There are ESG risks and opportunities to take into consideration when assessing healthcare
In the 1940s and 1950s before Sustainability or Environmental, Social and Governance (ESG) had any footing in the business community as ubiquitous terms, healthcare like other businesses had the most basic philosophy of business – to make money.
And for the government it was to provide affordable healthcare to the people. Today, the situation is more complex with the various eco-systems, methodologies, systems, specialisations, specialists and innovations in place.
During the onset of the pandemic, companies worldwide saw the ESG criteria as helping them in their business to be sustainable and more profitable. It is not just being ethical in carrying out the business. Companies will be governed by the three pillars of ESG.
Healthcare companies face challenges ranging from rapid innovations, open talent economy, competition among other healthcare businesses and currently the scourge of the Covid-19 pandemic.
We shall look at the ESG risks and opportunities to take into consideration when assessing healthcare.
Environmental
Healthcare companies tend to have limited impact on environment. There are companies, however, with high chemical activities being cause for concern for leaks that reached the population. This can be in the form of water contamination, biodiversity loss and pharmaceutical residues. Strict regulations must be in place to alleviate the risks and public concerns.
Social
Healthcare products have a certain impact on health and wellbeing of a person. There are issues about safety and side effects of medicines, quality, dubious marketing practices, access to healthcare and affordability. There have been efforts to improve safety in healthcare any kind of harm is minimised. Illegal or improper marketing of their products pose risks to patients’ safety. Litigations in countries vary but US has among the most actions that is taken against offending companies including class action lawsuits.
With regards to affordability, there is a correlation between pricing and any policy announcement. For example, when there is a cap on prescription drug bills for those who suffer from chronic diseases, the biotech stock values drop almost immediately.
What follows is that the price will be passed on to patients. As adapted in marketing, the various pricing strategies like price penetration which involves a product being priced cheaper than in the market, causes price wars.
The main objective of pharmaceutical companies when pricing drugs is to generate optimum revenue. This certainly will be done in the face of competition, which will drive prices lower.
Drug companies, however, have the mechanism whereby they have undertaken pricing low with the capability to increase prices at steady intervals. In major markets, governments regulate drug prices either directly or indirectly.
There are, however, economic studies that show that price controls by cutting the profits of pharmaceutical companies would reduce the number of new drugs being innovated and sold in the market. The ideal and progressive thing to happen is that companies move towards pricing transparency and differentiated pricing strategies.
Access to healthcare has to be seen from a broader spectrum. From the perspective of opportunity when taking into consideration access to markets and developing market share uninterrupted access, to medicine can be the efficacious way to create potential growth in emerging markets.
In years ahead, growth of healthcare companies would be from developing markets and an eco-system with great access to medicine. Innovation is paramount to the performance of healthcare companies despite the proliferation of Artificial Intelligence.
The human capital factor will feature prominently. Innovation and knowledge are invaluable ‘assets’ when it comes to mergers and acquisitions (M&A) and restructuring of the company.
The open talent economy has opened up markets and the companies with the best management and innovation practices are the ones that can attract and retain talent. From an impact perspective, the company that allocates optimum resources to face challenges especially with scarcity during the pandemic will do well in the highly competitive market.
Governance
Strategic long-term planning is required in an industry where product development from research to commercialisation take more than a decade. A management team laden with the knowledge and need for innovation, forward looking in its upcoming journey and strong sense of its suitable future partners can compete successfully.
In an open talent economy, remuneration has its fair share of concerns in healthcare companies in deciding to remunerate to avoid exodus or diaspora to greener pastures either to other companies in the country or abroad. For healthcare companies therefore, the management and shareholders alike must balance, compare and not lose initiative to retain talents through pay policies and practices
Other issues of governance include having regard to minority shareholders equity during M&A, delve into social criteria like ensuring no slavery like working conditions.
ESG vision aspirations
What can be seen from the above is that even without being under the aegis of ESG, a healthcare company with pragmatic approach that has best management and innovation practices can do equally well. Management must be agile, efficient and avoiding wastage.
It is all about the intentions of generating income with the abiding care for workers’ and the public’s welfare and interest. The marketing adage of, “The customer is king”, or “The customer is always right” still holds true until today.
With diligent practices and observances of the above and with combination of the three pillars of ESG a company may excel in a pandemic era of scarce resources. — The Health
Zulkifli Ahmad is the founder of ESG Vision, a think tank advocating ideas and actions on sustainability. He is also a member at KSF Space Foundation USA.
