ESG and Digital Transformation for Healthcare Systems

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1		Anastasios Sepetis	--	2238	2024-01-16 10:00:39	\|
2	Reference format revised.	Lindsay Dong	+ 7 word(s)	2245	2024-01-17 02:03:32	\|

This entry is adapted from the peer-reviewed paper 10.3390/healthcare12020156

Organizations worldwide have confronted these new challenges of sustainable finance by incorporating environmental, social, and corporate governance (ESG) factors and digital transformation (DT) in their innovation business strategies.

ESG factors digital transformation sustainable finance healthcare system

1. Introduction

The concept of sustainable finance and the environmental, social, and corporate governance (ESG) and digital transformation (DT) factors are directly related to the concept, general philosophy, and policy of Sustainable Development Goals (SDGs) ^[1]. More specifically, in recent years, the shift towards the Green Deal and digitalization era has accelerated and spread rapidly and continuously worldwide as a new expectation for organizations. Thus, the financial market, ESG, and DT factors are linked with the latest business models and strategies in many ways, such as the level of competitiveness, the proper profit–cost policies, and the organizations’ shareholder value.

Today, governments, the public, and organizations are more interested in sustainability issues such as the climate crisis, global warming, reduction in global emissions, resource depletion, air, water, and land pollution, quality of life, income disparities along with social inequalities, the growing of stakeholder activism, and the lack of mutual and universally accepted legislation, which have resulted in the imperative need for sustainability implementation, from an optional state to a must-have concept in the core business ^[2]^[3]^[4]^[5]^[6]^[7]. This also applies to the private sector, where shareholders, stakeholders, investors, and even consumers demand responsibly derived products and services with the minimum environmental footprint, its role in answering these challenges, and how society should measure business success apart from the financial aspect. On top of that, sustainable businesses are rewarded by customers for their loyalty, investors for their capital, and employees for their total engagement. Thus, more investments are reflecting the impact of ESG risks on risk-adjusted returns, and their continuous effort to align with the values of sustainable finance is crucial for the public and private sectors, even at a governmental level ^[8]. Furthermore, investment funds that meet ESG and DT criteria are found to be more stable compared with other types of collective investment undertakings, and investors are less likely to withdraw their investments after a negative performance ^[5]^[9]^[10]^[11]^[12]. In addition, sustainable finance taxonomies (such as Sustainable Finance Taxonomy–Regulation [EU] 2020/852 in Europe) are vital for sustainable finance and support the achievement of high-level goals such as the UN SDGs. However, studies mention some limitations that arise from the classification and comparison of these taxonomies, including the failure to use appropriate and measurable sustainability performance indicators and a lack of verification of accomplished sustainability benefits ^[13].

On the other side, studies have shown that digital technologies create new innovations and affect their openness degree ^[14], with a direct impact on entrepreneurial initiatives, new assets, and the creation of new ventures ^[15]^[16], gain economic and social advantages, and also promote economic and social well-being ^[17]. In addition, one of the factors that is proven to have a positive relationship with economic growth, organizational development, competitiveness, and sustainability is innovation ^[18]. At the same time, a holistic approach to digitalization has become vital for all kinds of institutions and organizations, and the economic impact of DT, the future policy directions, and the ramifications derived from DT (including the contexts of strategy-oriented digitalization and digitization) affect all sectors of society and the improvement of quality of life ^[19]^[20]. According to Caputo et al., 2021, the terms ‘digital transformation’ and ‘strategy-oriented digitalization’ contain several overlapping characteristics, and they argue that certain digitalization-level initiatives (e.g., the digital process model) may also demonstrate strategy-oriented perspectives ^[21]. Digitalization initiatives, especially in digital maturity, strategy, transformation, implementation, and completion, offer a way for companies’ optimization of sustainable financial evaluation. Thus, the implementation of digital technologies and their ability to affect ESG goals are becoming more convergent because improved data collection, reporting, and analysis will benefit every part of the business ^[6].

2. ESG and Digital Transformation for Healthcare Systems

2.1. ESG Factors in the Healthcare Sector

According to a study ^[22], a general benefit for organizations that have implemented ESG criteria is to have high ratings, as well as to be more competitive and demonstrate abnormal returns, which often leads to higher profitability and dividend payments, specifically when compared to other low ESG organizations. In addition, high-ESG-rated organizations experienced fewer peculiar risk incidents, such as an important drawdown. On the other hand, organizations with low ESG ratings were more likely to experience these incidents. Finally, high-ESG organizations had fewer volatile earnings and less systematic volatility, lower betas, and lower costs of capital than low-ESG-rated organizations. In general, an organization’s compliance with ESG principles may lead to better:

Understanding about various concerns towards the environment, such as reduction in the harmful impact (E-principle).
Social responsibility, such as responsible investments in local communities, local providers and suppliers, and better working conditions (S-principle).
Corporate governance actions, such as the implementation of anti-corruption policies and measures and improving corporate culture (G-principle).

Healthcare facilities have integrated and implemented ESG activities into their operations and are trying to determine an eco-friendly profile for stakeholders, mostly in society, through the use of sustainability reports and scorecards.

2.1.1. Environmental: Conservation of the Natural World

The healthcare sector plays an important role in the preservation and restoration of the natural environment due to its 24/7 operation, constant energy consumption, and enormous production of healthcare and medical waste ^[7]^[23]. Although the healthcare sector is thought to be one of the greenest industries, its global carbon footprint is measured to be 4.4 percent of the world’s total ^[24]. Thus, this sector is crucial for the implementation of environmental factors that will be associated with the quality and functioning of the natural environment.

climate change and carbon emissions;
intention to lower greenhouse gas emissions and CO₂ footprints;
air and water pollution;
energy consumption and efficiency;
water scarcity;
biodiversity;
use of clean technology;
deforestation (existence of responsible practices across the value chain);
resource depletion;
use of renewable energy sources that contribute less to climate change;
waste management (adoption of circular economy principles, implementation of quality management systems, and ISO certifications);
limits on harmful pollutants and chemicals;
disclosure of information on all environmental policies; and
publication of a carbon or sustainability report.

The expected positive benefits are outcomes such as the reduction of costs and reputational risks and the improvement of profitability in terms of better energy efficiency so as to achieve sustainable finance principles.

2.1.2. Social: Consideration of People and Relationships

Healthcare systems, which are an essential portion of social protection systems, must attain and preserve the social health and well-being of communities and society in general.

Patients’ satisfaction;
data protection and privacy of all interested parties and stakeholders;
anti-discrimination policies;
employee engagement (training and development of staff and increasing their involvement);
community environmental impacts;
community relations (good relations with local communities and other organizations related to the healthcare sector, such as the Patient’s Association);
healthcare employee relations (improvement of their working conditions);
human rights;
labor relations and standards (no questionable workplace safety or child labor);
operation of ethical supply chains;
policies to protect against sexual misconduct;
fair (living) wages (labor standards that ensure fair wages and the protection of human rights);
health and safety measures and standards (safe and healthy working conditions for healthcare employees);
conflict management;
data hygiene and security;
mental health;
ethical product sourcing.

The expected positive benefits are increased healthcare organizations’ productivity, decreased turnover, a boost in the employee’s morale, and better management of reputational risks. Following these recommendations also makes it easier to work without social pressure from stakeholders, improving the patient’s experience and satisfaction.

2.1.3. Corporate Governance in Healthcare

In general, governance factors in the healthcare sector emphasize policies and how healthcare providers are governed by clarifying the responsibilities, rights, and expectations of stakeholders so that interests are met and a consensus is achieved on a long-term strategy. Furthermore, governance factors cover aspects such as executive leadership, board independence, shareholder rights, corruption, and bribery, and the way in which healthcare providers include environmental and social factors in their policies and procedures, such as management structure, management remuneration, transparency, business integrity, lobbying, rights of and relations with shareholders and relations, long-term strategy, internal control and audit, etc.

Board composition (embraces diversity on the board of directors);
audit committee structure;
executive compensation guidelines;
political contributions (in the case of the private sector);
whistle-blower schemes;
embrace corporate transparency;
hiring and onboarding best practices;
lobbying;
tax strategy;
risk management;
protecting shareholder interests with special attention to patients;
health and business ethics;
prevention and management of bribery and corruption incidents via specific guidelines, e.g., anti-corruption policies;
corporate culture and code of conduct.

The expected positive benefits from the implementation of the above-mentioned measures and policies are the consideration of all shareholders’ interests, the improvement of the overall management, the reduction of any financial surprises, and the achievement of better social acceptance as a result of wealth being fairly distributed.

It has become clear that by implementing the above-mentioned ESG factors, healthcare providers can contribute to a great extent to the conservation of the environment, the preservation of social health and of society in general, the improvement of corporate governance in healthcare facilities, and, on a larger scale, to achieving the SDGs. Another set of factors that contribute to the sustainability of the healthcare sector are DT factors.

2.2. Digital Transformation Factors in Healthcare

The introduction of DT in the healthcare sector has gained significant interest and has been a field of constant application and development for the last 20 years ^[25]^[26]. In today’s business environment, where synergies are vital, organizations need to exchange knowledge, ideas, and even employees and experts to overcome organizational boundaries so as to develop new sustainable business models. The meaning of digital transformation, except for the adaptation of digital technologies to improve processes and services, also includes new business models such as the open innovation process, which played a moderating role during the COVID-19 pandemic due to the sharing of scientific knowledge, findings, and results of medical research, especially for the development of vaccinations ^[4]. More specifically, despite the fact that healthcare innovation literature is rather limited to the management of the COVID-19 pandemic, studies state that there is a connectivity between innovation in healthcare and patients’ satisfaction, profitability, and enhanced research and development performance ^[4]^[27]^[28].

It is worth mentioning that an organization’s performance is affected by new technologies and the connectivity of all stakeholders across the value-added chain. The healthcare sector has adopted DT technologies to provide secure and high-quality services and improve their operational efficiency by enabling clinical and administrative activities associated with the assessment, transmission, evaluation, and precision of medical treatment ^[29]^[30]. The main healthcare technology-related areas of interest to researchers are:

Integrated management of information technology in healthcare ^[25];
Health information technology ^[31]^[32];
medical images ^[25]^[33];
electronic medical records ^[25];
electronic health records ^[34];
access to e-health ^[25];
telemedicine ^[25];
privacy of medical data ^[33];
mobile technologies, applications, wearables, and software platforms ^[31]^[32]^[35];
advances in health platforms and data analysis ^[36]^[37]^[38]^[39];
big healthcare data ^[40];
artificial intelligence ^[41];
online health communities ^[42]^[43].
cognitive technologies ^[44]

The most interesting approach to digital sustainability from healthcare providers is the application of digital transformation factors and activities. However, very few publications can be found in the literature that address the steps to be followed in order to achieve successful digital transformation implementation in the healthcare sector.

2.3. Successful Digital Transformation Implementation in Healthcare

Schallmo and Williams ^[45] state that there are multiple ways to promote DT. These include digital strategy, digital business models, digital products and services, digital processes, and digital maturity models (Table 1). According to Morakanyane et al. ^[46], there are seven factors and 23 subfactors needed for an organization to achieve successful DT, as shown in Table 2. These must be applicable in the healthcare sector.

Table 1. Steps for a successful digital transformation implementation.

Determine digital trigger	- Knowledge in the triggers’ type - Knowledge in the inducers’ type
Determine digital drivers	- Determination of digital technologies to leverage - Determination of skill and capabilities required - Determination of other resources impacting required - Demonstration of strong digital leadership traits
Establish digital organization	- Establishment of digital innovation functional structure - Creation of digital innovation implementation structure
Determine impacts	- Definition of expected customer facing impacts - Determination of realized customer facing impacts - Definition of expected organizational facing impacts - Determination of realized organization facing impacts - Determination of measure of impacts
Determine transformed areas	- Determination of transformation opportunities - Identification of target transforming areas - Building digital transformation initiatives
Develop digital vision	- Perform digital present awareness - Formulation of a digital future - Development of a specific digital strategy - Establishment of a digital communication strategy
Cultivate digital culture	- Ensure shared conceptualization of digital transformation - Exhibit strong organizational leadership traits - Adopt good governance practices

Reprinted from Morakanyane, R., O’Reilly, P., McAvoy, J., and Grace, A. (2020) ^[46]. Determining Digital Transformation Success Factors. Hawaii International Conference on System Sciences.

Table 2. Factors for digital transformation.

Success factors	- A supportive organizational culture - Well-managed transformation activities - Leverage external and internal knowledge - Engage managers and employees - Grow IS capabilities - Develop dynamic capabilities - Develop a digital business strategy - Align business and IS
Drivers	- Customer behaviour and expectations - Digital shifts in the industry - Changing competitive landscape - Regulative changes
Objectives	- Ensure digital readiness - Digitally enhance products - Embrace product innovation - Develop new business models - Improve digital channels - Increase customer satisfaction and dialogue
Implications	- Reformed IS organization - New business models - Effects on outcome and performance

Reprinted from Osmundsen, K., Iden, J., and Bygstad, B. (2018) ^[47]. Digital Transformation: Drivers, Success Factors, and Implications. In MCIS. Reprinted with permission.

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