Risks and Opportunities

The complex and quickly evolving regulatory landscape around environmental, social and governance reporting and the governmental laws and regulations to reduce greenhouse gas emissions worldwide present significant challenges and risks. We will need to commit resources to navigate through the complex and evolving reporting requirements across different regions of the world. For example, the proposed climate-disclosure rules from the SEC and the Corporate Sustainability Reporting Directive (CSRD) promulgated by the EU impose significant additional reporting obligations, which are expected to increase our compliance costs. Additionally, we anticipate that various governments around the world will impose various levies on carbon emissions and that we will incur significant additional costs to achieve our net-zero emissions goal over the long term.

One of the highest-ranked climate-related risks stems from certain medical products that we produce and sell to our medical OEMs. Our medical insufflators require the use of CO₂ gas by hospitals in order to create the space within patients’ body cavities for surgeons to perform minimally invasive surgery procedures. CO₂ is the only gas safe for use in the human body due to the high physiological compatibility of this gas type. As a result, hospitals cannot avoid the release of CO₂ gas into the atmosphere from the use of our insufflator technology. Further, single-use medical consumable products for our medical insufflators and pumps play a significant role in patient safety because of the vital hygiene considerations and outcomes. However, at the end of their use, even when disposed of properly by end users, they have a negative impact on the environment. In collaboration with a reputable sustainability research institution in Berlin, we previously analyzed reusable tube sets as an alternative to single-use plastic tube sets that can be used with our medical pump technology. Since the production of heat resistant materials for the tube set (autoclavation at 273°F/134°C), the hygienic preparation after surgery and the autoclaving of a reusable tube set in the hospital are so energy-intensive, coupled with the environmental harm from the required cleaning chemicals, that it was concluded that it is not only safer for the patient, but also more environmentally friendly, to use a disposable tube set during surgery.

We plan to develop strategies to continuously improve how we manufacture and distribute our products, aiming to reduce the negative environmental impact from such medical consumables in their product lifetime. For example, we acquired a medical consumable manufacturing business in Europe during 2022. One of the strategic benefits from this acquisition is the shortening of our distribution channel for our medical consumables to key customers as well as the optimization of the supply chain from raw materials subcomponent production, assembly, packaging to sterilization, leading to future reduction in greenhouse gas emissions from our downstream product distribution. Additionally, we have also launched our NovantaSUSTAIN new-product development model to embed environmental requirements into our new-product development processes.

Another of the highest-ranked climate-related risks is the potential disruptions to the business operations of our facilities and our suppliers and customers as a consequence of energy supply shortages or damages from extreme weather conditions and natural disasters caused by global warming. While the risk is inherent and unavoidable in nature, we are developing strategies to mitigate the risk to the extent possible by identifying alternative suppliers and distributors, sourcing raw materials from different supplier and distributor locations, modifying our product designs to allow for alternative components to be used without compromising quality, performance, or other requirements, in-sourcing production of parts, and installing power generation equipment where feasible.

With the heightened focus on climate change, we also identified growth opportunities in product offerings in green technology applications, such as electric vehicles, robotics, solar, and energy storage, such as batteries. Several of our existing businesses are already supplying components to OEMs in this space, and we continue to invest in new product development targeting and expanding our presence in these applications.