Corporate responsibility in private healthcare and ESG challenges in a shifting political landscape

Manuel Durães Rocha

Abreu & Associados, Lisbon

manuel.rocha@abreuadvogados.com

Tiago Eira

Abreu & Associados, Lisbon

tiago.eira@abreuadvogados.com

Healthcare organisations as socially responsible businesses

It seems consensual that, within the biggest Western economies, Friedman’s ultra-liberal shareholder theory (1970) was surpassed by a broader understanding of corporate purpose that includes different stakeholders’ interests.

The 2019 statement by the Business Roundtable, signed by nearly 200 CEOs of major United States companies, marked a pivotal shift in corporate governance by redefining the purpose of a corporation to promote ‘an economy that serves all Americans’, explicitly recognising responsibilities to employees, customers, suppliers, communities and the environment. Similarly, the UK Institute of Directors (IoD) emphasises the importance of long-term sustainable success, advocating for corporate decision-making that balances the interests of the different stakeholders with shareholder priorities. The European Union’s orientations, particularly in its corporate sustainability frameworks, further reinforce this trend, promoting principles of environmental, social and governance (ESG) responsibility as integral to corporate strategy.

Corporate social responsibility (CSR) is the practical corollary of this concept, and even though there are differences among different authors in its definition, it is clear that it encompasses corporate actions that go beyond the law. As stated by Cristina Brandão et al, ‘Law only serves to ensure that a corporation acts responsibly in the passive sense [...] but not in a proactive manner to do more than it is usually expected’.[1]

Private healthcare assumes a critical role in Bismarck-influenced or mixed health systems, which depend on private providers to deliver healthcare services to all or a substantial portion of their populations. Although these providers operate as businesses, they are entrusted with the execution of a vital function that embodies a fundamental right and constitutes a key element of human rights. Consequently, it is imperative for private healthcare providers to maintain an enhanced awareness of the significant social responsibility inherent in their role.

To foster greater trust among patients and society at large, private healthcare businesses must transcend the perception of being purely profit-driven entities. Instead, they should be regarded as organisations committed to upholding ethical principles aligned with essential values, such as environmental protection and addressing the broad spectrum of social determinants of health. Actively contributing to the improvement of these determinants can promote a more equitable and healthier society, aligning with the aspirations of life sciences companies to establish themselves as key contributors to societal wellbeing.

Thus, when CSR initiatives exceed the legal compliance requirements established by each country, they can confer a competitive advantage by enhancing the providers’ reputation among consumers and health professionals. This heightened respect not only strengthens trust but also contributes to the enhancement of their goodwill, positioning them more favourably in the market.

A crucial area of focus is the environment: according to the 2022 Lancet Countdown Report,[2] healthcare’s emissions rose to 2.7 gigatonnes of CO2 equivalent (CO2eq), representing 5.2 per cent of global emissions. This underscores the significant environmental impact of the healthcare sector, highlighting the need for more stringent sustainability efforts and the integration of ESG practices to reduce its carbon footprint and contribute to global climate goals.

A final note should be made regarding the critical role of corporate executives in integrating ESG objectives into their management strategies, elevating them to the same level of priority as the maximisation of shareholder value. These objectives must be subject to accountability through external mechanisms, such as the publication of aligned social responsibility reports, and internal controls, which necessitate the establishment of a robust governance structure capable of ensuring effective oversight and implementation.

Navigating uncertainty for ESG in the private healthcare sector in the US

Given the significant influence of political decisions on regulatory frameworks, the evolving political landscape could shape the future direction of ESG policies, directly impacting how private healthcare providers navigate and implement their sustainability and social responsibility strategies

Global experience demonstrates that a balanced level of legal regulation is the most effective way to establish minimum ESG standards. When companies neglect to address these demands through voluntary CSR efforts, they risk provoking stricter regulatory interventions. Such interventions often introduce rigid frameworks that can reduce organisational flexibility and increase compliance costs. By prioritising innovative and effective solutions to ESG challenges, companies can meet stakeholder expectations, contribute to sustainable development, and avoid the more burdensome consequences of excessive legal oversight.

The alignment between legal regulations in ESG matters and the fulfilment of societal demands highlights the significant role of governance in addressing global sustainability challenges. The EU has positioned itself as a leader in this regard, advancing ESG and sustainable finance through a robust and comprehensive regulatory framework. Initiatives such as the European Green Deal, the Sustainable Finance Action Plan, and the Sustainable Finance Disclosure Regulation (SFDR)[3] exemplify the EU’s proactive approach, setting a global standard for integrating ESG considerations into corporate and financial decision-making processes.

The US has made significant progress in recent years and despite lacking a cohesive federal framework, certain states have taken meaningful steps to promote ESG principles, and private sector initiatives have gained momentum. However, the country remains deeply polarised on the issue, with some states adopting robust ESG measures while others enact anti-ESG laws, creating a fragmented and challenging policy landscape.

The context for the development of ESG issues is likely to intensify in the US.  The new administration is expected to prioritise deregulation and to broaden scepticism toward ESG initiatives, which could complicate the regulatory landscape for investors and businesses. In recent years, the administration has made significant progress in advancing climate and ESG policies, including strengthening climate-related disclosure rules; experts like Tom Kuh[4] warn that an administration less committed to ESG principles could roll back these efforts. Kuh cautions that such actions could undermine federal agency regulations on air quality, clean water, greenhouse gas emissions and other critical areas, further challenging the US’s ability to compete globally in ESG and sustainable finance.

As federal regulations on environmental and sustainability practices loosen, private healthcare providers – especially those tied to insurance models – may face challenges in maintaining their competitive edge in an increasingly sustainability-conscious market. Insurers and healthcare providers that have begun to integrate ESG factors into their business models – such as improving patient outcomes through sustainable practices, reducing their carbon footprint or addressing social determinants of health – may find themselves navigating a more fragmented regulatory environment that could complicate these efforts.

Furthermore, private health insurers are increasingly being scrutinised for their role in addressing social issues like healthcare equity, access to care, and mental health services, all of which fall under the broader ESG umbrella. With a lack of federal push for ESG disclosure and regulations, private insurers may face pressure from both investors and consumers to take more proactive roles in these areas. In particular, climate change impacts such as extreme weather events, pollution and health crises like pandemics can place additional strain on the healthcare system: insurers will need to adapt their coverage plans to address these growing risks. An eventual regulatory rollback could undermine ESG efforts to improve resilience within the healthcare system, leaving private insurers vulnerable to both financial and reputational risks.

In a broader sense, as the private healthcare sector becomes more integrated with ESG factors – particularly in a system dominated by private insurance models – uncertainty about federal ESG regulations may affect insurers’ ability to develop long-term strategies. This could limit investments in preventative care, health innovations and social programmes that align with ESG goals, which are essential for improving both public health and the long-term sustainability of the private healthcare system.

However, some argue that a potential shift in the regulatory landscape in the US could bring a more favourable environment for private healthcare providers. Drawing on Thomas Kuhn’s[5] concept of a paradigm shift, when a system becomes overly complex and ineffective it may be ripe for a complete overhaul. In this context, a shift toward a simplified regulatory, deregulated framework – promoting innovation and free enterprise while still safeguarding the environment – could empower healthcare organisations to embrace ESG goals more effectively. This could open the door for private healthcare providers to focus more on sustainable practices and long-term health innovations, reducing regulatory burdens and fostering investment in areas like preventative care and addressing social determinants of health.

Ultimately, as already stated, the decisions made by healthcare managers and executives will be crucial in defining the path that healthcare companies will follow in this evolving landscape. Their leadership in adapting to shifting regulatory environments, prioritising ESG practices, and navigating the increasing demand for sustainability will determine how well the sector can balance financial performance with social and environmental responsibility.