Investing in sustainability can help healthcare companies innovate more, but only up to the point at which firms do not accumulate excessive debt, according to research by Sarmad Ali, Oriana Ciani and Simone Ghislandi. The study examines the link between ESG (Environmental, Social, Governance) performance, access to credit, and R&D output in the healthcare sector.
Companies with higher ESG scores obtain financing more easily and convert this availability of capital into measurable innovative activity, first and foremost, the number of patents filed. When indebtedness exceeds an implicit threshold of financial sustainability, however, the mechanism loses effectiveness: creditors’ trust erodes, monitoring costs increase, and the willingness to finance projects characterized by high uncertainty declines.
The findings shift the ESG debate from a predominantly reputational or regulatory dimension to a more operational and strategic one. In healthcare, sustainability can act as a variable that directly affects financing conditions and, through them, the ability to support long, costly, and high-risk innovation pathways.
All links in the chain
Over the past decade, the relationship between ESG performance and economic and financial outcomes has been extensively investigated, particularly in sectors with high environmental or regulatory exposure, such as energy, utilities, and heavy manufacturing. In these areas, strong ESG performance has been associated with a lower cost of capital, reduced volatility, and higher-quality relationships with institutional investors. By contrast, the healthcare sector has remained far less explored, despite combining a particularly dense set of critical factors: high R&D intensity, long time horizons, heavy regulation, and a social mission that exposes firms to constant public scrutiny.
The literature suggests that good ESG performance can enhance reputation and facilitate access to financial resources, but do these financial advantages actually translate into greater innovative capacity? And does debt function as a transmission channel between sustainability and innovation, or does it become, beyond a certain threshold, a source of rigidity that penalizes precisely the most uncertain investments?
A comparison between Europe and the United States (two contexts that share developed financial markets but are characterized by very different rules on non-financial reporting) makes it possible to observe how these dynamics unfold in different institutional environments.
The European HI-PRIX project
The analysis is based on 1,211 firm-year observations relating to 173 publicly listed healthcare companies in Europe and the United States over the period 2016–2022. The sample includes pharmaceutical, biotech, medical device, healthcare technology, and healthcare services companies, reflecting the heterogeneous structure of the sector. ESG performance is measured using Refinitiv/LSEG scores, while R&D output is captured through the number of patents filed.
The research is part of the European HI-PRIX project, coordinated by CERGAS SDA Bocconi. The project is dedicated to the study of innovative pricing and payment models for pharmaceuticals and healthcare technologies. HI-PRIX treats the economic and social sustainability of innovation as a structural variable. Within this framework, the paper shows how ESG regulation and financial structure choices influence firms’ ability to generate high-quality innovation in a sector where today’s decisions produce clinical, industrial, and social effects years down the line.
Watch the debt
Three main findings emerge from the study.
- First, higher ESG performance is associated with greater R&D output: holding size, sector, and profitability constant, more sustainable firms file more patents.
- Second, a significant share of this effect (around 32 percent) is mediated by debt. Sustainability improves perceptions of firm reliability, reduces information asymmetries, and facilitates access to credit, making investments that would otherwise be considered too risky financially viable.
- Third, debt displays an ambivalent nature. When it exceeds levels considered sustainable by lenders, the positive effect of ESG on innovation weakens to the point of almost disappearing, indicating that financial leverage, beyond a certain threshold, amplifies tensions between risk, control, and time horizon.
The results suggest that ESG, financial structure, and innovation strategy should not be managed as separate domains. Sustainability becomes a lever for innovation only if embedded in a coherent financing design capable of supporting uncertainty without undermining the firm’s credibility with creditors.
In healthcare, moreover, the “Social” component of ESG, linked to product safety, access to care, and human capital management, proves particularly relevant, in line with stakeholder expectations and with the very nature of medical innovation.
Institutional differences reinforce this interpretation. In Europe, where regulation makes ESG disclosure more structured and comparable, the effect of sustainability on innovation appears stronger. In the United States, in the absence of an equally stringent regulatory framework, ESG has less influence on financing decisions and, consequently, on innovative output.
Asymmetries also emerge within the sector itself: the pharmaceutical segment shows greater sensitivity than other areas of healthcare, a sign that where competition hinges more heavily on research pipelines, sustainability becomes a more financially salient signal.
Sustainability regulation does not operate solely at the level of transparency, but indirectly alters the functioning of financial markets and the conditions for financing innovation. The standardization of ESG metrics, still fragmented today, therefore appears as a non-neutral element in relation to R&D policy.
From a teaching perspective, the results provide empirical material that will be used above all for the international course Innovative pricing and payment schemes in healthcare, which itself emerged from the HI-PRIX experience.
Sarmad Ali, Oriana Ciani and Simone Ghislandi. “ESG Performance, Debt Financing, and R&D Output: Evidence From the Healthcare Sector.” Business Strategy and the Environment 1–24. DOI: https://doi.org/10.1002/bse.70522.
