Investing in healthcare: understanding practices and disclosures on animal testing

These are emotive questions. Their answers, however, carry practical implications for companies – particularly those in the healthcare and personal care sectors – and for their shareholders. Many healthcare companies are directly aligned with Stewart Investors’ desire to invest in companies that contribute to human development. As a result, our portfolios have historically had a significant degree of exposure to this part of the market. At the same time, we are conscious that animal testing remains widespread across the healthcare sector.

Our policy on animal testing is clear but we have encountered a lack of transparency on a company level

We have a clear policy of not investing in companies with “material exposure to harmful or controversial products, services or practices.” And while reasonable opinions may differ as to when animal testing is necessary and when it is not, it is clearly controversial. So we don’t invest in companies that are involved in animal testing other than under the following circumstances:

• Where testing is done in accordance with ethical principles, policies, protocols and standards for the responsible treatment and welfare of animals.
• Where animal testing is required by regulatory agencies to limit the risk to human lives and health.
• Where products require ingredients for which no suitable alternative testing methods are available.

Companies that we invest in comply with that policy. At the same time, we were conscious that we lack insight into precisely where they could be doing better. A lack of public disclosure makes it difficult to find hard facts on this emotive topic. That, in turn, made it challenging for us to answer questions such as:

• How many animals do our companies – and their suppliers – test their products on?
• What are the alternatives to animal testing? And what is preventing their adoption?
• Which companies are leading the adoption of alternatives to animal testing?
• Which companies are the laggards?
• What role do regulators play and what role should they play? Are they impeding change or fostering it?

Initially, we tried to answer these questions for ourselves, talking to companies about their policies in this area and liaising with industry bodies to understand the bigger picture. Finding it hard to gain the level of insight that we wanted, we published a research tender, eventually selecting the University of Technology Sydney’s Institute for Sustainable Futures (ISF) to deepen our understanding and answer our questions. That initiated a process that we hope will ultimately assist us – and other investors – to compare different companies’ approaches to animal testing and to measure the progress they are making towards the use of alternatives.

What the research tells us about animal testing – and what we still don’t know

Through 2024, the researchers dug into this topic while also posing specific questions to a shortlist of 21 companies whose policies and practices in this area are of particular interest to us. The two outputs from this process have now been published.

The first item is a research report¹ summarising the current policies and practices relating to animal testing and setting out the alternatives. We want to invest in companies that are on the right side of change and animal testing is an area in which change is happening, albeit fitfully. New approaches highlighted by the report include:

1. ‘In silico’ methods, such as computer modelling and simulations.
2. In vitro techniques using cells, tissues, organoids (or organs on chips), imaging, biochemical analysis and gene profiling .
3. Other approaches such as using human research subjects, subjecting existing trials data to meta-analysis and using artificial intelligence (AI).

Attempts at a governmental level to reduce animal testing seem likely to promote these alternative approaches. So, change is coming, but as the report shows, a lack of public reporting makes it difficult to say which companies are best placed to benefit from it.

Key findings:

• There is a lack of transparency in publicly available information around the use of research animals.
• The majority of companies failed to provide information on the numbers of animals they use and provided no details about their plans for developing or using non-animal approaches.
• There is, at present, limited engagement between companies and regulators to encourage greater use of non-animal testing methods.
• Many companies outsource testing to external contract research organisations (CROs), complicating the task of assessing their practices.
• None of the companies they questioned provided targets for implementing non-animal approaches or reducing their use of animals.

This suggests there is little incentive for companies to actively engage with the issue, with many citing regulatory requirements as a key barrier.

So what comes next? The second output is an investor guide¹. This highlights approaches investors may want to prioritise when engaging with companies about their animal-testing practices, such as:

• Encouraging transparency – suggesting companies could do more to showcase their efforts in promoting the ‘3Rs’: replacement, reduction and refinement.
• Promoting supply-chain disclosure – asking companies to disclose the animal-use policies of their subsidiaries and subcontractors.
• Encouraging companies to set time-bound targets for shifting to non-animal testing (where regulations allow) and training employees on alternative testing methods.
• Emphasising that animal testing can influence investment decision-making.

In some ways, the lack of disclosure highlighted by this research is disappointing. This will not, however, discourage us from continuing to engage with companies on this topic. As we have seen in other areas, those companies that can position themselves to anticipate and embrace change often derive material and lasting advantages. These are the companies that we want to invest in on behalf of our clients.

Lorna Logan
June 2025