Welcome to Gilmartin’s inaugural 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. If you want to learn more about ESG, contact the Gilmartin ESG team.
IN THE SPOTLIGHT
Medtronic released its latest annual ESG report in mid-October, highlighting ESG initiatives across four focus areas: access to healthcare, patient safety and product quality, diversity and inclusion, and environmental sustainability. Medtronic’s report contains references to disclosures made in line with leading ESG reporting frameworks such as the Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), the Task Force on Climate-Related Financial Disclosures (TCFD), and the World Economic Forum Stakeholder Capitalism Metrics.
Medtronic also held its inaugural ESG Investor Briefing, where company executives elaborated on their ESG priorities and performance targets, including:
- Patient Safety and Product Quality: Achieving a 10% reduction in the aggregate complaint rate for a specific group of products by FY25
- Innovation and Access: Deriving 20% of Medtronic revenue from products and therapies released in the prior 36 months by FY25 and serving 85 million patients annually by FY25
- Diversity, Equity, and Inclusion: Ensuring 45% of global management positions are held by women and 30% of U.S. management positions are held by ethnically diverse talent by FY26
- Product Stewardship: Reducing packaging waste by 25% for targeted high-volume products by FY25
On the investor call, Medtronic fielded multiple questions about product quality and safety. One analyst noted that ESG ratings providers, such as MSCI, rate companies in the medical device industry unfavorably due to product quality concerns. CEO Geoff Martha said it is important to interpret product quality data based on the size and the complexity of Medtronic’s products, noting that they prefer to normalize product quality data in terms of revenue and that the lifesaving nature of their products is tied to the severity of product recalls.
THE HEALTHCARE VIEW
In late October, The Lancet published their latest annual report on the impact of climate change on human health. The 2021 report, which was developed by a consortium of 43 academic institutions and UN agencies, dives into various ways in which climate change is not only threatening initiatives to improve global health but also disproportionately impacting the most underserved populations. “Through multiple simultaneous and interacting health risks,” the report said, “climate change is threatening to reverse years of progress in public health and sustainable development.”
In particular, the report highlighted how climate change exacerbates food and water insecurity. It also mentioned how climate change is undermining efforts to eradicate infectious diseases such as malaria or V cholerae by creating environmental conditions that make them more transmissible.
IN THE WEEDS
A major milestone toward the creation of unified, global sustainability reporting standards was reached the first week of November with the official formation of the International Sustainability Standards Board (ISSB). The ISSB, which is overseen by the International Financial Reporting Standards Foundation (IFRS), is tasked with developing “a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.” The ISSB will integrate two other major sustainability standard setters: the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (which oversees the SASB standards).
In mid-October, the Department of Labor issued a proposal to fully reverse a Trump-era rule that restricted the ability of 401(k) funds to consider ESG factors in their investment decisions. The rule was widely criticized by investors when it was proposed in 2020, receiving thousands of comments—95% of which opposed the rule. Given the enthusiastic response to the newest proposal, expect a slew of ESG funds to be made available to 401(k) holders in the near future.
A NOTE ON ESG INVESTING
PwC recently published their 2021 Global ESG Investor Survey, probing the thoughts of 325 investors, most of whom identified as active, long-term asset managers. Investors showed strong support for integrating ESG factors in their investment processes, with 79% saying that “ESG risks are an important factor in investment decision-making” and 75% saying that “companies should address ESG issues, even if doing so reduces short-term profitability.” One of the main takeaways from the survey was the need for more extensive ESG reporting from companies. Nearly 75% of investors supported unified ESG reporting standards, but only one-third said that the current quality of ESG reporting was sufficient.
ONE BIG THING
COP26—the much-anticipated United Nations climate change conference—took place in Glasgow, Scotland from October 31st to November 13th . Gathering world leaders from nearly 200 countries, the summit marked a watershed moment for the global fight against climate change. It was the first time since the 2015 Paris Agreement that countries gathered to share national plans to reduce emissions, aiming to limit global warming to at least 2.0°C and ideally 1.5°C above preindustrial levels by 2100. The conference yielded a significant number multinational agreements, including a pledge to reduce the world’s methane emissions 30% and end deforestation by 2030.
Ahead of COP26, the World Health Organization issued a special report that proposed ten recommendations for governments and policymakers to address health and equity during climate change negotiations. The recommendations, which include restoring biodiversity and promoting sustainable food systems, aim to promote the “health co-benefits from climate actions,” noting that the public health benefits from these actions outweigh their costs. The WHO also hosted a conference on health and climate change at COP26 on November 6th.
QUESTIONS ON ESG?
Our dedicated ESG team has deep institutional knowledge and experience in ESG and healthcare, enabling us to assess, inform and guide healthcare companies at every stage of their ESG journeys. If you are interested in learning more about how to navigate your own internal ESG polices, practices and data, feel free to contact our team today. We will be sure to enhance your ability to speak to investors with confidence!
MATT BERNER
Managing Director, Head of ESG
PATRICK SMITH
Analyst, ESG
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