Social Governance

Pharmaceutical Manufacturers Should Navigate Through ESG Requirements

Published on: 6 May 2022 05:05 PM
by KnowESG

The need for more corporate responsibility in the form of environmental, social, and governance issues has evolved for today's firms and the next generation of business executives (ESG). Investors, activists, and regulators are now calling for proactive, community-based commitment and accountability.

More marketing from companies is not appealing to today's global capital markets. Instead, they're looking for long-term sustainability and environmentally sustainable company practices and fair returns. This demand is now gaining the attention of global pharmaceutical makers and their executives, and the industry is becoming more proactive in this movement.

Why ESG Standards?

Even though ESG indicators are still struggling to find their place in today's standardised financial reporting, pharmaceutical companies and other industry organisations have made pledges and demonstrated the proactive nature of their ESG standards.

The ability for firms across all industries to truly measure their current position relative to investor objectives of integration, values, and impact in the domains of governance over environmental and social contexts is required at this critical stage. Window dressing and hollow promises for the sake of a feel-good investor report aren't appealing to American stakeholders and shareholders. They want to know if businesses are following through on their pledges and commitments in these critical areas.

Unfair Pressures by proxy advisors

Many pharmaceutical manufacturing companies, in particular, have faced significant pressure to adopt more ESG-conscious processes. Shareholders pressure corporations over their supply chain strategies, environmental and sustainability implications, and gender-diverse policies.

This focus has resulted in a revamp of numerous corporate procedures, as well as the hiring of a new c-suite member—the chief sustainability officer (CSO). Many other companies have begun to copy the operational modifications of the leaders in this movement.

Making promises regarding ESG commitments and keeping them appear to be two different things for some people. Institutional investors and monitoring bodies like Institutional Shareholder Services are pressuring many corporations to make ESG changes and promises (ISS). Some have speculated that these proxy advisors have grown overly focused on ESG issues, are conflicted, and have too much control over America's top pharmaceutical manufacturing corporations.

ISS hypocrisy

ISS, for example, talks a big game about diversity and inclusion. The ISS required publicly listed businesses to report the ethnicity of each board member. ISS has recently been accused of refusing to suggest voting for board slates that they claim lack sufficient "diverse" representation.

However, it appears that ISS is devoid of any representation of people of colour. Furthermore, ISS's two corporate owners, Genstar Capital and Deutsche Boerse, do not appear to have a single person of colour on their senior teams. That is concerning, given that they have declared diversity, equity, and inclusion to be a top priority and have encouraged publicly traded corporations and pharmaceutical manufacturers to make pledges to these goals. Standards are not only necessary but they must also be followed at all levels.

Manufactures should utilise chances to serve as models

Despite the hypocrisy displayed by organisations like ISS, pharmaceutical companies have the opportunity to truly bring change—not just in their marketing, but in the way they conduct business. In reality, there has been evidence of the adoption of ESG aspects across manufacturing organisations in the pharmaceutical industry as business models have had to adjust to this new landscape and shift customer habits.

These efforts reflect that pharmaceutical manufacturing businesses have been working to have a beneficial societal impact in addition to making money and maintaining the bottom line. 

There is no doubt that these newly implemented techniques can boost valuations, hence increasing investor appetite, but they also have the potential to attract more qualified employees into pharmaceutical manufacturing businesses who are tremendously committed to the corporate purpose.

Customers, stakeholders, investors, the environment, and, of course, employees will all benefit as more pharmaceutical manufacturing businesses remain loyal to their ESG obligations. In the future, these businesses will function as true operating models. However, we must go beyond promises and commitments and adopt a new set of ESG criteria to level the reporting playing field.

Source: PharmExcc.com

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