ESG - Environmental and Social and Governance – Why it matters to every business.

ESG is not a new topic, however, it is swiftly rising to the top of every business’ agenda for consideration. It has become an imperative for many reasons, some obvious as we all take increased responsibility for the impact our consumerism has on the planet and society and some less considered including resource and raw materials shortages. 76% of CEOs believe they will be facing resource shortages core to maintaining smooth operation of their businesses within the next five years.

Investors and consumers are also exerting pressure and voting with their cash. Recent research has demonstrated that over 75% of consumers would rather buy products and services from businesses that have a conscientious approach to environmental and social purpose. So, taking all of this into account it makes sense that businesses must adopt a proactive approach to their environmental and social governance if their businesses are to be sustainable in their own right.

In the context of the pharmaceutical industry, so many of the currently used and yet to be discovered compounds originate from some of the world’s most threatened habitats so it is imperative that the industry considers its broader ESG strategies to protect this rich source for the future. To quantify the size of the issue it is estimated that 50% of rainforest flora and fauna will be extinct by 2100 and yet only 1% of species have, to date, been analysed for their medicinal properties. It is estimated that rainforest plants are currently becoming extinct at the rate of 140 species per day. It is ironic that the said same deforestation is also leading to dramatic changes in disease dynamics as vectors for transmission alter and bring populations into contact with previously unknown zoonotic pathogens. And yet it is these same forests that might be one of the few, if not the only source of compounds able to combat these diseases.

So how do you begin to start devising and implementing a robust ESG strategy designed to effect tangible organisational change and positive impact? The first key stage is a measurement of performance of the supply chain against science-based targets. By identifying areas for improvement in the supply chain most organisations are able to unlock huge improvements in their own environmental and social impact.

Damien Smith, CEO of Ecodesk provides some insight based upon Ecodesk’s 10 years of experience in supporting global organisations to develop and deploy impactful ESG strategies for the pharmaceutical sector. Here are some of the imperatives Damien and his team have identified, specifically working with PSCI (Pharmaceutical Supply Chain Initiative).

Ambition is not enough. Before starting to consider what ESG data to collect we always recommend a thorough sense check and often have to remind businesses to look back as well as forward as there are sometimes strategies - and even data - that can shape a project.

Reflect your own maturity in a data collection programme. All businesses are at different maturity levels so be honest about where you are and realistic in your goals.

Engage upwards. Surprising amounts of support radiate from senior management and boards when asked about supply chain sustainability. As many pharma companies are consumer-facing or own brands that are – we see much higher engagement from suppliers who understand their role in storytelling and underpinning board-level commitments.

Set goals. No data collection programme is worthy of the effort unless it is providing raw data that feeds into a goal. Amongst the PSCI members, we have worked for since 2015 all have either science-based targets (SBTs) or stakeholder-led targets. Without this, it is very clear that data collection loses much of its efficacy and impact.

Remember that good raw data will furnish you with even better information and that data alone will not tell the whole story. We always recommend coupling quantitative and qualitative datasets if stakeholder reporting is what you need. On average, our pharma surveys exhibit a 30:70 ratio in year one, reducing to around 40;60 by year three. This is in line with growing supplier maturity and enables clients to adjust their strategies for reporting and risk management accordingly.

Phased data collection has proven to be a much smarter approach where we assess supplier maturity, build confidence and dive deeper into more granular metrics. Generally, it takes 2-3 cycles of data collection to develop truly robust datasets. This approach is preferred by most of our pharma clients rather than trying to limit what you ask your suppliers or reducing the number of suppliers you seek to pull data from.

Adjust, adjust, adjust! It’s absolutely right to follow a PDCA type cycle and reconfigure who you ask for data from. However, we do strongly advise sticking to metrics where possible to give continuity to analytical outputs. One of the biggest challenges for the PSCI has been adopting a standard assessment and we’ve developed a flexible model allowing for shared data inputs on 19 industry-wide metrics which are then augmented with customer-specific questions – one of the key capabilities of the Ecodesk Horizon product.

Outsourcing managed services is a key win for our clients. We know our system and the pressures that suppliers are under so we advise to not use software in isolation. This gives suppliers added assurance that professional help is always available. Topic areas such as commodity sourcing for packaging, API management and labour rights feature regularly so we know that supplier confidence and assurance has to be founded on relevant content and knowledge of their issues. Working with our pharma sector clients we are better placed to guide suppliers on the issues relating to their area of supply.

Launching an SAQ (self-assessment questionnaire) has to consider both its timing and duration. The duration should try to reflect the known or perceived maturity of the suppliers so that you leave sufficient time to provide iterative responses and for the supplier to be confident in their answers. We typically issue pharma sector surveys during April-July, giving suppliers a consolidated response period so that data is more accurate and response times remain as short as possible.

Approving responses brings assurance within your control. Many SAQ responses are assured by third party providers but the real trick is to manage your questions carefully. Generally, “policy or practice” type questions can’t be approved in software!

Keeping it simple paves the way for better responses and greater accuracy. Our pharma sector experience shows that surveys that exceed 30 questions see a significant tail-off in terms of data accuracy and response rates.

Learn from your respondents. Too often we see reluctance on behalf of our clients to learn from what their suppliers are saying about the data being requested and, most importantly, how it relates to their business. One of the key tips is to configure your SAQs on a sectoral basis so that you reflect the specific ESG factors in that sector.

So, in summary, it is clear that developing and deploying an ESG strategy in any organisation should be considered as an evolving journey and flexibility in approach is key if impactful change is going to be delivered quickly.

Some of the alarming statistics outlined earlier in this article demonstrate, however, that speed to implement an ESG strategy is key. The deleterious effect of industry on the environment is not slowing down so every business leader has the responsibility to effect change now and an effective ESG strategy begins with knowing where the largest benefits can be delivered. This will provide a foundation for sustainable growth.