Biotech Industry at Inflection Point with ESG Initiatives
Corporate social responsibility is not a new concept, but in recent years there has been an increased focus by investors and other stakeholders regarding how companies are addressing their environmental, social and governance (ESG) risks and opportunities.
The companies in the biotechnology industry and their investors must determine which ESG matters are most important to measure, report and manage. U.S. biotech investors and executives believe that regulators will likely begin requiring companies to disclose certain ESG information—including specific metrics—and most say this is a move in the right direction.
But when it comes to implementing, tracking and reporting ESG initiatives, much of the real work still lies ahead, Fenwick’s new report on ESG trends among publicly held biotech companies, including a review of 50 precommercial public companies and a survey of 100 biotech industry thought leaders, found:
The surveyed biotech company executives currently implementing and reporting on ESG initiatives are doing so without standardized ESG metrics, and are discussing various topics and employing various formats. Our report’s findings make it clear that the industry is at an inflection point when it comes to ESG initiatives and reporting.
Varying ESG Practices: A Look at the Numbers
While nearly 75% of biotech executives expect to increase their company’s ESG disclosures during the coming year, Fenwick’s review of public disclosures, including SEC filings, of 50 publicly traded biotech companies with market capitalizations between $1.3 billion and $4.6 billion found that 70% failed to discuss their ESG activities. Those biotech companies reporting on ESG activities chose to do so primarily in proxy statements and standalone sustainability reports and on corporate websites.
And while ESG reporting is being handled in various ways, a majority of executives and investors agreed that they would prefer to share ESG disclosures in standalone reports rather than in filings with the SEC.
Varying levels of progress can also be seen among the 42% of biotech executives surveyed whose companies have implemented ESG initiatives, even if they have not yet begun reporting on them. Activities spanned a number of areas, including performing materiality assessments and creating internal management working groups to oversee ESG. In a sign that many companies are still early in the ESG implementation phase, no single activity was dominant.
While 41% of executives said collecting and tracking ESG-related data would be among their top corporate social responsibility priorities throughout the next 12 months, only 36% of the companies are currently collecting this information.
Assessing ESG risks and opportunities is a step that 42% of executives surveyed have already taken, and one that 35% intend to start in 2022. A smaller amount have already engaged with investors and other stakeholders, but more intend to do so in 2022. Additionally, updating corporate charters and regularly reporting to boards of directors on ESG issues are other steps that have already been taken by some companies and remain to be taken for others.
The survey also found that biotech companies that have been publicly traded for years do more ESG implementation and reporting compared to newly-public counterparts. With this in mind, the spate of recent IPOs would suggest more initiatives and reporting will be seen in the near future, and we intend to continue to monitor trends.
A Call For ESG Standardization
It’s clear that U.S. biotech investors and executives alike want clarity from regulators on which ESG metrics to track and how to report them.
Investors—who have been under pressure to add ESG-focused companies to their portfolios—were more likely to believe that government mandates are coming, and said these would be welcome because they would make it easier to benchmark ESG initiatives and track their success year-by-year.
Executives expressed that standardization of reporting metrics and formats, additional internal resources to assist in reporting and tracking and external guidance from experts were on their “wish list” to facilitate their ESG reporting.
To guide their reporting, some companies are using existing third-party standards and frameworks, including those created by the Global Reporting Initiative and the Sustainability Accounting Standards Board and the United Nations Sustainable Development Goals. But because of the differing requirements and intended audiences for these various frameworks and standards, the comparability of data can be difficult to assess.
Progress is being made on the ESG front in biotech, and the industry is poised to do more. It will be interesting to see what effect disclosure mandates and more clarity on ESG metrics will have. Based on the responses received in our new report, regulatory guidance and increased standardization of disclosure could open up the floodgates.
For biotech company executives seeking guidance on where, when and how to disclose ESG initiatives, we welcome the opportunity to share our insights and guidance with you and answer any questions you may have.