Life sciences companies are increasingly recognizing that their ESG programs are critical to the compliance success of their business operations. The steps they take to manage risk and support sustainable ESG can be a major value add.
In the U.S., investors are increasingly scrutinizing a range of ESG topics of particular importance to life sciences companies, such as access to healthcare, drug pricing, diversity and inclusion in clinical trials, and the environmental impact of the manufacturing of drugs and their packaging, as well as unused drugs wastage. Investors increasingly are probing questions about a company’s overall access strategy, pricing methodology, and approach to underserved patient populations. Investors are asking about the representation of diverse populations in clinical trials and whether companies have initiatives to recruit more diverse clinical trial participants. Coming into 2023, several drug companies have announced major initiatives to reduce the environmental burden of their pharmaceutical packaging, and we expect to see more and more companies collaborating with supply chain partners and one another to meet their goals to reduce environmental impact. Manufacturers of physician-administered biologics will also be weighing their environmental goals particularly in light of a new U.S. drug pricing law that demands refunds from manufacturers when there is discarded medicine remaining in the vial following physician administration.
A new rule proposed by the SEC — one that could be finalized as early as the beginning of 2023 — would require public companies to disclose a number of climate-related factors. This could mean that public life sciences companies could soon be required to make disclosures around material risks related to climate change, such as (i) the physical risks to facilities, pharmaceutical supply chains, and operations due to extreme weather, (ii) sector-specific climate risks based on shifts in disease patterns or other health crises, and (iii) environmental impacts of drugs including the use of natural resources in production, potential for antimicrobial resistance if material to operations, and associated pricing effects.
A separate proposed new SEC rule could mean that investment advisers and investment companies would need to factor ESG into investment decisions, which could impact life sciences companies that are being considered for investment. The SEC’s rulemaking activity in relation to ESG is expected to continue in 2023, with human capital management disclosures and corporate board diversity currently on the table. Additionally, during the coming year SEC scrutiny of ESG disclosures is expected to continue to ramp up, and we are likely to see a greater risk of litigation stemming from ESG-related issues.
In the EU, we are seeing more and more life sciences companies adopt broad ESG programs. This trend is likely to accelerate, when ESG regulations are enacted in Europe under the EU Green Deal. Life sciences companies also will be contending with two EU directives, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDD). The CSRD will require large EU companies — as well as non-EU companies meeting certain thresholds — to comply with detailed sustainability reporting obligations. The CSDD will require both EU and non-EU companies to meet specific thresholds, in order to mitigate and account for adverse human rights and environmental effects.
Sonia Barros and Lara Mehraban talk us through a rapidly evolving landscape in which the SEC has begun to actively wield its rulemaking, interpretive, and enforcement capabilities in the area of ESG disclosure.