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ESG In Focus

May 4, 2023

Preparing for ESG: Six Simple Steps Healthcare Companies Can Take Today

ESG can feel overwhelming for companies that have not yet taken the first step on their sustainability journeys. Where to start, what to focus on, what to measure, how much to disclose, how to create alignment, where to find the time and resources—adding up, these questions can generate anxiety and keep companies from moving forward. Leveraging years of experience working with healthcare companies of all shapes and sizes, I have identified six simple steps companies can take today that are guaranteed to deliver value and save money in the long run.

Step 1: Create an Inventory of GHG Emissions Data for Scopes 1 and 2

While creating an inventory of data sounds daunting, it does not need to be. The GHG Protocol breaks emissions into “scopes” to provide companies with a uniform method of calculating and comparing different emissions sources. Scopes 1 and 2 are under a company’s direct control and include their use of purchased electricity, gas and steam, the use of company owned vehicles, and fugitive emissions from refrigeration, air conditioning and industrial gasses. For most of healthcare companies, particularly biotech, Scope 1 and 2 emissions are modest, and the data sources behind them are not complex. Scope 3 emissions are significantly more challenging, as they cover all upstream (e.g., raw material production) and downstream (e.g., product shipping and distribution) emissions, leveraging vastly more complex sources of data.

The biggest challenge for most healthcare companies will simply be locating and organizing the data. The sooner companies begin gathering data, the easier their job will be calculating emissions and complying with forthcoming SEC regulations requiring most firms to begin reporting their Scope 1 and 2 emissions within the next one to two years. Because of their complexity and the cost of measurement, the SEC may postpone requirements around Scope 3 reporting—hence our initial focus only on Scopes 1 and 2. With utility bills, information on fleet vehicles and fugitive emissions sources in hand, healthcare companies will avoid a time crunch and find the process much less painful when mandatory reporting comes into play.

Step 2: Collect and Track Data on Employee Diversity

Companies find, as they become more comfortable with ESG and reporting, that data is often the biggest challenge to disclosure—for social and environmental issues alike. Most healthcare companies do not actively track and monitor diversity metrics. As a result, the decision to begin reporting on diversity, equity and inclusion (DEI) metrics can seem daunting. Historically, most companies have not asked new hires to self-identify their gender pronouns, race, ethnicity or other demographic factors during onboarding. As a result, even well-meaning companies that would like to begin tracking and reporting on diversity metrics are at a loss where to begin.

It is never too soon to start implementing a data collection and management system for diversity metrics—for employees, management and leadership. This information can be collected during the hiring process, but for companies with a large number of employees, this doesn’t help the situation for existing employees. Another tactic companies find useful is to employ an annual employee survey to gather and track this information (more to come on this in the following section), gradually expanding the categories of information requested over time as employees become more comfortable with survey engagement. By capturing and tracking these metrics, not only are companies ready to disclose metrics in their first ESG report when they are ready, but in the meantime, they can self-assess strengths and opportunities for improvement.

Step 3: Conduct an Annual Employee Engagement Survey

In addition to providing needed data to assess and track diversity numbers, surveys can serve as an important channel for employees to communicate with company leadership, improving engagement. The Sustainability Accounting Standards Board (SASB), a leading global ESG framework, identifies Employee Engagement, Diversity and Inclusion as one of eight material issues for biotech and pharma companies. Many companies focus narrowly on monitoring and improving the diversity component, without as much consideration of engagement. Employee engagement matters, especially to companies whose most valuable asset is a skilled workforce. Engaged employees demonstrate higher creativity, innovation and productivity, leading to higher revenue and profitability, and higher probability of long term success for innovative companies.

Employee engagement surveys allow the company’s employees to provide feedback on job satisfaction, motivation and engagement, identifying sources of stress and helping management improve. By taking in information and acting on it, companies position themselves for long term success and growth. Leadership may have incomplete awareness of certain risks and threats facing a company, and survey input can be a valuable source of information to help leadership home in on and mitigate emerging risks.

Step 4: Create a Plan to Diversify Leadership

Diversity and inclusion is a key consideration for a company’s executive leadership team and its board of directors, not just its workforce. Leadership diversity, in terms of gender, race and ethnicity, lags far behind employee diversity for most healthcare companies. While women make up roughly half of biotech employees in the US, four fifths of biotech CEOs are men.[1] Representation for racial and ethnic minorities, especially non-white women, in leadership lags even further behind. Companies at every stage are feeling pressure to diversify leadership, particularly public companies facing the proxy voting expectations of investors. Over 80% of investors who publish proxy voting guidelines consider board diversity, with over a quarter providing detailed board diversity requirements which must be met to vote in alignment with management.[2]

Executive leadership teams and boards do not need to become diverse overnight—a thoughtful and gradual approach is best. Ultimately the goal remains to build strong leadership teams whose members have complimentary skillsets, experience and knowledge to drive long-term sustainable growth. While there are no universally agreed upon benchmarks for diversity in leadership, best practice suggests companies target 20% gender diverse and 20% racially and/or ethnically diverse leaders. Companies should establish a timeline and milestone goals for improvement, and incorporate purposeful, meaningful strategies to widen and diversify the slate of candidates considered for each new opening or role. Establishing diversity as a high priority search criterion, ensuring diverse candidates are meaningfully represented in every candidate pool, and including diverse team members in the interview and hiring process are steps companies can take to diversify leadership.

Step 5: Establish a Clinical Trial Diversity Policy and Plan

There are few aspects of business as critical to healthcare companies as conducting robust and credible clinical trials. Society relies on clinical trials to demonstrate new drugs and treatments are safe and effective. The question of “safe and effective for who?” is increasingly being raised in the context of clinical trial diversity, with growing awareness that white males have historically been the focus of a preponderance of clinical trials. A report issued in 2022 by the National Academies of Sciences, Engineering and Medicine (NASEM) cited the “urgent” need to improve diversity in clinical trials to match the demographics of the disease, citing little improvement in clinical trials diversity over the past 30 years.[3] Pending FDA regulations would require companies to submit diversity action plans with clinical trial documentation to improve diversity in clinical trials.[4]

Every healthcare company should begin working to address this issue by establishing a formal policy on clinical trial diversity, and putting in place an action plan to improve representation of disease demographics in clinical trials over time. Companies stand to benefit in multiple ways from this shift, beyond doing the right thing. Healthcare innovators may find statistically significant treatment effects more easily in trials enrolling populations that better mirror disease epidemiology. Enrolling larger sample sizes of diverse participants in trials may also enable companies to better demonstrate effectiveness for certain age groups or segments. Ultimately, aligning trials with the demographics of the disease population helps mission-driven healthcare companies positively impact patients’ lives.

Step 6: Conduct Implicit Bias Training and Education

The single most powerful tool a company can use to create an inclusive culture is to increase awareness of implicit bias—a negative attitude, of which one is not consciously aware, against a specific social group.[5] Narrow efforts focused on improving diversity from a numbers standpoint, or implementing anti-harassment trainings, while important, are insufficient. Efforts to diversify the workplace ultimately fail when concurrent systems and programs are not put in place to support diverse employees once they are hired, and help them thrive. Employees in turn may not understand why DEI is important or engage in DEI efforts if they do not recognize implicit bias and its negative impacts.

While education and training on implicit bias is not effective alone in changing corporate culture and eliminating bias, it is an important first step. Companies can host trainings and educational sessions delivered by their own human resources departments, or hire third party vendors to facilitate. Best practice research suggests effective implicit bias training addresses individual awareness, uses positive messaging, provides actionable suggestions and recommendations, is tailored to an organization’s culture and encourages voluntary participation.[6] The benefits to a company of reducing bias and improving inclusivity include an expanded talent pool, increased employee satisfaction and engagement, decreased attrition, improved morale and productivity, and enhanced creativity and innovation.

Get Started Now

As the industry heads out of proxy season and annual reporting, the time has never been better for companies to start their ESG journeys. Whether formally launching an ESG program is on the agenda for this year, or not, healthcare companies can take these steps with confidence knowing they are paving the way for future sustainability efforts while starting to realize benefits today.

Molly Podolefsky, Ph.D. (she/her/hers)




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