Jared Connors, ESG & Responsible Sourcing Expert, Assent03.31.23
As part of The State of ESG in Manufacturing report, respondents from complex manufacturing and medical device companies were asked a variety of questions to gain insight into the environmental, social and governance (ESG) landscape as it relates to supply chains across various industries, including medical technology.
It was essential to collect this data because ESG regulations are growing in number and scope. Businesses must invest proactively in sustainability both to protect their market access and maintain competitive advantage.
When asked about their program maturity, 76% of respondents across industries had not achieved strong or deep sustainability. Instead, most respondents (35%) were at the foundational stage, defined as “establishing supply chain ESG objectives and risk mitigation practices.”
Regardless of industry, low maturity opens businesses, including those across the medical technology industry, up to risk. When coupled with a lack of supply chain visibility, businesses could lose market access or risk product recalls — both of which are devastating financial blows that can shake investor and consumer confidence. Plus, any issue could delay FDA or notified body approvals. Risk mitigation is particularly more complex for medical device manufacturers, who must keep product safety and market access front of mind to ensure consumer health.
The Uyghur Forced Labor Prevention Act (UFLPA) is a perfect example of how this risk can, and may, be realized. Between June 2022 and January 2023, U.S. Customs and Border Protection (CBP) identified 2,692 shipments as potentially non-compliant, the total value of which exceeded $817 million USD. This regulation specifically looks at goods imported from China and assesses a company’s due diligence measures for ensuring they were not produced or procured using forms of forced labor. Blind spots, as a result of low maturity programs, will result in product seizure under the UFLPA, not to mention loss of investor and customer trust.
Plus, with PVC — found in oxygen masks, surgical gloves, blister packaging, catheters and much more — now being added as a sector of concern, medical technology in particular will be at risk of seizure at the U.S. border. Proving products were not made with forced labor requires a substantial ESG program and accurate supply chain data — two things that low program maturity will not deliver.
Given the unique complexity of medical technology, and the variety of different regulations that intersect, high confidence in this supply chain data is imperative.
Consider per- and polyfluoroalkyl substances (PFAS), for example. These chemicals provide clot-resistant and low-friction coatings for catheters, needles and stents, among other things. PFAS have also become the focus of numerous global regulations. In fact, in February 2023, the European Chemicals Agency (ECHA) issued a proposal that would restrict 10,000 PFAS chemicals and alter the Registration, Authorization, Evaluation, and Restriction of Chemicals (REACH) Regulation. California’s Proposition 65 — another law deeply intertwined with the medical technology industry — has its own requirements.
Knowing whether your products contain any of these PFAS chemicals is imperative to proactively acting and avoiding market access. However, with inaccurate and low-quality supply chain data, these risks may not be visible and affected companies will be pushed to react after penalties are levied, resulting in lost revenue and market access.
In total, 69% of respondents plan to invest more, with 21% planning to increase technology investments by more than 10%.
This proactive investment will be vital for the medical technology industry. After all, the UFLPA is not the only law out there that will impact you. Regulatory requirements are always evolving and changing and checkbox compliance is not enough. The medical device industry has been a leader in regulatory compliance, as companies desire to be on the “right side” of history.
In short, the wide-reaching scope of these new ESG regulations, along with the rigorous stringency of existing product compliance requirements, will require accurate and quality data, proactive investment, and mature ESG programs from medical companies selling into global markets.
Given current trends, medical technology businesses and manufacturers that proactively act and invest will find substantive competitive advantages that put them in a better position to pivot as existing regulations evolve and new ones crop up.
Jared Connors is a senior subject matter expert in ESG and responsible sourcing at Assent, specializing in ESG in compliance programs. Before joining Assent, he was product manager at The Red Flag Group and served in several compliance-related roles at Intel. He’s a graduate of Arizona State University and holds a Lean Six Sigma green belt.
It was essential to collect this data because ESG regulations are growing in number and scope. Businesses must invest proactively in sustainability both to protect their market access and maintain competitive advantage.
Many Companies Are Just Starting Their Sustainability Journey
One of the most surprising findings from the report was that the vast majority of businesses were just starting their sustainability journey.When asked about their program maturity, 76% of respondents across industries had not achieved strong or deep sustainability. Instead, most respondents (35%) were at the foundational stage, defined as “establishing supply chain ESG objectives and risk mitigation practices.”
Regardless of industry, low maturity opens businesses, including those across the medical technology industry, up to risk. When coupled with a lack of supply chain visibility, businesses could lose market access or risk product recalls — both of which are devastating financial blows that can shake investor and consumer confidence. Plus, any issue could delay FDA or notified body approvals. Risk mitigation is particularly more complex for medical device manufacturers, who must keep product safety and market access front of mind to ensure consumer health.
The Uyghur Forced Labor Prevention Act (UFLPA) is a perfect example of how this risk can, and may, be realized. Between June 2022 and January 2023, U.S. Customs and Border Protection (CBP) identified 2,692 shipments as potentially non-compliant, the total value of which exceeded $817 million USD. This regulation specifically looks at goods imported from China and assesses a company’s due diligence measures for ensuring they were not produced or procured using forms of forced labor. Blind spots, as a result of low maturity programs, will result in product seizure under the UFLPA, not to mention loss of investor and customer trust.
Plus, with PVC — found in oxygen masks, surgical gloves, blister packaging, catheters and much more — now being added as a sector of concern, medical technology in particular will be at risk of seizure at the U.S. border. Proving products were not made with forced labor requires a substantial ESG program and accurate supply chain data — two things that low program maturity will not deliver.
Confidence in Supply Chain Data Is Low
Respondents to the report indicated that, as of now, confidence is low. Only 31% indicated they have confidence in the accuracy and quality of their supply chain data — and of that portion, only 5% indicated they have extreme confidence.Given the unique complexity of medical technology, and the variety of different regulations that intersect, high confidence in this supply chain data is imperative.
Consider per- and polyfluoroalkyl substances (PFAS), for example. These chemicals provide clot-resistant and low-friction coatings for catheters, needles and stents, among other things. PFAS have also become the focus of numerous global regulations. In fact, in February 2023, the European Chemicals Agency (ECHA) issued a proposal that would restrict 10,000 PFAS chemicals and alter the Registration, Authorization, Evaluation, and Restriction of Chemicals (REACH) Regulation. California’s Proposition 65 — another law deeply intertwined with the medical technology industry — has its own requirements.
Knowing whether your products contain any of these PFAS chemicals is imperative to proactively acting and avoiding market access. However, with inaccurate and low-quality supply chain data, these risks may not be visible and affected companies will be pushed to react after penalties are levied, resulting in lost revenue and market access.
Most Businesses Plan to Invest in ESG & Sustainability
It’s not all doom and gloom in the report, though. If anything, the report should be viewed as a snapshot of where businesses are now — not where they will be. A perfect example of that lies in the percentage of respondents who plan to invest in ESG and sustainability.In total, 69% of respondents plan to invest more, with 21% planning to increase technology investments by more than 10%.
This proactive investment will be vital for the medical technology industry. After all, the UFLPA is not the only law out there that will impact you. Regulatory requirements are always evolving and changing and checkbox compliance is not enough. The medical device industry has been a leader in regulatory compliance, as companies desire to be on the “right side” of history.
- The EU Forced Labor Ban, currently a proposal, will crack down on products made with forced labor in the EU, allowing authorities to carry out inspections of companies. It will also prohibit these products from being placed on the market or exported. For those in the medical technology industry, any mandatory or voluntary product recalls will present major risks.
- In March 2021, the U.S. Securities and Exchange Commission (SEC) proposed a rule — the Mandatory Climate Disclosures Act — that would enhance and standardize climate impact disclosures from publicly-traded companies. Specifically, it includes a requirement to disclose emissions from upstream and downstream activities (scope three), if material, or if the company’s greenhouse gas targets or goals include scope three emissions.
- The EU Corporate Sustainability Directive (CSRD), which entered into force in January 2023, requires over 49,000 in-scope companies to report on ESG data.
In short, the wide-reaching scope of these new ESG regulations, along with the rigorous stringency of existing product compliance requirements, will require accurate and quality data, proactive investment, and mature ESG programs from medical companies selling into global markets.
Substantive Action Yields Beneficial Results
The companies that follow through and invest in these programs will find that doing so yields more than simple protection from non-compliance penalties.Given current trends, medical technology businesses and manufacturers that proactively act and invest will find substantive competitive advantages that put them in a better position to pivot as existing regulations evolve and new ones crop up.
Jared Connors is a senior subject matter expert in ESG and responsible sourcing at Assent, specializing in ESG in compliance programs. Before joining Assent, he was product manager at The Red Flag Group and served in several compliance-related roles at Intel. He’s a graduate of Arizona State University and holds a Lean Six Sigma green belt.
