How pharma firms are refilling their ESG prescriptions

We look at the importance of sustainability in the pharma industry and address key considerations for issuers of sustainability-linked bonds.

Many environmental, social, and governance (ESG) factors relevant to pharma companies suddenly became critical in the prompt development of treatments and vaccines: safety standards and regulations for large-scale, rapid expansion of manufacturing, governance considerations including executive compensation and, critically, equitable distribution across regions and among communities within countries. Companies without strong human capital development programmes or product quality and safety protocols were simply not able to meet unprecedented demand. 

But how will ESG evolve for pharmaceuticals in a post-pandemic world? While curbing carbon emissions and fostering biodiversity are important for the industry, pharma’s ESG focus has primarily been on social considerations.

In this article we look at the ESG performance of pharma firms, examples of how major pharma firms have issued sustainable bonds, and factors that companies should consider as they map their sustainable finance journey.

Social issues are the main ESG factors for pharma

MSCI and Sustainalytics, two popular ESG rating providers, recognise the significance of social issues such as product safety and quality, access to healthcare, and human capital development for pharmaceuticals. In fact, they assign social factors a much higher weight than environmental elements in their company-specific ratings, with product safety and quality assigned weight of 25-30% by both agencies. MSCI assigns human capital development a weight of 18% and access to healthcare 13%, leading to a weighting for social factors of around 58% for the industry, more than six times that of the environmental pillar (around 9%).

How are pharma companies performing when it comes to ESG?

The regional ESG performance for pharmaceuticals is similar to that of some other industries, such as fashion. 

European companies are leading the way, scoring the best on average for all three ESG pillars, while Asia is lagging, with US companies generally in the middle of the pack. There isn’t much difference between the environmental and social scores for European and US companies (which dominate the pharma industry), but US companies appear to fall behind when it comes to governance.

ESG scores of pharmaceuticals companies

Sources: NatWest Markets, MSCI, Bloomberg

In terms of highly material social issues, US companies lead the way on product safety and quality, with fewer product recalls and warning letters from regulatory agencies, but they lag behind both European and Asian firms when it comes to providing access to healthcare and human capital development. 

A closer look at the ‘S’: social scores for pharma companies

Sources: NatWest Markets, MSCI, Bloomberg

Sustainable issuance has focused on social aspects

Many pharma firms have linked their ESG ambitions to capital raising in order to display and enhance their sustainability credentials. Below we outline examples of how pharma firms have issued sustainability (use of proceeds) bonds and sustainability-linked bonds, with both receiving plenty of demand from investors.


The company established a detailed sustainability financing framework followed by an inaugural $1 billion sustainability bond offering in 2021. The bond’s proceeds support projects and partnerships that increase access to essential health care services and reduce the firm’s environmental footprint through green buildings.


In 2020, Pfizer established a sustainability bond framework focusing on access to essential services, green buildings and investments in energy efficiency, pollution prevention and waste management. That year the firm raised $1.25 billion through a sustainability bond, using the proceeds to improve its environmental impact and increase patient access to Pfizer’s medicines and vaccines, especially among underserved populations. 

Pfizer issued an additional $1 billion sustainability bond in 2021, using the proceeds to support expenses involved in the research & development, manufacturing, and distribution of Covid-19 vaccines.


Teva issued a $5 billion sustainability-linked bond in 2021. It focused on both access to medicine and the environment. The firm issued another sustainability-linked bond earlier this year, with similar focus areas. The company recently shared that it is exceeding several of its ESG targets – ahead of schedule.


Sanofi issued a €650 million sustainability-linked note in 2022, with well-defined targets linked to the provision of essential medicines and healthcare programmes in low-income countries. 


Novartis issued a €1.85 billion sustainability-linked note in 2020 with two key performance indicators (KPIs), both linked to patients reach to its services. 

What ESG factors should issuers focus on?

Use-of-proceeds categories that are, in our view, likely to be highly relevant for pharma firms include:

  • Access to essential services such as health, education and vocational training, healthcare, and financial services
  • Socioeconomic advancement and empowerment (such as equitable access to and control over assets, services and resources, and reduction of income inequality)
  • Terrestrial and aquatic biodiversity conservation
  • Pollution prevention and control
  • Sustainable water and wastewater management

As we’ve highlighted previously, biodiversity is a rapidly growing area of focus across policy and markets that could be integrated in pharma companies’ frameworks and KPIs. So far there has been little progress on specific connections between pharmaceuticals and bio indicators, in part because the ability of individual companies to affect them is much more limited than that of sovereigns. But we hope that indicators linked to specific projects with quantifiable targets will increasingly be integrated in companies’ approaches to ESG.

Do sustainable bonds perform better than traditional debt?

Investors are typically willing to pay a premium for sustainable debt relative to traditional bonds because issuers of those securities are committing to satisfy ESG-related outcomes. With this in mind, we looked at the performance of sustainable debt issued by pharma companies relative to each company’s traditional bonds. We did so from two perspectives: 

  • Comparing historical spreads of sustainable bonds and sustainability-linked bonds to those of comparable vanilla bonds
  • Exploring if the yield curve for the regular bonds has changed following the issuance of sustainable bonds – to see if a company’s issuance of sustainable bonds has an effect on the market’s perception of its overall creditworthiness

The quick answer is that the market has priced in a small premium for sustainability bonds compared with the rest of the curve for the largest issuers in the industry. 

For most of the sustainable bonds we examined, spreads have been marginally tighter than those of conventional bonds for the same issuer – on average by about 7bp since 2021. In many cases, the performance of sustainable bonds over time is virtually the same as that of conventional bonds with similar maturities.

Across the firms we examined, the premia of sustainable bonds relative to the rest of the curve has fallen so far in 2023. This seems to reflect a move in the markets away from rewarding sustainability bonds, although the premia remain positive in all the cases we looked at. 

The sustainability premia: sustainability bonds have priced tighter (basis points) relative to comparable vanilla securities

Sources: NatWest Markets, Bloomberg. NB: 2023 numbers until June end, for Sanofi 2022 data begins from April 2022 onwards.

Finally, we find that the issuance of sustainable bonds does not seem to have a lasting positive impact on an issuer’s cost of capital. In other words, there doesn’t seem to be a “positive signal” effect for a company’s bond curve following the issuance of a sustainable bond as spreads have tended to rise after, most likely in response to overall market conditions. We believe this puts the burden back on companies to come up with more novel (and industry-specific) KPIs that are more closely tied to the impact of their operations for future sustainable financing.

Get in touch

To learn more about how sustainability factors could affect your financial strategy, check out our ESG insights, get in touch with your NatWest representative or contact us here.

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