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ESG in pharmaceuticals – Strategies and opportunities
By Matthias Buente and Filip Conic
How companies are performing on ESG, where their focus lies – and what potential remains untapped
Driven by stakeholders’ demand for accountability and transparency, but also by ever-stricter regulatory requirements, compliance with environmental, social and governance (ESG) criteria is these days a must for companies in virtually every line of business. The pharmaceutical sector faces ESG demands that other industries don’t, including the need to provide equitable access to medicines and unique aspects of supply chain control.
"To date, there is no single pharmaceutical player that consistently serves as a reference and best practice example across all ESG indicators and dimensions. Even the best are very much a work in progress."
The impending advent of European Sustainability Reporting Standards (ESRS) will force companies to report on what is known as double materiality. Yet most existing ESG assessment structures do not even cater to industry-specific issues, let alone to these requirements. Roland Berger therefore responded in two ways: It analyzed 30 top pharmaceutical players to identify ESG strategies and performance, benchmark best ESG practices, identify room for improvement and highlight the opportunities arising from potential lighthouse topics. Then, based on the findings of this study, it crafted a Pharma ESG framework to reflect the unique needs of pharmaceutical companies. This framework combines factors that concern players in all industries with several key indicators that are unique to pharmaceuticals.
"There are understandable reasons why pharmaceutical companies have so far tended to neglect social criteria to some extent. But ‘understandable’ does not mean ‘sustainable’. At some point, regulators – and stakeholders – are going to insist that they address these issues as well."
A mixed bag of fascinating findings
Factoring in geographic considerations, company size, ESG goals and policies, whether specific targets have been set and how ambitious they are, the study drills down into 42 granular but measurable sub-indicators to paint a clear and detailed picture of where the pharmaceutical industry stands on ESG performance and commitment. As shown in the figure above, the main topics emphasized specifically for the pharmaceutical industry were access to medicines, public health innovation/security, patient safety, business ethics and animal welfare.
One general finding: While ESG reporting is becoming more transparent in the industry across all indicators, there is a clear bias toward the (mandatory) environmental and governance criteria, evidently to the detriment of social considerations (for which reporting is not mandatory). The result? Even important social topics (such as access to medicines) remain largely and significantly underreported in the pharmaceutical space. The study digs into historical and practical reasons for this E&G focused tendency. Ultimately, however, it is impossible to escape the conclusion that even the highest-scoring players still have plenty of room to improve their overall ESG scores going forward.
Size – and location – matters
Geographically, the EU’s commitment to spearheading regulatory advances is clearly reflected in the ESG scores achieved by companies based in Europe. In terms of business focus and company size, diversified life science enterprises returned the highest average scores across all three ESG segments, followed by conglomerates for which the life sciences are one line of business among many.
The study also distinguishes between the mere fact that companies say they have ESG goals, their actual performance on ESG criteria and the level of ambition reflected in their targets and performance. Interestingly, this perspective revealed significant variations even on issues such as access to medicines, “one of the most material topics in the pharma industry”, in the words of the study.
Three distinct clusters of ESG maturity (and commitment) identified
Based on their scores, the study assigns the companies surveyed to one of three categories: ESG initiators, who focus primarily on regulatory compliance but with relatively unambitious goals; ESG aspirers, who shine in some areas while other indicators are still very much under development; and ESG frontrunners, who are the most mature across all indicators and are ambitious but realistic.
Picking battles and choosing lighthouses
The study provides evidence that most companies currently achieve high ESG scores with performance that is centered around only one or a small number of key indicators. Ending with key takeaways for top managers, it concludes that this is often a delibverate policy decision: picking which ESG battles to fight or, to change the analogy, choosing ESG lighthouse projects with which to outshine their peers. A detailed discussion admits that this pragmatic “pick-and-choose” approach seems to be more popular, but also argues that even the best-ranking players need to broaden their engagement – and have plenty of scope to do so – in order to improve their ESG scores across the board.
The full report can be downloaded here in PDF format. Alternatively, would appreciate your feedback and the chance to talk to you about how your organization approaches the challenges of ESG. Mail us for more information. We look forward to hearing from you!
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Further readings
