Analysis

Life sciences and health care companies navigate ESG

Organizing to tackle sustainability reporting

In life sciences and health care, 58% of companies expect enhanced sustainability reporting to help them attract and retain talent—but ESG data quality and availability are challenges to overcome.

The shift to more formal reporting

Health is interrelated with environmental, social, and governance (ESG) goals—and not just where matters of equity and access are concerned. Life sciences and health care companies have a role to play in reducing greenhouse gas (GHG) emissions, which makes the shift to more formal ESG and climate reporting all the more pressing and potentially beneficial to the companies themselves.

At the same time, enhanced climate disclosures have implications for preparedness, management responsibility, and more. In our latest Sustainability action report: Survey findings on ESG disclosure and preparedness, we asked 100 executives in life sciences and health care to weigh in on these and other aspects of the transition to a more sustainable future. Here are some of the highlights.

Business outcomes driven by enhanced ESG reporting

Life sciences and health care companies are inextricably linked. Life sciences companies are focused on research and development, the manufacturing and distribution of medicine, or the innovation of these products and devices to improve lives. Health care companies then provide patient care, medical professional services, health insurance, or managed care. These companies’ missions (or purposeful approach) to medicine, health, and safety define the industry, which may explain why 58% of life sciences and health care executives expect enhanced ESG reporting to help them attract and retain talent (figure 1).

Figure 1. Expected business outcomes due to enhanced ESG reporting in the life sciences and health care industry

At the executive level, when companies review where they are and how they’re progressing toward its objectives, they don’t look at the ESG metrics separately from everything else, but rather as a key element of the company’s overall objectives. As such, ESG goals are an integral part of a broader set of operational goals and metrics that impact each other and are reviewed holistically on a regular basis. For example, a company’s ability to attract, retain, and develop a quality workforce contributes to overall success and positive business results. These survey results imply that today’s workforce seek out companies that are purpose-driven and demonstrate a positive impact on society at large. This trend may be particularly relevant to life sciences and health care companies, as their focus is on improving human health and extending lives. Embracing ESG could be a way for these companies to exemplify that commitment to purpose, and as such, attract and retain talent.

Still, that’s not the only potential business benefit industry executives expect. About half of the industry executives in the survey point to brand/reputation enhancement, premium product pricing, reduced risk, and enhanced stakeholder trust as likely outcomes as well. Surveyed industry executives acknowledge that clear and transparent ESG disclosures have a business benefit. 

ESG and climate disclosure standards and frameworks

Life sciences and health care companies commonly use multiple standards and frameworks for ESG disclosures. The most popular is the Task Force on Climate-Related Financial Disclosures (TCFD), which has become part of the regulatory framework in many jurisdictions. The International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB), which have been consolidated into the International Financial Reporting Standard (IFRS) Foundation, round out the top three choices among survey respondents (figure 2).

Figure 2. Reporting standards currently used for ESG disclosures in the life sciences and health care industry

Today, companies voluntarily make ESG disclosures and use different standards and frameworks. This lack of specified standards and frameworks creates challenges in comparing trends from one company or industry to another. For instance, TCFD focuses on climate-related financial impacts, IIRC on ESG impact, and SASB on the financial materiality of ESG. To address this issue, the expectation is that companies will report under multiple standards and frameworks—at least for the time being. However, regulators across the world, such as the US Securities and Exchange Commission and the European Council, have proposed and passed rules to redefine how companies should disclose ESG-related metrics. Additionally, global standard-setters like the International Sustainability Standards Board are working toward consensus with other jurisdictional initiatives.

Management responsibility for ESG disclosure

More than half (52%) of our life sciences and health care respondents say a chief sustainability officer, or CSO, leads ESG disclosure within their organization (figure 3). This reflects the need for an accountable senior executive to assess emerging regulatory requirements, understand the impacts to the business, and align stakeholders within the company to disclose accurate, material ESG information in a timely manner.

Figure 3. ESG disclosure management responsibility in the life sciences and health care industry

However, CSOs in the industry may share the data collection and reporting responsibility with the chief financial officer, general counsel, and other executives. This underscores the multidisciplinary aspect of ESG reporting, which uses information across a range of functional areas within an organization.

 

   

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ESG goals are an integral part of a broader set of operational goals and metrics that impact each other and are reviewed holistically on a regular basis.

Business outcomes due to enhanced ESG reporting

ESG data challenges

It’s becoming more important for organizations to track and report on their ESG metrics. ESG data is pervasive across organizations, involving multiple stakeholders. Therefore, it’s imperative for management to be aligned internally around the data required for ESG reporting.

Respondents in the life sciences and health care sector indicate that their top data-related challenges are the availability and quality of data (figure 4). Part of the concern may be a lack of rigor around the compilation and quality review of the ESG data.  Many companies are unsure of where their ESG data is coming from, who’s reviewing it, its accuracy, and whether it captures what may be necessary. 

Figure 4. Some of the greatest challenges with ESG data in the life sciences and health care industry

One way to identify what ESG data is needed for disclosure is to determine what’s important to the company’s various stakeholders, which can be done through a materiality assessment. The materiality assessment can help a company identify what data needs to be collected, who’s involved in the process, where the data is within the business, and how to develop a robust data collection and review process. Commercially available technology solutions can improve the efficiency and effectiveness of ESG data gathering and alleviate some of the manual work associated with ESG reporting.

Challenges in measuring Scope 3 GHG emissions

As shown above (figure 4), the availability and quality of ESG data are challenges for life sciences and health care executives. It comes as no surprise then that measuring Scope 3 GHG emissions is also high on the list of challenges executives face. GHG emissions produced throughout a company’s value chain are called Scope 3 GHG emissions. These emissions, which often make up the better part of a company’s carbon footprint, can be challenging to track. Life sciences and health care executives tell us the No. 1 reason is the lack of confidence in data received from vendors (figure 5).

Figure 5. Challenges in measuring Scope 3 GHG emissions in the life sciences and health care industry (asked among those prepared to disclose Scope 3, n=41)

Measuring Scope 3 GHG emissions is difficult because it requires a significant amount of estimation as well as disparate data sources and calculation methods.  Without assurance, it can be difficult for companies to gauge the accuracy of secondary data.

This may explain why vendor concerns are more prevalent than other concerns such as data availability.

Blazing a trail to ESG maturity

Building trust is a vital pathway to demonstrating the value that life sciences companies and the rest of the health care system bring to society while also being accountable to shareholders and stakeholders for their impact on the environment. This has led to an increased focus on a company’s ESG disclosures and increased scrutiny from regulators. As a result, companies are focusing on tackling their ESG challenges both internally and externally.

Regardless of company size, many companies are now assessing what it may take to realize their ESG goals. These organizations may find that one of the tools available to them, ESG readiness, is a valuable way to identify key challenges and progress toward more robust and mature ESG disclosures.

As these findings reveal, companies have different data challenges, standards, and frameworks being used as well as differences in who is responsible for ESG reporting. Our team can assist you while you navigate through this ambiguity—wherever you happen to be on your ESG journey. Questions? Please contact us.

 

Related content

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Building trust is a vital pathway to demonstrating the value that life sciences companies and the rest of the health care system bring to society while also being accountable to shareholders and stakeholders for their impact on the environment.

Blazing a trail to ESG maturity

Contact us to learn more about Sustainability and ESG Services

 
 
 
 
 
 
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