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Comparing Stryker and Medtronic’s 2022 ESG Ratings
Two of the top medical device manufacturers have a similar track record and several ethics concerns.
Environmental, Social, and Governance (ESG) ratings are top of mind for most healthcare executives as organizations shift to accommodate changing social expectations and new ethical standards. Industry-leading medical device manufacturers Stryker Corp and Medtronic PLC are Midwest-based competitors with over $110 billion in market capitalization, and millions of patients served. The peers also have another thing in common: below-average ESG ratings.
The scores produced by MSCI, an American financial products firm, place Stryker and Medtronic at the bottom 35% of healthcare equipment and supplies businesses based on underachieving environmental goals, recent ethical troubles, and alleged instances of bribery. A closer look at their 2022 ESG reports reveals some challenges facing both companies.
Environmental and Climate Change
According to MSCI analysis, Stryker and Medtronic are misaligned with global climate change objectives. Despite commitments to decarbonize energy infrastructure, both companies are on a trajectory that would contribute to increased global temperatures of more than 2.5 degrees Celsius.
Medtronic
Medtronic’s 2022 ESG report shares four near-term climate change and environmental targets to be achieved by 2025. The company plans to halve operational greenhouse gas (GHG) emissions, reduce energy intensity by 20%, reduce waste intensity by 15%, and reduce water use intensity by 15%. So far, Medtronic has accomplished its water and waste targets and reduced GHG emissions by 35% while cutting energy intensity by 9%.
Considering Medtronic’s current decarbonization targets, MSCI projects that the company is in line with a 2.7-degree Celsius global warming track. Stryker is also misaligned with global goals and is on track for 3.0 degrees Celsius warming.
Stryker
Stryker’s 2022 Comprehensive Report includes little information about environmental targets other than its goal to achieve carbon neutrality in Scope 1 (direct site emissions) and Scope 2 (purchased electricity) GHG emissions by 2030. The company has already achieved a 20% emissions reduction and employed renewable electricity at several of its global facilities. The majority of future emissions reductions will come from virtual power purchase agreements.
As medical device manufacturers, the two firms generate thousands of tons of unrecycled waste. In 2022, Medtronic recycled roughly half of its 32,000 metric tons of waste, while Stryker did not share recycling rates or tonnage in its most recent report.
Social Performance
Social goals at medical device manufacturers revolve around employee development and the benefits patients and caregivers yield from new products. Medtronic’s performance towards social targets and research and development (R&D) spending outpaced Stryker’s in 2022.
Medtronic
Medtronic spent $2.7 billion on R&D in 2022, up $250 million from 2021. The organization also used $69.1 million to host education events for 350,000 medical professionals.
Through the Medtronic Foundation and internal efforts, the company donated $97.1 million to philanthropic causes. And during the pandemic, Medtronic contributed 34 million pieces of medical supplies and equipment to its partners.
Half of the global workforce at Medtronic are women, and 39% of the US-based workforce comprises ethnically diverse employees. The company plans to increase the share of females in leadership roles from 42% to 45% in the next three years and aims to achieve 30% ethnically diverse management by 2026.
Recent customer lawsuits have alleged that some of Medtronic’s products caused severe patient injury. Since the early 2000s, Medtronic has paid more than $460 million to settle several Infuse Bone Graft class action lawsuits that claimed the device caused unwanted bone growth and cancer. In another instance, the company was sued by a group of investors for failing to disclose insulin pump problems that resulted in a Class I FDA recall.
Stryker
Stryker’s workforce was 31% ethnically diverse and 38% female in 2022. The figures denote a continuing trend of employing and promoting more women and minorities in consecutive years.
R&D spending reached $1.4 billion last year, a nearly $500 million increase since 2020. In addition, physician training programs advised 119,000 healthcare professionals across 6,200 events.
In 2022, Stryker also offered a 1:1 match for employee charitable contributions that amounted to $2.1 million in donations spread among 1,400 organizations.
Currently, the company is involved in two litigations over its hip replacement devices. The company was also alleged to have paid more than $2 billion in 2014 to settle a class action suit and another undisclosed amount in 2018; both cases involved hip replacement devices.
Governance and Ethics
Stryker and Medtronic have both been accused of bribery recently, and the two medical device manufacturers have faced other high-profile lawsuits concerning the ethical conduct of their operations.
Medtronic
Medtronic runs its antibribery anticorruption program directly through the board of directors and ostensibly employs 179 people to monitor corruption in the organization. Despite that, Medtronic has regularly been involved in federal lawsuits, facing claims that it or a subsidiary had bribed doctors or administrators for preferential treatment.
In a newly unsealed whistleblower case, Medtronic purportedly bribed officials at a Department of Veterans Affairs Hospital (VA). Details published in July 2023 showed that the facility in question had purchased an unusual amount of Medtronic devices, although the firm denies all allegations brought against it.
The company also paid the United States Department of Justice (DOJ) $8.1 million in 2020 to resolve allegations that it had paid kickbacks to a South Dakota neurosurgeon. In a similar case from 2011, the company paid $23.5 million after allegedly violating the False Claims Act and inducing doctors to use the company’s pacemakers and defibrillators. And finally, in 2006, Medtronic paid the US DOJ $40 million to settle claims that it paid kickbacks to doctors to encourage the use of a specific spinal product.
In addition to its alleged history of kickbacks, Medtronic was also involved in a lengthy legal battle with the Internal Revenue Service for transfer pricing of assets and offshoring profits.
Stryker
Stryker’s leadership team conducts an annual risk assessment that evaluates 93 compliance measures directly or indirectly, measuring corruption risks at the organization. Like Medtronic, internal efforts have not effectively prevented ethical and legal failings.
Recently, Stryker was forced to pay $4.75 million to a small Colorado-based surgical company after breaching business contracts and poaching employees from the firm.
Stryker was also sued by Mexico’s federal health agency in 2019 for allegedly engaging in bribery. One year prior, the Securities and Exchange Commission charged Stryker with violating the Foreign Corrupt Practices Act. The company denied wrongdoing but agreed to pay a $7.8 million penalty. That came after the company settled a case where it had supposedly tendered hundreds of improper payments to foreign officials in exchange for preferential treatment in contract negotiations.
Conclusion
Organizational change is a complex and lengthy process. Medtronic and Stryker have made strides to reduce their environmental impact and improve social performance; still, both organizations could benefit from an explicit plan to weed out ethical misconduct. If successful, the firms would save millions in legal costs and enjoy a better public image with clients and customers.
