Recently, WuXi AppTec, as a leading company in the CXO industry, has announced two consecutive good news about environmental, social, and governance (ESG) in just two months. Firstly, it was honored to be listed at the end of July and has been included in the FTSE4Good Index Series for two consecutive years; Following that, there was good news as we were awarded the AA ESG rating by Morgan Stanley Capital International (MSCI) for four consecutive years.
In the eyes of many companies, ESG ratings may only be an honor that adds luster, or information that must be made public. For many companies, ESG is simply a public company report on non-financial information. However, ESG actually encompasses a comprehensive consideration of various issues (including potential risks and opportunities) that concern businesses from the outside world. The performance of enterprises in ESG can objectively and comprehensively reflect their risk management strength among international peers.
Among the numerous complex and diverse ESG rating systems worldwide, WuXi AppTec has consistently received high recognition and praise for its management framework, operational strength, and performance indicators in addressing non-financial risks and opportunities.
So, what exactly is ESG?
Why can companies with outstanding ESG performance achieve more robust sustainable development and be favored by investors?
What profound impacts will the actions of these companies that continue to increase ESG investment bring?
What are the advantages of high-performance ESG companies reflected in?
Today, let's unravel these mysteries together.
Let's first clearly define the key concept of ESG. ESG, also known as Environmental, Social, and Governance, encompasses three major dimensions: environmental, social, and corporate governance. Although this concept was officially proposed by the United Nations Global Compact in 2004, its roots can be traced back to a century ago. At first, ESG was highly regarded as a reference dimension for investment decisions, but its influence extends far beyond the financial sector and has deeper implications.
Looking back at history, the predecessor of ESG can be seen as Socially Responsible Investment (SRI), which emerged in the 1960s and 1970s. At that time, the drive of business ethics prompted investors and businesses to pay attention to labor rights, race, and gender equality. In the 1970s and 1980s, with the rise of environmental movements in countries such as the United States and Canada, strict environmental regulations were successively introduced, and the concept of "sustainable development" also emerged.
The year 2004 marked an important milestone in the development of ESG. This year, the Global Compact released the report 'Who cares, who wins', officially introducing the concept of ESG. Subsequently, the United Nations supported the establishment of the Principles for Responsible Investment (PRI), aimed at promoting the integration of ESG into investment decisions.
According to a 2022 paper, over 60 countries and international organizations have recognized the significant impact of corporate activities on the environment and society. Although the emergence of ESG concepts has lagged behind, they are gradually being accepted by the public.
For enterprises, a major motivation for investing in ESG is to identify and mitigate risks. Experts have pointed out that companies with good ESG performance are more resilient when facing external risks, thus being able to seize more opportunities and promote long-term sustainable development.
Currently, most ESG ratings internationally are conducted by third-party institutions. Compared to the emerging concept of ESG, many people may be more familiar with the term 'CSR' (Corporate Social Responsibility). Although there are differences in key issue weights and evaluation criteria among ESG rating systems, the breadth of dimensions they cover is far beyond that of CSR.
Taking WuXi AppTec's selection of FTSE Russell ESG ratings as an example, its evaluation content covers 14 aspects such as biodiversity, climate change, and environmental supply chain; MSCI's ESG rating includes 10 major themes such as climate change, human resources, corporate governance, and corporate behavior. This means that companies that are able to obtain these rating recognitions perform well in all aspects of the environment, society, and governance.
It is worth emphasizing that the comprehensive progress of ESG is not achieved overnight. It is rooted in the industry's shared sense of mission and urgency, and also relies on the company's own vision guidance. Whether to be included in the index or receive a high rating is not simply a "test taking" behavior, but requires companies to have a sound governance framework, a comprehensive risk management system, international management standards, excellent practice cases, and quantifiable, comparable, and traceable performance data. This is more like a systematic sorting and presentation of the efforts already made by the enterprise, which is a natural result rather than something that can be achieved through last-minute cramming.
In fact, WuXi AppTec is not an isolated case, and the entire pharmaceutical industry is actively practicing ESG concepts, which contains the logic of "natural progression". Since its inception, the pharmaceutical industry has shouldered the mission of striving for human health and well-being, and this internal drive towards goodness has enabled the industry to take on corporate social responsibility early on.
Looking back at the long river of history, George Merck, the founder of Merck, once said, 'Drugs should be created for humanity, not for profit.' This proverb is still regarded as a classic in the pharmaceutical industry today; At the moment when the COVID-19 is raging, the pharmaceutical industry is working hand in hand to develop innovative vaccines at an astonishing speed, and quickly deliver them to all parts of the world, benefiting countless people.
Nowadays, in the pharmaceutical industry, whether to practice ESG is no longer a multiple-choice question, but a key factor that determines whether cooperation can be achieved, whether companies can achieve long-term stable development, and even whether they can promote a healthier society. As an important partner of pharmaceutical companies, CXO plays a crucial role in empowering biopharmaceutical research and production. In addition to ensuring its own healthy operation, how to better empower customers and form positive collaboration with them has also become a "must answer question" that CXO enterprises must face.
Trust is the cornerstone of cooperation between both parties. What customers are most concerned about is the security of their core asset - intellectual property (IP). In this regard, the vast majority of global CXO enterprises attach great importance to it, as if protection is inadequate, they may face a "veto power" from customers.
Taking WuXi AppTec as an example, according to its Q1 2024 financial report, the company underwent a total of 748 quality audits and 83 information security audits from global clients, regulatory agencies, and independent third parties in 2023 alone. This means that WuXi AppTec receives an average of 2 quality audits per day and 7 information security audits per month. And these quality audits have achieved a 100% compliance rate and have not found any significant issues; The information security audit also did not find any significant cybersecurity incidents or trade secret leaks. Such achievements are undoubtedly remarkable.
In addition, in the context of globalization, customers are also highly concerned about whether CXO enterprises can provide high-quality and stable services, which directly affects the quality standards of products and the reliability of the supply chain system.
From publicly available materials such as WuXi AppTec's ESG report, it can be seen that the company has always adhered to high-quality industry standards and has passed multiple audits and inspections by global drug regulatory agencies such as the US Food and Drug Administration (FDA), European Medicines Agency (EMA), China National Medical Products Administration (NMPA), and Japan Medical Device Review and Approval Agency (PMDA), helping customers' drugs achieve global market application. At the same time, in order to more effectively manage supply chain risks, WuXi AppTec also incorporates ESG related factors into the supply chain risk identification process and regularly conducts targeted ESG risk identification activities, thereby enhancing the stability and reliability of the supply chain management process.
Driven by goodwill, the pharmaceutical industry naturally demonstrates the ability to innovate and adapt proactively in the face of constantly changing external environments.
In recent years, with the frequent occurrence of extreme weather such as high temperatures, floods, and droughts, the issues of environmental protection, low-carbon, and sustainable development have received increasing attention from people. In this context, companies in the pharmaceutical industry have taken action and actively responded to this trend.
Whether it is internationally renowned large pharmaceutical companies such as Pfizer, Roche, Sanofi, Novartis, or their outstanding partners including WuXi AppTec, Lonza, IQVIA, etc., they have deeply integrated ESG concepts into their daily operations and management, and set clear goals in environmental protection. For example, WuXi AppTec has committed to reducing energy consumption intensity and carbon emission intensity by 25% compared to 2020 by 2030, while also reducing water intensity by 30%; Lonza and IQVIA are committed to achieving the ambitious goal of net zero greenhouse gas emissions by 2050.
In Europe, the development of ESG concepts is relatively mature. Jessica Martinson, CEO of SwedenBIO, has observed that some companies have begun to shift from traditional travel budgets to "carbon dioxide budgets" and promote green operations by measuring their own carbon footprint. She believes that this is a simple and effective way to promote.
Scientists have also utilized some unique 'black technologies' in the process of protecting the Earth. For example, WuXi AppTec proactively laid out continuous production technology ten years ago and continued to improve and expand it. In 2023 alone, this technology has supported over 100 customers worldwide in more than 300 projects, reducing over 1000 tons of waste emissions cumulatively.
In addition, WuXi AppTec's integrated enzyme catalytic platform technology has also achieved significant results, supporting over 70 projects for more than 40 clients worldwide. This technology effectively reduces the use of about 1700 tons of organic solvents, greatly reducing waste generation.
These measures not only make the R&D and production processes greener, but also bring overall environmental optimization to the entire industry chain upstream and downstream.
From another unique perspective, ESG provides an objective and comprehensive yardstick for evaluating whether a company has sustainability, robustness, and long-term growth potential. The pharmaceutical industry stands out among major industries with its inherent goodness oriented nature and relentless innovation and adaptability, and its ESG performance is particularly outstanding.
After conducting in-depth research, analysts from Guoxin Consulting pointed out that the biopharmaceutical industry dominates the A-share market. It is not only the industry with the highest number of MSCI ESG rating companies, but also one of the top five industries with the highest proportion of BBB rated and above rating companies, demonstrating its outstanding performance in the ESG field.
Whether it is to effectively resist external risks or to continuously win the trust and respect of global customers, enterprises need to pursue "comprehensive development". According to data from Sina Finance, WuXi AppTec has successfully entered the top 3% of A-share listed companies with excellent performance at MSCI AA level. The rating definition of MSCI further explains the meaning of AA level, which represents the leading position in the industry, undoubtedly affirming WuXi AppTec's outstanding efforts in the ESG field.
In this era where opportunities and challenges coexist, ESG is not only a long-term strategic choice, but also a long-term philosophy that needs to be firmly upheld. Enterprises should actively respond to the expectations of society, fully leverage the leading role of ESG, integrate the value of responsibility into development, strive to find a perfect balance between technological progress and social responsibility, and achieve a win-win sustainable development.