07/01/2022 | Pharma Innovation
Alongside the most negative effects of the pandemic, there were opportunities to shine. Companies forced into lockdown did far more than re-evaluate their offerings and operations. Many stepped up their community involvement and began prioritising their wider responsibilities. The initiatives did far more than enhance customer satisfaction, they affirmed in many cases that the values of the corporate world were demonstrably in tune with theirs.
The pandemic highlighted the importance of health and wellbeing on a personal - and wider community - level, but it also raised our expectation for companies to do the same. And that has not gone away which is why the concept of ESG has never been so important.
The pharmaceutical sector has traditionally never been known as a trailblazer. For a start, it’s highly energy-intensive and accounts for a greater share of global emissions than the automotive industry.
But its outstanding role in accelerating the vaccination rollout has done much to enhance its public image in recent times. In fact, a recent Harris Poll found that two-thirds of Americans now view the industry in a positive light – nearly double the pre-pandemic rate.
The pressure now is on companies to innovate to meet and grow those expectations. Initiatives such as a non-profit unit launched last year by France’s Sanofi to ensure a great supply of drugs to lower-income countries and pledges to make their company car fleet carbon neutral and move to greener packaging. Or GlaxoSmithKline’s pledge to eliminate its impact on climate change by 2030 or Biogen’s commitment to spend $250 million to end its dependence on fossil fuels or the promise by Roche’s Genentech business to boost diversity by setting a goal to double hiring of Black and Latino executives and spend $1 billion with diverse suppliers.
Across pharma, companies have expanded their environmental targets, boosted diversity and inclusion goals, and recommitted to social justice and healthcare equity. ESG has always been a way for the oft-maligned industry to showcase its authentic work in sustainability, community health and employee care. There are other upsides. With social responsibility there comes corporate gain. ESG is now well established as a key factor in the global investment process, something demonstrated by the large amounts coming the way of dedicated sustainable equity funds across the world.
The Sanofi initiative will see its new unit, Sanofi Global Health, providing a range of medicines — including cardiovascular, diabetes, cancer, tuberculosis and malaria drugs — to countries in need while funding local support programs in what Sandrine Bouttier-Stref, Sanofi’s global Head of Corporate Social Responsibility, described as a scaling up. “Clearly people in the world are expecting more,” Bouttier-Stref said. “They have had to change their lives because of the crisis, and they are more focused on the fundamentals of their lives, if I may say – a healthy planet – a diverse and inclusive population and to decrease social concerns and reinforce more solidarity between countries. The crisis is demonstrating this need clearly.”
Sanofi’s CEO Paul Hudson wrote an open letter in which he described in detail just how the pandemic forced everyone to question nearly every aspect of their lives, and in doing so it has brought the pharma industry “closer to our purpose than any other time within living memory”.
Merck’s ESG strategy and the company’s stated ESG goals regarding health equity and access, diversity and carbon neutrality are aligned to the United Nations 2030 Sustainable Development Goals (UN SDGs). The company is also accelerating by 15 years its previous 2040 goal to source 100 per cent renewable energy for its purchased electricity. Merck has also signed three new virtual power purchase agreements (VPPAs) for utility-scale energy projects based in Texas and Spain.
Biogen achieved carbon neutrality nearly a decade ago and turned its attention to its suppliers, encouraging them to commit to science-based targets by 2025. It also expects half of its suppliers to completely source electricity from renewable sources by 2030, with a further goal of 90 per cent by 2040. The Novo Nordisk Foundation pledged a donation of €100 million to Biosustain, a research centre at the Technical University of Denmark that pioneers renewable alternatives to drugs. Johnson & Johnson also promised $100 million to address racism and health inequities.
Why do investors like it? Corporate reputation tracker RepTrak found that ESG is a key factor during a crisis in determining how well a company will perform in the public eye. “ESG is the number one determining factor of whether you will get the benefit of the doubt in a time of crisis. If 2020 showed us anything, it was that a crisis can happen anytime, and usually when you least expect it. Having ‘strong’ ESG-perception scores can go a long way within helping your company weather a crisis,” it reports. Environmental work as well as social responsibility are also beginning to matter more to investors. While ESG effects can be difficult to quantify, investors realise their importance to consumers and to the talent inside pharma companies, and they are considering it in valuations.
So what’s next for ESG? Given that it’s now a megatrend whose inspirations date back more than 60 years, a better question may be why has it taken so long to get the sort of foothold it deserves?
On the positive side, one recent study found that, even though investors may occasionally question volatility, they produce good returns and have better longevity: 77 per cent of funds in place a decade ago are still here, compared with 46 per cent of traditional funds.
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