ESG CASE STUDY: NOVARTIS
Pharma karma
Novartis is taking bold steps to increase access to medicines and tackle complex global health challenges. flow’s Janet Du Chenne explores how a social bond focuses the pharma company on achieving ambitious targets for getting medicines to low- and middle-income countries
C
ovid-19’s dominance of the global healthcare agenda continues to hinder access for low- and middle- income countries (LMICs) to prevention and treatment efforts for many other diseases. Two billion people worldwide have no access to basic medicines and healthcare,1 while a World Trade Organization/World Bank study found that, even before the pandemic, 100 million people each year were impoverished by uneven healthcare expenditure.2
Weak healthcare systems
in LMICs also hinder timely diagnosis and treatment. Swiss pharma company Novartis is focused on tackling these challenges.
In September 2020, as part of its environmental, social and governance (ESG) agenda (based on ethical standards, pricing and access, global health challenges and responsible citizenship), the company issued a sustainability-linked bond (SLB) with specific targets for global health and access to medicine. It is aiming to increase the number of patients in LMICs reached by its innovative therapies by 200% by 2025, and by its treatments for leprosy, malaria, sickle cell disease and Chagas disease by 50% over the same period. More than 24 million additional patients could be reached if Novartis achieves both targets.3
In the bond’s prospectus, the company says that the eight-year €1.85bn SLB creates a direct connection between progress towards achieving these targets and its funding strategy and cost of capital.4 Bohr, Partner at Mayer Brown, Novartis’s
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legal counsel on the bond issuance, comments on this rationale: “We’re still not at a point where there are any real commercial advantages for issuing an SLB,” he explains. “Historically, AA-rated issuers such as Novartis could raise money in the capital markets whenever they wanted to at very low interest rates. The company issued this bond at a zero coupon, so it is paying no interest, but the bond is core to Novartis’s vision of reimagining medicine to improve and extend people’s lives and finding areas where it can add the most value to society.” Novartis enlisted Deutsche Bank as one of the managers, as well as fiscal agent and principal paying agent on the bond, which priced at 99.354% of the aggregate principal amount.
The bond was only the second to be based on the International Capital Market Association’s (ICMA’s) SLB Principles5 (published in June 2020), and the first to be linked to achieving social sustainability performance targets. “Unlike energy utilities such as Enel, which [in September 2019] issued the first bond linked to renewable energy targets and the reduction of greenhouse gas emissions, Novartis picked social sustainability performance targets that are core to its business as a medicines company,” says Bohr.
Building trust with society The targets are thus linked to one of Novartis’s five strategic priorities: building trust with society. (The other four are unleashing the power of people,
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