Pharma companies with ESG more valuable: Investors at CPhI North America

A 2020 Edelman annual survey has found that 88 per cent of institutional investors believe that companies who prioritise Environment, Social and Governance (ESG) initiatives represent better opportunities for long-term returns than companies that do not.

While it is important for companies to set ESG goals, it is equally important that they measure progress towards them. ESG frameworks act as a yardstick for companies to do so, but a lack of standardisation across global frameworks presents a challenge for investors.

A panel discussion on the above titled ‘ESG Framework: What Investors are Looking For’ was held at CPHI North America.

During the discussion, Nate Kimball, Sustainability Practice Lead, US, Antea Group, described ESG in terms of ‘how a company approaches two pillars – one is respecting human rights and the other is protecting the environment.

“Underpinning all of that is how a company is prepared to be resilient in the face of shocks and stresses that we’re expecting with climate change, with political instability, or any of the other factors that are leading to supply chain disruptions and other disruptions that we’ve seen in the economy,” he said.

The panellists, including Robert Popovian, Chief Science Policy Officer, Global Healthy Living Foundation, and Jordan Johnson, Chief Innovation Officer, Oncospark, gave a holistic analysis of ESG trends, touching on issues such as patient equity, drug affordability, supply chains and the lack of unification across reporting frameworks.

A key theme that emerged from the panel discussion was the need for increased standardisation of ESG reporting frameworks.

According to Kimball, ‘Investors, more than anything, want really good information. So, what they are looking for are disclosures that are comparable to each other.’

ESG reporting is loosely regulated, and companies are usually at liberty to choose which framework they would like to use. Choices include the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Climate Disclosure Standards Board (CDSB), among others.

Johnson echoed Kimball’s assessment that the current model is an ‘alphabet soup’ of frameworks, saying “It’s great if everybody is working towards [ESG goals], but we’ve got to be working towards a unified platform where we can compare apples to apples.”

This has become an area of focus for the International Sustainability Standards Board (ISSB), a body created by the International Financial Reporting Standards Foundation Trustees in 2021. The ISSB says that its goal is to create a ‘comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.’

Kimball added, “That’s what investors are after. They’re trying to understand those non-financial indicators that companies report on that might affect future business resilience, because what you can’t make out in a 10-K is how prepared a company is for shocks and stresses. And that’s really what ESG reporting frameworks are trying to solve for, among other things.’

According to Popovian, an expert in drug pricing, pharma companies are ‘starting to use ESG as a way to discuss drug pricing and drug affordability issues.

Popovian criticised the ‘artificial barriers in terms of equity and access’ that are created within the industry and called for increased transparency in terms of pricing.

Kimball, Popovian and Johnson agreed that ESG will remain highly relevant, not just for investors, but for all company stakeholders. Johnson noted that while ‘flavour of the month initiatives’ are relatively common in the healthcare space, ESG will have much greater staying power and should be managed by a dedicated team.

When asked how to balance ESG with broader business goals, the panel was unanimous in its assessment that ESG is ‘good for business.’

Kimball added that, from an investor standpoint, progress in terms of ESG is ‘a really effective way of demonstrating business resilience.’