Amid a global pandemic and inflation challenges, CEOs surveyed for a recent report expressed confidence in the three-year outlook for their companies and the economy. While many respondents from the life sciences sector said they expect a recession will occur within the next year, almost the same amount said their growth prospects are strong, according to the KPMG 2022 CEO Outlook. Those CEOs also expressed a growing interest in environmental, social, and governance (ESG); and diversity, equity and inclusion (DEI) initiatives.
For the eighth edition of the report, KPMG spoke with 1,325 CEOs from 11 markets around the globe and 11 key industry sectors, including life sciences, between July 12 and Aug. 24. The company shared the responses from the life sciences CEOs on their three-year outlook with AIS Health, a division of MMIT.
Respondents acknowledged the current geopolitical and economic challenges but were still optimistic about growth prospects. Most of the life sciences CEOs — 85% — expressed a strong or very strong belief that a recession will happen within the next 12 months, with 77% saying they have planned for such an occurrence. However, 86% said they are confident or very confident about their potential for growth over the next few years, and 82% expressed the same amount of confidence in “the resilience of the life sciences industry over the next six months.”
As the COVID-19 pandemic began circling the globe in early 2020, many companies began allowing their employees to work from home more often or be entirely remote. While this helped limit exposure to the virus, 43% of life sciences CEOs said that hybrid/remote work has had a positive effect on employee retention, and 47% said it has had a good impact on collaboration and innovation. More than two-thirds, or 69%, of those CEOs said they anticipate that corporate employees will be back in the office over the next three years.
KPMG found that CEOs recognize the importance of ESG initiatives that influence a company’s impact on the environment, on people — not only its employees and customers but also its community — and on governance structure. They expressed an understanding of its effect on their financial performance via a firm’s ability to hire good employees, attract loyal customers and raise money. “ESG has gone from a nice-to-have to integral to long-term financial success,” notes the report.
Almost three-fourths (74%) of life sciences CEOs said that ESG challenges around the world threaten their firms’ value and long-term growth, while 75% said that amid declining confidence in governments, businesses need to “fill the void on societal challenges, such as inclusion, diversity, equity, climate change or social justice.”
Most of the life sciences CEOs (72%) said they expect growing scrutiny from stakeholders on their ESG efforts, with 31% agreeing that a critical way in which they will increase their ESG strategy is through increased measurement and governance that result in a more vigorous and transparent approach. In addition, 22% stated that ever-changing regulations will pose the largest challenge to their ESG strategy in the next few years.
Respondents also acknowledged that while a focus on DEI exists, improvement in diversity efforts could be better. Almost two-thirds — 64% — of life sciences CEOs stated that DEI progress in the business world has grown too slowly, and 77% said they expect that scrutiny of their performance when it comes to diversity will continue to grow over the next three years. Most respondents (82%) contended that having gender equity among their executive-level managers will help them meet their goals for company growth. And 57% said they would take a stand on a potentially controversial political or social issue even if their board of directors had concerns about their doing so.
Findings Demonstrate Confidence in Industry
Among all the life sciences findings, one of the most interesting ones is that “despite short-term pessimism, with 85% of life sciences CEOs indicating they believe there will be a recession in the next 12 months, a near identical number (86%) are confident about their growth prospects in the next three years,” says Spencer Champagne, managing director of strategy practice at KPMG US. “This dichotomy speaks to life sciences CEOs’ confidence and, more specifically, the resiliency they’ve seen in their sector despite economic headwinds in the past.”
In addition, he points out, “72% of life sciences CEOs said that stakeholder scrutiny of performance on ESG issues — such as employee diversity, gender equity and climate impacts — will continue to accelerate. Additionally, more than half (53%) of life sciences CEOs connect ESG with improved financial performance. However, half of life sciences CEOs also indicated they’d consider pausing or reconsidering existing planned ESG efforts, so it’s really a moment right now where CEOs are balancing short-term and long-term returns, and it’s testing CEOs’ commitments to their ESG strategies.”
Asked about the importance of a robust and transparent ESG approach, Champagne tells AIS Health that “trust for business is more important than ever because society is looking at them increasingly as a primary trusted institution. Transparency is central to trust. Companies should share what they are doing, why they are doing it and how they are planning to move forward — even if they miss their initial goals.”
A company’s delivery of its ESG strategy may face additional challenges besides changing regulations. “ESG covers a wide range of topics that cut across traditional functional areas. It’s critical for organizations to embed ESG into their overall business strategies so their different functions aren’t operating in silos,” asserts Champagne.
“One of the biggest challenges for sustainability reporting, for example, is understanding the data needed to report certain metrics, getting access to it and managing the calculations required to adequately report emissions,” he continues, noting that his firm helps companies “not only develop a strategy for collecting data but also help them adequately analyze it so they can figure out which sources are emitting the most and deploy effective strategies to address the findings.
“Companies that can embed ESG into their overall strategies will unlock value,” he states. “For example, by embedding climate goals into firmwide strategies and operations, everyone involved is thus held accountable to helping meet these targets.”
Citing the finding that 47% of life sciences CEOs said that hybrid/remote work during the pandemic has had a positive effect on collaboration and innovation, he explains that “over the last few years as employees across sectors have been working in an increasingly hybrid environment, one challenge that has come up is the ability to collaborate effectively. Yet our survey highlights that nearly half of the life sciences CEOs said the hybrid model has had positive impact regarding collaboration and innovation. Again, I think this point speaks to one of the strengths we’ve seen historically in life sciences, and that is resiliency.”
With a little less than half of respondents saying that hybrid/remote work has had a positive impact on employee retention, “while it’s the third year of employees, across industries, operating in a hybrid (or entirely remote) world, there is still a lot of uncertainty about what the future of work will look like,” observes Champagne. “The changing nature of work, even if it’s more hybrid, created new values, norms and expectations in terms of acceptable ways of doing business, which ultimately impacts company culture. Depending on the company, this impact may or may not have been a negative outcome. The new way of working did, however, create a new challenge for business leaders and employees, as being virtual can make some employees feel more out of touch. Ultimately it comes down to the employee value proposition and finding what individual candidates find most valuable for their work life.”
According to Champagne, “the last few years have highlighted that people are an organization’s greatest asset. And while the most dramatic evolution in the employee value proposition took place during the beginning stages of the pandemic, the evolving employee expectations are here to stay. Companies, like individuals, are unique and different. While there is no one-size-fits-all approach, it’s important for companies to continue to listen to their people and continue to present a value proposition that aligns with what individual candidate finds the most valuable for their work life.”
Opportunities Exist for DEI Progress
In addressing the finding that DEI progress has moved too slowly, Champagne points out that “there are growth opportunities throughout the employee career life cycle, and as life sciences companies deploy new strategies, they must deliberately consider the diversity lens.
“For example, in this environment where companies are increasingly operating remotely, one of the main challenges has been making sure employees are engaged with and connected to their organization and its people, as well as empowered to speak up when they are feeling out of touch,” he continues. “To pretend that everyone can and will feel equally engaged and connected is to take a diversity-neutral approach to the reality of the impact remote work has had on people.”
With this in mind, life sciences CEOs “need to consider whether they are providing outlets for employees to voice concerns, build connections outside their immediate teams and foster a sense of belonging,” maintains Champagne. “While technology has empowered teams to bring employees across the world together, it has also made it increasingly more critical to create and provide space for connections that help employees advocate for themselves, set culture and supplement formal avenues of mentorship with informal ones.”
He adds that “the Great Resignation also presented a greater degree of complexity in ensuring companies have the right skills and right candidates to grow their organizations. Life sciences CEOs need to consider the right combination of recruiting and upskilling to be able to face the needs of tomorrow.”
The finding that more than half of CEOs will take a stand on a politically or socially contentious issue “highlights and speaks to the importance of values, whether they be personal or corporate,” says Champagne. “CEOs are no strangers to balancing differences of opinion. Similar to other challenges facing their organization, whether an issue is political in nature or societal in nature, life sciences CEOs will have to continue to listen to their employees and have transparent conversations with their boards as they strive to act in a manner that is reflective of both their personal values and of those they represent.”
He stresses the point that “no stakeholder is a monolith. Investors disagree, talent disagrees, and customers will disagree. When we talk to companies, they are focused on connecting their ESG story to their business to drive value, and they have to execute that strategy and tell that story.”
Asked about life sciences CEOs’ confidence in their growth prospects over the next three years, Champagne replies, “as economic headwinds continue to mount, CEOs are balancing the challenges of the present while keeping an eye on the future. Part of the confidence over the longer term is the lessons of history and the resilience of the life sciences sector during past downturns. Additionally, rapid scientific innovation and as well a strong development pipeline in large and growing sectors to public health, such as oncology and immunology, are also likely factoring into the optimism expressed by life sciences CEOs.”
Contact Champagne through Marissa Ross at marissaross@KPMG.com.