From advancing cancer treatments and discovering new vaccines to making breakthroughs in stem cell research, the life sciences industry plays a crucial role in protecting public health.
This creates tremendous societal value for life science companies as their products and purpose contribute towards both medical and practical progress, according to Dawn Velut, life sciences underwriting and operations lead at The Hartford.
But being a good corporate citizen is about more than just product and purpose. It’s also about the company’s focus on environmental, social and governance – and the impact they’re making in each issue.
ESG Investing and Importance to Employees and Consumers
More investors are paying attention to a company’s ESG performance and integrating ESG considerations into their portfolio assessment before making investment decisions. This is an important fact for life science businesses who often get funding through venture capitalists and private equity firms. It’s estimated that there was $120 billion invested in sustainable investments in 2021 – more than twice the amount invested in 2020.1
As companies, ESG ranking organizations and regulators respond to evolving ESG expectations, and there’s broad interest in responsible business practices and operations. In fact, 62% of consumers in the U.S. surveyed in 2020 said they’d view an organization more positively if it were taking action to address social determinants of health.2
Fostering an inclusive work environment is a critical part to how business organizations are recruiting and retaining top talent, as well as keeping them engaged.
There’s also research that shows consumers prefer purchasing products from companies that are socially responsible. Consumers across all generations are willing to spend more money on sustainable products.3 One study found that 90% of Generation X consumers would be willing to spend 10% or more on sustainable products – more than double the amount of consumers two years ago.4
Engaging With ESG Investors and Stakeholders
To help public, private and nonprofit organizations navigate the advances in sustainability and governance practices, the Nasdaq launched the Center for Corporate Governance in June 2019. The Center provides corporate governance and sustainability practices insights and research. Its mission is to be a resource for corporate leaders, investors and stakeholders, according to Nelson Griggs, president of the Nasdaq Stock Exchange.
In a study of 50 proxy statements filed by the S&P 100 in 2020:5
- 92% featured their ESG initiatives, including a section on “ESG highlights”
- 86% disclosed engagement covering climate change and environmental sustainability
- 70% opened the proxy with a letter to shareholders highlighting ESG, governance developments and other business achievements
“This shows the importance that the S&P 100 places on ESG and how these businesses prioritize publicly reporting about the issues,” Velut said.
How Governance Keeps Employees and Customers Safe
A strong governance framework helps:
- Keep companies compliant with the U.S. Food and Drug Administration (FDA)
- Ensures the safety of their products and operations
- Reduces exposure to a wide-range of risks
Complying with FDA Regulations
The regulatory environment is rapidly changing, making it critical for life science businesses to:
- Stay up to date on requirements
- Be nimble in their response
- Update their processes
For example, in response to the COVID-19 pandemic, the Department of Health and Human Services issued a declaration in March 2020 authorizing the Public Readiness and Emergency Preparedness Act (PREP Act). This gave certain businesses product liability immunity to provide medical materials meant to combat COVID-19 and give the FDA authority to issue Emergency Use Authorizations (EUAs), allowing for:
- Shorter approval process for medical products
- The use of unapproved medical products
- Unapproved uses of approved medical products in an emergency
The PREP Act remains in effect as of Jan. 2022.6
There are a number of steps that life science companies can take to reduce product liability risks in response to the PREP Act:
- Establish a COVID-19 Task Force
- Always consult with legal counsel
- Seek advice from an insurance agent or broker
- Clearly document countermeasures
Quality Assurance Protocols and Internal Procedures
There are also certain quality assurance procedures that life science companies should remain constant and engrained in its culture. These include:
- Regular quality assurance meetings to ensure corrective and preventative actions are taken
- Evaluate proper design and material controls with appropriate documentation
- Assessment and documentation of quality management systems for each supplier the company works with
- Analysis of how internal protocols may be viewed by external parties through a lens of safety and efficacy
- Written internal escalation procedures to make sure senior leadership is aware of how the company’s actions are viewed
Post-Market Controls and Product Recall
- Fulfillment of all post-market surveillance in an expeditious manner to ensure safety and efficacy of the products released to market
- Prompt action to initiate a product recall to reduce the risk to health posed by the product with clear documentation
External Marketing and Communications
- Being productive in monitoring feedback including social media
- Crafting company messaging in acknowledging and responding to what they find
- Making compliance a key focus of marketing and sales strategies
A Culture of Safety
Post-market surveillance systems play a critical role in monitoring the safety of a product once it’s available to the broader public. Companies also need to have a response plan where they voluntarily decide and have the ability to quickly recall a product in favor of safety. A company’s recall history is publicly available and can reveal a lot about their culture. Proactive recalls demonstrate a safety-first culture, Velut explained.
“A culture that prioritizes safety means ‘safety’ is engrained in all aspects of a company’s operations,” she said. “This includes marketing and sales, where words matter and they need to be substantiated by facts.”
Life science businesses need to remember that false or misleading claims are a direct violation of federal laws. In 2020, FDA and Federal Trade Commission (FTC) issued a warning letter to seven companies for using false or misleading claims to promote their products as a treatment or prevention against COVID-19.7
ESG and Life Science Reputation
As a highly regulated industry, information about life science companies is publicly available. From an insurance standpoint, this means agents and carriers can easily assess the risk level of a company by just doing a little research, Velut said.
Insurance companies evaluate a company’s reputation as part of the underwriting process. From a litigation standpoint, this means people can troll the internet and regulatory sites to obtain information to potentially use against a company in a lawsuit.
A company’s reputation is their first line of defense in litigation. If a company goes in front of a jury, how will they be viewed? Will the jury see them as a good corporate citizen or a company only focused on their bottom-line? Reputation may have a significant impact on outcomes when it comes to litigation.
While environment and social issues contribute to a company’s reputation, a robust governance framework that documents their track record of safety and compliance is an imperative. It helps protects the company, their employees and customers.
At The Hartford, we understand that reputation is just one of a company’s most valuable assets. That’s why defending our insureds is one of our fundamental responsibilities. Our life science team includes:
- Over 30 specialists in underwriting, operations, risk engineering and claims
- Leadership with an average of 20+ years of experience
- Highly specialized panel counsel across many jurisdictions with expertise in defending life science matters
Claims handling that is collaborative with our insureds, ensuring the right attorney gets assigned to the right case to get the most cost-effective results