How ESG is Changing the Pharmaceutical Industry

Although the term ESG, or environmental, social, and governance, was first coined in 2005, it has come to the forefront in recent years because of its importance to investors and consumers alike.

A company’s ESG goals may align with the United Nations’ Sustainable Development Goals (SDGs). These 17 items serve as a guide “for peace and prosperity for people and the planet.” They include gender equality, affordable and clean energy, responsible consumption and production, and other goals.

Historically, the pharmaceutical industry has had a negative reputation among consumers. The opioid crisis and drug pricing scandals have damaged the industry’s standing. In a 2019 consumer sentiment poll, pharma ranked last, its worst finish in the poll’s history.

Some view the COVID-19 pandemic as a reputational turning point for pharma and an opportunity to solidify a more positive impact on society. Many pharmaceutical companies are furthering this goal by incorporating ESG into their operations. 

“ESG is another way to analyze companies beyond their profit and losses, and to see the broader impact companies are having on society and future generations” says Monique Adams, Director of Clinical Innovation at Janssen Pharmaceutical Companies of Johnson & Johnson, and Vice President at Women of Color in Pharma (WOCIP).

Adam’s words are affirmed by an April 2020 poll which found that 40% of Americans had a more positive view of the industry than before the pandemic began, up 7% from the month before. In fact, for the first time, pharmaceutical and biotechnology company Moderna was ranked among the top five companies with the best reputations in America in 2021. The shift is a direct result of the pandemic and pharma’s tireless work in producing vaccines and other medications that have saved millions of lives worldwide. 

How are pharmaceutical companies adopting ESG?

More often, pharmaceutical companies grasp the significance of ESG and are taking steps toward implementing the strategy into their long-term goals. Environmental sustainability, or the “E” in ESG, has become a major focus for companies.

“We’re making drugs that are intended to save people’s lives,” Adams says. “But any time you have large manufacturing plants and sites, that also can have a negative impact on the environment.”

Many environmental sustainability programs from pharmaceutical companies center on lowering greenhouse gas emissions through the use of renewable energy sources. These companies are also working to improve the environmental footprint of their products and value chain. For example, Johnson & Johnson has committed to sourcing 100% of its electricity needs from renewable sources by 2025. 

The “social” pillar of ESG considers health equity, including more equitable and affordable access to the medications that pharmaceutical companies develop. And it examines a company’s workforce. Do employees reflect the communities they serve? Goals for this pillar often include hiring and promoting more women and people of color, particularly Black and Latino employees. 

In addition to her role as director of clinical innovation, Adams is also the Global Head of Janssen’s R&D DEI Advisory Board. The Board has more than thirty-five members representing every therapeutic area, business function, and region within the company. One of its efforts is attracting diverse talent to the organization. 

“The only way to truly change culture is through people,” Adams says. “We believe in order to advance health equity, you need diverse leaders at the table making decisions about which diseases we’re going to study, trial design, and trial sites.”

The board is currently partnering with talent acquisition to develop a workshop that provides leaders with tools and resources for effectively tracking diverse talent.

The final pillar in ESG is “governance,” which examines issues such as shareholder rights, board diversity, executive compensation, ethics, and fighting corruption. In its ESG report, AbbVie outlines how, among other governance policies, every employee must complete training on its Business Code of Conduct and acknowledge that they will follow it. 

Pharmaceutical companies have begun officially announcing their ESG goals and how they are progressing against them. These goals may be part of a year-end report or a separate announcement. Adams says publicly sharing this information “ensures that they’ll be more accountable in helping create a more sustainable society.”