Reflecting on ESG risks in the pharmaceutical industry, Sora Utzinger discusses supply chains and counterfeit medicines, access to painkillers, and the ethics of gene editing.

Read this article to understand:

  • The key ESG risks to consider when investing in pharmaceuticals
  • The risks stemming from complex supply chains
  • Why painkillers are overprescribed in some countries and inaccessible in others
  • The ethical debate around gene editing

Pharmaceuticals are a fascinating field. They present opportunities for investors as research and development picks up and innovations come thick and fast, from mRNA vaccines and pharmacogenomics to gene editing and the prospects of digital transformation that could boost patient outcomes and benefit healthcare systems.

But human health is a sensitive issue, and ethical, governance, social and environmental risks abound, as Abigail Herron, global head of ESG strategic partnerships at Aviva Investors’ Sustainable Finance Centre for Excellence, recently highlighted in an article on antibiotic resistance (see From antibiotic failure to research success).1

As we conduct ESG research on the pharmaceutical industry’s many players, three risks have come to the fore: supply chains, access to painkillers (which has not received the same level of attention as other health topics in recent years), and the ethical implications of gene editing. The latter is an exciting research field which could potentially revolutionise current therapeutic models for any number of chronic and neurodegenerative diseases but could also open the door to dangerous manipulations of human DNA.

1. Key ESG risks in pharma supply chains

ESG risks in pharma have long been recognised by the likes of MSCI and sell-side analysts. The pharma supply chain is complex, as drugs change ownership from manufacturers to distributors, re-packagers and wholesalers before reaching patients and clinics. This can make it challenging for manufacturers to have full visibility and track the authenticity of medicines. As a result, counterfeit drugs are an issue in certain markets, with inefficient processes for recalls and returns in the worst-case scenarios.

Counterfeiting is an ongoing issue, particularly in low- and middle-income countries where pharmaceutical products are forged and sold under a brand name. These can have very deleterious effects on health, but this issue also marks an example where the whole industry has come together to respond.2 Cynics will point out there inevitably is a profit motive at play, but the real-world impact is overwhelmingly positive as unnecessary adverse effects, illness and death are avoided.3

The emergence of new technologies might help transform the pharma supply chain

Issues like this highlight the importance and versatility of supply chain resilience; we do not know what the pharma supply chain of the future will look like, but the industry as a whole will adapt to deal with cost containment while ensuring utmost safety and quality. The emergence of new technologies such as blockchain might indicate a new direction of travel and help transform the pharma supply chain. 

It is worth noting the sheer complexity of the pharmaceutical value chain. With more pharma companies relying on a network of contractors like research and manufacturing organisations, it introduces specific risks. Because it is one step removed from the finished product, pharma companies that contract out certain research activities need to conduct an incredible amount of due diligence. Such outsourcing requires transparency and accountability.

For instance, we prefer contract manufacturing organisations (CMOs) and contract research organisations (CROs) like Lonza, which has a strong operating and corporate history but is also a strong performer from an ESG perspective, consistently outperforming its peers on safety and product quality. This area creates more ESG interest because such organisations are key players in the whole pharma value chain, executing crucial functions and making sure products are transported and packaged properly.4

But the onset of new products and technology also introduces risks into the value chain.

A case in point is the requirements around securing robust cold chains to transport volatile products like messenger RNA (mRNA) vaccines across the globe. You need an interplay of various parties to ensure consistent quality from manufacturing through to the pharmacy.

Efficient delivery needs to be in place for manufacturing to function. Shortages in one area affect other medicines

COVID-19 vaccines were also plagued by other issues. Delays and challenges impacted the supply chain during the pandemic, from basic raw materials like buffers, resins and sodium chloride (whose availability was critical for vaccine manufacturing), to consumables (such as single-use bags, tubing, sterile filters, vials and stoppers). Efficient delivery of these items needs to be in place for manufacturing to function as the biopharma industry is particularly interconnected. Shortages in one area affect other medicines as well.

In addition, suppliers used to have known and predictable levels of demand for products, with delivery measured against “on time, in full” performance indicators. As demand increased suddenly during the pandemic, the old methods of managing supply chains proved ineffective. It may be time for a change.

2. Painkillers: From the opioid crisis to a lack of access in poorer countries

The opioid crisis has had such a huge impact that it will be challenging for the companies implicated to restore trust, especially if they are still mired in different lawsuits. Johnson & Johnson is a key example. It used to be the darling of the ESG world because of its portfolio of paediatric health solutions and approach towards access to medicine. But the company’s involvement in the opioid crisis – in combination with other controversies – has seriously dented its reputation. To justify its inclusion in any sustainable impact fund is now difficult because, alongside the other pharma companies implicated in the crisis, it actively encouraged overconsumption to boost profits.5,6

The increase in opioid painkiller prescriptions led to widespread misuse

To give some historical background, in the late 1990s, opioid painkillers started being prescribed at a greater frequency, while pharma companies assured medical professionals there was no addiction risk. The increase in prescriptions led to widespread misuse of both prescription and non-prescription opioids.

Prior to this, pharma companies had also lobbied for the Ensuring Patient Access and Effective Drug Enforcement Act of 2016. This resulted in the Drug Enforcement Agency (DEA) being constrained in its ability to freeze suspicious drug shipments from pharmaceutical manufacturers and distributors, as companies were enabled to delay or avoid enforcement. The law also raised the bar for suspending a drug company’s license in cases where the DEA believed there was an imminent danger to the public.7

In terms of economic costs, the picture is also dire. The financial cost of the opioid epidemic in the US in 2017 was over $1 trillion (five per cent of GDP), while US life expectancy dropped for three consecutive years in 2015, 2016 and 2017.8,9

Worryingly, opioids may be indicative of a larger trend, as prescription drug usage in the US outpaces that of every other country. One in five Americans suffer from chronic pain, which is comparable to rates in the UK and continental Europe, but more than half the US population regularly uses prescription drugs. Researchers last year estimated the total value of lost productivity due to chronic pain to be nearly $300 billion annually.10,11,12,13

Figure 1: Per capita prescribed medicine spending, 2004-2019 (US$)
Source: OECD, as of June 29, 202214

Global access is restricted

Meanwhile, there are global access considerations, as pain medications are overprescribed in the US while other countries are unable to access morphine for even palliative care. Every year, more than 61 million people across the world experience about six billion days of serious health-related suffering that could be alleviated with access to palliative care and pain relief.

However, access to pain relief is so limited that 50 per cent of the world’s poorest people live in countries that receive only one per cent of the opioid analgesics distributed worldwide. By contrast, the richest ten per cent live in countries that receive nearly 90 per cent of opioid pain-relief medications.15

In 1990, the Commission on Health Research for Development described the “10–90 gap” of worldwide inequity in health research: less than ten per cent of global resources were aimed at solving health problems in low- and middle-income countries, where over 90 per cent of preventable deaths occurred.16

Between 1990 and 2021, 92 per cent of the research on opioids was related to abuse and misuse

According to recent research published in The Lancet, “the pain divide, also a 10–90 skew, exemplifies and perpetuates this research gap and is a key component of the imbalanced approach to opioid medicines”. A high-level analysis of the research on opioids published between 1990 and 2021 found 92 per cent was related to opioid abuse and misuse, and only eight per cent to opioid access.17

This puts the onus on generic drug companies to increase supply, but it is a facet of the global access issue that has been largely ignored by investors. In particular, generic drug companies frequently underreport on access initiatives. The need for palliative care and pain relief has been largely disregarded, even for the most vulnerable, such as children with terminal illnesses and those living through humanitarian crises. It is also ignored in the Sustainable Development Goals (SDGs) and has not been widely discussed in responsible investment circles, despite its global prevalence. More work needs to be done to address this.

One possible alternative to opioids is cannabis, as research has shown promising results for conditions like sickle cell anaemia or chronic refractory pain. The global cannabis pharmaceuticals market is expected to grow at a compound annual growth rate of 76.8 per cent between 2020 and 2027.18,19,20

3. Ethical implications of gene editing

Gene modification is a key topic for bioethics. It must be acknowledged that, with the emergence of the CRISPR-Cas9 technology in particular, the targeted editing of genomes now occurs on a regular basis. Therefore, the possibility of finding a cure for almost any genetically based disease is undeniable but, as in all stories, there is a positive and a negative side.

A plethora of academic research has been published on the ethics of gene editing and in what instances it should be condoned. We are beginning to see a grey zone in terms of experimenting on foetal tissues, even if the end goal is finding a cure to a rare disease, for example. Even within that community, the jury is still out.21,22,23

Gene editing heralds the prospect of finding cures for rare or catastrophic diseases

On the positive side, gene editing heralds the prospect of finding cures for rare or catastrophic diseases such as cancer, diabetes, or congenital anaemia, among others. It could also allow the fight against diseases like HIV, malaria, dengue fever, the Zika virus or the current SARS-CoV2.

Gene editing also opens the door to the possibility of stopping the advance of bacterial resistance to antibiotics, as well as reducing the virulence of bacterial isolates that cause infections. And agriculture could benefit from the technology to improve yields and resistance to pests, helping to combat food shortages and famine.

But while the use of CRISPR-Cas9 has generated enormous progress in the development of biotechnologies, its areas of application now go beyond research and biomedical therapies. This raises ethical concerns about the appropriate scope of its use.

Ethical dilemmas and the need for a body that guarantees the rights of living beings subjected to biomedical processes gave rise to bioethics in the first instance. Information on the application of the CRISPR-Cas9 system should focus on investigating the damages or collateral effects when using it in living beings and, ultimately, in humans. Legal and bioethical principles are needed. Initially, they protect human dignity and safeguard the integrity of the patient and the content of their genetic information to avoid inappropriate uses.

Bioethics and lawmakers must work together to regulate the use of patient information and protect fundamental rights

Bioethics and lawmakers must work together to regulate the use of patient information and protect fundamental rights, such as health. The core issue is whether to allow the use of CRISPR-Cas9 technology for gene modification. We doubt it can be put into practice in humans, but the question must nevertheless be carefully evaluated.

We have engaged with Merck and KGAA because they have bought the rights to CRISPR-Cas9 technology to conduct gene editing in-house on specific samples (Merck owns 22 patents for CRISPR-Cas9).24 The conversation we had with the company was around how it is managing bioethical questions; what committees these questions are being debated in; and how often they convene. It has a robust approach and has to comply with German regulation on experimenting on foetal tissues, which is very strict.25

But again, questions arise where they are involving contractors to do one part of the operation, especially as they might be sitting in the US or other countries. How do they monitor this? Do these activities align with US regulations or apply German standards?

In terms of how we think about these emerging themes, CRISPR-Cas9 is an incredibly powerful tool, but we need to understand the projected end goal and where the therapeutic applications sit. We also want to know which companies are involved in the development and their track record in ensuring ethical behaviour and good corporate conduct.

Gene editing is an emerging field and there is no consensus among investors on the key issues

Gene editing is an emerging field and there is no consensus among investors on the key issues. There could be an opportunity to start testing the ground as to what kind of agreement there is among asset managers on bioethical questions and the use of these tools.


  1. Abigail Herron, ‘From antibiotic failure to research success’, Aviva Investors, June 9, 2022
  2. ‘Falsified medicines’, International Federation of Pharmaceutical Manufacturers and Associations, as of June 6, 2022
  3. ‘The fight against pharma counterfeiting in the time of coronavirus’, Packaging Europe, October 23, 2020
  4. See: Lonza
  5. Jan Hoffman, ‘Johnson & Johnson ordered to pay $572 million in landmark opioid trial’, The New York Times, November 11, 2021
  6. Tom Perkins, ‘Johnson & Johnson shareholders called on to end talc baby powder sales’, The Guardian, April 27, 2022
  7. ‘Ensuring Patient Access and Effective Drug Enforcement Act’, Wikipedia, as of May 20, 2022
  8. Feijun Luo, et al., ‘State-level economic costs of opioid use disorder and fatal opioid overdose — United States, 2017’, Centers for Disease Control and Prevention, April 16, 2021
  9. Sam Harper, et al., ‘Declining life expectancy in the United States: missing the trees for the forest’, Annual Reviews, December 6, 2020
  10. Nisha Kurani, et al., ‘How do prescription drug costs in the United States compare to other countries?’, Peterson-KFF Health System Tracker, February 8, 2022
  11. Robert Jason Yong, et al., ‘The prevalence of chronic pain among adults in the United States’, Pain, 2021
  12. Denis Campbell, ‘Chronic pain affects one in three young adults in England, says report’, The Guardian, June 27, 2021
  13. Conor Stewart, ‘Quality of life before and during the pandemic for chronic pain sufferers Europe 2021’, Statista, August 17, 2021
  14. ‘Pharmaceutical spending’, OECD, as of June 29, 2022
  15. Afsan Bhadelia, et al., ‘Solving the global crisis in access to pain relief: Lessons from country actions’, Am J Public Health, January 2019
  16. ‘Health research: Essential link to equity in development’, Commission on Health Research for Development, Oxford University Press, 1990
  17. Felicia Marie Knaul, et al., ‘Closing the global pain divide: Balancing access and excess’, The Lancet Public Health, April 2022
  18. Susanna Curtis, et al., ‘Medical marijuana certification for patients with sickle cell disease: a report of a single center experience’, Blood Advances, August 13, 2020
  19. Sarah Abelev, et al., ‘Medicinal cannabis for the treatment of chronic refractory pain: An investigation of the adverse event profile and health-related quality of life impact of an oral formulation’, S. Karger AG, February 9, 2022
  20. Felicity Thomas, ‘The budding field of cannabis pharmaceuticals’, PharmTech, January 2, 2021
  21. Barry Coller, ‘Ethics of human genome editing’, Annual Review of Medicine, 2019
  22. Bryan Cwik, ‘Moving beyond 'therapy'and 'enhancement' in the ethics of gene editing’, Cambridge Quarterly of Healthcare Ethics, 2019
  23. Jenna Turocy, et al., ‘Heritable human genome editing: Research progress, ethical considerations, and hurdles to clinical practice’, Cell, 2021
  24. ‘CRISPR’, Merck, as of June 6, 2022
  25. Andrea Boggio, et al., ‘Human germline genome modification and the right to science: A comparative study of national laws and policies’, Cambridge University Press, 2020

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