Long term matters: Vaccine apartheid and investors

So let’s imagine there is an asset owner who is well informed about COVID-19 vaccine inequity. This is how a meeting with its global fund manager might go. 

Asset owner: Given you own a percentage of all the main vaccine manufacturers, our members are interested in how you engage with them. Clearly, the current strategy to vaccinate the world isn’t working fast enough. We think it’s time for a fresh approach. 

Investment manager: We should recognise that these companies have worked day and night to get the vaccines out in record time. Governments have failed by not funding COVAX quickly enough and by not sharing out available vaccines fairly. Blaming ‘greedy pharma’ is easy but that’s diverting attention from who’s really responsible. Investment performance is key to your members’ retirement and these companies are performing really well.

AO: Our members are also long-term focused. They understand that inequality is an investment and political risk. They are also want an end to the pandemic – we should remember that the Delta wave started in a poorly vaccinated country. During the HIV epidemic, pharma companies lobbied very hard to block generic anti-retrovirals. Some 10m Africans died because of that. This time the immediate answer may not be patent waiver – although this won’t be the last pandemic and there’s much unfinished business from the Doha agreement. What I’m talking about is the mindset that places shareholder value above millions of lives, economic disruption and destabilisation.

IM: We cannot ignore our fiduciary responsibilities. It is not our role to make up for failing governments!”
AO: Surely clients should be able to trust investment professionals not to exacerbate systemic crises. What will be the impact on global economic prospects of meeting the WHO target of 70% vaccination by mid 2022 versus what we are currently on track for – 2023 or later?

IM: I am not familiar with scenario analysis of that situation.
AO: And what about the economic impact of a ‘doomsday’ variant – one that doesn’t respond to current vaccines?

IM: This isn’t possible to quantify. It goes in the ‘existential risks’ bucket. We also don’t model the impact of meteors hitting the earth…
AO: Ten years ago your predecessor dismissed my fund’s concerns about the climate crisis in a similar manner. Now your firm takes a very different approach to the energy transition. But a vaccine-resistant variant is a possible outcome of not vaccinating the world quickly.

IM: I don’t think the climate analogy is a good one: pharma companies are doing well, unlike fossil fuel stocks!
AO: In a world where uncertainty means discontinuous change, perhaps we might want to add ‘yet’ to that sentiment? We are fully aligned on wanting to make sure big pharma doesn’t end up being like tobacco, big oil or big tech. The sector’s reputation was resuscitated by its R&D success, but this could be wasted if pharma companies are seen as roadblocks to dealing with the pandemic.

IM: Should we sell the pharma stocks in your portfolio?
AO: No, actually we are open to over-weighting this sector given public health needs even in the pre-pandemic period. Plus, this won’t be the last pandemic. What we are hoping for is purposeful stewardship bringing about positive real world impact. We are thinking about something like CA100+. Major (mainly US) fund managers were slow to join that and we hope this won’t be repeated.

IM: What, specifically, do you want us to do?
AO: We would like investors to acknowledge how we collectively contribute to this situation. Given pharma CEOs’ KPIs [key performance indicators], it isn’t surprising that manufacturers focused first on supplying rich countries and now on boosters. It isn’t greed – it’s a predictable consequence of incentives. Since investors approve these compensation plans we share responsibility for vaccine inequity. How can investors change the compensation metrics so pharma execs really focus on vaccinating the world? That would allow them to acknowledge social needs and reputational and fat-tail risks.

And if vaccine manufacturers were more transparent about supply-chain challenges, governments, investors and others could help overcome these bottlenecks. Are your pharma analysts really happy with the reasons given by vaccine producers for not making this information more public?

And does your pharma team accept the reasons given by pharma execs for not supporting tech transfer and shared know-how, most explicitly Moderna but also Johnson & Johnson and Pfizer? Why have these manufacturers turned down requests from Samsung, Teva, Celltrion and Bavarian Nordic? All are serious biological or vaccine players in their own right. 

Big pharma has missed many deadlines even with very important customers like the EU. And if there’s another crisis – such as a more deadly variant – we all know that rich countries will again be prioritised. This is not the last pandemic we will see so it’s important that all regions of the world start to build capacity to handle these threats. All in all, this crisis is too good an opportunity to waste – pharma companies must contribute to building forward better. Do you agree?

How the story ends depends a lot on you, the reader, and those you can influence. Big fund managers are not going to change their approach unless clients take an assertive, well-informed stand and show they are serious – for example, by signalling that they will table AGM resolutions with the least collaborative companies. 

A box-ticking response to the emergency summit convened by President Biden on 22 September – simply adding an extra ‘to do’ item to the responsibilities of an overloaded ESG team – won’t help much when the real power rests with pharma analysts and the CIO.

Faced with carefully prepared questions such as these, fund managers will either have to acknowledge – at least to themselves, if not their clients – that their current decisions are driven primarily by the share price of a handful of large western pharma companies. 

Millions of poor Africans dying may be ‘unfortunate’ and while the economic and political knock-on effects of that will not be good, short- term portfolio returns are more important than market health. 

As insiders know, investors do not really worry about systemic threats. They believe governments will bail out any important companies and use QE to keep stock markets buoyant. And should QE cease, investors won’t face competitive disadvantage, which is what they worry about most.

Moreover, given the projected use of mRNA technology in many other illnesses, (mainly western) investment execs are as attuned to the shareholder value implications as the (mainly western) pharma execs who see tight control of intellectual property as central to their pricing strategy in rich countries. 

Slowing down competitors from getting access is ‘obviously’ a pro-shareholder strategy. And if the pandemic is prolonged this means more boosters in high-income countries. This is, after all, a business model with a particularly good ‘moat’, at least currently. Or fund managers will begin to adopt new mindsets consistent with helping to manage systemic risks and actively support a stewardship approach that is fit for purpose.

Raj Thamotheram is a fellow of the Nordic Institute for Finance, Technology and Sustainability (NIFTYS) and Lieve Fransen is senior policy adviser at the European Policy Centre