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The most pressing ESG concerns for the pharma industry

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Environmental, social and governance (ESG) needs to be at the core of any healthcare company or institution that wants to continue to provide quality care and services.

The pharma industry has deeply rooted environmental, social, and governance issues that challenge sustainability. Overcoming these challenges requires collaborative, proactive steps to achieve sustainability goals and turn the reputation of this industry around.

Kitty Whitney, Senior Director of Thematic Analysis, Pharma, GlobalData

Companies from across the healthcare industry widely promote their corporate social activities, and improving their environmental rating is at the top of many corporate agendas. 

However, as more firms are called upon to confront social inequity, corruption, tax avoidance, and a lack of security, healthcare providers and pharma and medical device businesses will need to improve their governance. 

The pharma industry, for example, has been plagued by issues relating to governance involving fraud, price-fixing, the unlawful promotion of drugs, and kickbacks.

Environmental sustainability is more important than ever

Given the urgency around mitigating the impact of climate change, improving their environmental rating is top of the corporate agendas of many companies from across the healthcare industry. Environmental sustainability in the pharmaceutical industry is inherently challenging and has historically been met with resistance. 

This is partially due to the complex nature of pharmaceutical research, design, and drug production processes, from strict laboratory procedures to specific production and manufacturing protocols.

Pharma is under increasing pressure to become more sustainable, with many companies aiming to improve the sustainability of their operations and supply chains, particularly in terms of environmental impact.

Kitty Whitney, Senior Director of Thematic Analysis, Pharma, GlobalData

There will always be challenges for the pharmaceutical industry where environmental sustainability is concerned, but there are also opportunities for improvement, such as reducing greenhouse gases (GHGs) from their own operations and those related to vendors/partners, improving air quality and water management, and increasing renewable energy usage.

Many leading pharma companies have implemented environmental ESG targets. For example, AstraZeneca has pledged to reduce its Scope 1 and 2 emissions from operations and fleet by 98% by 2026 (vs 2015), and Scope 3 emissions by 50% by 2030 and 90% by 2045 (vs 2019). 

Healthcare facilities generate a lot of waste through disposable devices, such as sharps, trace chemotherapy, and pathological waste. The use of single-use products has been exacerbated by the Covid-19 pandemic, as it has greatly increased the use of products like masks and gloves. 

Additionally, hospitals have the highest energy intensity of any publicly funded building. While medical device companies generally need to do better regarding being more environmentally sustainable, some companies are implementing different measures to try to reduce their CO2 emissions. 

For example, Philips has recently created an EcoDesign program, the goal of which is to reduce the total environmental impact from the start of the innovation and design process.

Social responsibility is naturally embedded in healthcare

The heroic efforts of healthcare providers and hospitals during Covid-19, and the rapid development of vaccines and tests, have transformed public opinion of the healthcare industry. This is particularly true for pharma, which has struggled with a poor reputation for years due to high drug prices and unethical business practices. 

Social sustainability is a growing issue for pharma companies that are under increasing pressure to ensure that they operate with more socially responsible practices and procedures.  

Relevant elements of social sustainability and corporate social responsibility (CSR) in the pharmaceutical industry include pricing, access to medicines, quality of supply chains and drug distribution, research and development practices, clinical trial diversity, and the development of drugs to treat rare diseases and diseases that are prevalent in emerging economies. 

It also includes appropriate management of intellectual property, collaboration with community and government stakeholders to ensure sufficient capacity for vaccines and drugs in response to potential terrorist threats, and development of public policy.

Exercising social responsibility for the pharma industry is complex; it requires a fine balancing act to provide drugs used to improve quality of life and extend life whilst ensuring profitability. However, there are numbers of ways and areas through which a company can be socially responsible or contribute to the development of society.

Kitty Whitney, Senior Director of Thematic Analysis, Pharma, GlobalData 

Social issues in the medical device industry include pricing, market access, ethics, labor, and health and safety. The issue of health and safety within medical devices has been especially prominent in recent years because of the Covid-19 pandemic. The pandemic negatively impacted many hospitals and their employees, as many were left unprepared and lacked proper personal protective equipment (PPE) as a result. 

Human rights are a pressing social issue in the healthcare industry, and again have been exacerbated by the Covid-19 pandemic. While healthcare is technically a universal human right according to the UN, many people and communities all over the world still lack access to adequate healthcare.

Healthcare is still plagued with corporate governance issues

The pharmaceutical, healthcare, and medical devices sectors are all highly regulated, but they still face controversies. With a focus mainly on social and environmental issues, healthcare companies need to make concerted efforts to confront social inequity, corruption, tax avoidance, and a lack of security to improve their governance performance.

Responsible governance is a key requirement for sustainability in the pharma industry. Regulations, external initiatives, and commitments to international guidelines are constantly evolving. Compliance with product quality, transparent collaborations with healthcare professionals, patients, and the wider industry, and combating corruption are all constant challenges.

Despite moves towards sustainability, compliance, and integrity, the industry is still plagued by governance issues with highly publicized cases involving fraud, price fixing, unlawful promotion of drugs, and kickbacks.

In September 2020, Bayer was ordered to pay $40m to settle the alleged use of kickbacks and false statements relating to its drugs Trasylol, Avelox, and Baycol in the US.

In October 2022, it was announced that Pfizer Italy was under investigation for hiding over €1.2bn ($1.2bn) in profits by transferring money to Pfizer affiliates in other countries. In 2020 alone, Novartis was thought to have paid out over $1.3bn to settle agreements for kickbacks, bribery, and price fixing.

Healthcare is vulnerable to corruption, and this often impacts low-income patients most because they struggle to pay for healthcare services. Higher-income patients can make informal payments for officially free-of-charge services as less fortunate patients delay or abandon treatment and are discouraged from using public health clinics.

According to the World Bank, the world spends more than $7tr on health services, and at least 10% to 25% of this is lost directly through corruption, representing hundreds of billions of dollars lost each year.

GlobalData, the leading provider of industry intelligence, provided the underlying data, research, and analysis used to produce this article. 

GlobalData’s Thematic Intelligence uses proprietary data, research, and analysis to provide a forward-looking perspective on the key themes that will shape the future of the world’s largest industries and the organisations within them.