How biopharmas can create long-term growth focusing on sustainability

In health care, there is a growing need to embed the perspectives of diverse stakeholders in the sustainability agenda.

In brief

• There is no consensus on how to define sustainable value in the life sciences.
• Biopharmas have struggled to get credit for their sustainability efforts. Eight metrics will help companies improve their sustainable value creation.
  
• In a majority of cases, companies’ sustainability scores aren’t reflected in their financial performance.

Today individuals demand greater responsibility from the organizations they work for, buy from and invest in. In health care, that means there is a growing need to embed the perspectives of diverse stakeholders, including payers (both public and private), providers (health systems and physicians) and individual patients, in the business agenda. As we explore in the new report, Defining, measuring and effectively communicating sustainability practices and progress in the life sciences industry (pdf), one growing area of interest for these stakeholders is sustainability.

Unfortunately, there is no consensus on either how to measure sustainability or what metrics are most relevant for biopharma companies. This absence of acknowledged metrics means it is difficult for investors to draw a direct line between a company’s sustainability investments and its financial performance. In addition, investors can’t directly compare the impact of different companies’ sustainability programs even if they wanted to.

The end result: biopharmas aren’t getting full credit for their sustainability investments. And that makes it difficult for boards and management teams to prioritize sustainability even though a wealth of data suggest there are long-term advantages to doing so.

To help biopharmas accelerate their sustainability agendas, EY researchers have identified eight sector-specific metrics as explained in this report (pdf), from nearly two dozen existing key performance indicators that companies can use to measure sustainable value creation. These metrics showcase how sustainable value can be created by measuring progress in four key areas:

1. Responsible innovation
2. Access and affordability
3. Trust and quality
4. Reduction in the health impact of climate change

Building a better model to measure biopharma sustainability

Not only are these measures well aligned with changing stakeholder expectations, but they are also consistent with industry agnostic sustainability metrics developed by the World Economic Forum International Business Council, of which EY and the other Big Four professional service firms are members. Indeed, as part of our assessment, we mapped how these eight metrics align to the themes discussed by WEF and the Sustainability Accounting Standards Board.

Using these eight biopharma specific indicators, we have developed a sustainability model that compares companies’ sustainability performance over time and identifies best in class behaviors. Our analysis of the leading biopharmas (as measured by revenue) suggests that the companies that earned the highest scores in our model emphasized responsible innovation and access and affordability. Nearly 60% of the biopharmas we studied achieved similar scores on compliance and regulatory metrics associated with trust and quality. That isn’t too surprising given the highly regulated nature of the biopharma industry.

Even the companies that achieved the highest sustainability scores have room for improvement. For some companies, there is a clear need to prioritize the development of curative products that meet evolving unmet medical needs. In other cases, companies need to rethink their commercial strategies to ensure products are available to the most vulnerable populations.

In still other cases, companies need to focus on how they communicate their sustainability efforts to investors and the wider public. Indeed, when we compared sustainability scores with financial performance (as measured by 10-year average valuation multiples), we found only a weak correlation. Only one of the top six performers for sustainability also ranked in the top six for its 10-year average valuation (2010-19). That suggests that one priority area of focus should be to improve how sustainability is communicated so that investors reward companies for their efforts.

Taking the next step

Our model for benchmarking sustainability is meant to be a starting point, not an end goal. Though we restricted our analysis to eight metrics based on data availability and standardization, there are additional metrics that life sciences companies can use to demonstrate their commitment to sustainability.

As companies advance their sustainability practices, they might want to consider incorporating other metrics that are of material interest to investors. Companies have already started to measure and report input and output metrics, including the number of patients benefited, doses administered, and the number of new molecular entities to reach the market. However, they could also prioritize impact measures linked to product pricing or health outcomes achieved.

Biopharma companies have an opportunity to play a leading role in addressing the sustainability challenges linked to the burdens of chronic disease, aging populations, and the affordability of medicines. Many companies have already stepped up; even companies with leading sustainability initiatives need to step in and harness disruptive innovations to address the human needs linked to sustainability.