An introduction to ESG in health & social care.

Yeah that’s no problem. So ESG stands for Environmental, Social and Governance. Essentially it’s like a framework or policy that you might put in place. It’s being used in all sorts of industries now. But given the nature of the care industry in particular it is something that’s quickly being adopted and is now a really important focus. Its importance is its effect on the management, the residents and staff as well as the wider public. Its implications for publicity, reputation and investment.

Well, your ESG goals will differ greatly dependant on whether you’ll see a single care home compared to a group with maybe 40 plus care homes. That’s because the very nature of the scale of your business and the markets you’re working in, basically the people you’re seeking to attract and also kind of the economies of scale that you can work with. So if we look at the largest scale, let’s look at someone like Google and they have a big ESG policy and all the different conventions talking about it. It’s very much geared around market perception and reputation, which then affects share price and consumer engagement. So they have the ability of throwing enormous amounts of money at issues so they can offset their carbon emissions rather than actually do any change to their working business. They can do something completely different and what they’re looking for is very different to say what a care home provider is.

So if we’re looking at a care home business, especially with those, say, under 30 care homes, the whole point of ESG is actually looking for tangible changes in business. So improving staff happiness, recruitment and retention, reducing overhead costs, community engagement, making the home an attractive place for residents, potential residents and also sometimes overlooked is the pillar of simply doing the right thing and being a positive force for change in the industry.

Well, many providers already have initiatives that could be seen as ESG. I mean, lots of people do things like community outreach and they do steps inside their business as well. But they might not have a clear policy with a measurable framework, which is what an ESG policy is. So the starting point is to set out your areas of focus under each of the E, the S and the G banners and then undertake reviews under those headings to see what the starting point before then applying your goals and also your systems to go and achieve those goals. So an example would be to say at the E the environmental, you’re looking perhaps at specific energy usage for the buildings. You would probably undertake a review of your estate. You do some environmental reports of the buildings in terms of energy efficiency. Details of measures can be taken to improve these along with a cost benefit analysis and then you could expand this in terms of staff and resident usage of the buildings review technology and then you would set out perhaps one to five year plans and then measurable targets. So it’s basically kind of a large process at the start where you’re going through doing a complete review and overhaul and setting out what you’re looking to go and achieve and then putting that in the paper and how you’re going to measure it as well.

Yes, actually we’re going to be doing an ESG guide at the back of these podcasts, and we’ll also be doing a webinar with Care England. So Care England themselves have an excellent tool called SMART on their website which can help, which you can put in various aspects of your business and it gives you ideas and information.

Yeah, this is key as otherwise the danger is simply being a box ticking exercise, which I think lots of ESG policies have become now where people basically say, well, we’ve got to have an ESG policy. They go and maybe get one off the shelf or find a few things that look good and you write it down, but then it doesn’t really it is not something that’s lived by the business itself and ultimately is not going to have any benefit. So at the outset, it’s important to have the staff members engaged in the process and you usually have someone appointed, maybe an energy representative, to report back on the ESG goals to see how the individual areas are doing. Sometimes you can have a specific goal to be reached, which is something to measure, for example, staff retention rate and sometimes it’s more likely to be ongoing, monitor the system that’s put in place to see the effect without a set goal. More looking at general trends and for example, let’s say you introduce a piece of technology to go and save on waste.

Okay. So we’ll start with the bad side first. Looking at the disadvantages. The main one is going to be the time and the often the investment required to put one in place in terms of having a viable policy. It’s very easy to set up a policy and then put it in a drawer and forget about it. The challenge is to make it a living, breathing tool that simply becomes part of how the company operates and the golden systems form regular parts, maybe in board meetings and staff resident feedback. So that’s kind of one of your biggest issues at the start is simply the amount of time you’ve got to put into it, and also how and how really it’s going to be monitored and utilised going forward.

But when you look at the advantages, there are absolutely huge and two of the most obvious would be staff retention recruitment, which as you know is a really hot topic at the moment in terms of actually in the care industry, recruiting the right staff and then keeping them and the other really hot topic at the moment is environmental responsibility and obviously we’ve got rising costs in energy and also sustainability targets and this will kind of breathe forward in terms of looking at reduction in your overheads, reducing costs and ultimately given it’s the care industry that the paramount point is to keep your residents happy and engaged so the policy can give life to striving more by improving set targets, having measured goals. So it’s something really that has to be looked at as it’s kind of like, a like an MOT for your for your business and then a set policy and system in place to go and improve it. So you’re you’re really setting in place some things you want your business to achieve.

So in simple terms we look at environmental first. You could have an overall goal of bringing down your energy usage and therefore reducing your costs. However, it’s not as straightforward as that. You see, you’re going to be reliant on a number of systems being put in place in terms of energy usage by staff. Maybe put smart meters in place, energy efficient lighting, etc. so sometimes an overarching goal can be too wide and actually the systems being put in place are more important as these need to be monitored and to implement the change.

So really what you want there is you’re having an initial goal in something and then you’re having the systems that lie underneath it to go and achieve that goal. So if we look at now the social aspect we just talked about staff retention. That could be your overall goal. Maybe you have a set percentage in terms of staff retention yet again, this is down to the systems that you put in place, such as perhaps increased wellbeing and welfare training, improving the staff facilities and again it’s monitoring them. That’s going to be the key to actually giving your overall goal.

Now if we look at governance then this could be having a robust framework in place in connection with data monitoring or internal quality assurance. The overall goal there might be to increase resident satisfaction, and the system may be better tools to go and monitor this. Therefore, any ESG policy needs to have the overall goals aligned to functioning systems and therefore the systems are the ones you need to go and monitor regularly and keep in place and then the goals are really kind of your your headline things which you’re looking to go and achieve.

So your third parties tend to be partners in specific areas. So this could be technology companies. It could be an environmental company in terms of environmental reports of your property. It could be for renewable energy installation for example. It could also be vetting agencies for staff, for overseas organisations, for overseas recruitment. A key part of this is ensuring the supply chains are vetted and match the goals set with your ESG policy.

So really your third parties have kind of also got to be vetted. They’ve also got to be part of your ESG policy in terms of the type of companies you’re going to work with to go and achieve your goals. There’s also member groups such as Care England and I previous mentioned their smart tool. But you’ve also got local care associations, which are very good sources of knowledge and collaboration with other care providers and for our part, for example, we’ve got this series of podcasts now. We’re releasing an ESG guide and we’ve also got our HR Directors Network and Business Leaders Network. So basically anything that you can go and collaborate with other people and discuss what they’re doing and learn from a best practice is probably the easiest free way to go and get third party help.

Yeah, so there’s two parts to this. The first is through the provider’s own due diligence process and the second is going to be there’s a refinancing or element of lending in place, the lender’s requirement. As ESG is such a hot topic when saying it’s important to demonstrate that a framework is in place, this is something that’s not only attractive to a potential buyer, it’s also going to be important to the financer.

So your lenders are increasingly requiring ESG to be focused on from simple aspects such as your energy efficiency rating of building to actually looking at supply chains and how things are set out. It is also apparent when new leases are granted, which you often get when you’ve got third party providers coming in and maybe like a private equity, they’re looking at green leases often, which is essentially clausing the leases, just demonstrating the firm’s ESG credentials by requiring certain actions to either be carried out or certain actions not to be carried out. Looking at when you come to buying and during the DD process, due diligence, all aspects of ESG should be investigated as not only is it pertinent to financing, it’s also got benefits outlined at the start of this podcast, for example staff wellbeing and retention, profitability and future proofing the buildings. So what are your due diligence is going to be when you look at ESG, you’re going to see often places where you can go and improve the business. It gives you a window in terms of increasing your profitability. What things are maybe failing or what things could be made better with the business you’re acquiring?

So really that’s kind of your opportunity to go and see right at the start through due diligence what steps you can take to increase the profitability and the wellbeing of the residents and the, in the property.