Leveraging sustainability in the life sciences sector

Australia’s Biotechnology Blueprint highlights the focus on ESG and sustainability across the industry and the growing evidence that companies that commit to sustainability perform better. Studies show that outperformance in environmental, social and governance matters is associated with a 2 – 7 per cent annual shareholder return difference. This is particularly important in industries which are more reliant on stock market listings, such as in the life sciences sector. That is why AusBiotech produced a world-first guide to ESG for life sciences companies in Australia. Major pharmaceutical companies, who may be potential buyers in trade sales for biotech companies, are increasingly embedding sustainability into their corporate strategy. With approximately 60 per cent of biotech companies reporting on sustainability information even prior to it being mandatory, the importance of sustainability reporting for maximising shareholder value and opening strategic acquisition and exit opportunities is clearly understood by the sector. 

For many life sciences companies, particularly those in the pre-revenue or research and development phases, mandatory sustainability reporting will not be applicable. While ASIC guidance encourages all companies adopting sustainability reporting to consider reporting in line with the Australian Sustainability Reporting Standard, this is not mandated, and life sciences companies can report in a manner that is proportionate and appropriate to their needs, for example by aligning to the guide published by AusBiotech. This flexibility gives life sciences companies an opportunity to minimise costs associated with sustainability reporting, while still meeting industry expectations regarding progress with sustainability.

Our recent insight on Strategies for biotech growth in evolving times highlighted the increasing importance of strengthening supply chain resilience in the life sciences sector and the focus on securing funding in a competitive market. 

Sustainability is inherently linked to resilience, and seen as key to supply chain resilience more specifically. Sustainability reporting can be used to identify risks to the organisation’s supply chain or opportunities for improving resilience. 

Many life sciences companies access government grants and look to stock market listings to raise funding. Organisations with higher ESG scores have better access to and lower costs of capital, and with sustainable investing and the number of government grant programs associated with sustainability on the rise, combined with the recent approval by the SEC of the first sustainability-focused stock exchange, adopting sustainable business practices and demonstrating those through sustainability reporting opens additional funding avenues for life sciences companies.  

Companies operating in the life sciences sector typically already have robust governance and risk management arrangements in place, whether that be to meet listing requirements, to meet regulatory requirements regarding research and development, or simply to demonstrate best practice. These arrangements and the knowledge and skillsets that underpin them are directly transferable to sustainability, reducing the cost of adoption for life sciences companies.

The innovation being driven by the life sciences sector is also increasingly making progress on enhancing the sustainability of existing products and services, whether by design or tangentially. There is an opportunity for companies to reframe their progress not just as progress for a product or service, but progress for sustainable outcomes.

Sustainability reporting gives life sciences companies an opportunity to reframe or enhance existing arrangements to meet evolving expectations and to generate opportunities for investment, access to funding and supply chain resilience. 

The life sciences sector intersects with numerous stakeholders, including institutional investors, large suppliers (both local and international), and government agencies. These stakeholders are increasingly being captured by sustainability reporting requirements and are increasingly requesting environmental information and feeding that into their procurement and investment decisions. 

Life sciences’ companies often operate across borders and in multiple jurisdictions – whether that be operationally, for research, or with suppliers. With sustainability reporting requirements evolving globally, companies in the life sciences sector need to be ready to address these requirements – whether they apply to the company itself or their stakeholders – and preparing for sustainability reporting in Australia will equip the company with the skills, knowledge and processes it needs to be able to do so.

For companies in the life sciences sector, the most cost effective way to address these requests is to proactively develop processes, controls and systems to measure and validate the information so that it can be provided in a consistent, standardised manner that avoids repeat ad-hoc costs of meeting information requests.