The Business Case for Sustainability in the NHS

To What Degree Are NHS Acute Trust Managers Motivated to Pursue Sustainability?

Towards a better understanding of the sustainability paradox in UK government

A dissertation submitted by Dane Pflueger d.p.pflueger@lse.ac.uk to the MPA Programme, London School of Economics and Political Science, in part completion of the requirements for the Public Policy & Management Stream May 2009 Word Count: 10,941

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Table of Contents

Introduction……………………………………………………..3 Chapter 1 The Sustainability Paradox in the UK Government.................6 Chapter 2 The Business Case for Sustainability………………………….12 Chapter 3 Motivation for Sustainability in Practice……………………..28 Chapter 4 Learning from the Sustainability Paradox …………………...39 Works Cited…………………………………………………….44 Annex 1 Research Methods…………………..………………………….52

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Introducti o n

There is a poorly understood sustainability paradox in the UK. The government acknowledges the urgency of action on sustainability and the clear benefits of doing so. It is also an international leader in the development of sustainability policies, mechanisms, and support tools, and has committed itself to “lead by example” in its action on sustainability (SDC 2005). Yet it has consistently failed to lead by example and even the best performing government departments are unable to make progress on sustainability in the way that some private businesses have (SDC 2006; SDC 2007).

This paper investigates this paradox by comparing the motivational incentives for attention to sustainability in both government and the private sector. Although there are many well-documented barriers to sustainability action in the public sector such as lack of leadership, lack of information, and a scarcity of relevant skills, the motivations of managers to pursue sustainability is often overlooked (Russel 2007; EAC; NAO 2005; SDC 2006; FOE 2009). This paper argues that understanding why public and private managers would want to voluntarily pursue sustainability is central to understanding the sustainability paradox.

The motivations to pursue sustainability are studied with respect to the “business case for sustainability”. The business case is both a descriptive and normative articulation of why sustainability does and should matter to managers. The business case for sustainability has been shown to provide much of the impetus behind sustainability action in the private sector (Zadek 2001) and is increasingly adopted by government departments seeking to replicate high levels of buy-in (BERR 2009, Coote 2002, SDC 2008). This paper analyses, both theoretically and empirically, the context and content of the business case for sustainability and its motivational effects on those tasked with operationalising sustainability.

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Chapter One fully outlines the sustainability paradox and the current state of sustainability affairs in government and business. It demonstrates that equally important to the differences in progress on sustainability between the sectors are the stark differences in perceptions of sustainability. While private managers see sustainability as a central component of business performance, many public managers, although personally enthusiastic about sustainability, have yet to feel comfortable associating sustainability with performance.

Chapter Two compares the content and context of the private and public sector business cases for sustainability and their motivational effects on managers. This investigation illuminates three theoretical reasons why the business case for sustainability may be less convincing to public managers: much of the value of sustainability is strategic and intangible; the business cases rest on fundamentally different motivational foundations; and very different stakeholder groups give rise to each business case. This investigation also suggests that the public service “ethos� in the public sector may provide incentives for sustainability action that overcome the lack of extrinsic motivations.

Chapter Three investigates the validity of these theoretical findings using empirical data.

Practitioner accounts and descriptive and exploratory econometric methods explore the relationships between organisational differences that exist and the organisation’s actual sustainability performance. This investigation provides evidence that indeed most of the theoretical motivational implications exist in practice. However, the variables are difficult to isolate and the variety of motivations interact in a complex environment.

Both exercises are undertaken in the context of the NHS. This context is chosen for two reasons. Firstly, there is a substantial and well-documented business case for sustainability in the NHS where sustainability shares many of the same underlying goals of public health. Secondly, NHS Acute Trusts, the units of study in Chapter Three, vary considerably in their organisational size, business acumen, and location, and regulatory environment. The strong influence of New Public Management in some parts of the NHS

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and the creation of Foundation Trusts that are based on private sector business principles create a variety of organisation differences. Systematically exploring the correlations between sustainability and these differences provides more generalisable and comprehensive information about the circumstances in which the business case for sustainability is persuasive to public managers.

Chapter Four synthesises the descriptive evidence presented in the paper to substantiate the claim that understanding why managers would want to pursue sustainability is central to understanding and overcoming the sustainability paradox. It further outlines wellfounded recommendations for overcoming the sustainability paradox and encouraging the “lead by example� sustainability performance that government departments are expected to achieve.

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Chapter 1 The Paradox of Sustainability in the UK Government “While the UK has been an innovator and leader in the development of administrative mechanisms, tools, and processes to implement SD, its progress has been surprisingly hampered by a failure to systematically orchestrate them” (Jordan 2007, 198)

Since 1992, the UK government has actively pursued sustainability and sustainable development (SD) in an attempt to live up to the large number of ambitious goals it has set for itself in international agreements such as the UN Millennium Declaration, the Kyoto Commitment, and Johannesburg World Summit on SD. Early action in this area revolved around the difficult process of translating the vague and ambiguous concept of sustainability into a conceptual definition with actionable targets.

In this area, the UK has been recognised not only as a “pathfinder and innovator in the pursuit of [SD]” but an “international leader” in pioneering the development of crosscutting administrative mechanisms, tools, and processes deemed necessary to guide sustainable action (Russel 2007, 190; Steurer and Martinuzzi 2005). The government has now condensed the 15 international SD commitments into five SD ‘principles’ that translate into a suite of 68 national indicators in areas ranging from carbon emissions to social justice and employment and poverty. Further bespoke target setting has been devolved to executive agencies and local government departments, which are required to implement action plans and provide yearly updates (SDC 2009b). The government’s independent advisor and watchdog on SD, the Sustainable Development Commission (SDC), reports annually on departmental and government-wide progress. A further 5 Sustainability Task Forces, 23 public bodies, and crosscutting oversight units such as the Environmental Audit Committee and Office of Climate Change have been established to disseminate best practice and guidance and ensure vertical and horizontal policy integration (Defra 2008).

This impressive commitment has been renewed in recent years with an increasing attention to and quantification of the ‘externalities’ of un-sustainability in areas such as 6

health (ie. obesity), natural resource security (ie. oil), natural disasters (ie. hurricanes), and tourism decline (due to climate change) which bring substantial costs to the government. At a macro-level, the Treasury-sponsored Stern Review (2005) provides convincing economic justification for quick government action on sustainability. It documents that a 1 % investment of GDP today to stabilise atmospheric carbon at a sustainable level will save the 15 % of GDP damage likely to occur from unabated climate change. At a micro-level, each government department illustrates the interactions between sustainability and its core responsibilities as part of mandatory SDAP requirements. DCSF, for example, explains; As the Department responsible for children’s wellbeing in England it is our duty to ensure they grow up in places which encourage physical activity, outdoor play, socialisation, mental health and above all a positive sense of place, belonging and contribution to the world. It is our duty to ensure that we have not exhausted the Earth’s natural resources by the time they have grown up, or failed to deal with climate change placing their economic prosperity, and lives, at risk. (DCSF 2009) Reflecting this increasing imperative for action, the 2005 Sustainable Development Action Plan outlines the government pledge to “lead by example”. Defra explains, “we believe it is important for Government to lead by example - we cannot achieve our wider SD goals as a country if central Government is not prepared to lead the way” (Defra 2009). This commitment affirms that government departments are well placed to and must model environmentally sustainable behaviour to business and consumers. Sir Neville Simms, the Sustainable Procurement Task Force Minister explains that motivation for action is simple: “this is worth doing, it is not difficult, it will not cost more in the medium term and the dividends it will bring in the long term are clear” (Sustainable Government, 2006). This plan suggests, contrary to earlier obligation-driven targets, that self-interested government departments can and should rationally pursue sustainability.

Despite the “seemingly favourable environment for SD in the UK” (Russel 2007), the strong evidence-base for action, and its commitment to “lead by example” (SDC 2005), however, government progress on SD has been uneven, slow, and often wholly inadequate. The annual SDiG reports show that the best performing government

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departments have failed to one-up the private sector on any element of SD and pangovernment performance has been dismal. The title of the 2005 report Leading by Example? Not Exactly speaks for itself; it found not only that government bodies are outperformed by the private sector, but also that many department outcomes are “wholly unsatisfactory” (SDC 2005). The 2006 report reiterates the poor and even paradoxical state of affairs; “given that Government wants the public sector to be a leading exponent of sustainable development and this is the fifth such assessment of government operations, overall performance is hugely disappointing” (SDC 2006). Finally, the latest report (SDC 2007) shows considerable progress in select areas but “no evidence that the overall performance of the Government estate [is] any better over the period reported on” (i bid pp.8).

The private sector benchmarking study, shown in Figure 1 below illustrates that while the government is not blatantly failing in any one area, they are far from leading by example.

Similarly, a variety of companies have cut their carbon emissions, water use, and waste arisings quicker and more successfully that even the best performing department.

Polaroid has made a 14 % reduction in carbon emissions in just one year (WWF 2009), and Unilever Canada has achieved a 48 % reduction in water use, 69 % reduction in natural gas use, and 14 % reduction in electricity use since 1999 (Natural Resources Canada 2009). 1

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These figures do not adjust for differences in accounting techniques (a subject of much current debate) but even with accounting discrepancies, these figures show that government department progress most certainly does not demonstrate a leadership position and may in fact be a laggard.

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Perhaps even more apparent than the difference between private and public sector performance is the difference in perceptions of sustainability. Almost universally, private sector managers understand sustainability as a source of competitive advantage and of central importance to business performance. Survey data shows that 87 % of the Fortune 1000 CEOs believe that sustainability is important for their company’s profits, 73 % believe sustainability affords them cost savings (Accenture 2007), 57 % believe that the benefits of efforts to achieve sustainability outweigh the costs (PwC 2008b) and 68 % of large and small global firms say that environmentally-friendly products/practices are an important part of their mission (Bain 2007). The prevailing perception is that “wherever environmental, social or ethical issues can be addressed businesses have an opportunity to innovate, create value and attract more customers� (PwC 2008b, pp.6).

In contrast, many public managers, despite being personally committed to sustainability (SDU 2009), are reluctant to perceive sustainability as a core component of operational

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performance. An Accounting for Sustainability report describes a culture and attitude of “ignorance, suspicion, and confusion� amongst many public managers to sustainability (A4S 2005). Indicatively, 14 executive agencies and departments failed to meet the deadline to simply develop sustainability action plans. In complete contrast to the private sector views, sustainability is not perceived as an opportunity for cost-savings. An evaluation of the Good Corporate Citizenship Model shows that many managers believe that sustainability is of secondary importance to service delivery (Environment Council 2008), and a NAO (2005) survey shows that most NHS managers believe sustainable products are not value-for-money. Furthermore, the notable absence of sustainability in high-level reports such as the Gershon Efficiency Review and the Treasury Green Book solidify the perception of sustainability as secondary to service delivery.

This situation presents a troubling sustainability paradox. While the government has clear justification for action, and is arguably the most prepared government in the OECD to do so, it fails to match the performance and perceptions of those businesses that they expect to educate. Understanding this situation is critical to engendering government progress on sustainability.

A number of reports highlight the barriers to effective public sector progress on sustainability (Russel 2007; EAC; NAO 2005; SDC 2006; FOE 2009). The consistentlymentioned barriers include ambiguity and inconsistency of the definition of sustainability, lack of high-level and sustained leadership, inadequate targets and reporting, lack of information regarding sustainability options, and lack of integration between different tools and processes. Such studies provide critical information regarding barriers to delivery but may overlook the underlying motivational drivers for sustainability. This paper shows that understanding why managers would want to pursue sustainability in the first place is critical to explaining and correcting the sustainability paradox. This is important, in the least, because positive perceptions of sustainability are preconditions to sustainability action (Dobson 2007).

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The motivation to pursue sustainability can be studied with respect to the ‘business case’ for sustainability. The business case for sustainability “covers the broad questions dealing with the relevance of voluntary social and environmental activities to the business effects and the business success of a company” and “shows how voluntary social and environmental management contributes to the competitiveness and economic success of the company” (Schaltegger and Wagner 2006 pp2.) In the private sector, the successful presentation of such a case has been shown to provide much of the motivation for sustainability (Vogel 2005; Zadek 2007). As Zadek writes, Much of contemporary corporate responsibility has been framed by the socalled ‘business case’. At its most straightforward, this is about the pragmatic need to convince businesses that it is in their narrow institutional best interest to improve their social and environmental performance, even (or at times especially) where relevant legislation was absent or un-enforced. This ‘business case’ dimension is the thinking behind, and the practice of corporate responsibility has been the single most important mainstream driver. (ibid, 17 emphasis added) Understanding the content and context of this business case, therefore, is a critical step in better understanding the sustainability paradox.

In government departments, a ‘business case’ for sustainability in its simplest form is an argument for action that satisfies perceptions of public value creation (Leatherman et al 2003). Departments such as the NHS have explicitly adopted the business case argument in an effort to encourage the voluntary buy-in seen in the private sector. The business case is implicit in a number of reports (BERR 2009; Coote 2002; SDC 2008, SCD 2005b) and is explicit in the NHS Good Corporate Citizenship Model, which is “championed” by the Department of Health and “gives the business case for NHS organisations ‘getting stuck into’ good corporate citizenship” (Griffiths 2006, 611). Understanding this business case as well is a central component step in better understanding the sustainability paradox.

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Chapter 2 The Business Case for Sustainability “Sustainability is the single biggest business opportunity of the 21st century, and will be the next source of competitive advantage.”

–H Lee Scott, President and CEO of Wal-Mart (PwC 2008) “All the things that are good for sustainable development have, directly or indirectly, a positive impact on human health or efficiency savings” -Anna Coote, lead health commissioner SDC (NEF 2007)

This chapter outlines the context and content of the business case for sustainability in the private sector and the NHS. Drawing broadly on all theories of bureaucratic motivation, it illuminates the similarities and differences of the content and context of the business case and their motivational implications for managers.

A business case for sustainability in private organisations answers the question of “how can the competitiveness and business success of a company be improved with voluntarily created outstanding environmental and social performance?” (Schaltegger and Wagner 2006, 1). According to Willard (2002), the persuasiveness of a business case depends critically on the quantification and expression of benefits in business terms (12).

However, it is unclear in practice exactly what increases business competitiveness and therefore what constitutes business terms. The sources of competitive advantage are contested and rely increasingly on non-financial “lead indicators” as seen in the Balanced Scorecard (Kaplan & Norton 1992) and the Sustainability Balanced Scorecard (Figge et al 2002). The legitimacy of these business terms is equally contested and debated in what Dutton et al (2001) describe as a “pluralistic marketplace of ideas” (716). In this contested environment, “there is no single route for demonstrating [the business case for sustainability’s] performance” (Zadek 2007, 90) but instead relies on all modes of persuasion to build an argument that is difficult to ignore or rebut.

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A business case for sustainability in public organisations is equally if not more contested.

The fundamental abstraction of long-term shareholder wealth production in the private sector, according to Moore, is equally abstract in the public sector where no such consensus about the goals of public organisations and no holistic measures of success exist (Moore 1995; 64).

Surprisingly, however, the business case terminology has gained increasing use in the public sector and the NHS in particular. The “business case” entered the NHS vocabulary as a result of the Caring for Patients (1989) legislation that created contestability and a purchaser/provider split, as a means for encouraging trusts to be “businesslike” (Currie 1999, 145). These demands gave rise to business planning processes and “necessitated that NHS trusts prepare strategies on the basis that they are business units, which should provide services that meet purchaser needs, attract income and be financially viable in order to survive” (Currie 1999, 145). The introduction of Foundation Trusts that were able to operate like quasi-private organisations extended these demands. These reforms are seen as attempts “to strengthen managerial control and accountability in the NHS and to nurture a competitive ‘business culture’ throughout the organisation” (Mannion et al 2007, 403). In practice, however, the business and managerial aspirations of Trusts in the NHS yields to many contextual characteristics such as the inflexible sources of income, the level of political intervention and the power of the medical profession to define costs and services (Dixon et al 2003; Currie 143; Edwards 2005). Pollitt illustrates that “behind the façade” of the adoption of private sector business processes are incongruencies that encourage reforms to “lose their steam” in practice (Pollitt 1996, 104).

Cognisant of these diverse and conflicting definitions of value in the NHS and public sector more generally, the business case for sustainability presented in this chapter maintains business arguments as well as public value and patient-focused arguments that may be convincing to practitioners, whose motivation is discussed later in this chapter.

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The Private Sector Business Case for Sustainability There is a vast amount of literature suggesting the positive relationships between sustainability and business performance. Although the accounts vary in the purported magnitude of impact—from marginal opportunities (EIU 2008) to “the biggest opportunity of the century” (Esty & Winston 2006)—management ‘gurus’, consultancies, academics, and Fortune 100 CEOs describe the business case as comprised of five value chains of sustainability, listed below.

These accounts are increasingly supported by empirical evidence that demonstrate these arguments in practice. A summary description of each value chain shows the dynamic ways in which they interact with social and economic forces that shape the normative ends and expectations of business and the internal motivations for managers to pursue sustainability (Hopkins 2003; Chichilnisky 1996).

1. Efficiency improvements provide a source of competitive advantage The most well documented value chain of sustainability emerges from the environmental and economic benefits of many efficiency improvements. A number of authors show that an “astonishing amount” of efficiency opportunities exist in firms to reduce production and operational costs as well as social and environmental impacts (DeCanio 1994). This is embraced by the WBCSD in the concept of ‘eco-efficiency’, which suggests that the goals of reducing the consumption of resources, reducing the impact on nature, and increasing product or service value can be met simultaneously by firms (DeSimone et al 2000; WBCDS 2000). It is estimated that low-risk eco-efficiency improvements in waste, water, and energy will increasingly impact a firm’s bottom line as prices fluctuate and constitute a greater part of operational budgets. One commonly cited example of eco14

efficiency is Wal-Mart’s transportation fleet efficiency improvement that saves the company $325 million per year and simultaneously 26 billion pounds of carbon emissions annually (Monroe 2008).

2. Sustainability performance is intimately linked to brand value A number of studies show sustainability performance can have a significantly positive or negative impact on brand value, which makes up an ever-larger share of corporate net value and is arguably a primary measure of corporate success (Power 2007, 129). Survey data shows the emergence of a “value-driven marketplace” where premiums are paid for sustainable brands and under-performers are quickly abandoned (SustainAbility 2004; Bain 2004). In this context, compliance with the legislative minimum is seen as a brand risk and exceptional sustainability management is a source of competitive advantage (Ridgley 2008). Indicatively, the 2008 “Best Global Brands” report shows the recent changes in value being reflective of attention to sustainability. It argues that Coca Cola’s $5.1 billion decline in brand value between 2003 and 2007 is “due to the fact that it is seen as one of the bad guys by many organisations” and GE’s $6 billion increase since 2005 is a product of its green Eco-magination campaign (Interbrand 2008, 14).

3. Sustainability can foster important innovation Innovation-based profit-growth is now high on the corporate agenda and sustainability is seen as an indispensable element in creating an innovative business (AD Little 2006).

Many companies have embraced the concept of “Eco-innovation” in which sustainability thinking engenders far-reaching product and market innovation (WBCSD 2000; Fussler 1996). One fitting example is Unilever’s detergent product redesign as the result of a sustainability programme. The new Persil product uses 60 % less water, 40 % less packaging, 60 % less emissions from transportation, and generates 50 % more revenue per square metre of shelf space (Unilever 2009). Further, human resource consultancies show that sustainability performance is critical to recruiting and retaining top talent as a MonsterTrak poll finds 92 % of young professionals give preference to working for a company that is environmentally friendly (Willard 2002; BusinessWire 2007).

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4. Effective risk management requires sustainability performance Sustainability is also seen as key to understanding and avoiding the emerging sources of risk. A report by PriceWaterhouseCoopers (2008) shows at least 4 broad categories of sustainability-related risk: “scarcity of raw materials, regulation, reputation, and climate change/physical risks” (pp.4). Although each risk varies between market and industry, a report by the consultancy SustainAbility (2004) concludes that the “future earnings and balance sheet impacts of these are likely to be large” (pp.6). These impacts are welldocumented: Shell’s failure to manage environmental risk in the Brent Spar episode reduced sales in Germany by 50 %, and Toyota’s forward-looking Prius is proving indispensable in the current market (Grolin 1998; Esty and Winston 2006). AD Little summarises the common view amongst CEOs: “businesses today need to integrate sustainability and risk management fully into their strategy - not only to minimise potential losses but also to exploit new business opportunities arising from the sustainability agenda” (AD Little 2008, 12).

5. Sustainability is a source of competitive advantage and a business necessity Although each value chain will affect each industry and company in different ways, the business case for sustainability holistically describes a virtuous cycle amongst stakeholders and describes sustainability as a business necessity. Heightened consumer awareness of sustainability and social and environmental crisis engenders what Zadek describes as a “mutual accountability compact” between society and business, whereby society rewards businesses for the provision of critical public goods with economic success. Analysts and investors now seek sustainability as an indicator of performance (Baue 2006), and consumers and high-value employees now demand it (Stillamn 2009).

As a result 92 % of companies dedicate executive or board level responsibility to SD (EIU 2008b, 15). Those firms that fail to satisfy these new demands, it is argued, will increasingly and eventually fail (Zadek 2007; Porter 2004).

Empirical evidence increasingly supports this relationship between economic performance and sustainability (Hart et al 1996, King et al 2008; Pava et al 1996; PwC 2008). One review using 123 indicators of environmental performance shows that from

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1999 through 2003, the shares of the most environmentally friendly companies earned a 3.2 % higher annualised return than the lowest ranked companies (Derwall et al 2005).

Similarly, a 2009 AT Kearney study shows that in 16 of 18 industries studied, “companies that show a true commitment to sustainability appear to outperform their peers in the financial markets” to the tune of 15 % over 6 months or $650 million in market capitalisation per company. Although causal links are seldom established, this evidence provides convincing motivation for managers to confidently pursue sustainability (EIU, 2008a).

The Business Case for Sustainability in the NHS There is far less literature on the empirical and normative business case for sustainability in the NHS. However, recent efforts by the NHS Sustainable Development Unit (SDU), among others, are increasingly refining a convincing business case. This literature purports four distinct value chains described below.

1. Efficiency improvements provide resources to improve services Eco-efficiency opportunities are extraordinary in the NHS, which spends £400 million on energy, contributes to 5 % of all UK car emissions, and generates 1 in 100 tonnes of all UK domestic waste per year (NEF 2007, 3). A New Economics Foundation report shows that if trusts were to meet their target to cut primary energy consumption by 15 % between 2000 and 2010 the NHS would save £50 million per year, that better building design would not only cut energy costs by a quarter but could also increase workforce productivity by between 6 and 16 %, and that if domestic and clinical waste were segregated and just 40 % recycled, emissions savings would be similar to those produced by driving an average-sized car around the equator more than 550 times (ibid). Similarly,

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the NHS Carbon Reduction strategy shows that every 1 % reduction in carbon emissions could save the NHS £4 million annually (SDU 2009, 65). A variety of case studies illustrate the low-cost measures needed to realise these benefits at the ground level. With a simple boiler retrofit, Stepping Hill Hospital realised a 20 % annual fuel bill reduction and reduced CO2 emissions by 16 % (Avail, forthcoming). Similarly, East Cheshire NHS Trust reduced annual waste disposal costs by £14,000 through a recycling programme (ibid).

2. Management of sustainability ensures operational resilience Many also advocate sustainability as a way to ensure the operational resilience stressed in High Quality Care for All (2008), which states that “an important measure of the quality of any organisation is its capacity to consistently deliver high standards amidst changing circumstances” (SDU 2009). Sustainability impacts resilience in at least two ways.

Firstly, sustainability shields an organisation from many market pressures such as increases and fluctuations in the prices of energy, waste, and water that potentially undercut clinical excellence (ibid). Similarly, pro-active management of sustainability, and carbon in particular, is seen to provide a cushion against potentially crippling legislation such as the UK Carbon Reduction Commitment. Secondly, the SDU sees sustainability as a critical component of maintaining organisational legitimacy. Like the ‘changing landscape of liability’ described in the private sector, the SDU shows that “the NHS recognises that its reputation is at risk as the public’s consciousness and expectation in the context of global events increases” and as a result, “the public needs reassurance that an iconic organisation like the NHS is safeguarding its ability to provide high-quality and sustainable healthcare and to be managing these risks now to ensure resilience and business continuity” (SDU 2009, 19).

3. Sustainability delivers valuable health co-benefits The interaction between sustainability and preventative public health are also shown to play a major role in stemming the extraordinary rise in demand for health services. As Coote, explains “one way to contain demand is to invest more in ways of keeping people healthy, by addressing the underlying causes of illness, such as unemployment, poverty,

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environmental damage and entrenched patterns of social exclusion” (Coote 2002, 65).

Sustainability is seen as the key investment to achieve all of these goals because of its cobenefits. Figure 2 below describes these benefits as a virtuous circle whereby “patterns of behaviours that promote economic, social, and environmental sustainability also have health benefits, while measures to improve health—especially among those who are poor and vulnerable to illness—contribute to sustainable development” (Coote 2002).

4. Climate change is a source of public health risk The direct costs of climate change on public health also provide an economic argument for action by the biggest public sector emitter of carbon emissions. The WHO describes the public health effects of climate change as “diverse, global, and probably irreversible over human time scales,” “potentially huge”, “inequitable”, and “avoidable” (CampbellLendrum et al 2007). Without aggressive mitigation, the UK is likely to experience similar effects including an increase in heat-related deaths reaching 20,000 per year by 2050, an increase in skin cancer and cataracts, an increase in injuries and infectious disease as a result of flooding, an increase in anxiety and depression linked to physical

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and economic insecurity, and increased respiratory disease, insect-bone disease, and food poisoning (SDC 2008). Research suggests that the cost of heat-related illness alone will increase between five and nine-fold over the next 90 years as a result of climate change (ibid). This evidence, along with robust health ethics justifications (Frumkin et al 2008) strongly support sustainable action and reductions in carbon from the NHS as a means of taking direct action against the costs and consequences of climate change.

Despite an increasingly sophisticated business case for sustainability in the NHS, managers do not have the confidence and motivation to pursue sustainability like their private sector counterparts. This is in sharp contrast to the personal normative views of NHS managers. A 2009 survey of NHS managers shows that 94 % of respondents believe that “the NHS should be a leading public sector sustainable and low carbon organisation” and 95 % of respondents are “strongly in support of the NHS taking a lead on the sustainability agenda” (SDU 2009, 26 my italics).

Analysis of the Similarities and Differences Given the perceived centrality of the business case in motivating sustainability but the polarised responses that it engenders between sectors, important information can be gleaned by investigating the similarities and differences between the context and content of these business cases. These similarities and differences are summarised in the following bullet points then described in detail below. Each of these considerations gives rise to a theoretical motivational implication that is clearly specified in each section, then tested with empirical evidence in the following chapter.

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This full elucidation of the business cases for sustainability shows that the private and public sector share some value chains, namely eco-efficiency, risk management, and to some extent, brand valuation. However, a full analysis of these value chains in their organisation contexts suggests that they may have very different motivational manifestations in practice.

1. The benefits of sustainability are largely intangible and strategic The underlying characteristic of these shared value chains is their primarily strategic and intangible value and resulting difficulty to quantify in accounting terms. Although ecoefficiency, risk management, and brand valuation may provide yearly cash savings, their primary value lies in expected future benefits that are abstract and often intangible (Porter and Kramer 2006). This fact is borne out in an Accounting for Sustainability Group report, which explains the difficulty in quantifying the financial impact of a costly healthy meals programme in schools.

If such meals helped to improve children’s long term eating habits, it might create a significant monetary benefit for the National Health Service; it is estimated that obesity already costs the NHS directly around £1 billion per year and the UK economy a further £2.3 to £2.55 billion in indirect costs. The potential savings in this case might dwarf the extra costs borne by school budgets. However, as there would be many uncertainties about the exact impact of improved school meals on future public health and rates of obesity, it would be very difficult to estimate a supportable financial saving for the Public Sector as a whole. (A4S 2005, 29-30) Many sustainability initiatives share this characteristic and even eco-efficiency investments are seen as strategic and intangible because of the extraordinary uncertainty in future market prices, and as a result, remain “invisible” in accounting terms (Holt 21

2005). Much literature, however, shows that the private and public sectors think about and manage strategic and intangible benefits very differently in practice.

Mark Moore (1995) shows that in the private sector strategy plays a central and important role allowing managers to “see their organisation in a wider, longer term, and more abstract context than is possible without its aid” and to “[focus] their attention on the external market environments in which their organisations operate, especially on the customers and competitors, and on the future” (pp.65). Public sector managers, on the other hand, have traditionally shied away from or at least felt uncomfortable with strategic decision-making because it appears, at least superficially, to overstep traditional notions of public managerial purpose that stress achieving mandates efficiently and effectively (i bid; Jorgensen and Bozeman 2007, 337). In effect, private managers see strategic thinking as a core responsibility while public managers often feel that strategic thinking lies outside their managerial duty.

The ability and willingness of managers to quantify strategic and intangible benefits also varies between sectors. The difference between the book and market value of a private company provides a quantification of its intangible assets while no such calculation exists in public organisations. Although both public and private managers may be acutely aware of the importance of intangibles, only private managers have an accepted metric for actively tracking its performance (Cinca et al 2001). Cinca et al (2001) also show that the public sector has expressed little interest in developing the sophisticated intangible asset management and measurement capabilities seen in the private sector such as Intellectual Capital Balances (pp.4). Although few if any private companies are fully able to quantify the impact of sustainability on their organisation, evidence suggests that they have developed the capabilities to allow them to be much more certain of its relative bottomline significance than their public sector counterparts (EIU 2008).

Motivational Implication: Public managers, reluctant and/or unable to value and manage strategic and intangible benefits, may not be motivated to pursue sustainability.

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2. Very different groups of stakeholders give rise to each business case The differences between the business cases also illuminate important considerations.

Firstly, the two businesses cases operate in the context of very different stakeholder environments. Freeman (1984) describes stakeholders as “groups and individuals who can affect and are affected by the achievement of the organisation’s purpose’ (Power 2007, 136). In the private sector, the business case for sustainability illustrates a stakeholder environment that rewards sustainability. Power shows that competitive forces create structural and literally irresistible motivations to bring stakeholder views inside the organisation. Power explains, “league, rankings, and indices construct self-reinforcing circuits of performance evaluation, thereby perpetuating the internal importance of eternally constructed reputation and giving to reputation a new governing and disciplinary power” (ibid, 141). In essence, stakeholders that measure and reward sustainability force companies to focus their attention on meeting society’s sustainability expectations as a “natural survival strategy” (ibid, 8).

Although the UK public expects government action on sustainability (SDU 2009), similarly motivating mechanisms do not necessarily exist for bringing these expectations inside NHS organisations. Analysis of the accountability chains to immediate stakeholders, shown in Figure 3, demonstrates that aside from Foundation Trusts that are directly accountable to the local community through their Board of Directors, there may be few incentives for sustainability to be brought inside Acute Trusts.

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Primary Care Trusts that purchase services from Acute providers and the regulatory bodies (the Care Quality Commission and Monitor) that monitor and report Acute Trust Performance do not directly or consistently measure, report or reward sustainability performance in Trusts. There are no “sustainability� indicators and sustainability requirements are not necessarily included in the commissioning practices. Similarly, the Strategic Health Authorities that set regional health priorities and the Department of Health, which outlines department-wide priorities, do not consistently or explicitly highlight sustainability. The annual NHS Operating Framework that outlines departmentwide priorities, for example, lists sustainability as the lowest tier priority. The lack of direct valuation of sustainability by stakeholders provides little impetus for it being brought into the Acute Trusts. A SDC study explains, for example, If food is not valued for its influence on health or sustainable development, and if the NHS itself does not attach any significant value to health or sustainability, then choosing to buy the food that is cheapest will be irresistible (SDC 2002, 8).

Foundation Trusts, however, are uniquely accountable to the local community through the establishment of a Board of Directors drawn partially from that community. This may 24

create a limited opportunity for sustainability to infiltrate this accountability system, as seen in the private sector stakeholder context.

Motivational Implication: A stakeholder environment that does not prioritise, measure, and report sustainability, may not motivate managers to pursue it.

3. The business cases rest on different motivational foundations The motivational drivers of sustainability also rest on different motivational platforms.

The business case in the private sector is based fundamentally on competition for scarce resources, which is achieved by out-performing competitors. The motivational implication is that businesses in competitive markets strive to expand their “boundaries of freedom” by actively looking and at times pushing for possibilities for sustainable action that solidifies their competitive advantage. This competitive element forces companies to go noticeably beyond “doing what they cannot afford not to do” (Zadek 2001, 157).

In contrast, the motivation for sustainability in the public sector is based on ensuring that sustainability standards are met, functioning in much the same way as governance regimes by providing minimum standards. The sources of value are cost-reductions, operational resilience, and mitigation of climate change, which all help each organisational unit but not in any zero sum way. The motivational implication, ceteris paribus, is that no additional benefits are accrued beyond doing what one cannot afford not to do.

Motivational Implication: Without the added value of competitive advantage derived from sustainability, public managers may pursue sustainability aggressively.

4. The internalised costs and benefits differ in each business case A further difference between the business cases is the nature of the costs and benefits for each organisation. Although sustainability ultimately provides a public good, the business case in the private sector focuses on the production and isolation of private and rivalrous benefits from the process. Michael Porter explains this private sector approach.

25

No business can solve all of society’s problems or bear the cost of doing so. Instead, every company must select issues that intersect with its particular interests…The essential test that should guide CSR is not whether a cause is worthy but whether it presents an opportunity to create shared value—that is, a meaningful benefit for society that is also valuable to the business (Porter and Kramer 2006, 84).

By focusing on strategic benefits of sustainability, companies are able to isolate unique and excludable benefits that provide a competitive advantage. This relationship, according to Porter, creates a “symbiotic relationship” whereby the success of both company and community become mutually enforcing (ibid, 89).

In contrast, the business case for sustainability in the NHS focuses on the provision of non-excludable and purely public goods that may only incidentally create value for the organisation itself. The health co-benefits and climate change arguments, for example, both carry pure public goods characteristics. Where such characteristics exist, all rational participants have incentives to not contribute to the good (Olson 1971). Aware that mitigation will require collective action, each individual Trust will be better off by not contributing to mitigation efforts. Similarly, the co-benefits of sustainability are spread across public organisations and NHS organisations that incur the costs may not see the full benefits.

Motivational Implication: The lack of private benefits may provide little motivation for public managers to pursue sustainability.

5. The motivations of workers differ These rather pessimistic theoretical findings should be contrasted with the rich body of literature that describes the altruistic and non-financial ‘intrinsic’ motivations of civil servants. Thus far, this analysis of motivations has only focused on extrinsic motivations for sustainability in the form of economic reward. However, psychologists such as Frey have documented that in some circumstances, ‘intrinsic’ motivations may take priority. In the private sector, these motivations are seen to be roughly consistent with extrinsic motivations. However, the public sector literature describes a distinct “public ethos” consisting of “impartiality, accountability, trust, equity, probity, and service” (Needham 26

2006, 846), whose internalisation creates a powerful intrinsic motivation that is perhaps distinct from economic cost and reward.

In the NHS, intrinsic motivation may be particularly relevant. Even as the Labour government introduced market reforms reliant on extrinsic motivations, the former Minister of Health, John Reid, is quoted as saying “the ethos of the NHS remains the glue of the service” (Needham 2006, 847). What exactly constitutes this ethos is debated, but an empirical survey by Mannion et al (2007) documents three important motivational factors in improving services cited by public managers: 1. “The opportunity to provide more responsive services to patients arising from increased discretion over the design of services” 2. “The opportunity to increase the morale of staff through improved working conditions and/or increased financial rewards” 3. “Increased levels of autonomy and self-determination that can be exercised in their own post” (ibid, 409) These motivations stress intrinsic value and may provide a unique source of support for the sustainability agenda, even where extrinsic rewards are absent or negative.

Motivational Implication: Intrinsic motivations may “crowd out” extrinsic ones and motivate sustainability action despite absent or negative extrinsic benefits.

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Chapter 3 Motivations for Sustainability in Practice “If regulators don’t monitor us on sustainability, it will always be far down on our to-do list” - Acute Trust Manager “We have fantastic sustainability champions around the organisation. They do it, but not because they get rewarded for it.”

- CSR Director

The previous chapter documented the similarities and differences of the business cases for sustainability and presented their theoretical motivational implications for managers.

The discussion highlighted several theoretical reasons why public managers may or may not be motivated to pursue sustainability: 1. Public managers, reluctant and/or unable to value and manage strategic and intangible benefits, may not be motivated to pursue sustainability.

2. A stakeholder environment that does not prioritise, measure, and report sustainability, may not motivate managers to pursue it.

3. Without the added value of competitive advantage derived from sustainability, public managers may not pursue sustainability aggressively.

4. The lack of private benefits may provide little motivation for public managers to pursue sustainability.

5. Intrinsic motivations may “crowd out” extrinsic ones and motivate sustainability action despite absent or negative extrinsic benefits.

This chapter empirically investigates each of these claims using a mixture of descriptive and explorative econometric techniques and practitioner interview accounts. These techniques exploit the organisational differences between Trusts to provide evidence of the relationships between the five motivational implications and actual sustainability performance. This investigation aims not to provide a full theoretical and empirical model of sustainability in Trusts, but simply begin to accumulate evidence to support or discredit the theoretical arguments made in the previous chapter.

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The econometric analysis undertaken throughout this chapter relies on the construction of a simple index of sustainability for each of the 162 Acute Trusts. This index has been constructed to mirror the manner in which sustainability is pursued by Trusts in practice and relies on a number of theoretical assumptions. These assumptions, the full methodology of constructing this index and the data sources are provided in the Annex. A candid assessment of the index (found also in Annex) recognises that any construction will necessarily be incomplete and contested (PwC, 2008a), but suggests that despite some notable omissions, it is largely capable of accomplishing the very limited purpose for which it is designed.

The practitioner accounts provided in this section are derived from a series of off-record interviews with professionals in a variety of positions at the Acute Trust level as well as policy analysts and advisors in the SDC, NHS SDU, and Department of Health conducted between December 2008 and May 2009. The exact speaker is not provided because the views provided are personal rather than organisational and off-record but a full list of interviewees and the interview schedule are provided in the Annex.

Public managers, reluctant and/or unable to value and manage strategic and intangible benefits, may not be motivated to pursue sustainability The relationship between the valuation and management of intangible and strategic value and sustainability is studied by analysing the relationship between Foundation Trust status and sustainability performance. The Foundation Trust status is awarded for managerial and financial capabilities and, once awarded, further allows and encourages the development of business thinking and capability development (Dixon 2009).

Foundation Trusts are able to borrow capital, sell assets, retain in-year surpluses and have increased governance options with no cap on management spending (Jochelson et al 2005). These Trusts are governed by a Board of Directors elected in part by the local communities and are encouraged to determine a long-term and strategic direction for the organisation. In doing so, it is expected that these Trusts will act and think more like private businesses (Lewis 2005). These Trusts therefore have both the capabilities and the mandate to pay attention to and manage intangible and strategic issues. In contrast, those

29

without the Foundation Trust status exhibit the low-level of financial capabilities and strategic thinking typical of public organisations outlined in Chapter Two. An exploratory regression finds a positive and significant relationship between sustainability performance and having a Foundation Trust status, suggesting that strategic thinking and management indeed contribute to sustainability.1 This relationship can be seen in the increasing frequency of Foundation Trusts in the histogram of sustainability performance below. However, there may also be a variety of omitted variables.

Firstly, sustainability may simply be more widespread in Foundation Trusts because of their estate characteristics, such as their relative percentage of new buildings. However, controlling for trust size and building since 1985 does not affect the relationship.2 Secondly, this correlation may reflect the ability of Foundation Trusts to implement and manage sustainability programmes more effectively, aside from their ability to recognise and value its strategic benefits. Such a variable is difficult to isolate but, as a starting point, occupied beds and total turnover variables are added to the regression, with the belief that those with higher turnover but fewer patients may have more personnel and financial resources to dedicate to change management. This, however, shows a negative and significant relationship between turnover and sustainability, suggesting that, in fact, Trusts with the same amount of patients but less turnover are more likely to perform well

30

on sustainability.3 Thirdly, sustainability may be a pre-determination rather than consequence of being rewarded Foundation Trust status. This would suggest either that sustainability can be pursued without the development of strategic and intangible valuation, or, consistent with the theoretical implications, that building capabilities to value and manage intangible and strategic benefits is simply a pre-requisite to becoming a Foundation Trust. Finally, Foundation Trusts may not pursue sustainability for its strategic value, but because of their unique relationship with community stakeholders as described in the previous chapter. Unfortunately these factors cannot be tested using the econometric data.

Practitioner views, however, help to narrow down and substantiate these possibilities.

They suggest firstly that strategic or long-term thinking is indeed a sustainability prerequisite. A Corporate Social Responsibility (CSR) Director explained that new board members at her Foundation Trust emphasise long-term or strategic benefits, thus allowing previously sidelined sustainability initiatives to move ahead. Similarly, the Sustainable Development Director of a very successful procurement initiative explained that the success of the programme required not just that it met cost and operational targets but that it delivered long-term and intangible value such as engagement in the community, a higher-profile for the NHS, and impacted employee morale.

While this strategic perspective was deemed necessary, the development of complex quantification techniques was not. Although information about non-financial benefits, such as carbon emissions, food miles, or local effects, were seen to be helpful, practitioners explained that more complex calculations became unnecessary once decision-makers realised the long-term benefits of sustainability more generally. One Manager explained that it was impossible to quantify the effect of the Trust’s sustainable food programme on patient outcomes but that did not diminish its perceived value. A CSR Director explained that Social Return on Investment figures would not help the business case in her Foundation Trust.

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Practitioners also suggest that Foundation Trust status requires thinking not just strategically, but also about its new community stakeholder group. One Catering Manager explained, “I can imagine that the Board sees [sustainability initiatives] like this to root the Trust in the community and as something that should be done if we want to be a Foundation Trust.” Similarly, a Department of Health interviewee noted that Foundation Trust boards have a more community and sustainability-focused culture. This suggests both that some reverse co-linearity may exist in the regression and that some of the correlation may be related to stakeholders rather than simply strategic vision.

This analysis presents evidence that Foundation Trusts have increased incentives to pursue sustainability. The motivation for sustainability in Foundation Trusts, however, appears more complex than simply the effect of quantification and management of strategic benefits, although this may be critically important. The validity and value of these benefits within the organisation is affected by the Foundation Trust status itself, which may be achieved by paying close attention to community demands.

A stakeholder environment that does not prioritise, measure, and report sustainability, may not motivate managers to pursue it Chapter Two described a “mutual accountability compact” (Zadek 2007) and “symbiotic relationship” (Porter and Kramer 2006) between businesses and stakeholders in which sustainability performance and economic performance exist hand-in-hand. The analysis of stakeholders in the NHS suggested that such a situation does not explicitly or necessarily exist and may fail to generate the motivation for sustainability seen in the private sector.

To provide evidence regarding this situation we investigate the relationship between sustainability and the Regulators’ various indicators of performance. Although performance is extraordinarily difficult to define, authors show that in the NHS “management by numbers” and imposed performance targets exert a strong influence on definitions of “what matters” and as a result, professionals are driven (often by fear) to ensure that they successfully perform the mandated targets (Bevan and Hood 2006;

32

Kurunmaki and Miller 2006). Therefore, we use the Care Quality Commission (CQC) scores in quality of services and resources, Patient Environment Action Team (PEAT) scores in food and cleanliness/environment, and the number of complaints per occupied bed to indicate stakeholder perceptions of performance. These scores arguably reflect the broadest measure of a Trust’s performance as defined by its immediate stakeholders and the CQC scores alone include close to 100 measures in areas such as safety and cleanliness, dignity and respect, privacy and confidentiality, inpatient and outpatient treatment, and patient reported experience of services (Healthcare Commission 2009).

A descriptive regression, including Foundation Trust status (as it was already shown to be related) reveals that performance indicators do not reward sustainability. No performance measure is significantly associated with sustainability, and the coefficients of these measures are both positive and negative.4 The chart below describes the uncertain and insignificant relationships between sustainability and each independent variable. The blue dot shows the coefficient of each and the blue triangles shows the 95 % confidence intervals.

These findings suggest that although sustainability may incidentally be rewarded through some performance indicators, nothing close to the “mutual accountability compact” exists for Acute Trusts. This is consistent with the criticism of “management by numbers” in

33

the NHS, where a number of authors have argued persuasively that what matters for health is not what regulators are able to monitor (Bevan and Hood 2006; Hood 2007).

Given our findings, it is unsurprising that NHS managers are not motivated to pursue sustainability in an environment that only indirectly and inconsistently rewards sustainability. Although the business case for sustainability argues that sustainability critically matters for the long-term health impacts and NHS legitimacy, these findings show that it is currently not what is measured.

Many practitioner accounts confirm this view. A CSR Director explained that, “Monitor [the FT regulator] doesn’t have sustainability on its radar…the focus is on finances”.

Moreover she explained “if the regulators don’t monitor us on this, it will always be far down our to-do list”. Similarly, a Catering Manager at a Foundation Trust explained that the formal recognition and rewards from successful sustainable food procurement came only six years later.

Without the added value of competitive advantage derived from sustainability, public managers may not pursue sustainability aggressively The previous chapter suggested that competitive pressures can motivate aggressive action on sustainability while the absence may lead to only minimum compliance. This claim is analysed by showing the effect of competition on the Trusts’ sustainability score. In contrast to many other public bodies, the NHS has created a purchaser and provider split and introduced internal competition in hopes of providing more efficient and effective care (Ranade 1995). To motivate competition, Primary Care Trusts purchase treatment from Acute providers that function, in theory, like discerning consumers. However the actual level of competition varies substantially between Trusts, reflecting the huge fluctuations in demand and supply that occur in a market with entry barriers and few exit options (Mannion and Goddard 1998). If indeed competition contributes significant motivational value to sustainability, then sustainability performance should reflect, at least in part, the degree of internal market competition which varies widely between Trusts.

34

The level of competition at each Acute Trust is measured using a normalised HerfindhalHirschman Index (HHI). This index defines the Trust’s share of patients with respect to supply and demand in the market. Professor Carol Propper and her colleagues at Bristol University have created a HHI index for Acute Trusts and have provided the data for this paper (Propper, forthcoming). Consistent with the purchaser/provided arrangements in the NHS, Propper defines the market as the Primary Care Trust purchasing area, and a Trusts’ market share as the actual received patients seeking elective or discretionary treatment (a proxy for demand).5 The data shows a very slight positive correlation6 between competition and sustainability and controlling for FT status reveals an insignificant relationship. 7 This can be interpreted in a number of ways. It might show, contrary to the theoretical argument made in the previous chapter, that competition is not a source of motivation to pursue sustainability.

However, there is also a large amount of evidence that competition in even the most competitive acute care markets has very little operational significance and often leads to outcomes that a competitive market would not be expected to generate (Propper et al 1999). If this is the case, then our findings might simply confirm that there is indeed little genuine competition in the market. Further, because the HHI measures payer rather than patient-driven competition, the insignificant relationship could also suggest that PCTs (the payers) do not reward sustainability in the way that consumers (the patients) might.

This indeed is consistent with the evidence that including sustainability criteria in the commissioning process is not very developed.

Practitioner interviews highlight the limited impact of the market mechanisms more generally. A CSR Director from a Trust in a highly competitive area (top ten percentile HHI score) explained that competitive pressures for sustainability are under-developed.

She explained, “We have not gotten to the point where people will choose their healthcare provider like they choose between labour-free or organic cotton t-shirts at retail stores.”

Although it was acknowledged that the PCT might, in the future, require more

35

sustainability information in the bidding process, this was not yet the case. A Catering Manager similarly explained that the Trust was two years ahead of both payer and patient on sustainability, suggesting that demand was not yet catalysed.

In sum, the evidence suggests that market pressures for sustainability are missing in the NHS but does not make the motivational result clear. However, as competition is one of the defining motivational forces for sustainability in the private sector, it is reasonable to assume that the competition can potentially play a significant role in motivating sustainability should it be fully activated in the NHS context.

The lack of private benefits may provide little motivation for public managers to pursue sustainability The previous chapter suggested the inability to claim private benefits form the provision of a public good might create a prisoners dilemma situation whereby each Trust rationally chooses not to pursue sustainability. Unfortunately, there is little econometric data that can be used to test this argument but practitioner interviews provide evidence.

Firstly, practitioners consistently articulated that successful sustainability initiatives required the maximisation of private benefits and minimisation of private cost.

Practitioners that participated in the best practice sustainability case studies on the Good Corporate Governance website consistently cited clever means of creating private benefits similar to those seen in the private sector. This occurred, for example, by providing sustainability consulting services to other Trusts based on their successful efforts, by charging local suppliers to advertise their brands on the sustainable food menu, and by seeking local newspaper publicity of their actions. To lower the private costs, Trusts used partnerships and the investment schemes such as the NHS Energy Efficiency Fund and Salix Scheme. In almost all green transportation initiative schemes, for example, partnerships were forged with the local council to share costs more equitably.

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However, many practitioners also provided the opinion that sustainability typically provides an acceptable amount of private benefits. Catering Managers consistently suggested that the premium on sustainable food was largely a myth. In addition, those involved in eco-efficiency activities suggested that just 5 % reductions in annual energy or waste spending are sufficient to motivate rather broad buy-in.

In sum, the evidence provided by practitioners indeed suggests that there may be perceived collective action problem but that there may also be sufficient motivation to find creative means of overcoming this problem in an effort to extract substantial private benefits.

Intrinsic motivations may “crowd out” extrinsic ones and motivate sustainability action despite absent or negative extrinsic benefits The source of optimism regarding sustainability in the public sector was identified as the public service “ethos”. The extent to which this is indeed a powerful motivating force for sustainable action in NHS is again impossible to test econometrically. However, practitioner interviews lend strong evidence that it is indeed a very compelling source of motivation.

Practitioners consistently cited “ethos” by name as a motivation to purse sustainability (often at great personal cost). Asked why he was personally willing to push for a sustainable foods project, a Catering Manager responded, “It feels right, it’s the right thing to do. We identified very much with the ethos behind the Public Sector Food Procurement Initiative”. Another manager explained the ethos as an underlying source of motivation: “It’s the whole ethos you want to achieve. Plus there’s the PR. We send everything we do to the local papers. It’s not because we’re glory hunters, it’s because we want to show that we care about the health of the local community.” Many practitioners similarly described the motivation as inherently intrinsic and non-financial. One explained that “it’s absolutely ludicrous not to do our part with global warming and all that”. Others reiterated that sustainability was simply “the right thing to do”, or that not doing it “wouldn’t feel right.” The rewards sought from sustainability, in complete

37

contrast to the private sector, were non-financial. One manager explained, “If we can make a patient eat better and feel better, that’s our reward.”

Although these intrinsic motivations were almost always present, however, many stressed that these were not enough to make sustainability happen alone. Practitioners stressed that successful sustainability initiatives required a mixture of economic and moral appeals described as “hard data tempered with moral arguments”, “the heart and the mind”, and “win-win scenarios.”

In sum, the evidence suggests that the implicit rewards consistent with the NHS ethos provide an extraordinary amount of motivation for sustainability but critically require realisable extrinsic rewards, such as financial benefits or improved performance on key targets, as well.

Bringing together all of the evidence presented in this chapter paints a complex picture of the motivation for sustainability in the NHS. The reluctance or inability to value and manage strategic and intangible benefits, the absence of market pressures, authentic competition, and stakeholders that reward sustainability severely curtails the private benefits of sustainability for NHS managers and provides very little motivation to pursue it. Although the synergy between the “public ethos” and sustainability provides motivations unknown in the private sector, these may be dwarfed by the powerful motivations for sustainability found in businesses. In contrast to the private sector, the business case for sustainability in the NHS does not translate into powerful motivation to voluntarily pursue sustainability.

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Chapter 4 Learning from the Sustainability Paradox “I think we will overtake the private sector on sustainability because we truly want to lead by example” - Acute Trust Manager “In the public sector, sustainability is more difficult because it’s more complicated.”

- Estates and Facilities Director

This paper began by arguing that understanding why public and private managers would want to voluntarily pursue sustainability is central to understanding the sustainability paradox. To this end, it has presented substantial theoretical and empirical evidence that NHS managers have fundamentally different and arguably fewer reasons for voluntarily pursuing sustainability than their private sector counterparts. Although this evidence is only drawn from the NHS, it may be indicative of the public sector as a whole. Because of the synergies between health and sustainability the DH is perhaps the department most likely to perceive sustainability to be in its best interests. As a result, the motivational barriers described are likely to be equally or more acute in other departments. Similarly, the lack of marketisation in most other departments suggests that the motivational barriers faced by non-Foundation Trust managers will be equally or more acute in other departments. If these motivational implications are indeed transferable between departments, and given the evidence presented in the following two chapters, it is no surprise that the sustainability paradox exists: private managers want to and do pursue sustainability to secure a considerable reward, while sustainability champions in the public sector, motivated largely by the public ethos, do so with little or no extrinsic reward.

In better understanding the factors that affect why and to what extent public managers would want to pursue sustainability, this paper also provides a number of well-founded recommendations for overcoming the sustainability paradox. This concluding chapter outlines these recommendations.

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Tap the public ethos The evidence presented in this paper suggests that a powerful motivation for sustainability is the public sector “ethos”. Although the term is difficult to define, it is impossible to ignore in the context of sustainability. Most NHS workers believe that sustainability should be a priority for the NHS and that it is “the right thing to do” as a high-profile public body. Many workers have been motivated to pursue sustainability, often at a considerable personal cost and without any extrinsic reward, because of these beliefs.

This source of motivation presents an extraordinary opportunity for the public sector to encourage sustainability aside from and beyond the extrinsic motivations described above, and provides a foundation to “lead by example”. In complete contrast to the private sector business case, which emphasised personal extrinsic reward, the public sector business case should, perhaps primarily, emphasise the public implicit rewards.

Enforcing the perception that sustainability is entirely consistent with public value may in itself provide substantial motivation to pursue sustainability action. Coupling this with more positive extrinsic rewards might provide the extraordinary motivation necessary to lead by example.

Create mechanisms for bringing the ‘outside in’ Although sustainability may be a broad social and political goal, there are few mechanisms in the public sector for bringing this goal inside of the organisation.

However, this paper shows three mechanisms for achieving this: Measure it, Reward it, or Market it.

In target-driven organisations like the NHS, where “what’s measured matters”, motivation for sustainability can be increased though its direct measurement by regulators. Although sustainability may incidentally allow organisations to achieve higher performance ratings, its specific measurement is necessary to motivate lead by example outcomes. The difficulty with this option, as we’ve seen in this paper, is that

40

measurements of sustainability are inherently incomplete and subjective. Nonetheless, a fairly sophisticated index would provide a great deal or motivation. Secondly, rewards for sustainability performance can engender motivation to bring sustainability inside an organisation. The “mutual accountability compact” (Zadek 2001) shows that virtuous cycles of reward can be established to motivate sustainability throughout organisations and society. Thirdly, market forces provide motivation for sustainability and allow social demands to enter organisations. However, this paper has shown that only fully competitive and consumer-driven markets can achieve this, suggesting limited applicability to the public sector context. This option should also be considered alongside the arguments that markets do not address certain elements of sustainability and have clear limitations (Matten et al 2003).

Provide private benefits In the private sector the motivation and “degrees of freedom” (Zadek 2001) afforded to managers to pursue sustainability is increased substantially by the private gains that are derived in the process of delivering a public good. As explained in the last chapter, Trusts that successfully pursued sustainability were able to follow this private sector best practice and find creative ways to increase private benefits and decrease private costs.

Encouraging this practice and furthering the available options may overcome the collective action problem and provide motivation for sustainability. The private costs can be reduced through increased availability of sustainability investment schemes that provide funds for efficiency improvements and by facilitating partnerships, particularly with the local council. The private benefits can be increased by providing side payments for sustainability. These payments do not have to be financial but can simply take the form of recognition. Trusts can also be encouraged to increase their private benefits by thinking strategically about sustainable value creation and by tying sustainability into other value sources, such as community engagement, staff education, and clinical performance.

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1

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SUSTAINABILITY SCORE, FT REGRESSION CONTROLLING FOR TURNOVER AND OCCUPIED BEDS

42

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7

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43

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Annex 1 Data Sources & Index Construction

The empirical analysis in this paper uses both econometric techniques and accounts from practitioners. This annex outlines in detail each of these techniques.

Econometric Methods 1. Limited Application: Descriptive and exploratory econometric analysis is used to show correlative relationships between dependent and independent variables.

Regressions are used to control for important variables but not to suggest causality or provide predictive findings.

2. Data Sources: This section draws data from several sources. a. The data used to construct the index of sustainability is derived from 2008 Estate Return Information Collection (ERIC) data available online from the Hospital Estates and Facilities Statistics website (http://www.hefs.ic.nhs.uk/), as well as a list of Acute trust participants in the Carbon Trust NHS Carbon Management Scheme found on its website (http://www.carbontrust.co.uk/carbon/publicsector/nhs/) b. Performance data is derived from 2008 returns on the Care Quality Commission website (http://2008ratings.cqc.org.uk/findcareservices/informationabouthealthcareser vices/overallperformance.cfm) as well as 2008 returns the Patient Environment Action Team (PEAT) website (http://www.npsa.nhs.uk/nrls/patient-safety-incident-data/). In the latter, performance is given by site rather than Trust, therefore, the scores given to each Trust is the highest score in each category. c. Herfindhal-Hirschman Index scores are provided by Professor Carol Propper from Bristol University (see http://www.bristol.ac.uk/economics/staff/propper.html).

This data is

confidential and forthcoming.

3. Index: A Sustainability Index was created to provide a rough indication of sustainability in each Trust. Such efforts in the private sector have proven enormously contentious and this construction therefore warrants special attention (PwC 2008a). i. The sustainability index is constructed from 2008 ERIC data and a list of participants in the Carbon Trust NHS Carbon Management Scheme. ii. The index is constructed to mirror the manner in which sustainability is pursued in practice. Analysis of 66 NHS sustainability case studies shows that sustainability activities originate in different areas of the organisation (GCC website 2009). It also suggests that there are a relatively small number of sustainability practices commonly undertaken. These are listed in column 1 of the table below along with

52

a brief explanation. Column 2 indicates the proxy indicators used for each of these activities. All data in the index is derived from 2007/08 NHS ERIC data. Multiple indicators are used to minimise any bias that occurs due to measurement choices. Column 3 provides additional justification for the activity and indicators chosen.The index is composed of seven performance areas that are measured using 12 indicators. These indicators are chosen to minimise measurement bias by typically including two measures for each sustainability area so that hospitals with carbon, water, or waste-intensive facilities or services are not unduly punished.

Sustainability Activity Sustainable food procurement Often catering managers will initiate local food procurement projects independently or as part of the Public Sector Food Procurement Initiative Waste segregation and recycling There are 14 waste types in Acute Trusts that presents a substantial cost reduction opportunity. It is therefore a common sustainability intervention Demand management and waste minimisation Where cost-effective recycling opportunities do not exist, simple and low-risk demand management initiatives are often initiated (such as awareness campaigns) Water management and minimisation Awareness campaigns and retrofit opportunities exist at low cost and water is an increasingly approached sustainability area.

Energy management and minimisation Energy represents a large spending area and there are again a number of low-risk intervention programmes that make it a common starting place for sustainability

Indicator(s) Food waste - untouched meals (%)

Justification All sustainable food procurement case studies have documented a dramatically lower percentage of untouched meals

Waste recovery/recycling volume (%)

Waste segregation invariably increases recycling rates

Landfill disposal waste (tons)/patient occupied floor area Landfill disposal waste (tons)/site land area

Board-level initiation of Trustwide sustainability initiatives Successful integrated approaches to sustainability require boardlevel buy in. Although

Renewable Energy/Total energy % of Fleet that operates on Green Fuels

Waste projects are principally aimed at reducing landfill waste.

These two measures are chosen to reduce measurement bias against Trusts that perform wasteintensive treatments or that have large quantities of landfill waste because of large estates.

These two measures are again chosen to reduce measurement bias against Trusts that perform water-intensive treatments or that require water because of large estates.

Coal and gas are not included in this measure because they are intimately tied to the building types and construction date and therefore do not represent energy efficiency. Given their low overall use, this should not bias the results. The two measures are again used to protect against measurement bias.

The procurement of energy from renewable sources and the adoption of a green fleet invariably requires board-level buy in. Although some activities

Water volume/patient occupied floor area Water volume/site land area

Total electricity/site land area Total electricity/patient occupied floor area

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sustainability may occur before this point, it is a necessary component of overall sustainability in a Trust.

Administrative sustainability reforms and plan development The Board or individual departments begin to approach sustainability through the development of action plans, new policies, and measurement techniques.

Green Transport Plan Participation in the Carbon Trust NHS Carbon Management Programme

such as CHP units are geographically specific, these two activities can be undertaken anywhere.

Much early attention to sustainability revolves around the development of plans, programmes, and measurements that do not reflect in the actual sustainability of the Trust. These indicate the development of green travel and carbon management plans.

iii. Trust scores in each indicator are all normalised on a scale between 0 and 1, and the median performance is found. Those scoring above and below the media receive a score of 1 and 0 respectively. In cases where there are extreme outliers, the score is removed from the normalisation calculation process. This occurred in roughly half of the indicators. iv. The maximum score in each performance area is used. This means that a Trust only receives a 0 in an area if both indicators were also 0. This process gives Trusts the benefit of the doubt regarding their performance and this is done in recognition that there are indeed many medical procedures and estate characteristics that vary between Trusts and that affect sustainability performance measurements. This results in a distribution that is skewed to the right but still leaves substantial differences in performance across trusts (as shown below).

v. This index provides only a very rough and generous measure of sustainability. Because only 7 discreet variables are averaged to 54

determine the final score, many of the subtle differences are overlooked and Trusts fall into a maximum of only 9 categories of performance. However, this rough measurement is consistent with the explorative nature of our investigation, seeking to find evidence of correlations and directions of correlations, rather than exact measurement and predictive values. The steps taken to overcome measurement bias have also resulted in very ‘generous’ scores and the final distribution is skewed to the right. Both of these limitations result in lower statistical value but suggest that any statistical relationships found are indeed robust. vi. This index also pays relatively little attention to social and economic elements of sustainability that are unrelated to estate data. For example, sustainability programmes in the area of medical device procurement or partnerships with local schools are not measured in the index. This is a notable exception but does not substantially affect the performance of the index. Typically trusts begin to address sustainability by focusing on the estate-related areas that provide quick financial returns and only address social and economic elements once well-advanced in sustainability. Trusts also appear to pay only limited attention to these variables in practice (Defra 2009b). vii. To test the robustness of the Index for the limited purposes for which it was designed, I undertook two exercises. Firstly, I checked that the Trusts that were commended for sustainability performance scored relatively well on the Index and this was mostly the case, although there were some exceptions. Very large inner-London Trusts such as Guy’s and St. Thomas and King’s College Trusts performed very low on the sustainability index yet garnered considerable attention from the SDC website. This, I believe, suggests simply that the Trusts now see sustainability as a priority but have yet to noticeably implement sustainability initiatives, which is particularly difficult in exceptionally large organisations. Secondly, I emailed the performance scores to the NHS Sustainable Development Unit to ask for their subjective opinion regarding its results. I received a full list of Trusts that they have had contact with regarding sustainability. The Trusts on this list again performed relatively well on the index although there were some outliers. This list of outliers overlapped significantly with those found in the previous exercise, and I suspect follow the same explanation.

4. Business Performance Measurement: The business performance measurement used in the paper is not an index, but a simple average of each score. i. The business performance measure is constructed using 2008 Care Quality Commission scores in quality of services and resources, 2008 Patient Environment Action Team (PEAT) scores in food and cleanliness/environment, and number of complaints per occupied bed measured using 2008 ERIC data. ii. CQC awards scores of weak, fair, good, and excellent. PEAT awards scores of unacceptable, poor, acceptable, good, and excellent. I simply

55

assigned numerical scores for each of these, then normalised performance on a scale between 0 and 1. Complaints per occupied bed were also normalised using the max and min. iii. These five scores were averaged to assign a continuous variable between 0 and 1 to each Trust. As the histogram below indicates, the distribution of this index is also skewed to the right. However, there again appears enough variation in performance to allow statistical analysis.

iv. This index invariably defines performance in a narrow and incomplete sense. However, this is rather consistent with the literature that suggests that what is measures is what matters in the NHS and other indicator-driven organisations. The narrowness may also be rebutted by the fact that the list of performance indicators that compose each of these scores is increasingly comprehensive. The CQC performance targets alone are composed of the following areas: • • • • • • • • • • • • • • •

12 HOUR WAITS FOR EMERGENCY ADMISSION VIA A&E POST DECISION TO ADMIT ALL CANCERS: TWO WEEK WAIT ELECTIVE PATIENTS WAITING LONGER THAN THE STANDARD FINANCIAL MANAGEMENT HOSPITAL CLEANLINESS OUTPATIENT AND ELECTIVE (INPATIENT AND DAYCASE) BOOKING OUTPATIENTS WAITING LONGER THAN THE STANDARD TOTAL TIME IN A&E: FOUR HOURS OR LESS A&E EMERGENCY ADMISSION WAITS (FOUR HOURS) BETTER HOSPITAL FOOD BREAST CANCER: ONE MONTH DIAGNOSIS TO TREATMENT BREAST CANCER: TWO MONTH GP URGENT REFERRAL TO TREATMENT CANCELLED OPERATIONS CHILD PROTECTION CLINICAL RISK MANAGEMENT

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• • • • • • • • • • • • • • • • • • • • • • • • •

COMPOSITE OF PARTICIPATION IN AUDITS DATA QUALITY ON ETHNIC GROUP DEATHS FOLLOWING A HEART BYPASS OPERATION DEATHS FOLLOWING SELECTED NON-ELECTIVE SURGICAL PROCEDURES DELAYED TRANSFERS OF CARE EMERGENCY READMISSION FOLLOWING DISCHARGE EMERGENCY READMISSION FOLLOWING DISCHARGE FOR A FRACTURED HIP INDICATOR ON STROKE CARE INFORMATION GOVERNANCE MRSA OUTPATIENT AND A&E PATIENT SURVEYS: ACCESS AND WAITING OUTPATIENT AND A&E PATIENT SURVEYS: BETTER INFORMATION, MORE CHOICE OUTPATIENT AND A&E PATIENT SURVEYS: BUILDING CLOSER RELATIONSHIPS OUTPATIENT AND A&E PATIENT SURVEYS: CLEAN, COMFORTABLE, FRIENDLY PLACE TO BE OUTPATIENT AND A&E PATIENT SURVEYS: SAFE, HIGH QUALITY, COORDINATED CARE PATIENT COMPLAINTS PATIENTS WAITING LONGER THAN STANDARD FOR REVASCULARISATION SIX MONTH INPATIENT WAITS STAFF OPINION SURVEY: HEALTH, SAFETY AND INCIDENTS STAFF OPINION SURVEY: HUMAN RESOURCE MANAGEMENT STAFF OPINION SURVEY: STAFF ATTITUDES THIRTEEN WEEK OUTPATIENT WAITS THROMBOLYSIS - COMPOSITE OF 60 MINUTE CALL TO NEEDLE TIME AND 30 MINUTE DOOR TO NEEDLE TIME WAITING TIMES FOR RAPID ACCESS CHEST PAIN CLINIC WORKFORCE INDICATOR

(see http://ratings.healthcarecommission.org.uk/Indicators_2005/Trust/Indicato r/indicators.asp?trustType=1 for full list of indicators) 5. Herfindhal-Hirschman Index: I did not undertake any of the calculations for the HHI. Carol Propper and her colleagues calculate competition in each Trust using the equation below, and is explained in Chapter Three. The HHI histogram below shows a smooth distribution of HHI scores between Trusts. One limitation to using this data is that it unfortunately comes from 2003 or later. However, this time lag with the sustainability score data does not present substantial problems as the measures are primarily driven by the number of elective treatments in a PCT catchment area. It is likely that these numbers change in line with the slow speed of general population movements.

57

HHI Histogram 25

Frequency (n)

20

15 Series1 10

5

0 3352

3961

4570

5179

5788

6398

7007

7116

8225

HHI Score

6. Data Cleaning: Because data was drawn from a variety of sources, there were invariably cases where some data was missing or clearly inaccurate. This affected the number of observations in each regression but only negligibly. The number of observations are clearly indicated in each regression chart. Where this affected the construction of the dependant variable (ie. all ERIC data on energy or waste use was missiong), however, I was required to remove some Acute Trusts from the entire analysis. In 2008, there are 162 Acute Trusts, however 17 Trusts had to be omitted from the analysis because of missing or absolutely incorrect ERIC data.

There is little reason to believe that omitted data is systematically related to sustainability performance and therefore does not appear to present a problem for this analysis.

Practitioner Interviews

58

Between December 2008 and May 2009, I interviewed twelve practitioners regarding their personal experiences and opinions on sustainability. The strategy was to select participants that had either operational experience with sustainability from any area of the organisation or second-hand information about a large number of experiences.

Participants were solicited through the Health and Sustainable Development Newsletter and the authors of Good Corporate Citizenship Model case studies were contacted directly. Similarly, I spoke with a variety of policy-level analysts at the Department of Health and Defra. I asked each Trust-level practitioner the same initial questions but followed up and elaborated many of the issues that were raised during the course of the interview. The interviews with policy-level practitioners were less structured and were largely used to provide a more macro-level perspective on the accounts that I was provided by Trust-level practitioners. These questions and the interview schedule included below.

1. Interview Schedule Interviewee and Position Anna Abbott Policy Analyst Kate Hinks Associate Ditector, Corporate Social Responsibility David Whiteley

Organisation Sustainable Development Commission, Defra Calderdale and Huddersfield NHS Trust

Date 12 December 2008

Department of Health

30 January 2009

NHS Sustainable Development Unit NHS Sustainable Development Unit NHS Sustainable Development Unit Nottingham University Trust The Campaign for Greener Healthcare Great Ormond Street Hospital Childrens Foundation Trust Cambridge University Hospital Foundation Trust Cornwall Food Programme

20 February 2009

19 February 2009

Chief Engineer - Estates & Facilities Division Finance, Performance and Operations Directorate Hannah Greensmith Policy Analayst Imogen Tennison Senior Information Analyst David Pencheon Director John Hughes Catering Manager Tim Nicholson Project Manager William McGill Katrina McCartney Sustainability Manager Roy Heath Sustainable Development

25 March 2009 23 March 2009 6 April 2009 14 April 2009

22 April 2009 23 April 2009

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Manager Sue Slipman FTN Director

Foundation Trust Network

27 April 2009

2. Interview Questions 1. To what extent do you believe sustainability is considered a priority at your organization?

2. What are the motivations for sustainability at your Trust (eg. good governance, financial resilience, efficiency savings, clinical performance)?

3. What sustainability initiatives has your Trust considered or implemented?

4. Have you encountered conflicts between sustainability and financial or operational objectives?

5. How important is calculating the financial benefits of sustainability and to what degree is this undertaken?

6. Do you believe that the Trust is rewarded for sustainability (ie. by Regulators or patients)?

7. To what degree is sustainability linked with the objectives specifically of being a Foundation Trust?

8. How important is a financial justification for decisions? What other justifications are considered important?

9. Do you think that attention to sustainability is a ‘business’ imperative in the private sector?

10. Do you think that attention to sustainability is a ‘business’ imperative in NHS Acutes? What are the most clear value chains?

11. What is the difference between the two?

12. What types of information is used in decision-making of social and environmental importance?

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