Is Pharma in Need of a Sustainability Pill?

Transparency & stakeholder engagement key sustainability ingredients
Is Pharma in Need of a Sustainability Pill?
Publ. date 10 Feb 2015
The pharmaceutical industry did not score well in the latest 2014 Edelman Trust Barometer, obtaining a trust level of only 54 percent. Some might argue this doesn’t come as a surprise, as pharmaceutical companies seem to be stuck in an almost schizophrenic situation of trying to find a balance between healthy profits and serving the community. Nowadays, new open innovation business models are vital to respond to the pressing healthcare needs. This sparks the question: how is pharma building trust with its stakeholders to meet these requirements? Although the perception of highly profitable corporates with shiny reports who see sustainability as a mere PR tool is still alive, the actual sustainability performance in the sector has improved.

Rise of Reports: building stakeholder trust in the age of transparency

The general trust crisis came to a peak in September 2012 when the book “Bad Pharma” was published, claiming the pharmaceutical industry would control academic research for the benefit of its own products. Rebuilding trust with stakeholders has been, and still is, key for the long term license to operate of health care companies. However, this is a immense challenge due to heavy regulation that is restricting many forms of communication with its stakeholders.

Despite these restrictions, pharma is one of the top-scoring industries when it comes to sustainability performance. In the Dow Jones Sustainability Index (DJSI), frontrunners in the Health Care sector show to be strong in reporting on environmental sustainability issues. This is most likely driven by the very clear links between these factors and their business models. The top performing material issues are all strongly linked to the success of the business and include topics such as Access to healthcare and medicine, Innovation, and Product quality and safety. This indicates the integration of sustainability in the core business model. However, more indirect business drivers connected to the capabilities needed to build trust and transparency such as Social reporting, Human capital management, and Stakeholder engagement are lagging behind (see graph 1). In an attempt to increase their reputation, more and more pharma companies are launching sustainability and integrated reports.

Source: RobecoSAM, DJSI results 2014 – Sector compared to the average of Novartis, Bayer, UCB, Merck, Novo Nordisk and Lilly 

An example of a company that has been working on the trust issue is Belgium based Janssen Pharmaceutica EMEA (part of Johnson & Johnson). In 2012 it launched its Stakeholder Report, in an effort to develop trust by reaching out to their stakeholders in a clear and transparent language, and build new collaborations to face the increasing healthcare challenges together. The report discloses concrete facts and figures on the financial, human and environmental efforts the company annually makes when developing medicines, which takes on average 20 years and € 1.250.000.000 of investment to develop one. Janssen Pharmaceutica has clearly understood that stakeholder collaboration with research institutions, academics, or tech companies such as Google and Microsoft towards shared R&D costs and product (use) innovation is the way forward.


The prescription to the health care industry is to open up

So is ‘pharma’, or better yet, ‘health care’ in need of a sustainability pill? The overarching conclusion is that pharma is not in need of a sustainability pill. The sector has the highest score across industries in the RobecoSAM Yearbook 2015 when it comes to reporting on material sustainability issues in the annual report, where it is most visible to investors, and in a way that it demonstrates business and societal impact.

On the other hand, there is clearly room for improvement when it comes to transparency. Constrained by complex regulation, reporting on more than legally needed doesn’t seem to come naturally for the sector. Further improvements can be made by a better application of sustainability standards such as the Global Reporting Initiative (GRI G4), Sustainability Accounting Standards Board (SASB) or the Integrated Reporting Guidelines (IIRC). These standards facilitate companies to gradually increase transparency on key social and environmental issues in a way that the information is useful for a broad range of stakeholders, a precondition to drive health care business model innovation.

For more background on sustainable business, transparency and reporting, please contact Josée van der Hoek, at josee@finchandbeak.com or call +31 6 28 02 18 80.

Image by Flickr, Melanie Tata 

About Josée van der Hoek

Experienced strategic issues management specialist with expertise in strategy development, food waste and DJSI. | josee@finchandbeak.com

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