August 6, 2025

When Do Biotechs Need to Consider ESG? (And How Long Does an ESG Report Take to Write and How Much Does It Cost?)

What is ESG?

ESG (Environmental, Social, and Governance) is shorthand for the framework used by “socially responsible” investors to evaluate a company’s performance and impact, in ways that go beyond mere financial reporting.

ESG acknowledges the failures of the free market (e.g. the failure of capitalism to exhaustively account for pollution as just one example), and through a system of disclosure (and sometimes outside scores/rankings) seeks to provide investors with the bigger picture information they need to make an informed investment decision.

Breaking ESG down into its components:

• The Environmental (E) component seeks to assess a company’s impact on the environment and how well it operates as a “steward of nature.” 
• The Social (S) component focuses on how a company manages and interacts with its employees, customers, suppliers, and the communities in which it operates.
• Finally, the Governance (G) component covers a biotech’s executive and non-executive leadership structures, internal controls, as well as management practices.

It should be noted that ESG is a topic championed by “the left” and berated by “the right” (especially in the U.S.). In recent history, certain GOP figures forced a retreat by BlackRock, then the world’s largest investment firm, from its previously stated commitment to and execution of ESG strategies (which “the right” derided as “woke”).

Regardless of where you fall on the political spectrum, ESG is important because, certainly if you want to do business in California, New York or Illinois (let alone Europe), your company will be subject to local laws such as California’s SB 253 and SB 261. On the federal side of things, ESG-related requirements ebb back and forth depending on who is in power.

With California being the most populus state in the U.S. (not to mention having an economy that the International Monetary Fund (IMF) pegged at $4.1 trillion in 2024 (bigger than Japan’s $4.02 trillion economy), state regulations like SB 253, SB 261, and others carry substantial weight.

Who is required to report on ESG issues?

SB 253 mandates ESG-related reporting for public and private companies generating more than $1bn in annual sales, and doing business in California, to file information with the state.

Anecdotally, for ESG-focused funds in the U.S., the consensus on how big a company should be before it gets penalized for not having an ESG report is >$1bn in revenue and >1,000 employees.

Note that this excludes the vast majority of biotechs (who are usually non-revenue generating) and who typically have much fewer than 1,000 employees. That being said, many larger companies in the biotech space are “flowing down” their own sustainability requirements onto their subsidiaries, partners and suppliers in an effort to meet their own ESG commitments.

Also, it should be noted that while SB 253 does not require a company to produce an ESG report, it does require the reporting of greenhouse gas emissions, which alongside additional state laws requiring other environmental, social and governmental disclosures, is often the tipping point for companies to begin publishing full ESG reports.

What is an ESG report?

1) What’s in it and how long is it? Weighing in at an average 80 pages (depending on the complexity of the issuing company), ESG reports include in one place a lot of information that companies already collect internally or report externally. ESG reports centralize this information for interested investors and other stakeholders.

The International Sustainability Standards Board (ISSB) (founded in November 2021 by the non-profit IFRS Foundation) and The Task Force on Climate-related Financial Disclosures (TCFD) (established in December 2015 by the G20’s Financial Stability Board (FSB)) both provide a framework for companies to disclose financially material environmental, social, and governance (ESG) information – though the latter is more exclusively focused on environmental factors.

Though the TCFD has subsequently been disbanded, many still utilize the TCFD framework due to its longstanding popularity.

2) How much does an ESG report cost? The “cost” of an ESG report can be as high as $200-500k (according to Sustainability News), though note that this is the overall cost of a report, not the amount you would pay an outside consultant/project manager to produce it.

In recent years, I’ve seen smaller healthcare companies pay $75,000-125,000 to outside ESG consultants for each report to be produced, and less for a “sequel” or an update to a previously published report.

3) How long does it take to put together? Perhaps as long as 4-6 months for a first report, with 3-4 months a more likely duration for subsequent updates. Note that ownership of compiling this document often – but by no means always – falls to IR but involves input from almost every department.

4) How often do companies need to produce them? Every 1-2 years (depending on how quickly the information contained therein becomes stale).

5) Who reads them? They are typically posted on a biotech’s website and as such could be read by any member of the general public. Equity research analysts don’t pay them much heed however, nor do bankers (directly), but investors running funds with ESG strategies certainly do, as do employees (who are often overlooked as an audience for ESG reports).  

How does ESG impact biotechs?

Ignoring the fact that the aim of most biotechs is to help planet Earth’s single biggest polluters (humans) live longer (and thus giving them even more time to pollute), biotechs typically garner good ESG scores. This is because they are predominantly well-educated, white-collar organizations, focused on research and development, and generally not air polluters, mineral or hydrocarbon extractors, sweatshop owners, or hotbeds of racism, sexism or homophobia.

So, if biotechs do quite well by ESG standards, why doesn’t every biotech produce an annual ESG report?

The answer is fourfold:

• They take a lot of time to prepare.
• They cost a not insignificant amount of money that might otherwise be used on drug development.
• The average biotech typically hasn’t crossed the revenue and employment thresholds that mandate such disclosures.
• Finally, biotechnology is already so risky and illiquid that most dedicated healthcare investors can only afford to look at one metric when considering a biotechnology investment, i.e., can the company develop a viable drug?

Consequently, very few biotechs – and in fact only the largest – produce ESG reports and very few development-stage biotechs have their lack of an ESG report held against them.

That being said, ESG has gained ground in recent years, even in biotech investing, and it’s hard to argue that ESG won’t be a factor for every company at some point in the future, regardless of their size.

TD Cowen, for example, now gives every biotech company an ESG score on the front page of its research reports, proximate to its analyst’s recommendation (Buy, Sell or Hold) and price target.

Note that these ratings are not generated by TD Cowen analysts but are instead generated using FactSet technology by prior agreement.

Claiming to use more than 200,000 data sources, FactSet then rates a biotech’s ESG performance on a scale of 0-100 using “established sustainability and ESG frameworks.” A score of 50 represents a neutral impact. Scores above 50 indicate more positive ESG performance.

While TD Cowen’s efforts should be applauded, in practice, the only people who care about the scores (according to one insider) are those biotechs who are ascribed a low ESG rating by the process (meaning they are almost exclusively ignored by both investors and analysts).

So, when does ESG become important for biotechs?

The answer is, shortly before a biotech breaches the $1bn minimum revenue and 1,000-employee threshold, which is to say usually post the FDA’s approval of its drug(s) and a few years into commercialization.

Unless a relationship you have with Big Pharma forces your hand earlier.

This makes sense – at this stage of a biotech’s lifecycle (assuming the company hasn’t been bought by Big Pharma or seen its clinical trials fail) a typical biotech cap table fills with generalists, as the biotech specialist funds sell down. Those generalist funds are much more likely to be ESG-sensitive, given they will likely have multiple investments in companies (especially in other sectors) already producing ESG reports.