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Why does ESG matter in Genomics?

We all like to play our part in helping the environment. Whether this be donating a couple of pounds to an animal charity once a month, or separating our plastics from our cardboard in the recycling bin. But in the 21st century, is this really enough? World leaders are now starting to recognise that to change the course of climate change and halt global poverty, a monumental shift is needed.

Environmental, social and corporate governance, otherwise known as ESG, is the latest set of guidelines encouraging industries to follow sustainability practices. ESG comprises of factors that cover a wide spectrum of issues that are traditionally not part of financial analysis, but may have financial relevance. This may include how companies respond to climate change or how they treat their workers.

One may think ESG is just another ‘tree-hugging’ movement disguised in fancy language. Or that ESG is just a fad that will most likely be replaced by another green initiative in a few years to come. But evidence is suggesting that this is not the case. In the near future, it is thought that environmental, social and governance issues will be engrained in investor’s minds and sustainable businesses will flood markets. And to avoid being left behind, genomics companies will need to shape up and start taking ESG seriously.

Why does ESG matter?

The term ESG was first coined in 2005 in a landmark study named “Who Cares Wins” written by Ivo Knoepfel. The report made the case that embedding environmental, social and governance factors in capital markets makes good business sense and leads to better outcomes for societies. Meanwhile, UNEP/FI also produced the “Freshfield Report”, which showed that ESG issues are relevant for financial valuation. Together, these two reports formed the backbone responsible investing and sustainable stock exchange initiatives.

Today, ESG investing is based on the assumption that ESG factors, seen in Figure 1, have financial relevance.

Figure 1: An illustration of the typical types of information that may be used to assess an ESG criteria. For example, if a company’s social contribution was being measured, human rights and child labour might be taken into account. Likewise, compliance and shareholder democracy may be considered if an organisation’s governance was being analysed. Image credit: anevis

So, why should organisations bother with ESG? In recent years, investors have shown significant interest in putting their money where their values are. Notably, this is particularly true for younger investors, indicating that this surge in sustainable investments is going to stick around.

At the beginning of the COVID-19 pandemic, it was anticipated that interest in investments with a sustainability focus would decrease. In fact, it was predicted that investors would switch into ‘survival mode’ and ignore ESG factors completely in order to protect their portfolios. However, the opposite happened. Funds that used ESG principles captured over $51 billion of net new money from investors in 2020 – the fifth consecutive annual record. The COVID-19 crisis actually seemed to renew humanity’s focus on climate change and has since acted as a wake-up call for decision makers to prioritise a more sustainable approach to investment.

Jean-Xavier Hecker and Hugo Dubourg, Co-Heads of ESG and Sustainability at JP Morgan, explained: “Over the long run, COVID-19 could prove to be a major turning point for ESG investing, or strategies that consider a company’s environmental, social and governance performance alongside traditional financial metrics.”

Companies have focussed on improving their sustainability initiatives, and the world’s population has started to think more mindfully about how to protect the planet that we all share and depend on. Essentially, businesses are starting to recognise that in order to survive this transition towards a greener way of life, they will need to adopt the same mentality as their consumers.

ESG has received rising attention from investors, employees and other stakeholders, and this trend is set to continue. ESG assets are expected to hit $53 trillion by 2025, which will represent more than a third of money managed by individuals or firms globally. But one sector that seems to lag miserably behind is genomics, the study of an organism’s complete set of DNA.

Genomics is battling with ESG

Genomics is receiving increasing attention and investment. Advances in next-generation sequencing (NGS) have allowed scientists to trace and monitor the COVID-19 pandemic faster than any other previous outbreak. After SARS-CoV-2 was identified in China in 2020, the virus’s genome was published online within days. Just months later, the crucial role that genomics can play in pathogen outbreak surveillance became clear and suddenly this field of science was being used to inform policy decisions in the public eye for the first time. The subsequent development of vaccines, diagnostics and therapies to combat COVID-19 could not have done so without these critical sequencing tools. Ultimately, genomics has demonstrated its usefulness on the biggest possible stage.

Therefore, it is somewhat surprising that when searching online for ‘ESG in Genomics’, very little information can be found. The global genomics market size was valued at $20.1 billion in 2020 and is predicted to expand by at least 15% per year until 2028. So, why is this rapidly growing industry not following the trend of sustainability values? Well, in actual fact, many genomics companies are following some ESG principles without even realising.

Which genomics companies are taking ESG seriously?

Take Illumina, for example. The company is the ultimate ‘genomics power-house’ as most research is now done using their sequencing technology. They own around an 80% share of the DNA sequencing market globally and control at least 90% of the UK sector. Illumina is now worth over $62 billion and shows no signs of slowing its expansion. In this past year alone, the organisation acquired GRAIL, Enancio and Bluebee. In terms of Illumina’s sustainability values, the company discloses its work to empower communities and to minimise its environmental footprint annually in Corporate Social Responsibility Reports. Some notable achievements in the last year was the debut of the $600 genome and the donation of $1.4 million worth of sequencing systems for the African member states. Additionally, the company donated over $13 million to support the rapid COVID-19 response, rare disease non-profit organisations and STEM education projects.

BGI, the world’s largest genomics organisation, has used its technology to reduce health-related rural poverty in China. For example, they set up quick check mobile workstations in Tibet to detect echinococcosis disease at early stages through a blood test. China suffers from the highest prevalence of alveolar echinococcosis in the world. For those infected, there is a 70% mortality rate after 5 years, which increases to 94% after 10 years. By 2019, BGI had screened over 850,000 people for echinococcosis, in turn mitigating the physical and economic impacts of the deadly disease.

Aside from helping to fight against infectious diseases, genomics is also transforming cancer care. NGS technologies are now commonly being used to map out the landscape of the cancer genome, helping scientists to discover new mutations linked to the disease. Moreover, cancer genomics is contributing to precision medicine by defining cancer subtypes based on their genetics, in turn enabling clinicians to make more precise diagnoses and prescribe individualised treatment strategies. Genomic Health, now merged with Exact Sciences Corporation, is an example of a company that has improved the lives of thousands of cancer patients. It has helped more than 1 million people avoid over- or under-treatment for their tumours and instead has directed individuals to more effective therapies through genetic profiling.

But despite all the incredible research aimed at preserving human life, the genomics sector is lacking on other sustainability criteria. Environmental and governance issues seem to have been pushed aside by many companies, and robust reporting on ESG practices is virtually non-existent. It’s as if the genomics companies feel as though they don’t need these additional policies, because their tech already does so much good. But it could be argued that if genomics is to reach its true potential, organisations need to pull their weight and start taking ESG seriously. The genomics industry must be prepared for the new ‘greener’ expectations of investors and disclose their ESG ventures transparently if they are to continue to succeed in the aftermath of the pandemic.

Why does biopharma struggle with ESG?

The biopharma industry was also at the forefront of the fight against the virus. Unsurprisingly, this encouraged the public to perceive this often-demonised industry in a different, more heroic, light. Nearly two thirds of Americans now view pharmaceutical companies positively – which has almost doubled the pre-pandemic rate. But, similar to the genomics sector, it is largely unknown whether biopharma companies will do enough in terms of ESG to hold investors’ attention and the publics’ optimistic opinions.

Nevertheless, recently the biopharma industry has seen a slow shift towards more sustainable practices and most large organisations are now beginning to strengthen their ESG practices. Where resources allow, biopharma companies are starting to consider their effect on the community and reform their environmental tracks. Businesses in the genomics sector should use this and seek to follow a similar transition towards a better future for both themselves, and the planet.

But this is not to say that biopharma doesn’t still face challenges in terms of implementing ESG practices. In fact, biopharma seriously lags behind other industries when it comes to sustainability. And there are several possible reasons for this.

Generally, the environment, especially climate change, is the biggest focus for investors. Although these are highly relevant to oil and gas companies, for example, the biopharma industry typically faces different major obstacles. So, like the genomics sector, the core values of biopharma companies tend to be centred around patient access to medicines, innovation levels and employee diversity. In fact, drug pricing is often the overwhelming concern relating to biopharma’s positive impact on the world. This means that even if organisations report their ESG practices, the criteria may not match investors’ requirements anyway.

Additionally, when ESG ratings include risk management assessments, biopharma companies usually perform worse relative to other types of businesses. This is because there is a natural trade-off between benefit and risk in pharmaceutical use, alongside the fact that the industry is one of the most tightly regulated in the world.

Examples of ESG in biopharma

Still, these barriers have not discouraged many biopharma organisations from trying to accelerate their positive ESG path. For example, Biogen, a biotechnology company that specialises in treating neurological diseases, releases a Corporate Responsibility Report each year that includes its ESG strategy. The 2020 report included a number of impressive disclosures, such as the achievement of 99% zero waste to landfill and 11% reduced absolute emissions. The goal to exceed industry diversity benchmarks in clinical trials was also highlighted, in an effort to help improve health outcomes for underrepresented patient communities. Moreover, as of the beginning of 2021, 48% of Biogen’s director-level positions and above across the world were held by women.

Novartis, the global healthcare company, also disclose their sustainability practices annually. The Novartis in Society ESG Report 2020 detailed the organisation’s commitment to their ESG goals, notably the 19% reduction in greenhouse gas emissions since 2016 and their products reaching over 66 million patients. Similarly, Amgen’s ESG 2020 Report detailed the company’s commitment to global health, including providing $1.5 billion worth of medicines at no cost to low-income patients in the US and pledging to being carbon neutral by 2027.

Size matters when it comes to ESG

Unfortunately, not all biopharma companies have the means to excel in ESG practices. Typically, reporting on sustainability is skewed towards larger organisations due to their higher public profiles and increased levels of revenue. Big biopharma organisations have the use of their extensive resources and capital to create teams responsible for assessing and improving ESG practices. And, understandably, it’s nearly impossible for smaller or start-up businesses to keep up. Perhaps this is why genomics companies are struggling to implement and disclose on robust ESG goals – they are simply not large enough.

So, what are the larger biopharma companies doing? The Biopharma Sustainability Roundtable is a sector-specific platform, designed to connect and support senior biotech and pharma executives in driving their sustainability agendas forward. Their programme of events and initiatives aims to address a wide range of ESG topics, explore sustainability challenges and share best practices to help peers learn from one another. Recently, the Chief Executives for Corporate Purpose (CECP) joined forces with the Biopharma Sustainability Roundtable to create the Biopharma CEO Investor Forum. The collaboration hosted its first sector-specific CEO-Investor Forum in June 2021, in the hope to support biopharma companies actively working on enhancing their sustainability efforts and long-term value creation.

Additionally, a group of organisations have banded together to form the Biopharma Investor ESG Communications Initiative, as part of the Biopharma Sustainability Roundtable. The consortium developed the ‘Biopharma Investor ESG Communications Guidance 2.0’, which was collaboratively developed by companies such as GlaxoSmithKline, Johnson&Johnson, Pfizer and Roche. It predominantly includes advice about ESG topics that should be prioritised by the industry, for example, access to healthcare, patient safety, environmental impact and supply chain management. Since its publication, the guidance has been used by both biopharma companies and investors as a tool to structure and improve ESG strategies, and to offer comparable perspectives from across the industry.

But what about the mid-size and small biopharma companies? These businesses, which don’t usually have commercial products on the market, tend to have weaker ESG initiatives. Many will recognise the emerging environmental and societal trends by providing information about sustainability initiatives on their websites, but this is usually in a rather generic way using aspirational language. This is not only a result of their fewer resources, but also because they tend to be under less external pressures from investors regarding ESG.

Moreover, in biopharma, once smaller companies have proved their worth, they are often purchased by organisations that dominate the market. Therefore, it’s understandable why biopharma start-ups tend not to waste time nor money on ESG practices, which could be otherwise spent on accelerating their production. But as investors are becoming increasingly concerned with companies’ commitments to ESG ventures, smaller businesses, including those in the genomics sector, are going to have to shape up.

Tips for starting an ESG journey in genomics

ESG demands are almost certainly going to remain a hot topic for the foreseeable future. Therefore, it makes sense for smaller genomics businesses to start to find ways of incorporating low-risk and simple initiatives. So, what can they do? Two things.

Firstly, defining ESG goals is crucial. Small firms should start by exploring what ESG topics their peers and competitors typically focus on. Investors, executives and third-party advisors should be consulted along the way, to make sure that the potential ESG topics are fundamentally linked to the company’s core long-term values. It’s also important to have active discussions with employees about the strategic importance of ESG practices so that they are on the same page throughout the transition.

Next, reporting on these ESG practices is key. It’s great to start these sustainability initiatives, but genomics companies then need to shout about their progress towards ESG goals. This will help to encourage peers to get involved and, subsequently, create a movement within the industry. These documents should be highly informative, yet also reflect the business’s personality and core values. Complete transparency and proper disclosure are highly important. Evidence of internal and external stakeholder engagement is useful for demonstrating that all those involved are on board with the sustainable transformation. Moreover, setting realistic goals for the future demonstrates that the company has a long-term plan for making the planet a better place. Reading existing ESG reports on the market will give an idea about what should be included.

Currently, there is no standardised ESG disclosure framework. This can make it difficult for small companies to follow best practises for effectively reporting their sustainability initiatives. Nevertheless, ensuring that the language used when reporting ESG is similar to that of peers in the industry will help to iron out any major anomalies and naturally start to create a typical framework. If possible, businesses should consult legal counsel early in the transitional process to make sure that their ESG disclosures are validated. This will mean that genomics companies will be in a better position to create and implement meaningful ESG programs, helping them to achieve sustainable growth in the future.

There is hope for genomics ESG practices

Overall, shifting the ESG image in genomics will require a global effort from all the necessary stakeholders, and it certainly won’t be a ‘quick fix’. But, if the sector is to avoid being left behind, in terms of reaching sustainable goals and missing out on being rewarded financially, ESG reporting and prioritising sustainability practises will need to be taken seriously.

Image credit: Wiseradvisor


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