Stronger ESG oversight needed for healthcare companies
Robeco believes healthcare companies should be subject to stronger ethics and sustainability research in light of medical controversies and their role among political lobbying.
In its ‘Sustainability Investing’ paper, the firm said big pharmaceutical companies were ripe for court cases regarding their products and treatments. There was also the role of lobbyists representing the industry influencing governments who were vital to approval and regulating drug distribution.
“Big pharma is often in the harsh glare of the public eye, given their efforts to develop and distribute opioid painkillers. Controversy stems from companies’ involvement in wrongful marketing practices, as well as issues concerning business ethics – such as illicitly incentivising doctors to prescribe their product instead of those offered by the competition,” it said.
“At the time of writing, some drug companies and distributors have agreed to pay billions in settlements, and numerous litigation cases continue. Overall, settlements appear to represent only a fraction of the damage done. Investors have been relatively slow in holding companies accountable for their involvement in wrongful drug marketing and distribution practices.”
However, the Australian healthcare sector in the ASX returned 15% over the past year compared to losses of 7% by the ASX 200. Healthcare company CSL had returned more than 90% over the past year and was now the largest company in the ASX.
As a result, Robeco suggested various criteria that could be used to hold them to account as it believed it could be subject to stronger oversight than was currently the case.
“We assess healthcare companies based on their performance in business ethics, corporate governance and innovation. Companies that have strong ethics and governance, and those that invest in research and development and innovate efficiently are rewarded with higher valuations,” it said.
“It is important that companies support accountability and transparency initiatives that ensure investors are able to make well-informed decisions. Business ethics is a material issue in the health care sector, as is the capacity to innovate and guarantee product quality.”
It suggested companies:
- Be transparent about both positive and negative trial results;
- Identify direct and indirect lobbying efforts via third party organisations;
- Work towards better quantification of product effectiveness;
- Integrate results in reporting; a drug’s success should not only be measured by profit, but also by its social and environmental impact; and
- Move towards adopting value-based business models.
According to FE Analytics, there were five funds in the Australian Core Strategies universe which had a dedicated focus on healthcare which were was the BetaShares Global Healthcare ETF Currency Hedged, CFS Wholesale Global Health and Biotechnology, ETFS S&P Biotech ETF, Millinium Multi-Strategy Health Care Option and Platinum International Health Care.
The best performing of these was the ETFS S&P Biotech ETF which had returned 38% over one year to 30 September followed by Platinum International Health Care which returned 29.4%.
AUTHOR
Laura Dew
Recommended for you
GQG Partners has completed the acquisition of the minority interests held by Pacific Current Group in three affiliates which will form its new Private Capital Solutions division.
The wealth management firm has unveiled a new fund in partnership with investment specialist Partners Group, describing the investment solution as an “alternative” to traditional alternatives.
Fidante affiliate NovaPort Capital has announced the closure of its small cap and microcap funds, citing expected declining flows.
T. Rowe Price believes Australian growth is successfully managing to shrug off consumer weakness, but the firm’s multi-asset team is not yet positive enough to increase its underweight position.
