Historically, healthcare companies have been poor communicators when it comes to their institutional investors. That’s according to 68 percent of those covering the sector, surveyed by Edelman.
A further 61 percent believe that healthcare companies are actually unprepared to communicate effectively with their major investors. The findings are part of Edelman’s inaugural Trust Barometer Special Report: Healthcare Institutional Investors.
‘The pandemic accelerated an increase in investors’ healthcare allocation and the sector has traditionally been viewed as a strategic investment in a down economy,’ says Edelman in a statement accompanying the findings. ‘But as investors face a challenging landscape for growth, healthcare companies are being held to higher expectations on communications in order to both earn and also retain investor trust.’
As well as pointing to the unsurprisingly high number of institutional investors (78 percent) that say they will not invest if a company fails to provide sufficient operational and/or performance information, Edelman Smithfield – Edelman’s specialist, London-based capital markets and financial services team – looked at the top sources healthcare investors use for information gathering. These include:
- The company’s website (48 percent)
- Investment portfolio (44 percent)
- ESG report (37 percent)
- The company’s investor relations website (37 percent).
Almost nine out of 10 (87 percent) also say they need to trust a healthcare company’s CEO before making or recommending an investment. Eighty two percent need to trust a healthcare company’s board of directors.
The pandemic effect – and ESG as a value driver
Edelman’s research finds that the Covid-19 pandemic has given a huge boost to the attractiveness of healthcare firms from an investor perspective. In fact, 78 percent of investors surveyed by the firm say they have increased their allocation in healthcare. Investors also note that ‘all healthcare sub-sectors have become more attractive since the Covid-19 pandemic,’ especially pharmaceutical/ specialty pharmaceutical (75 percent) and medical devices/healthcare equipment and supplies firms (70 percent).
Researchers also note that investors see technological advancements in healthcare as a key value driver. ‘Investors overwhelmingly tie treatment advancements (77 percent), technological advancements and innovation (76 percent), and the application of new technologies, such as artificial intelligence and machine learning (76 percent), to their positive financial outlook of the healthcare industry.
Interestingly, there is also a focus on company purpose, with ‘an overwhelming majority’ (84 percent) of investors saying a healthcare company should be taking proactive action to have a positive impact on society. This is closely followed by the 82 percent who say they need to trust the company is proactively prioritizing ESG practices, before making or recommending an investment.
Investors surveyed by Edelman also strongly believe that better ESG performance is key to value. Seventy three percent say they won’t invest in healthcare companies without ESG mandates, while 81 percent believe those with strong ESG performance deserve premium valuation. ‘Likewise, 79 percent say healthcare companies that prioritize ESG represent better opportunities for long-term returns,’ note researchers.