One of the principal changes occurring in the corporate world over the last 2 decades has been the integration of ESG (Environmental, Social and Corporate Governance) as a fundamental focus area for major companies. Introduced in 2005 by the UN Environment Programme, ESG is a framework which enables the assessment of a company’s sustainability practices and ethical impact. For any company today, having a strong ESG score is fundamental to retaining stakeholder value and ensuring long-term success. The importance of these frameworks in the pharmaceutical industry is disproportionately high compared to others as becoming an environmentally conscious and an ethical company often takes a backseat for pharma companies, given the urgency of the work in developing life-saving drugs. Consequently, pharmaceutical companies, traditionally lagging behind their peers, are prioritising ESG practices and placing considerable investment to this end.
Investment is placed across the entire product life cycle. A seismic change is reflected in R&D decisions, where investments are increasingly poured into the development of innovative technologies to reduce environmental footprints – with a prominent example being the rise of green chemistry1. The development of sustainable supply chains – ranging from the sourcing of sustainable raw materials to efficient transport and storage – represents one of main areas of investment from pharmaceutical companies. Finally, increasing efforts are being placed to ensure affordability of drugs and equal access to medicines globally, by shifting the balance between profitability and necessity as well as by evolving pricing mechanisms2 .
Despite the positive trends outlined above, all pharma companies ultimately need to consider the trade-off of investing into ESG policies and creating profitable products. There are numerous factors that ultimately drive this change. A primary driver stems from the significant public attention garnered by pharmaceutical companies, which gives rise to expectations from key stakeholders that the company would commit to sustainability. With reputations at stake, companies are compelled by shareholder value, political pressure – amongst other reasons – to place importance upon their ESG responsibilities. This is further exacerbated by the increasing regulatory pressure placed on companies, with require them to place greater emphasis on ethical and environmentally friendly practices across the business3. However, aiming to simply fulfil requisite requirements and “do enough” may be detrimental to the long-term prospects for companies; companies need to recognize the need for change and strive to develop leading ESG functions. The companies that are able to do so have will have a distinct competitive edge in the current environment, which will only increase in the near-term. Investment into ESG and commitment to establishing this as a core strategic pillar are key in driving long-term sustainability. While the development of innovative, environment-friendly technologies could facilitate cost and operational efficiencies in the long-term, they would also propel investor and customer interest whilst enhancing public standing and reputation4.
With the value of ESG apparent, it is essential for pharmaceutical companies to understand where they stand relative to others in their competitive landscape. Benchmarking can help identify areas that companies are lagging behind in so initiatives to invest in can be identified, while conversely, areas where companies are leading can be maximised. Even on a product-level, keeping a finger on the pulse around initiatives that could boost competitor performance – for instance, development of reusable injectors or sustainable devices – would be crucial in understanding threats in the landscape and finetuning company strategies, and ultimately helping provide a competitive advantage in an evolving era of corporate decision-making.
References
- Science Direct
- Making Medicines More Affordable – Health.EC
- New Social and environmental reporting rules for large companies from 2024 – CSR Europe
- Five Ways that ESG creates value – McKinsey
