CPHI North America: Investors and Pharma Expect Manufacturers to Build ESG Into Operations

Ahead of chairing a keynote panel at CPHI North America, Bob Girton, Partner, Edgewater Capital, spoke to Pharmaceutical Technology about how pharma manufacturers should approach building Environmental, Social, and Governance (ESG) within their business operations rather than having it run as a parallel program. Girton will be moderating a panel discussion "Best Practices in Implementing a Successful ESG Framework" on the first day of the conference.

PharmTech: Can you give an overview of the current status and activities of ESG practices in the pharma industry?

Bob Girton: Pharmaceutical companies have long been active in ESG practices. As with the broader efforts around corporate responsibility, those efforts have accelerated in recent years, especially at large multinationals. Most large pharma organizations have set and communicated clear, specific targets, often targeting their greenhouse gas emissions through zero carbon emissions as well as reductions in both input and waste streams. New regulation in both the EU and the US will bring this individualized patchwork closer to a unified effort by setting more consistent requirements and alignment around transparency and reporting.

Further, these requirements have in recent years been filtering down into small and medium organizations either directly, in order to meet the expectations of their respective stakeholders, or indirectly through the scope two and scope three requirements of the multinational enterprise (MNE). Notably, the direct impact represents the broadest population of companies, and often, these organisations are the most resource constrained and inexperienced in addressing these requirements. That said, to be competitive in the marketplace, this is no longer optional.

In addition to environmental and climate concerns, pharmaceutical companies are working to address social concerns, which focus on equitable access to healthcare. One way this is being put into action is the distribution and pricing of pharmaceuticals and increased diversity and transparency within clinical trials.

PT: What are some common pitfalls? How should pharma manufacturers incorporate those needs?

Girton: There's a lack of clarity on what we really mean by ESG, so breaking down the phrase into a series of actions would be one. Then with the large multinationals, another challenge is that they are applying expectations right down into their vendor network—which might be undeliverable in the way they envisage it, especially without the larger company’s support, guidance, and engagement. So, the main risk is that it can often become little more than a check box exercise. What you don’t want is ESG operating as an island separate unto itself, something that is not embedded in the business.

And this is where we get to the crux of the matter—how and why do you create the business case for ESG? You need to create something or an initiative that is also impactful on the business. To give you a specific example, a company of ours is using green chemistry. They are not undertaking this because its "green" but because the chemistry is better. It's a better solution. And so the business case is embedded inside of what you're actually innovating to the core.

My advice to manufacturers is to stop and review: ask if we go down a climate focused or carbon credit or a diversity, equity and inclusion (DEI) program at our firm, why are we doing it? How is this going to impact how we operate, what decisions we make, what priorities we set, how will it actually make the organization better? And not just going through the motions because a large multinational customer required it; that said, MNEs are requiring it.

The organizations Edgewater works with are typically 20 people to 300. This means for ESG, as in many aspects of our businesses, we are resource constrained, so whatever we identify as ESG initiatives, must also be impactful to the organization.

PT: Does venture capital or private equity money going into CDMOs look for this infrastructure to be in place before investing?

BG: Yes they do, and they want to know that at least the framework of ESG is starting. That's a positive for us. Our investors expect that of us, and I think it speaks of the maturity and awareness of the leadership. In the same way we’d also be looking at tracking their safety statistics. Ideally, we want them to be laying out the plan for the next five years and how they will actually put those checklists, into action.

As an example, at Edgewater we have a shared DEI program that sits across our organizations. Each business has selected a DEI advocate that sits on the council and shares ideas and accountability across our business. As there is no one size fits all, we have established a list of actions and best practices. Beyond helping identify what’s possible, it also helps to establish a shared language. From this "menu”, our DEI council has selected a small number of “must dos”. These are the critical few and serve as a point of anchor or foundation. Beyond the “must dos” the organization may select a series of “may dos”. Taken together, the “must dos” and “may dos” must be linked into what we’re building at each of our organizations. It has to be in our strategy plan, our budget, key performance indicators, and management by objectives for the year, along with clear actions we will take to achieve them.

What also helps with deciding when and what to implement is knowing your customers, knowing your market, being out there, asking the questions, and continuing to revisit the untested. And you may choose not to implement right away, but you're aware that at some point, when I need it, I'll know when to make a trigger point or when to make the decision. And it's going to be around the needs of your customers, as buying some of pilot pieces of equipment for say, continuous manufacturing / flowchemistry—they are not that expensive. Getting the capability and then starting to play with it or maybe partnering with an academic lab. There are a lot of ways to sort of test and feel without actually going the next step. So, I think it's more just a case of being aware of what's going on in your market, rather than saying, I'm just going to ignore it and not implement in methods that are more ESG compliant. The cost of access is so inexpensive now that it's more of a time resource and efficacy than it is dollar concern.

PT: What will ESG in pharma look like in five years?

BG: In one line—it will be so much a part of the whole system that we won’t be hosting panel discussions on how it’s supposed to be built and implemented. I strongly believe that if companies adopt measure to be more environmentally and socially responsible, in a way that also impacts its business and operations in a positive manner, others will follow. It will not only be the right thing to do but will also make a lot of sense. Climate change is real and needs immediate attention. Pharma industry, being a major carbon producer, has a huge responsibility to take swift actions that are effective and sustainable in the long run and ESG compliance is the step in the right direction. Additionally, your employees, especially younger generations, expect our organizations to be diverse, equitable, and inclusive. We know that diverse and inclusive teams are much more effective.”