While the rise of impact investing in the U.S. has been most widespread across the nonprofit channel, hospitals’ rate of implementation has trailed the channel at large, according to the latest Cerulli Edge—U.S. Institutional Edition.

Hospital systems’ adoption of impact investing programs has been somewhat muted thus far, largely due to the general characteristics of the channel. “Many are resource-constrained, while juggling multiple investment pools under their organizations’ umbrellas,” says Jack Tamposi, senior analyst at Cerulli. “Particularly in a stress-test situation, hospital investment offices’ limited staff are not positioned to explore new ideas or investment practices.”

Most examples of hospitals employing impact investing models are found at the large end of the market. Some are launching venture capital impact investing funds, targeting portfolio companies in drug development, medical devices, systems to improve population health management, and diagnostics and precision medicine. Others are making community investments, generally aimed at addressing the social determinants of health. Cerulli observes several instances of hospitals creating partnerships with other nonprofits, such as local housing organizations, to achieve these community investment goals. While smaller hospitals frequently employ some sort of socially responsible investing method (e.g., negative screening), larger institutions have been more likely to adopt impact investing strategies specifically, given their comparatively strong financial standing and access to resources.

For hospital systems, COVID-19’s strain on business operations will likely hamper any shift toward impact investments in the short to intermediate term. The business environment has left hospitals strapped for cash, and most are trying to avoid dipping into their long-term investment pools. CFOs are focused on managing operating margin shortfalls, rather than exploring new initiatives. Cerulli expects additional impact investing/ESG integration to remain low in the short term.

Looking forward, however, many anticipate an increased appetite for impact investments from hospitals. “COVID-19 has accelerated most hospitals’ adoption of telemedicine and virtual care, practices that are likely to rely on new technologies,” says Tamposi. “Particularly after some of the larger hospital institutions have tested the waters, industry participants will set their sights downmarket to serve smaller hospital systems.” As the practice grows, pioneers will learn better models for driving positive outcomes via community investment. Furthermore, industry stakeholders will look for better ways to share data and provide incentives for partnerships.