As the world calls for sustainable practices, how can life sciences companies better articulate their value?

Even before the COVID-19 pandemic struck, individuals were demanding greater responsibility from the organizations they work for, buy from and invest in. The pandemic has further highlighted longstanding issues around health and economic disparities.

At the same time, investors are increasingly evaluating life sciences companies based on criteria beyond margin and top-line growth, including how their solutions contribute to sustainable development goals linked to the health of individuals, societies and the environment.

To attract shareholders, life sciences companies must get better at articulating their value beyond the innovative medicines and treatments they develop. Indeed, they must communicate their value in terms of their intangible assets, including intellectual property, human capital, organizational culture, corporate governance and public trust.

The metrics that matter

When it comes to sustainability, it is difficult for life sciences companies to know which metrics matter the most. Not only do multiple sustainability frameworks exist, but most aren’t specifically designed to measure the value associated with biopharma products and services.

Each of these frameworks defines sustainable value in slightly different but important ways. The proliferation of similar but subtly distinct metrics means a wide variety of metrics are in use, often within a single organization. Companies, or divisions within companies, therefore have the ability to handpick the metrics that show their sustainability efforts in the best light. Not surprisingly that makes objective comparisons across organizations impossible. In addition, this diversity of metrics makes it difficult for C-suites and boards to identify the best sustainability practices within their companies to accelerate. 

In recognition of these challenges, EY Health Sciences and Wellness analyzed existing sustainable value metrics, reviewing more than a dozen secondary sources, including investor indices, external sustainability frameworks and the Embankment Project for Inclusive Capitalism to identify verified metrics that are reported consistently over time.

We prioritized eight metrics (see figure below) that reflect two primary areas of sustainability: 1. the social value associated with medical products and services that reduce the burden of acute and chronic disease; and 2. the environmental value associated with reducing global warming given the well documented health effects associated with climate change.

Source: EY. Important definitions: Fast-track designations allow expedited review of investigational medicines; curative therapies remove disease symptoms by correcting the underlying condition; rare diseases are conditions that affect a small proportion of a country’s population; an OAI recommends regulatory or administrative actions, while a VAI represents an objectionable practice that does not yet result in recommendations of administrative or other regulatory actions; according to the World Health Organization, disability-adjusted life years and quality-adjusted life years represent one lost year of healthy life and a year of perfect health respectively. The 2018 Access to Medicine Index is published by the Access to Medicine Foundation and can be found here.

These eight metrics describe progress in the following areas:

1. Responsible innovation. Life sciences companies are developing new biopharma products to address unmet needs associated with a range of diseases from cancer to multiple sclerosis to Parkinson’s disease to severe depression. Companies that scored highly for responsible innovation have prioritized therapies that don’t just manage symptoms, but are designed to modify or cure a disease. In addition, because of their focus on disease areas where treatments don’t yet exist, they have been awarded accelerated approval for their medicines by regulators.
2. Access and affordability. Life sciences companies are striving to improve public health by making certain life-saving medicines widely available. Scores on the Access to Medicines Index reflect a range of strategies biopharmas employ to link the value of their products to improved health outcomes and enabling access to patients most in need.
3. Trust and quality. Preservation of a medicine’s safety and efficacy is paramount. Life sciences companies are addressing this by maintaining quality throughout the supply chain, rigorously testing the safety and usefulness of products under development and complying with ethical promotional practices. Companies that scored highly here received fewer warning letters or voluntary or official actions from inspections.
4. The health impact of climate change. The life sciences sector produces 55% more greenhouse gas emissions than the automobile manufacturing sector, according to a 2019 study published in the Journal of Cleaner Production. This has a negative impact on human health. Rising levels of greenhouse gases lead to global warming and catastrophic weather events, which, in turn, reduce air quality and the nutritional value of foods. One way to score high on this dimension is to use real-time risk assessments to minimize environmental impacts.

As part of our assessment we mapped how these eight metrics align to today’s most commonly cited sustainability frameworks and investor indices. For instance, our three metrics representing responsible innovation represent values the World Economic International Business Council describes in its prosperity pillar, while our measurement of the health impact of climate change aligns with the organization’s planet pillar. There is also close alignment with the Sustainability Accounting Standard Board’s recommendations for biotechnology and pharmaceuticals companies; four of the eight metrics we prioritize correspond to SASB metrics measuring access, drug safety or ethical marketing. 

Creating an industry index

Note, our intent was not to create yet another sustainability framework. Instead, we wanted to understand how different companies compare when it comes to their sustainability initiatives. But to make meaningful comparisons we needed verified metrics that a majority of companies currently measure and publicly disclose in a standardized way. The eight metrics in Figure 1 represent a preliminary model that enables an “outside in” assessment of sustainability for leading biopharmaceutical companies as measured by revenue. 

Based on our analysis, the majority of the top-scoring companies outperformed competitors on the dimensions of responsible innovation, access and affordability, and health impact due to climate change. Our analysis also revealed a weak positive correlation between sustainable value and financial value, suggesting that companies with high sustainable value scores aren’t being rewarded financially. One key takeaway: biopharmas should also focus on how they communicate their sustainability initiatives so that investors give them credit for their efforts.       

As biopharmas mobilize to develop medical solutions for the COVID-19 pandemic, the value their medicines bring is becoming more obvious. According to the 2020 Edelman Trust Barometer, trust in the pharmaceutical sector rose from 59% of respondents in 2019 to 73% in April 2020. As a result, life sciences companies have a huge opportunity to capitalize on this goodwill by adopting reporting frameworks that showcase how their products improve social value over the long term.

In light of the social and environmental crises we face today, it is more important than ever that life sciences companies demonstrate and communicate their sustainability programs. We believe our model is a good starting point for those efforts. The ability of biopharma companies to create lasting future value rests on them harnessing innovation to meet real human needs – and placing sustainability at the heart of their business strategy. 

The views reflected in this article are my own and do not necessarily reflect the views of the global EY organization or its member firms.