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A prime opportunity for pharma to raise its strategic game in ESG.
Consistently scoring well below its consumer counterparts on all elements of environmental, social and governance (ESG), pharma has built a reputation for avoiding the topic. However, 2022 has marked a change on this front. Pharma companies have woken up to the critical role ESG strategy plays within their businesses and for their shareholders. This past quarter, we have seen a flood of life sciences organizations announce their ESG strategies and showcase ESG reporting early milestones. Years behind leading consumer rivals, pharma now has ESG on its agenda—in a big way.
Consumer businesses are firmly in the ESG era, from sustainable packaging and supply chains, to impact innovations, to social programs, to diversity across all levels of management (in progress). For many, it is not a standalone strategy; it is embedded within overall business planning. By answering consumer demands, these corporations have addressed targets across the ESG board and are visibly beating the ESG drum at a growing pace. Such momentum has created a group effect of collaboration, supporting the vision of a meaningful and sustainable world.
In the pharma sector, we’ve seen another side of the ESG coin. Like all businesses, there are the looming macro expectations on pharma companies, yet unlike the consumer space, they lack the constant customer pressure for change. This, coupled with the highly regulated landscape and decades of reputational firefighting, has created the ideal vacuum to seal away pharma from mainstream ESG strategies.
Compared to consumer businesses, pharma is in a different space. Fundamentally, the companies do not directly interact with consumers and their offer is not one of luxury, nice to have, or preference—it is about health and saving lives. Doctors and payers continuously rank efficacy and safety as key drivers for product choice (not patient preference). This market dynamic means that the pull we see in the consumer space simply doesn’t exist in pharma. If a patient is worried about end-of-life decisions, acute crises, or chronic burdensome conditions, they are not often pressuring drug manufacturers for sustainable packaging, stronger carbon reduction targets, or more equitable governance.
Using publicly available information (as of May), including companies’ own reporting, communications, and sciencebasedtargets.org, we explored how top ESG-performing pharma companies—AstraZeneca, Sanofi, and Novartis—stacked up against their top consumer counterparts—L’Oréal, Reckitt, and Unilever). In terms of targets set across the group, the consumer companies have set broader strategies and are more ambitious in nearly every area of ESG: sourcing, water, waste, plastics, and packaging. Pharma, however, had a big win in terms of setting more ambitious targets for carbon reduction.
Overall, this analysis demonstrated that pharma companies don’t have an all-encompassing ESG strategy, with obvious gaps around a holistic social strategy. Topics such as sourcing and biodiversity do not yet appear to be considered or available, and other areas are not as ambitious as their consumer peers.
How can pharma improve? This comparison of large pharma with consumer businesses highlights some fascinating opportunities:
Environmental—Consumer businesses have identified and highlighted the interconnectedness of environmental and social issues. Doing one or few in isolation will not lead to a healthier planet or people. Companies have set targets across all environmental areas they impact, ensuring they follow the latest science and nature-based targets. Pharma can adopt this same approach.
Societal—More directly linked to the end customer in the value chain, consumer companies have for many years worked closely with their consumers and communities to improve livelihoods. By setting an overarching social goal, this ensures that all of their initiatives can directly help to achieve this. If pharma companies set a holistic goal, this will ensure that more people across the world are reached.
Governance—Regulations and requirements are traditionally more stringent for pharma, however, bringing strong governance practices into an ESG strategy will ensure that the good of employees, partners, suppliers, and everyone in the supply and value chains are being valued equally and treated fairly.
Pamela Walker, PhD, Partner, and Jen Nixon, Principal; both with Gate One