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Title:Sector Insight: CSR in the Pharma and Biotech sector
Date of publishing:April 23, 2015

Sector Insight: CSR in the Pharma and Biotech sector
April 23, 2015

Every quarter Forum ETHIBEL provides some insight into its rating process and the consequent changes to the composition of the Ethibel Investment Registers. This time we will shed light on companies in the European Pharmaceuticals and Biotechnology sector whose Ethibel ratings were recently updated. All ratings are based on research of companies’ CSR performances by Vigeo and the advices of the Register Committee; a committee of experts each in their own field of CSR expertise.

As the name indicates, companies in the sector can be divided into two main sub-sectors: the pharmaceutical companies producing medicines derived from chemical compounds or molecules, representing 78% of the sector; and biotech companies that are involved in the production of drugs, vaccines and diagnostic tools derived from the research and development of biological substances (i.e. living cells and organisms).

When assessing companies’ CSR performance different types of information is taken into account. Next to the company’s actual CSR policy (based on a broad selection of ESG criteria), its involvement in exclusionary criteria and the controversies faced by the company are equally considered. Within the context of the Pharma and Biotech sector this last element is of high importance as the level of controversies tends to be more elevated compared with other sectors. Controversies most often relate to business ethics, and are centred more specifically on anti-competitive practices, corruption, product safety and information to customers. Noteworthy in this regard is that at the level of the European Union, the US, and China, pharmaceutical and biotechnology companies’ business practices have come increasingly under scrutiny as is reflected by the higher number of investigations on corruption and anti-competitive practices.

Within our European panel 18 companies have been assessed in order to define the best-in-class companies in terms of CSR. The overall best performers were found to be the Danish companies Novo Nordisk and Novozymes, who are both active in the field of biotechnology. Novo Nordisk demonstrated an increased performance which is balanced throughout all three  ESG pillars. Even though the company faces controversies, it reports transparently on them and provided evidence of corrective measures for the concerns raised on product safety. Ongoing allegations and investigations will continue to be monitored closely. Novozymes on the other hand has a largely stable overall performance and ranks as sector leader in the environmental domain. In addition, the company does not face any controversies which is rather exceptional in the sector. Resulting from these performances, both companies were reconfirmed for inclusion in the Ethibel Pioneer Investment Register.

When looking at the mere CSR scores throughout the different pillars, we notice, however, that it is not Novo Nordisk or Novozymes who demonstrates the best overall performance, but GlaxoSmihtKline. Nevertheless, the company faces serious and recurrent allegations on corruption and anti-competitive practices. In September 2014 GSK was fined by the Chinese government after being found guilty of bribery, which lead to the removal of the company from the Ethibel PIONEER Investment Register. GSK is the only company to be condemned in China so far, but experts expect other pharma companies to be targeted as well by China’s anti-corruption campaign as corruption practices are common in China. GSK demonstrated willingness to change after the corruption case. Also, the company reports transparently on most other allegations and cooperates with the related authorities. Due to its controversy record GSK can no longer be perceived as a pioneering company, however, the strong CSR performance in absolute terms justifies the company’s inclusion in the Ethibel EXCELLENCE Investment Register.

Another company to be reconfirmed in the Ethibel EXCELLENCE register is Merck, who demonstrated a solid CSR performance in the different pillars. As the company faced serious condemnations for anti-competitive practices its upgrade into the PIONEER register is however not yet in place.

On the other hand, Novartis, Astrazeneca and Sanofi were removed from the Investment Register as they were found to perform weaker than their peers in terms of CSR. Much like several other companies in the sector they face controversies in the business behaviour domain. However, they tend to address these controversies less well than those companies included in the Register.

Other companies in the panel were not found eligible for inclusion in an ethical investment universe. 

Click here in order to consult the full selection of stocks included in the Ethibel Pioneer and Excellence Investment Registers (registration required).

More information on the company assessment can be found on this page.