As Biopharma Turns to China, ESG Risks and Geopolitics Remain in Focus

Structural pressures on American and European biopharma companies—high research and development costs, patent expiries, and competitive markets—have made cross-border licensing with Chinese firms an important strategy, even if risk premiums rise.

For investors, this evolving landscape underscores the need to assess not only the opportunity set but also how effectively companies can navigate geopolitical friction and mitigate environmental, social, and governance risks while preserving deal execution and value.

Why China Has Become Strategically Essential

Western biopharmaceutical companies are facing mounting pressures. Drug pricing scrutiny is intensifying in many markets, major patent cliffs are looming, and the cost and complexity of developing new medicines continues to rise. Against this backdrop, many US- and Europe-based biopharma firms are increasingly looking to China as an external source of innovation for growth.

China’s biopharma sector has matured rapidly over the past few years. This growing innovation is increasingly reflected in global pipelines, with approximately one-third of new compounds in US pharmaceutical pipelines in 2026 originating in China.

Through licensing and research partnerships, Western drugmakers are acquiring early- and midstage assets from Chinese firms, often more quickly and at a lower cost than developing them in-house. These deals offer a capital-efficient way to diversify pipelines, expand therapeutic focus, and manage R&D risk through milestone-based sharing, in addition to providing a cost-effective alternative to traditional mergers and acquisitions for accessing external innovation.

These deals may help drive growth, but they may also introduce an evolving set of environmental, social, and governance risks, amid an increasingly volatile geopolitical environment. Understanding how well companies manage those risks may be increasingly relevant for assessing the long-term value of licensing deals.

Geopolitics as a potential ESG Risk Multiplier

Cross-border licensing deals and R&D partnerships increasingly sit at the intersection of broader geopolitical dynamics, as the US and Europe increase emphasis on intellectual property protection, data security, supply-chain resilience, and broader economic reliance on China.

Rising US-China tensions alongside incentives to onshore drug manufacturing, tariffs, and emerging biosecurity legislation fuel a more uncertain policy environment for cross-border collaborations, signaling a shift toward a more protective biopharmaceutical policy landscape. These developments may increase compliance costs, tighten oversight, or constrain certain forms of collaboration over time.

In parallel, EU initiatives aimed at strengthening resilience and derisking drug supply, manufacturing, and innovation may similarly elevate expectations around governance, transparency, and risk management in partnerships involving Chinese firms.

Taken together, the evolving geopolitical and national security landscape may expose cross-border licensing deals and R&D partnerships with Chinese firms to heightened regulatory scrutiny, potentially resulting in delays, audits, renegotiations, or, in more extreme cases, blocked collaborations.

Strong ESG management—including robust governance structures, comprehensive due diligence, and proactive risk mitigation—may help support Western biopharma companies in navigating these emerging risks.

How ESG Management Differs Across Regions

Sustainalytics’ ESG Risk Ratings data highlights notable differences between biopharma companies based in the US or Europe and those domiciled in China. On average, Western firms score higher on governance, disclosure, and management of key ESG issues, such as product governance and business ethics.

For Western licensees, weaker ESG practices at the partner level may translate into elevated ESG risks, potentially impeding the success of cross-border licensing deals, particularly amid rising geopolitical tensions.

To assess how firms navigate related risks, Sustainalytics’ ESG Risk Ratings offer insights into companies’ exposure to ESG issues and how they address such risks. For a deeper dive into the product governance and business ethics risks linked to these partnerships, please see the full report: As Biopharma Turns to China for Growth, ESG Risks Remain in Focus.

Deal Overview: Cross-Border Licenses and R&D Partnerships

Despite rising geopolitical tensions, policy volatility, and key ESG risks, the number and value of cross-border licensing agreements are expected to grow through 2026.

The table below presents a nonexhaustive overview of key cross-border licensing deals and R&D partnerships of European or US companies with Chinese firms, as well as key ESG Risk Ratings data and insights from Morningstar Equity Research.

Table 1. Overview of Select deals in 2025 and 2026

Screening for Better-Positioned Companies

What companies involved in cross-border licensing deals may be better positioned to navigate the evolving geopolitical environment and potential ESG transmission risks?

One helpful tool is Morningstar Sustainalytics’ ESG Risk Ratings, which offer valuable insights into companies’ exposure to material ESG issues and evaluate their strategies to address such risks. By combining this information with Morningstar Equity Research’s fair value estimate, which compares a company’s current market price to its estimated value, investors can identify opportunities that align with both financial and ESG objectives.

For companies involved in cross-border licensing deals, investors should assess overall ESG management performance and the material ESG issues of product governance (which assesses how companies ensure the safety and quality of their products) and business ethics (which focuses on companies’ ethical business practices, including clinical trial management and trial data transparency, among other key issues).

Combining insights from the ESG Risk Ratings and Morningstar Equity Research, we find that Bristol-Myers Squibb BMY, GSK GSK, Pfizer PFE, and Sanofi SNF stand out among Western companies involved in select cross-border licensing deals with Chinese partners. These companies are all rated 4 stars by Morningstar Equity Research. Further, all four firms demonstrate strong (50+) overall ESG management, as well as strong (50+) management for the business ethics and product governance MEIs.

Strong performance in these areas reflects well-established governance frameworks and a proactive approach to managing operational and ethical risks. This may be particularly important for companies engaging in cross-border collaborations with biopharma firms based in China, where differences in regulatory environments, oversight standards, and disclosure practices can heighten execution and compliance risks.

However, the success of these licensing deals will depend on multiple factors, including the outcomes of clinical trials, the demonstrated efficacy and safety of their licensed assets, and effective strategies for commercialization and market access, as well as collaboration with licensors—all dependent on broader geopolitical dynamics in an increasingly volatile policy environment. Failure to address these challenges could erode deal value and hinder global commercialization and growth strategies.

Future in Focus: What Could Change the Risk Landscape

Looking ahead, as China’s biopharma market matures, certain ESG risks—such as those related to quality and safety, clinical trials, and data transparency—could decline if Chinese regulatory standards continue to converge with international ones, reducing potential transmission risks for Western licensee firms.

However, this is set against the backdrop of an increasingly complex geopolitical environment. Any intensification of US-China tensions and the more assertive, security-driven policy stance, as well as EU policy measures to improve EU resilience and reduce overall strategic reliance on nonmember countries, could reshape the conditions under which cross-border collaborations play out.