Better ESG Communication with Investors

Sandor Schoichet

Better communication between biopharma companies and investors is vital. Our industry is not only about making money; it’s about reducing suffering and improving the quality of life. However, unlike financial performance reporting, which has had hundreds of years for generally accepted accounting principles (GAAP) to mature, performance tracking and

disclosure for environmental, social, and governance (ESG) topics is still evolving. Today’s ESG reporting landscape is defined by complex and sometimes contradictory disclosure demands that are expensive and time-consuming to address, yet still incomplete in meeting the needs of key stakeholders, especially investors. An emerging industry of third-party analysis, rankings, and ratings seeks to fill the gap, but is based mostly on proprietary algorithms that produce non-comparable results.

The lack of an effective and efficient model for communicating non-financial performance information between biopharma companies and investors was repeatedly identified as a major frustration by both groups in discussions held by the Biopharma Sustainability Roundtable (BSRT) over the past few years. The BSRT is a sector-focused network of senior sustainability executives that I founded eight years ago and co-lead, along with my colleagues Thomas Scheiwiller, Myrto Kontaxi, and Maggie Kohn.

We launched the Biopharma Investor ESG Communications Initiative in mid-2018 to help address this frustration. The Initiative enabled a direct dialog between biopharma sustainability and investor relations executives on the one hand, and their investment counterparts on the other, the biopharma sector and ESG analysts from major investors. The resulting Biopharma Investor ESG Communications Guidance was published at the end of April (read the release here; contact me to request a free copy).

The guidance was developed by a working group sponsored by Amgen, Bristol Myers Squibb, Merck & Co. (MSD outside the US and Canada), with active participation by Johnson & Johnson and Novartis. The High Meadows Institute, a think tank and policy institute focused on strengthening the role of business leadership in creating a sustainable society, joined as a strategic partner, bringing key investors into the conversation.

Last month, I introduced the 12 highest priority ESG topics jointly identified by the biopharma and investor participants. Now let’s look at how the guidance is structured, and how it’s being used to improve biopharma-investor communications.

What makes the guidance different from prior efforts? Focus on the biopharma sector, a collaborative development process that included both companies and investors, emphasis on best practices rather than normative demands, and building on the foundation of prior work by SASB (the Sustainability Accounting Standards Board) and TCFD (the Task Force on Climate-related Financial Disclosures). The result is a shared model that helps biopharma companies tell their own sustainability stories in a way that connects ESG performance to long-term strategy and value-creation while improving comparability across the sector.

The guidance structures ESG disclosures around five core elements, using a two-tiered approach. The elements include Governance, Strategy and Objectives, Risks, Opportunities, and Metrics and Performance. The first tier discusses how sustainability is managed strategically at the corporate level, while the second takes the discussion to a deeper level, addressing the same core elements in relation to each high-priority topic. This reflects the fact that both strategy and robust topical information are important to investors.

Biopharma companies have started using the guidance as a tool for engaging sustainability and investor relations functions in reviewing their existing ESG communications for completeness and focus, ensuring that the information investors need is easily available. Some companies have already found the guidance helpful in coordinating their COVID-19-related communications. 

Investors are finding the guidance to be a valuable for structuring stewardship engagements with portfolio companies, especially companies only starting to define a sustainability strategy. For larger organizations, it’s critical that investors see that sustainability is part of a coherent strategic framework with Board-level oversight, not buried in functional silos.

It’s on all of us not only to step up our efforts to address social challenges in medicine and healthcare, but also to communicate our efforts and outcomes more effectively to investors and society. 

Sandor Schoichet, Director, Meridian Management Consultants, and Co-Founder of the Biopharma Sustainability Roundtable. He can be reached at sschoichet@meridianmc.com