integrate climate risks and opportunities and improving communication and collaboration with the broader health ecosystem and surrounding communities to deliver more impact.

Unprepared healthcare providers will lurch from one emergency to the next. To future-proof assets and operations, healthcare must act now, before this once-backburner issue becomes the next burning platform.