Adding Public Health to ESG - Stanford Social Innovation Review

(Photo by iStock/Chinnapong)

The figures on environmental, social, and governance (ESG) investment we’ve been seeing over the last few years are substantial. According to the US SIF Foundation, $12 trillion in assets under management using ESG strategies at the beginning of 2018 grew to $17.1 trillion by the beginning of 2020, an increase of 42 percent. Bloomberg Intelligence reports ESG assets at $35 trillion in 2020, up from $30.6 trillion in 2018 and $22.8 trillion in 2016, accounting for one-third of total global assets under management. The same study holds that by 2025 ESG assets are on track to exceed $50 trillion.

These are big numbers, and they are already bearing dividends: many businesses are starting to get environmental action right—the “E” of ESG—and through paying attention to executive compensation and getting more diversity on boards, many companies are also starting to get governance right, the “G” of ESG. Environmental impact is relatively easy to measure: carbon emissions, deforestation, waste management, and water usage are all tangible factors lending themselves to quantitative assessment. Governance matters too can be held to account by quantifying executive pay, representation of non-white, non-male board members, political contributions, and large-scale lawsuits, all of which can be reduced to numbers.

But what about the “S,” or the social component? By comparison, the social component consists of much more qualitative factors, things like employee gender and diversity, data security, customer satisfaction, human rights, and fair labor practices at home and abroad. Because these more amorphous factors are a lot harder to measure in numbers, the “S” factor is always prone to falling out of ESG considerations. For this reason, it is all the more important to emphasize social factors that are measurable, such as public health. While Public Health might be implicit in Social, it is not explicit. Therefore, by attaching an “H” for “Health” and broadening the mandate to ESHG, we’ll come closer to a more inclusive form of capitalism, one that places equal emphasis on causing human capital to flourish as it does on financial capital.

Why Health? And Why Now?

The pandemic has not only exposed health inequalities that run from school to community to the workplace. Health should be of immediate importance to business: Public Health is analogous to climate in that a business’s activities will have health impacts, positive or negative, across three broad areas: employees, customers/consumers, and the communities in which it operates. The right actions can reduce absenteeism due to sickness while increasing productivity and enabling better management of risks of regulatory, taxation, and litigation risks.

Even before the pandemic—as Sir Michael Marmot’s groundbreaking 2010 study Fair Society, Healthy Lives (and his 2021 follow-up, Build Back Fairer demonstrate—health not only stopped improving over the last decade, but health inequalities increased, and life expectancies for the poorest people went down. Marmot has identified six areas that are essential to meeting the health inequality and life expectancy challenge head on: giving every child the best start in life; education and lifelong learning; employment and working conditions; ensuring that everyone has at least the minimum income necessary for a healthy life; healthy and sustainable places in which to live and work, including housing; and taking a social determinants (data-based) approach to prevention.

The UK is in a bit of a bubble with health initiatives, compared with the United States—we have the NHS, which is a public health system, whereas, as pointed out in Michael Lewis’s searing book on the pandemic, The Premonition, the United States. does not. But various surveys show that roughly two-thirds of the American population is stressed over the cost of health insurance and health care in general. An equivalent to Marmot as a US spokesperson might be Harvard professor David Sinclair, an expert on longevity, who believes that as population growth begins to slow, saving lives and making people more productive by helping them to live healthier longer is a massive economic benefit for society. He also points out that currently, the rich are investing in these new longevity therapies, and they are the ones who benefit. But he hopes to democratize his findings to include a broader swath of society.

Can we come up with compelling alternatives that might reduce the strain on the system? We certainly must try new ideas, because hitherto, the old ideas are only working for the select few. Most of these areas can be addressed by deep, long-term investment. But as Professor Marmot and many others have pointed out, government funding alone isn’t going to get things done. Business must step in. Companies can play a role in broadly improving public health by such means as rethinking their products, investing in health tech projects, developing programs and policies that promote health both within their companies and externally. By setting frameworks around hot-button industries and influencing ESHG outcomes, asset managers will pre-empt both stakeholder and regulatory pressure.

What Can Businesses Do to Make a Difference?

It’s an idea as old as Adam Smith that it’s in the self-interest of an insurance company for people to live out their lives healthier and longer. And while we’re waiting for Dr. Sinclair’s longevity practices to find a wider audience, companies can start putting the trillions of dollars they are sitting on, earning nominal interest, to work. It is nothing if not enlightened self-interest for businesses to help improve the health of many more people—not only their own employees but those in the community that both need and support a company or consume its goods and services. But getting to a more virtuous cycle with public health is going to take action and vision, not to mention putting the necessary investment on the line, to do it.

In my role as part of a council of businesses working with the U.K. Prime Minister on Building Back Better, and even prior to that, my company has taken on several health-first projects, including making direct investments in health science and tech research, community and elder health, and supporting a global challenge that elicited tech-driven solutions to the next pandemic. These initiatives have a few principles in common, which are worth mentioning here, as the goal is to get many more businesses and investors, along with government, thinking this way—in the United States, too:

1. Invest in health versus remediation. An ounce of prevention is worth a pound of cure—and that also goes for investing in health. The Center for Disease Control (CDC) emphasizes preventive health measures such as vaccinations, altering risky behaviors, and banning substances known to be associated with a disease or health condition. Businesses can invest and become involved in these measures and others that will have broad benefits, such as building wellness and mental health in the workplace. Initiatives could take the form of healthier cafeteria food, gym memberships, well-being services and incentives, and better working conditions. There are greater gains to be made through early intervention and prevention of physical and mental health issues, than when a situation requires controlling absenteeism or limiting healthcare costs. Recent research suggests that CEOs are starting to pay attention and make the necessary investments.

2. Keep it local. Any health-related investment comes down to people, to individuals, and to a community. While health is certainly a global issue, governments and businesses alike must start investing far more meaningfully in it at the local level. By partnering with a local university or identifying a specific community need for, say, a health technology or healthier housing, businesses can become involved in a clear and tangible way, which is why we’re working with university research facilities in Edinburgh, Newcastle, and other local venues on initiatives to develop new models for delivering elder care, especially to facilitate “aging in place” rather than in institutions. This is a multi-disciplinary approach across medicine, engineering, data science and architecture.

3. Build a model that has measurable impact. Outcomes should not only be felt by the recipients of health investments but observable to the investors. To achieve this, any successful health initiative needs to be based on a model that is observable and fact-based. One example is the way business and research so speedily mobilized to get billions of vaccinations made and distributed for the pandemic. But while the pandemic was a relative snapshot, over two years, the challenge is greater when results are delivered over decades. This may partly explain low investment in dementia and Alzheimer’s, relative to the proportion of the population at risk. There are many models to emulate, but to be successful from a business standpoint, they need trackable metrics.

4. Harness the COVID-19 disruption to think deeply about workplace changes. Required vaccination, changes in building management with testing for COVID-19 and other safety measures, and remote working have touched all businesses as well as everyone connected to them. Many people are missing the support systems and wellness components found in many workplaces as they continue to work remotely. Businesses should educate employees about health, make products and packaging healthier, and make health available. And as Professor Marmot points out in Fair Society, Healthy Lives, “the social gradient on health inequalities is reflected in the social gradient on educational attainment, employment, income, quality of neighborhood.” Employees need to make a living wage. There is a close correlation between social/income inequality and health inequality. While it’s understood that around 20 percent of an individual’s health outcomes are genetic, the other 80 percent is environmental and predicated by economic success: the poorest decile have significantly lower healthy life expectancy, some twenty years less, than the wealthiest decile.

5. Gig workers need a framework that includes healthcare and retirement. This is extremely important, as the number of workers who don’t have employers or regular workplaces keeps rising—currently more than a third (36 percent) of US workers are part of the gig economy, and by 2027 more than half will be. With no health benefits and often little in the way of retirement plan, these workers represent a special challenge for health investing. Marmot’s studies show that poverty breeds ill health; you can have happier, healthier employees by paying them better.

6. Hold companies and investees accountable. Impact investing on the ESHG level is about investing in companies. A strong condition for including companies in the ESG roster is their stance to providing access to proper healthcare or healthcare insurance to their workers. ESHG-minded Investors can leverage their financial power by divesting from companies that aren’t doing healthy business. Companies need to understand that good health is good business.

This begins with a recognition that many products and outputs negatively influence health, and so need to be redesigned to improve health outcomes. Think about health as we do about climate—the health of any organization’s workforce could be viewed similarly to its direct greenhouse gas emissions.

Health costs from negative corporate activity are often borne by the consumers or taxpayers. So conversely, companies can proactively engage to improve public health by self-regulating before regulators impose product bans or punitive taxation. For example, rethink sourcing of materials or change ingredients to promote rather than impair customers’ health. Bottom line, companies can look up and down their value chains and identify points where a positive health outcome could replace a negative one.

7. Corporate taxes low? Reinvest. How can businesses be made responsible for a wider swath of society that goes beyond their employees? Some portion of taxes are allocated to public health, but the corporate tax rate is the lowest it’s ever been (21 percent) and many of the wealthiest individuals have devised ways of legally minimizing their tax burden. With all of these funds stashed away at low interest rate returns or negative gains, wouldn’t it be better to put this money to work in high return investments that promote public health?

While none of these ideas will get us there alone, the aggregate will move the needle. All positive, innovative change can be said to be an outcome of much thought and action that came before it. We live in a moment that calls for deep change in the way we invest in and care for our communities and our environment. Asset managers who have done so much to bring ESG to the fore can add this new mandate. Let’s not waste this opportunity.