Why ESG management is critical to Medtech industry

By Adrian Wain

The MedTech industry has long served as an essential pillar of healthcare systems in the U.S. and in countries around the world, delivering products and devices designed to diagnose and treat a range of medical conditions and health issues. The industry’s positive impact on healthcare outcomes is growing, as the application of new technologies, including robotics, artificial intelligence (AI) and wearable health devices support faster and more accurate medical intervention and treatment, leading to better overall patient outcomes.

But these benefits come with a cost. According to the World Economic Forum, healthcare systems account for an average of 10% of the total CO2 emissions in most industrialized countries, a higher percentage than either the aviation or shipping industry sectors. Other study estimates that, if the global healthcare sector were a country, it would be the fifth largest greenhouse gas emitter in the world.

The silver lining here is that MedTech companies can continue to bring new and innovative systems and devices to the healthcare market, while simultaneously working to address key factors that impact all of their stakeholders. Integrating environmental, social, and governance (ESG) considerations and practices throughout the entire product lifecycle can support MedTech companies’ efforts to deliver on both these important issues, while also positively impacting business outcomes and stakeholder satisfaction.

ESG: An overview

Over the past 20 years, ESG principles and practices have become an essential element in the planning and execution of global corporate strategies. No doubt, a key incentive to embrace ESG is the need to comply with national regulatory requirements regarding reporting and compliance. These would include the European Union’s (EU’s) Corporate Sustainability Reporting Directive (CSRD), and state-level regulations in the U.S., such as disclosure requirements in California regarding greenhouse gas (GHG) emissions under that state’s Climate Corporate Data Accountability Act.

At the same time, many corporations and companies view their efforts to integrate ESG principles into their practices as an essential differentiator in an increasingly competitive landscape. In addition to maintaining compliance with applicable regulations and requirements, forward-thinking organizations that embrace ESG are likely to be viewed more favorably by investors as well as customers and consumers who support efforts to protect the environment. This gives these companies an important advantage in the global market.

Why ESG management and reporting are important to the MedTech industry

Until recently, the MedTech industry have lagged behind other industries in their adoption of ESG practices. However, that trend is changing as more MedTech companies see ESG as not just another form of regulatory oversight but a potential differentiator that complements their commitment to bringing safe and innovative systems and devices to the market.

For example, consultancy firm McKinsey & Company reports that many hospitals and healthcare institutions are increasingly allocating significant portions of their purchasing budgets for medical equipment and supplies to those MedTech companies that have integrated ESG practices into their business. A separate report by Bain & Company estimates that more than 70% of 120 medical technology decision-makers in the Asia-Pacific region have established targets for purchasing products from companies that have adopted ESG practices.

According to the McKinsey report, ESG-focused investment funds own as much as 12% of outstanding shares of the top 30 MedTech companies globally. And the Bain report estimates that more than 80% of asset managers globally include ESG considerations in their investment processes and decisions, with 60% envisioning ESG becoming standard practice within the next five years. These trends signal investors’ belief in the long-term value of MedTech companies that have adopted ESG practices in their businesses.

MedTech companies that adopt ESG practices also enjoy a competitive advantage in the never-ending search for talent. The McKinsey report estimates that, for 58% of U.S. employees, a company’s commitment to addressing environmental and social concerns factor heavily in their evaluation of current and future employment opportunities. And the results of a survey summarized in the Bain report indicate that nearly 70% of employees would be “more willing” or “significantly more willing” to work for a company actively committed to reducing GHG emissions.

These and other findings illustrate the potential long-term value of MedTech companies adopting ESG practices in their respective business operations. Customers, investors, employees, and other stakeholders view ESG as a critical strategic imperative for the MedTech industry, not only supporting global environmental, sustainability, and governance efforts but also providing a path toward building increased economic value in the future.

Enhancing ESG management across your product lifecycle

ESG-supporting practices in the MedTech industry encompass almost every aspect of the product life cycle, from the initial design of systems and devices through to “end of life” considerations. To successfully integrate ESG practices into their product development processes and operations, MedTech companies can begin by taking the following steps:

• Incorporate ESG considerations into product research and development stage: The previously referenced McKinsey report estimates that up to 80% of a product’s resource footprint is established in the research and development (R&D) stage. An early evaluation of proposed devices and packaging materials for environment-related considerations can significantly reduce emissions concerns and increase recyclability of devices.
• Address waste and recycling issues: Similarly, the use of post-consumer recycled plastics in Class 1 and Class 2 medical devices and in product packaging can help to minimize the environmental impact of medical device waste. Further, many MedTech companies are working with third-party providers that have developed programs that use recycled medical waste to create other products, such as plastic lumber.
• Develop robust reporting systems: Timely collection and ESG reporting of ESG-related data is required to demonstrate compliance with the regulatory reporting requirements in the EU and other jurisdictions. Systems specifically designed to accurately capture and record essential data regarding ESG issues can provide the documentation needed to meet those reporting requirements.
• Rethink legacy business models: Finally, it’s time for MedTech companies to revisit and re-evaluate outdated models for business success, focusing instead on a broader set of criteria for generating value for stakeholders. Adopting ESG principles as a foundational element of their mission can help the MedTech industry develop new, innovative and more sustainable medical systems and devices, but also have a transformative impact on all stakeholders.

How UL Solutions supports ESG management

UL Solutions offers MedTech companies essential ESG advisory services that can support the development and implementation of an effective ESG management framework that will drive results. Our ESG advisory experts can work directly with you and your stakeholders to identify material ESG issues for your company. We can then define ESG reporting methodologies and workflows that effectively measure the impact of development and process changes related to those factors.

Medtech companies can verify their ESG information, such as GHG emissions, to build stakeholder confidence in the accuracy of ESG information and effectiveness of controls.

Moreover, our Zero Waste to Landfill and Landfill Waste Diversion claim validations recognize companies that handle waste in environmentally responsible and innovative ways, from energy production via incineration to reuse, recycling and composting. Each claim validation is clearly defined, carefully reviewed and thoroughly vetted so that businesses and their customers understand the environmental significance of such a major achievement.

Our independent verification of product carbon footprint and carbon reduction can help MedTech companies demonstrate their commitment to climate protection, enabling them to establish targets and create a carbon reduction plan. Product carbon footprint measures the greenhouse gas emissions of a product throughout its entire lifecycle from material procurement through end-of-life.

Critical to successful ESG management is the collection and reporting of performance data. ESG data management software available via UL Solutions’ ULTRUS™ portfolio of digital offerings is a state-of-the-art platform for collecting and managing ESG-specific data required for compliance with regulatory reporting requirements.

With over 20 years of experience in ESG measurement, standards application, and pragmatic process development, UL Solutions can empower your efforts to navigate ESG-related challenges.

Within UL Solutions we provide a broad portfolio of offerings to all the medical device industries. This includes certification, Approved/Notified Body and consultancy services. In order to protect and prevent any conflict of interest, perception of conflict of interest and protection of both our brand and our customers brand, we have processes in place to identify and manage any potential conflicts of interest and maintain impartiality.