Head-To-Head Comparison: Pfizer Vs. Johnson & Johnson On Environmental Metrics

|
Includes: JNJ, PFE
by: Katherine Schrank

Summary

Johnson & Johnson leads industry peers on environmental disclosures.

Although JNJ emits more carbon or GHG than Pfizer, intensity metrics suggest that JNJ's operations are more energy efficient than its industry peers.

JNJ uses much less water in production than Pfizer, and intensity metrics suggest that JNJ also uses very water efficiently across its operations.

This is a guest post by Kate Schrank, Founder and CEO of Sustainability Partners, Inc. (NASDAQ:SPI), ESG Analyst | Sustainability Practitioner| Strategist | Former Corporate Environmental Attorney, and is an example of additional research she completes when a company is identified by Seeking Alpha analysts as appropriate for investment.

ModernGraham has identified Pfizer (NYSE: PFE) as appropriate for Defensive or Enterprising Investors, and Johnson & Johnson (NYSE: JNJ) for Enterprising Investors. So now I am interested in going beyond the financial metrics for these healthcare giants, into big data that provides insight into the companies' environmental, social and governance (or ESG) or sustainability performance. There is a growing body of evidence from sources like Deloitte, Harvard Business Review and Global 100, of a strong link between long-term financial performance and sustainability performance. See this white paper (p. 5/9) for links to these sources. Investors are increasingly recognizing the value of transparency when it comes to standard ESG performance metrics. Standard ESG metrics help investors and other stakeholders' conduct due diligence about a company's values and leadership, operational efficiencies and environmental footprint, employee and customer loyalty and opportunity, and community relations.

Companies release ESG data through annual reports such as the 10K and the corporate social responsibility (or CSR) report. Our primary source for ESG data is Bloomberg's Professional Finance and ESG database (Bloomberg). Since 2009, corporate ESG data has been available through subscription services provided by Bloomberg. With nearly 400,000 Bloomberg terminals located in financial institutions, publicly traded companies, academic institutions, and some public libraries throughout the world, this big data is available for stakeholder consumption. Therefore, if a company sees an error in their public ESG data, it should have a corporate representative contact Bloomberg and get it corrected, as it would with public financial data.

To drive ESG insights, best practice is to compare several companies' side-by-side, usually from within the same industry sector. For this blog, SPI compares Johnson & Johnson to Pfizer and eight additional U.S. competitors and peers on key ESG metrics. Table 1 below provides the aggregate Bloomberg ESG disclosure scores for JNJ and PFE over the past five years. Bloomberg generates the ESG disclosure score based upon how well a company discloses key ESG metrics. SPI likes the ESG disclosure score because it provides a quick macro-read on how accountable and transparent a company chooses to be when it comes to sustainability performance. ESG scores range between zero (no disclosure) and 100 (full disclosure).

TABLE 1: ESG DISCLOSURE TRENDS FOR 2009 TO 2013

COMPANY

2009

2010

2011

2012

2013

J & J

57

58

60

54

57

PFIZER

41

43

42

37

35

Johnson and Johnson has the highest ESG disclosure score- meaning most robust - of all the companies in this benchmark. Pfizer has the lowest. JNJ' ESG disclosure score of 57 in 2013 remains unchanged from its disclosure score in 2009. Pfizer's ESG disclosure score of 35 in 2013 is six points lower than its score in 2009. While JNJ has a more robust ESG disclosure score than Pfizer, neither company demonstrates momentum when it comes to continuing improvement on ESG disclosure and performance.

Table 2 compares JNJ, Pfizer and eight U.S. based peers alongside the industry "average" for 52 publicly traded healthcare securities (identified by Bloomberg as JNJ's industry peers) on key environmental metrics. When it comes to direct and indirect greenhouse gas (NYSE:GHG) (Column 2) or carbon emissions (Column 4), JNJ has higher emissions than Pfizer and the industry group average. However, JNJ's GHG or carbon intensity as a percentage of sales (Columns 3 and 5, respectively) is significantly lower than Pfizer's and the industry average. This suggests that JNJ may have more energy efficient operations across its enterprise compared to PFE, and the industry peers when it comes to energy usage.

TABLE 2: KEY ENVIRONMENTAL METRICS

Name

GHG Emissions

GHG Intensity/Sales

Total CO2

Carbon Intensity/Sales

Tot Wtr Use

Wtr Intens/Sls

Average (52 securities)

747.68

44.51

363.08

35.88

17,157.64

1316.09

JOHNSON & JOHNSON

NA

NA

1197.00

16.79

11,200.00

157.06

ELI LILLY & CO

1575.00

69.68

NA

NA

12,500.00

553.01

ALLERGAN INC

74.61

11.84

NA

NA

986.08

156.51

MERCK & CO. INC.

1860.30

42.25

NA

NA

46,941.25

993.11

ABBOTT LABORATORIES

991.00

45.36

NA

NA

11,583.89

530.20

BRISTOL-MYERS SQUIBB

517.00

29.34

832.00

NA

25,620.00

1314.93

MEDIVATION INC

NA

NA

NA

NA

NA

NA

HOSPIRA INC

NA

NA

432.42

NA

3,996.99

976.76

ABBVIE INC

664.00

35.34

NA

NA

NA

NA

PFIZER INC

1670.00

32.37

NA

NA

44,300.00

858.79

When it comes to total water usage (Column 6), JNJ's total usage of 11,200 is much lower than Pfizer's water 44,300, and the industry average of 17, 157. Total water usage measures the amount of water in thousands of cubic meters, used to support a company's operational processes. It is the sum of all water withdrawals for process water, cooling water, and all water retained by company facilities through recycling.

JNJ water usage is conservative compared to its peers, as its JNJ's water intensity as a percentage of sales (Column 7). With an industry average of 1,316, Johnson and Johnson's water intensity is 157, whereas Pfizer's is 859. As with GHG or carbon emissions, it seems that JNJ has greater water efficiency in operations across its enterprise, compared to Pfizer and the other industry peers.

TABLE 3: MORE ENVIRONMENTAL METRICS

Name

GHG Scope 3

CDP DV Scp1

CDP DV Scp2

CDP DV Scp3

Total Waste

Invest in Op Sust:Y

Average (52 securities)

340.94

82.14

82.22

35.24

0.07

$ 21,950,011.10

JOHNSON & JOHNSON

377.00

80.00

100.00

60.00

0.16

$ 37,600,000.00

ELI LILLY & CO

305.00

100.00

100.00

100.00

0.28

$ 9,700,000.00

ALLERGAN INC

145.88

100.00

100.00

40.00

0.01

NA

MERCK & CO. INC.

99.42

100.00

100.00

0.00

0.11

NA

ABBOTT LABORATORIES

NA

100.00

100.00

0.00

0.07

NA

BRISTOL-MYERS SQUIBB

43.30

100.00

100.00

20.00

0.04

NA

MEDIVATION INC

NA

NA

NA

NA

NA

NA

HOSPIRA INC

NA

40.00

NA

NA

0.01

NA

ABBVIE INC

NA

20.00

20.00

NA

0.04

$ 1,500,000.00

PFIZER INC

NA

100.00

100.00

0.00

0.15

NA

Table 3 shows that most of the top U.S. healthcare companies have verified or are in the process of verifying GHG or carbon emissions from their operations (Columns 3 and 4). Fifty percent of these companies are at various stages of measuring GHG emissions in their supply chains (Column 2), and simultaneously having the data verified (Column 5). Pfizer appears to be the least accountable and transparent about GHG emissions of its supply chain.

When it comes to generating waste (Column 6), JNJ and PFE generate more waste than their industry peers. Investors interested in further research on this issue may want to review each company's annual CSR or sustainability report, usually available on the company's website. Good issues to review are what waste reduction goals has each company already achieved, and what stretch goals are in place that are not reflected in these metrics.

Finally, Column 7 provides the operating budgets for the companies' investment in sustainable operations. JNJ has the highest budget for sustainable investment whereas Pfizer's is one of the lowest, with several companies not disclosing this metric at all. This metric is the amount of money spent by the company, in millions, on operational environmental and social compliance and other internal environmental and social initiatives, as defined by the company. Many companies are not used to reporting this metric, but it helps companies show that sustainability goals and budgets transparent and executable.

At a minimum, the key environmental metrics reviewed in this basic benchmark raise intelligent questions for investors and other stakeholders who want to work with or invest in companies that are committed to accountability and transparency when it comes to corporate use of natural resources in operations.

Who values this data? Investors who seek long-term investments value the data because it helps identify maturely positioned companies who have assessed and prioritized ESG risks and opportunities. Other stakeholders - such as future and current employees and customers - value ESG data too. If you want a deeper explanation of this megatrend towards corporate disclosures, browse through the several articles on my website.

Disclaimer: The author does not hold a position in any of stocks mentioned in this article, and has no plans to change that position within the next 72 hours.