The Increasing Role of Health in ESG


Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.

Since the term “triple bottom line” was first coined some thirty years ago, it has encompassed social value; and yet, compared with the priority of environmental and economic factors, social considerations are widely considered to be running a distant third. Similarly, with organizations’ ESG propositions social aspects are typically the least measured and the least understood. But now, as growing awareness of the value of health-linked factors infuses an “H” into ESG, the role of social value in organizational decision making is changing fast.

“Health and humanity is a topic that is now crucial to how businesses compete,” said Martin Whittaker, founding CEO of JUST Capital, a nonprofit that evaluates companies’ performance relative to issues of stakeholder priority.

Whittaker was speaking at Putting “H” (Health and Humanity) into ESG, a forum hosted earlier this year at Nasdaq MarketSite, New York, by the Humanity 2.0 Foundation in partnership with the International WELL Building Institute (IWBI). A panel moderated by Dr. Matthew Trowbridge, Chief Medical Officer at IWBI, and including Chris Pyke, Senior Vice President for Product for Arc Skoru, and Mona Naqvi, Global Head of ESG Capital Markets Strategy at S&P Global, examined the growing opportunity — “I would say imperative,” said Trowbridge — for organizations to rethink the ways in which health and well-being strategies can help drive their organizational culture, strategy, and ESG reporting.

Over the course of a smart and lively discussion the panel tackled three essential questions:

  1. What is the rationale: Why should organizations focus on putting the “H” (health and well-being) into their ESG and broader corporate strategy?
  2. Why now: What trends, sentiments, and new capabilities make focusing on health and humanity (considered the “S” in traditional parlance) a near-term imperative rather than simply a nice-to-have?
  3. How can companies and organizations get started: What are the key questions they should ask themselves to begin addressing the missing “H” in their ESG strategies?

The rationale: “Seeing the ‘H’ mature and become more actionable”

“When we poll the American people, the human element of business is what shines through,” said Whittaker, “and the last two years [of the pandemic] have brought that into sharp relief.”

Especially in the real estate sector, said Pyke, “we’ve had an epiphany about the opportunity — and maybe the obligation — to promote health.” A company’s social impact determines the well-being, productivity, and even the presence of its workforce: it is a driver of business operations. Beyond that, a company’s social license to operate — whether building a community, an office, or even a warehouse — is increasingly dependent on how that company’s practices affect human health and well-being. “So now we’re moving to: How do we track, measure, compare,” said Pyke. “We’re seeing the ‘H’ mature and become more actionable.”

That has significant implications for companies’ value, said Naqvi. Modern-day ESG, as a process for incorporating non-traditional sources of information into investment decision-making, captures aspects of value that traditional financial analysis overlooks: resilience, for example. Plugging the information gap with new and non-traditional sources of data — anything from satellite images to product ingredient disclosures — enables more accurate assessments of corporations’ value. This is information that S&P Global is currently seeking out with a survey-based examination aimed at capturing the most important ESG topics in the 61 most relevant sub-industries. “We’re not just waiting for companies to disclose things that have already become top of mind for them,” Naqvi said. “We’re driving that agenda.”

The moment: Understanding the materiality of health and social factors

As for why health and humanity are accelerating in priority now, Pyke sees a number of significant vectors converging. These include a maturing of the disclosure regime for social factors; a recognition that social factors are, for many investors, material; a growing demand to invest in those factors; and an increasing concern for accuracy and transparency around them. In the near future, we’re likely to see different taxonomies for social values in different parts of the world, he said, citing the European Union’s recently released Final Report on Social Taxonomy as an example. He predicts, however, that common definitions, disclosure frameworks, and measurement tools will emerge.

“It’s an incredibly rich and dynamic time, where investors are going to be able to look into investments, see opportunities for action, and ultimately hold those investments accountable in a way that wasn’t possible before,” said Pyke. “It really is an inflection point.”

To place this inflection point in historical context, in the 1950s 80 percent of the value of corporations in the S&P 500 derived from tangible assets; today that has completely reversed, with over 90 percent of S&P 500’s value derived from intangibles: reputation, good will, social license to operate, and public opinion, for example. “All of that is not a fringe valuation uplift,” said Naqvi. “It is the core of the valuations today.”

As new forms of data and technology make corporate values and practices increasingly easy for investors and the public to track, organizations’ impacts on health and humanity increasingly affect their ability to attract and retain talent, to compete and grow, to move into new markets, to retain customer loyalty, to acquire more pricing power: in short, to succeed.

“Capitalism evolves always to reflect the values of the society it serves,” Whittaker said. “We’re heading into a period now where we as a society understand the value that gets created by health. Investors want more of that.”

Where to begin: Fostering a healthier built environment

Health will vary in its importance and relevance to different investors and different sub-industries: “Know yourself, your investment beliefs and philosophy; understand them internally and communicate them externally; and then act accordingly,” is Naqvi’s advice. The actionable watchwords, she says, are additionality (the creation of benefits that wouldn’t otherwise have existed), intentionality (the benefits are not just incidental or coincidental), and measurability.

In the property sector, the growing importance of social factors is changing what it means to be investment-grade real estate. Among the community of organizations that are working to foster a healthier and more humane built environment, there is an understanding that, in the future, to be a healthy, high-performance building worthy of equity or debt capital will mean decarbonizing, it will also mean promoting health, and it will mean promoting equity.

As for where to start: “Everyone’s pro-health, everyone’s pro-humanity,” Pyke said, “but when it gets down to what you are actually doing within your organization, within the assets you own, and within the assets you’re considering purchasing, if you are asking rigorous questions about intentionality and measurable outcomes, that will lead to the returns on investment and protection from some of the downside risks of getting into something you may not be that familiar with.”

Taking a holistic view of the “H,” understanding where the social impacts of business show up in your life, work, and community, including your suppliers: “That’s a great place to start,” Whittaker said.

And for organizations that don’t think health is their issue, Pyke recommends taking another look: “You’ve got community, you’ve got worker productivity, you’ve got a supply chain,” he said. “If you go past the first reaction, our experience is that there’s real value there.”

This article is written by Katharine Logan in partnership with the International WELL Building Institute.