The great ESG balancing act for Life Sciences

As a sector, Life Sciences is currently engaged in an existential balancing act. On the one hand, it carries the phenomenal weight of social expectation, piled high by government investment and newspaper column inches. Its output will revolutionize medicine and healthcare. And yet on the other hand, in order to attract investment, firms must get to grips with the ever-increasing operational demands of environmental, social, and corporate (ESG) governance. 

What does ESG mean for the Life Sciences Real Estate on the ground and in the board room?

Clare Harman Clark and Lauren Fendick consider the space where these demands meet, and think about the ways we at Taylor Wessing can lighten the load. 

New rules in the fight for capital allocation 

The Life Sciences sector is no stranger to responsible business planning. The emotional and ethical stakes of public health are high. The development of products and services is heavily regulated and complex issues such as genetic modification have long been vulnerable to startling headlines. What's changed now is the ESG umbrella generating new matrices for investors to judge longer=term financial and social sustainability. 

Most individuals would argue they know instinctively whether a company or a product has a net benefit for the world and most, if not all, in the Life Sciences sector believe this to be true for their own business. On balance, for example, animal testing is permissible for vaccine development. But while investors have been rightly impressed by ethical statements or well-managed responses to micro crises of the past (such as product recalls), they are also now looking for a macro vision that speaks to a company's broader impact on ESG issues. They are using matrices such as MSCI ESG Ratings to consider a company's exposure to industry-specific risks and assign percentage weights to its ESG management, thus ranking investment opportunities against their peers. 

What is ESG in Life Sciences?

The Environmental limb is probably the simplest to apply to Life Sciences operators. Companies must mitigate their environmental impact. This is likely to be of greater concern for those with larger manufacturing, waste and global supply chain footprints, less so for smaller R&D operations. In either case, actionable strategies might mean effectively monitoring and reducing greenhouse gas production, limiting environmentally persistent pharmaceutical pollutants (EPPP) or controlling bio waste.

A Socially conscious Life Sciences company is alive to its impact on employees, stakeholders and communities. Of course, pharmaceutical giants have the potential for enormous global influence with equitable pricing models and advanced distribution networks. Even products with limited application, such as breakthrough therapies or orphan drug designations, are game-changers for those with rare conditions. Developing a firm's human capital, and increasing its longer-term innovative capability and product development pipeline, means attracting a diverse, incentivised and highly educated workforce.

Governance has a more generic application. It involves auditing transparency and clear core values to ensure robust decision-making at the top levels. An ethical bar brings misconduct, fraud, corruption or human rights violations to the fore, while board diversity and CEO compensation can be quantitatively compared against peers. The idea is that here, as in the other limbs, a company with strong governance credentials is more likely to be sustainable in the longer term, and create a strong return on investment. 

Lightening the load

The ESG matrices employed by investors are complex and diverse but at Taylor Wessing, we have considerable experience advising with a forward-thinking ESG mindset, making the delivery of corporate goals and the attraction of investment capital easier. It's a matter of understanding risks and maximizing opportunities.

Embedding ESG in the built environment is the new battlefield for hearts and minds. R&D and manufacturing operations tend to make sophisticated and individualised demands on their property. And then as start-ups grow, so space requirements change. They need complex fit-outs or entirely new purpose-built facilities. Getting to practical completion often involves a high environmental cost (the construction sector being a major contributor to the country's carbon emissions), and these buildings only compound this problem with intensive running requirements for power and water. Even office-based research makes heavy power draws with monitor usage. And there are additional complications with hazardous storage or discharge.

There are still opportunities to protect clients on the ESG ground however, particularly in spotting when landlords and tenants share the same goal. In curated campuses, at science parks or repurposed space, landlords can create an ESG-resilient space. Property companies must answer to their own boards after all and work ESG in their own decision-making. Independent assessments by organisations such as GRESB will consider whole suites of property contracts at a site. Understanding this means we can maximise the benefit of ESG approaches for all concerned, whether in sharing utilities data, promoting sustainable travel to work or even creating shared carbon reduction targets. 

A blueprint for sustainability

ESG is the manifestation of myriad concerns; and the emerging matrices a blueprint for corporate survival. Our Life Sciences clients are already embedding ESG within day-to-day policies and procedures; they are actively articulating and planning their ESG aspirations. We can help, finding opportunities to make their businesses economically and environmentally sustainable for the longer term. After all, driving capital allocation to the right places in the Life Sciences industry is probably our best chance at solving some of the biggest problems we all face.