As momentum continues to build in the health and science industry on ESG investing, public relations professionals must consider ESG as they build their strategic communications plans. Developing a strategy around ESG includes strong environmental initiatives as well as C-suite executives who are committed to building diversity and inclusion as part of their corporate culture.
The Environmental factors in ESG include metrics relating to a company’s sustainability, such as energy efficiency, carbon greenhouse gas emissions and water usage. Social factors measure the company’s supply chain monitoring, observation of human rights, and workplace health and safety. Governance factors measure how well the company’s corporate activities, management, and board are regulated, including metrics such as executive compensation, (minority) shareholder rights, board diversity, accounting, and compliance. ESG investing was developed as an expansion of Socially Responsible Investing, the first type of investing to consider non-financial social and environmental factors alongside a financial return. Unlike SRI, which is based on ethical and moral criteria and uses mostly negative screens, such as not investing in alcohol, tobacco or firearms, ESG investing is based on the assumption that ESG factors have financial relevance.
|This article is featured in O'Dwyer's Oct. '21 Healthcare & Medical PR Magazine
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These three factors are considered when measuring the sustainability and ethical impact of an investment in a company. ESG funds are an enormous factor in the investor marketplace. Even during the worst of the pandemic, when other traditional investments have lagged, ESG investments have grown and now account for more than 30 percent of total U.S. assets under management. Last year, investors poured a record amount of money into funds that aim to help the environment and promote social good—more than double the previous year. And according to Morningstar’s Sustainable Funds U.S. Landscape Report, that’s the fifth consecutive record yearly amount. This represents a huge opportunity for health and science companies to position themselves to attract this burgeoning group of investors.
In his 2018 Annual Letter to CEOs, Blackrock’s CEO Larry Fink wrote “a company’s ability to manage environmental, social and governance matters demonstrate the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process.”
In his 2021 letter to CEOs, Fink was even more adamant in his views: “We believe that when a company is not effectively addressing a material issue, its directors should be held accountable. Last year, BlackRock voted against or withheld votes from 4,800 directors at 2,700 different companies. Where we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues, we will hold board members accountable.”
With the Biden Administration’s focus on the environment, growth in ESG investing is likely to continue. Health and science companies, particularly those larger small-cap and mid-cap firms, can no longer ignore the huge pool of funds that these investors represent, as attention to ESG issues is becoming critical to long-term competitive success. Furthermore, institutional investors are making it clear that they expect the companies they invest in to take a proactive approach to ESG policies and messaging. While you might think this role should fall to the investor relations professional, developing the messaging is a clear responsibility of the public relations professional.
As PR professionals developing strategic communications plans, we think about where the company is today and where we’re heading in the future or who we want to become. Developing an ESG strategy is a long-term mission with specific attainable goals along the way that must be part of the strategic communications plan. ESG contributes to a company’s reputation with many investors incorporating ESG into their financial decision making. PR professionals need to consider all the socially responsible things that companies are doing and use them as an opportunity to increase awareness. As we prioritize our stakeholders, we need to incorporate not only investors but, more specifically, ESG investors.
In June, the Securities and Exchange Commission released its spring 2021 rule-making list, which was full of proposed ESG regulations. The main areas of interest included climate change, which could be proposed as early as October or November. Other areas of focus included board diversity and human capital disclosures. NASDAQ’s new rule released in August requiring listed companies to have at least two diverse directors or explain why they don’t have them is another example of the heightened awareness around ESG.
Few industries have received more scrutiny over the past year than biopharma. And biopharma, by virtue of its nature—that of improving human health—has a very strong intrinsic ESG focus and appeal. However, it has unique characteristics to address from an ESG standpoint. Probably the most significant are the challenges faced by the fact that research and development is the main source of value creation for the industry—where it may take between 10 and 15 years of effort to progress from a scientific concept to an FDA-approved product. This places particular emphasis on human capital management issues (attracting and retaining talent, workplace diversity and inclusion, etc.). The Biopharma Investor ESG Communications Guidance, an important document developed by the Biopharma Sustainability Roundtable—the result of some two-years of interviews with industry executives and investors on ESG—gives a high-level roadmap that identifies ESG topics of unique priority for the industry. These include: access to healthcare and medicine pricing, business ethics, integrity and compliance, clinical trial practices, innovation in therapeutics, diagnostics, business models, pharmaceuticals in the environment and anti-microbial resistance, product quality and patient safety, risk and crisis management and supply chain management, among others. While ESG issues can vary dramatically by industry sector, looking at the biopharma example helps set the stage for thinking about integrated high-priority ESG topics with your overall strategic communications strategy.
So, where do we start? The first step is to do an initial ESG analysis by identifying priority focus areas and gaps with review of current ESG practices, peer practices, ESG rating agencies reports, and ESG reporting and communications frameworks. Next is to research stakeholder perceptions of ESG practices and the material issues that matter most through a series of internal and external interviews and surveys. From there, you’re ready to develop your ESG messaging. Think about where your risk management and ESG priorities overlap with your vision, mission and purpose. Then integrate ESG messaging into all relevant communication channels. Also consider adding a customized sustainability website section or entire microsite, as well as bespoke videos for company management that set the tone and humanize your ESG mission.
In looking at the overall growth ESG investing, 2021 could round out as a watershed year for companies in the health and science industry to begin to embrace these principals and incorporate ESG into their strategic communications plans.
Lisa DeScenza is Vice President of Integrated Communications and Head of BD and Marketing at LaVoieHealthScience.