Three reasons medtech and pharma need a sustainability vision in 2023

Challenges for sustainable innovation in the healthcare sector 

Why should healthcare companies be focusing on sustainability? This question is not trivial at all, because

• the sustainability of a medical product or medicine doesn’t exactly play a major role when a customer is deciding whether or not to buy it
• the exacting regulatory requirements imposed by the approval process can make enhancing the sustainability of an innovation a real challenge
• medical devices and pharmaceutical products are designed to help people. That means they are by definition sustainable in at least one of the above dimensions, and directly contribute to realising Sustainable Development Goal 3.

For medtech and pharmaceutical companies, the business case for pushing sustainability higher up the agenda is becoming increasingly clear. There are, in our view, three main reasons for this: 

• increasing external pressure 

• sustainability-related business opportunities 

• ethical and regulatory factors 

External pressure – the European Green Deal and the Corporate Sustainability Reporting Directive 

External pressure comes from a range of factors. The first of these is new legislative requirements and regulations. Examples include the EU’s European Green Deal and Corporate Sustainability Reporting Directive (CSRD), and the German Federal Government’s Due Diligence Act (Sorgfaltspflichtgesetz, also informally known as the Supply Chain Act). Legislation such as the above is forcing companies to pay more attention to sustainability and to take serious steps to become more sustainable.  

A further effect of such legislation is that, even in the healthcare sector, sustainability is increasingly influencing purchasing decisions. Suppliers in particular are facing ever more exacting sustainability requirements. For investors too, sustainability is becoming an increasingly important issue. And sustainability is also playing an increasing role in recruitment – especially of highly specialised, highly qualified experts. In the competition for the best minds, employers with strong sustainability credentials enjoy a big advantage.

A further source of external pressure is competition with other businesses. Up until the 1950s, most markets were still seller’s markets. Because the primary bottleneck was manufacturing, innovation primarily meant product availability, functionality and quality. The transition to buyer’s markets meant that the bottleneck now became sales. Innovation became concentrated in fields such as marketing, branding and sales channels. From the 1980s, increased use of technology meant that features became a key factor for differentiating your products from the competition. In the early 21st century, the key battlegrounds for innovation have become user experience design, connectivity and digitalisation. 

A growing number of businesses are now identifying sustainability as a new field of innovation to differentiate themselves from their competitors. Traditional factors such as functionality, quality and user experience are still relevant, but are increasingly more a matter of good business hygiene. At the same time sustainability is, for more and more customers, an increasingly important factor in choosing which products to buy. 

Increasing demand for sustainable products offers opportunities 

The second reason sustainability is becoming increasingly important for healthcare businesses is that it presents a number of opportunities. Rising demand for sustainable products offers an opportunity to expand into new markets and target new customers. For farsighted early movers in particular, it represents an opportunity to secure a lasting competitive advantage. Businesses that pursue a serious, credible sustainability strategy now will enjoy a boost to their reputation, the value and significance of which will only increase over time.  

A further major sustainability-related opportunity is the new business models it makes possible. From reprocessing old equipment (cf. circular economy), to services such as repairs, product-as-a-service, leasing, and selling reconditioned products, to data-driven business models, innovative companies can make the world a better place and reduce resource use at the same time.  

Ethical business practices and corporate responsibility 

The third reason every business should be getting to grips with sustainability is also the most important. Through their position in society, businesses are in a position – and therefore have a duty – to contribute to making the world a better place. A business is in a position to exert far greater influence than any one individual – on the people who work for it, for example, and not least on its products and production processes.  

Most businesses are keen to live up to this responsibility. With Earth Overshoot Day getting earlier and earlier every year, taking action to help the world and future generations just feels like the right thing to do. And it’s also increasingly important to shareholders and potential investors.  

Sustainable innovation raises lots of questions 

As we have seen, for companies in the healthcare field, the arguments for getting serious about sustainability are compelling. But before you can make your company, products, processes or production more sustainable, there are a few questions which need answering. What’s the best approach to this issue? What scale do your activities need to have? What determines this? Who pays for it and how? And above all, where do you start?  

The first and most important point is that you need to think about sustainability right across the business. The foundation for this needs to be an individually tailored sustainability vision. This vision sets out how the business is positioned with respect to sustainability and its sustainability goals.  

There are in our view three different ‘levels’, depending on the scale of the commercial potential and on your level of ambition. Each builds in part on the previous level, but they are also complementary and aimed at maximising sustainability. 

Level 1: Sustainable company.

Being a sustainable company is primarily about meeting minimum regulatory requirements and the wishes of key customers with the least possible effort. This requires the company to know which laws are applicable to it, from what date they apply, and what its most important customers expect of it. The company will also need to set up a reporting system to ensure the necessary transparency for investors, customers and governments. Any sustainability initiatives will be limited to procurement (e.g. renewable energy) and production (e.g. reducing waste). Building on this, companies can then start to gradually enhance the sustainability of their business activities in areas such as building efficiency, energy consumption (type and quantity), business travel (fewer flights) and perhaps food (canteen menu).  

Level 2: Sustainable products and services.

This level is about companies using their expertise to enhance the sustainability of existing products and services. The starting point is developing the business’ product, project and customer portfolios, but this level may also involve new, sustainability-related areas of business and business models. Through these measures these companies are not just enhancing their own sustainability, they’re also helping their customers to become more sustainable. A key point here is that sustainability goals need to be embedded in the management system. This ensures that the research and development, product management and marketing departments are also explicitly considering these goals in the course of their activities. This enables the company to achieve goals such as reducing product emissions during manufacture and use, or facilitating access to healthcare products for people who are socially disadvantaged.  

Level 3: Products for the planet 

Here we are talking about companies that view sustainability as a new market sector and set out to develop entirely new products and services to service that sector. Companies pursuing this option need to think carefully about their core competencies. They then need to think about which sustainability goals these core competencies can be used to pursue. One promising approach is to set up a separate ‘sustainability and innovation’ unit in parallel to your existing core business. This unit can then employ creativity techniques, startup scouting and partnerships to develop entirely new products for these newly emerging markets.

But it’s important to remember that every business is different. So it’s essential to focus on those areas of sustainability that are genuinely relevant to your situation and consider them in the context of your overall corporate strategy. It’s also important to remember that a vision or strategy alone does not make sustainability. Our next three blog posts will therefore discuss which areas we see as offering the greatest potential for enhancing the sustainability of the healthcare ecosystem.  

1. How digital technologies can make healthcare companies more sustainable

2. Sustainability in the healthcare sector – the power of data

3. Making products and manufacturing more sustainable