Environmental, Social, and Governance (ESG) factors are becoming increasingly important for investors across a range of industries. Once solely preoccupied with financial metrics, investors are increasingly using ESG as a way of identifying business risks and gauging growth opportunities.
This is backed up by the 2020 Edelman annual survey, which found that 88% of institutional investors believe that companies that prioritise 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.
This was the central topic of the panel discussion ‘ESG Framework: What Investors are Looking For’ at CPHI North America. Bob Girton, Partner at Edgewater Capital, moderated the hour-long discussion, while panellists Robert Popovian, Chief Science Policy Officer at Global Healthy Living Foundation, Nate Kimball, Sustainability Practice Lead, USA at Antea Group, and Jordan Johnson, Chief Innovation Officer at Oncospark, shared insights drawn from various industry perspectives.
Nate Kimball set the scene for the discussion, describing 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, 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 panel 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.
Reporting frameworks – comparing apples with apples
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, a body created by the International Financial Reporting Standards Foundation Trustees in 2021. The ISSB says its goal 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.’
Patient access – ‘equity starts with affordability’
The panel also discussed corporate social responsibility and its relationship to patient access and drug affordability.
According to Popovian, an expert in drug pricing, pharmaceutical companies are ‘starting to use ESG as a way to discuss drug pricing and drug affordability issues.’
‘Now what you’re seeing is that pharma companies are really leveraging this type of environment to have an honest, transparent discussion about this topic,’ he said.
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.
Johnson echoed these sentiments, noting that drug safety is also an important consideration in terms of social impact.
In reference to the opioid epidemic in the US, he said: ‘The social responsibility perspective is real. It’s here now. It’s not just something, in theory, it’s something tangible that we can see.’
Circling back to reporting frameworks, Kimball noted: ‘The real question is, what are those factors that are most important to report on and be transparent on.
‘Pricing is definitely one of them. So, how do you do that? How do you operationalise that within your organisation?’
Looking ahead – ESG is here to stay
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’.
Popovian said: ‘That’s why pharma companies have gravitated towards ESG because it’s good for business. I think originally they [pharma companies] were doing it to be good citizens, but now they’ve found a way to leverage ESG for business purposes.’
Kimball added that, from an investor standpoint, progress in terms of ESG is ‘a really effective way of demonstrating business resilience.’
Popovian concluded: ‘As long as it has a political benefit or a business benefit, it’s here to stay. And I would argue that it has both.’
Watch session back on-demand here: https://smartevent.cphinorthamerica.com/newfront/sessions?page=ondemand&utm_campaign=&utm_emailname=HLN00CPO-RL-2022NewsletterWeek20A&utm_medium=email&utm_source=Eloqua&utm_MDMContactID=d341357e-7f17-