Call it a pandemic reckoning: New ESG expectations spur surge of pharma good deeds

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Environmental, social and governance goals in pharma are on the rise as consumers, customers and investors drive up expectations on the industry. (Pixabay)

Sanofi launched a nonprofit unit last week specifically set up to get its medicines to more people in lower-income countries and fund local support programs. The company's fleet of cars will go carbon neutral by 2030. By 2027, Sanofi vaccines will no longer ship in blister packs that end up in landfills.

And those are just three of the initiatives the French drugmaker announced. In short, like many other companies seeing their responsibilities to society with new eyes, Sanofi stepped up its environmental and social goals.

The efforts “were existing before, but we decided to scale up those ambitions,” Sandrine Bouttier-Stref, Sanofi’s global head of corporate social responsibility, said.

Why now? Simply put, the pandemic. 

As Sanofi CEO Paul Hudson wrote in an open letter, the pandemic forced everyone to question nearly every aspect of their lives. The upside for Sanofi, and the pharma industry, is that it also brought them "closer to our purpose than any other time in living memory."

Sanofi isn't alone in the pandemic-inspired reckoning, of course. Across pharma, companies have expanded their environmental goals, boosted diversity and inclusion goals, and recommitted to social justice and healthcare equity. 

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For instance, on the environmental side, GlaxoSmithKline in November committed to a new plan that would eliminate its contribution to climate change and neutralize its impact on nature by 2030. Just a month earlier, Biogen pledged $250 million to end its dependence on fossil fuels, while one month earlier Novartis moved up its goal to become carbon neutral across its supply chain by 2030.

Drugmakers also set out new social pledges over the past year. Roche's Genentech business recently vowed to boost diversity, setting a goal to double hiring of Black and Latinx executives and spend $1B with diverse suppliers, among other things.

In August, Bristol Myers Squibb pledged $300 million to increase diversity and improve healthcare access, while Johnson & Johnson promised $100 million in the fall to address racism and health inequities.

And as for Sanofi, its newly debuted nonprofit unit, Sanofi Global Health, is designed to broaden access to medicines— including cardiovascular, diabetes, cancer, tuberculosis and malaria drugs—for lower income countries and fund local support programs.

At the same time, Sanofi expanded its environmental goals, announcing it would end blister packs for its vaccines by 2027 and redesign its new products to be eco-friendly by 2025. It plans to use 100% renewable electricity and maintain a carbon-neutral car fleet by 2030.

All these efforts come as the pharma industry's environmental, social and governance efforts—commonly called ESG and once considered add-ons to the core business—are moving front and center.

ESG has always been a way for the oft-maligned industry to showcase its authentic work in sustainability, community health and employee care. But ESG goals are no longer just the right thing to do. They're demanded by patients, consumers, customers and even investors.

The pandemic made people realize the importance of their personal health and the health of their local communities, but it also drove up expectations for companies to pitch in. When companies did so—by holding food drives, donating money and safety gear—it raised the bar for corporate behavior. And it reinforced the importance of ESG work.

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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 can determine whether people trust a company to do the right thing and continue to buy its products, according to its most recent survey fielded in December and January.

“ESG is the No. 1 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 in helping your company weather a crisis,” RepTrak reports.

For pharma, which landed a most-improved industry rating year over year, ESG formed the backbone of its stronger-than-usual performance.

In fact, its ESG ranking was the highest among 25 industries surveyed. And RepTrak attributed pharma's gains heavily to the halo effect of COVID-19 vaccines’ quick trip to market and high efficacy.

Environmental work and social responsibility are also beginning to matter more to investors. While ESG effects can be difficult to quantify, investors realize their importance to consumers and to the talent inside pharma companies, and they're considering it in valuations.

Bernstein analyst Ronny Gal recently wrote that while the pharma industry is vilified on issues such as pricing, access and lawsuits,  “the halo of strong ESG ratings/efforts could serve to moderate some of that pressure.”

Still, Gal rated ESG overall as “a modest contributor" to investor sentiment, "and even with the assumption it will grow, it is hard to see it being a major driver" of share prices.

RBC Capital analysts recently pointed out pharma is both making gains in ESG and emphasizing its importance to the investment community—likely with good reason. RBC research shows that in the healthcare sector, companies with stronger ESG assessments have outperformed over time.

RELATED: GSK pledges renewed environmental commitment with aggressive climate change and nature targets

“Pharma has historically been penalized for its exposure to litigation (e.g. opioids and talc), corporate behavior (e.g. drug pricing), product safety and recalls, or issues with access to affordable healthcare," the analysts said. "However, our analysis indicates that momentum in Pharma ESG investing is improving as these ESG risks evolve."

No matter the precise bottom-line impact, ESG strategies will likely continue to grow as a way for pharma to serve patients and customers as well as contribute to global society.

“Clearly people in the world are expecting more," Sanofi's Bouttier-Stref said. "They’ve 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."