ESG

COP28 will take stock of the progress on the Paris Agreement, set at COP21 in 2015. CMS is contributing to the conversations at, and around, COP28 by hosting a series of events to collaborate, debate and look forward. Our specialists will publish soundbites and commentary here, on our COP28 hub, to share their perspectives on the impacts of the announcements and agreements. 

As part of the UK’s race to net zero, waste management is an area subject to the Environment Agency’s (“EA”) priorities in creating “healthy air, land and water”. A compliant and efficient waste management system is key for manufacturers, in order to control the waste they produce as part of day-to-day business. The life sciences & healthcare sector is no different, and if anything the compliance burden can be more onerous due to the specific and regulated nature of the sector’s products and processes and overlapping compliance requirements - for example, the sector is more likely to use and produce regulated substances, radioactive technology and isotopes, genetically modified organisms, human and animal tissues, and potentially invasive and infective substances and vectors (biohazards), which can complicate manufacturers’ waste management compliance duties. We outline below some key considerations for manufacturers operating in the life sciences and healthcare sector, including the waste regime, civil sanctions and criminal prosecutions.  I. Uncapped penalties It is an established principle of international and national law that polluters must pay for their pollution and harm to the environment. As such, any waste management systems should be strictly controlled to ensure production, storage and disposal of controlled waste is conducted in a way that minimises harm to the environment. Until recently, the civil sanctions in the form of variable monetary penalties (“VMPs”) for pollution offences were limited to a maximum of £250,000 per offence in England under the Environmental Civil Sanctions (England) Order 2010. However, the UK Department for Environment, Food & Rural Affairs (“Defra”) has confirmed it will introduce legislation to remove this current cap and introduce unlimited VMPs as a civil sanction in the Environmental Permitting (England and Wales) Regulations 2016 from 1 December 2023. This means VMPs will be potentially unlimited in England and Wales, subject to considerations like proportionality, and it has broadened the use of VMPs to breaches of the environmental permitting regime. The EA is currently consulting on updating its guidance on how to calculate the amount of VMPs that may be imposed under this new uncapped and expanded VMP announcement, and the consultation closes on 8 October 2023.  II. Track & Trace As part of its drive towards a circular economy, the UK conducted two waste related consultations on (i) waste tracking, and (ii) waste carrier, broker, dealer registration in England. These consultations were underlined by the need to gather more information about the 200 million tonnes of waste that is generated in the UK each year. Due to the lack of information about the handling of waste, the waste management regulations that manufacturers are expected to comply with may not address certain requirements related to different types of waste ef­fect­ively. The first consultation invited responses to a proposal to introduce a mandatory digital waste tracking from the point of waste production, to the point of reaching its end location. It therefore applies not only to those responsible for waste management, but to manufacturing companies who are creating the waste. The overarching aim of this approach is to provide a standard of information specific to the type of waste it concerns, such as hazardous, commercial or industrial waste. The second consultation related to the current carrier, broker and dealer regime in England which requires parties involved in waste management to be registered with the EA. This consultation considered reform that would align with the proposed digital waste tracking system, and proposed moving towards a permit-based system based on different activities with technical competency elements as a prerequisite. It also proposed rewriting the roles under waste management to separate those who transport waste (i.e., carrier) and those who take responsibility for classifying waste. Both consultations have now closed and the government’s response is expected in late 2023. If implemented, these requirements will add onerous obligations for life science and healthcare businesses who will have to address these new obligations for their business’ waste.  III. Criminal prosecution Where an offence is deemed to be so serious that civil sanctions are not satisfactory, the EA may pursue criminal prosecution. In terms of waste management, the EA has announced that it will not hesitate to pursue companies who violate their environmental permits in discharging liquid effluent or waste water to surface water or groundwater. The EA can begin action based on a suspicion that a waste discharge is creating a risk of pollution. Furthermore, for less serious offences the EA has indicated it is increasingly using its ability to accept an enforcement undertaking for suitable cases rather than proceeding with prosecution. Enforcement undertakings are voluntary offers made by an offender to put right the effects of their offending on the environment, on third parties and to make sure the offence cannot reoccur. This allows the restoration of the environment and avoids longer criminal court cases. However, the EA will still prosecute in appropriate cases. IV. Conclusion It is clear that there are big changes coming into the waste sector that manufacturers operating in the life sciences and healthcare sector need to be aware of. In particular, uncapped VMPs are expected to soon apply to the environmental permitting regime, a new track and trace mechanism is expected for waste management to encourage a circular economy, and the EA is focussing on unauthorised discharges of waste water. Manufacturers should keep these developments in mind when considering their current waste management system and when working under any environmental permits held. 

Improving the energy efficiency of existing real estate stock is a key part of any landlord’s strategy for its portfolio. However, in the social care sector it appears that some investors are behind the curve when compared with institutional landlords in the retail and office sectors, where green lease clauses are standard together with an ESG strategy. 

Life sciences and healthcare real estate is a growing asset class in the UK. The built environment in the UK is widely understood to be responsible for somewhere in the region of a third to two fifths of our carbon emissions. In relation to life sciences and healthcare specifically, a recent report between Health Care Without Harm and Arup estimated that, if the sector were a country, it would be the fifth biggest global carbon emitter.

On 23 February 2022, the European Commission published its proposal for a Directive on corporate sustainability due diligence (the “Proposal”), which aims to foster sustainable and responsible corporate behaviour throughout global value chains. The Proposal requires in-scope companies to identify, and, where necessary, prevent, mitigate or end, any actual or potential adverse impacts that their operations, and the operations of entities in their extended supply chains, have on human rights and the environment. Although the Directive does not specifically target life sciences or healthcare companies, for those in-scope it will significantly change the approach they must take to their supply chains, and their accountability for them. It will also affect those that operate in the supply chains of in-scope companies. We reported on the Proposal when it was first published last year. The Proposal must be agreed with the European Council and the European Parliament. On 1 December 2022, after extensive debate and negotiation among Members States, the Council formally adopted its negotiating position on the Proposal; and, on 1 June 2023, after similarly lively debate and negotiation, the EU Parliament did the same. There are important differences in the positions taken by the Council and the EU Parliament. This update identifies at a high level some of the key areas that will be the subject of negotiation between the Commission, the EU Parliament and the Council as they move forward to agree the final text of the Directive. Once the Directive has been agreed and formally adopted, which is not expected until Q2 2024, Member States will have two years to transpose the Directive into national legislation.