Welcome to the latest edition of Gilmartin Group’s ESG newsletter. With a special focus on the healthcare sector, this newsletter sheds light on the latest trends in the rapidly evolving ESG space, covering developments with companies, investors, regulators, and policymakers.
In The Spotlight
With record-breaking temperatures across the Northern Hemisphere in the headlines this summer, scientists note that warmer temperatures contribute to more frequent and intense extreme-weather events. As these events increase the risk of property damage, supply chain disruptions, and power outages, investors are more closely assessing how physical climate risks are impacting their investments.
New data from Sustainalytics reveals that corporate assets in the U.S. are particularly susceptible to physical climate change risks, even if global warming is limited to 2 degrees Celsius. After surveying 12,000 companies, Sustainalytics found that the average business could lose approximately $0.45 for every $1 of cumulative operating cash flow between now and 2050 as a result of climate change risks. Moreover, research from S&P Global found that more than 90% of the world’s largest companies will have at least one asset financially-exposed to climate risks by the 2050s.
Investors’ pursuit of more granular climate-related data has buoyed the nascent ESG and climate data provider industry, and more frequent extreme-weather events will only increase this demand.
The Healthcare View
Every year in the U.S., 20 billion medical devices are sterilized with Ethylene oxide (EtO). While EtO prevents harmful microorganisms from reproducing and causing infections without degrading the product, long-term exposure to EtO can increase the risk of cancer for workers exposed to the gas.
In April, the Environmental Protection Agency (EPA) proposed new requirements to reduce exposure to EtO, including more stringent air emissions standards and additional protections for workers who sterilize medical devices with EtO. The EPA estimates that its proposal will reduce EtO emissions from commercial sterilization facilities by 80% per year.
However, several healthcare trade organizations claim that this rule would negatively impact patient access to medical devices. In June, the Medical Device Manufacturers Association (MDMA) urged the EPA to withdraw its proposals, warning that the “impact to patient care would be catastrophic.” The MDMA argues that the proposals will lead to significantly higher costs for patients and manufacturers, reducing innovation and increasing risks to patient health. According to the MDMA, commercial sterilization capacity is expected to drop 19% to 51% if the EPA’s proposals are implemented, which would lead to a massive disruption to the nation’s supply of medical products.
A representative from the EPA recently stated that the agency is “working with FDA and others on potential supply chain issues and will use the input gathered during the public comment process in making any final decision.”
A Note on ESG Disclosure
The European Commission announced earlier this week that it has adopted new requirements for companies to report their sustainability risks. The European Sustainability Reporting Standards (ESRS), set to become effective in 2024, will require 50,000 companies to disclose their climate transition plans and other relevant ESG factors, such as human rights violations.
However, various European investors think that the standards are too lenient. For example, the European Sustainable Investment Forum (Eurosif) lamented that the commission watered down the mandatory elements of the previous proposal. The ESRS requires companies to conduct “materiality assessments” to identify what ESG information is material for them to report, as opposed to a single set of mandatory disclosure requirements for all companies to meet. Some investors fear that without uniform data from companies, they will not be able to adhere to other EU regulations that require portfolio-level climate disclosures.
Across the Atlantic, the sentiment toward ESG disclosure regulation is trending in the opposite direction. Last week, Republicans on the U.S. House Financial Services Committee introduced a series of bills that would reduce the SEC’s ability to regulate climate-related financial disclosures from companies and coordinate with European regulators on the topic.
The SEC is not the only organization in the GOP’s crosshairs – House Republicans are particularly rankled by proxy advisory firms such as ISS and Glass Lewis for supporting ESG-related shareholder proposals. A separate bill would allow companies to exclude ESG proposals from its proxy materials and would also impose additional rules on proxy advisory firms.
In The Weeds
On Wednesday, the Biden-Harris administration proposed new procurement requirements for federal government buyers to purchase sustainable, American-made products and services “to the maximum extent possible.” The U.S. federal government spends more than $630 billion on products and services every year, making it the single largest purchaser in the world. The Sustainable Products and Services procurement rule is a key part of the administration’s goal to achieve net-zero emissions from federal procurement by 2050.
The proposed procurement rule directs agencies to follow the EPA’s existing recommendations for environmentally-friendly products and services in over 30 purchase categories. In conjunction with the federal government’s proposal, the EPA announced it will consider expanding its recommendations to additional purchase categories, namely healthcare and laboratories.
To learn more about how Gilmartin strategically partners with our clients, please contact our team today.
Authored by: Patrick Smith, ESG, Gilmartin Group & Tamsin Stringer, ESG, Gilmartin Group