Traditionally, the Pharma industry has not been a leader when it comes to Environmental Social Governance (ESG). Despite meaningful accomplishments concerning global greenhouse gas emissions, our progress on climate action has been slow.
However, given the recent focus on sustainability, environmental regulations, and social justice, more pharma companies are expected to step up and integrate ESG into their short- and long-term strategies. Of course, ESG-related challenges will not be overcome overnight, but rather are a continuous, ever-progressing journey where milestones and successes stand on the shoulders of pervious accomplishments. To achieve meaningful progress and tangible results, ESG must be woven into the very fabric of a business.
For companies in the early stages of developing sustainability programs, one hurdle is knowing where to begin – or at least, begin in earnest. The sheer breadth of the task can seem daunting, but by taking small steps and establishing the right frameworks, making positive and substantive change is achievable. And over time, these gains can create a self-propelling snowball effect that gathers momentum as it rolls along. Starting is hard – but it gets easier.
That said, the checklist is indeed lengthy. Among other issues, to be true stewards of positive change, pharma companies must monitor their direct and indirect impacts on the environment and surrounding communities, mitigate hazardous risks, and identify opportunities for continuous improvement. Always, setting goals and tying them to high-impact action plans will help drive success in these areas.
The journey starts with a cleareyed assessment of exactly where a company stands regarding various ESG touchpoints. This means identifying the main impacts related to various organizational activities from both an environmental and social standpoint. Following are some tools to make this altruistic yet complex journey a smoother ride.
Seeing It from Both Sides: Conducting a Double Materiality Assessment
A double materiality assessment is a two-phased approach used to gauge what internal and external stakeholders identify as material issues relevant to the company. Going far beyond a focus on mere financials, it considers ESG factors that can impact both the organization and its stakeholders.
A comprehensive double materiality assessment involves engaging employees, leaders, and investors. Ideally, these players are interviewed in one-on-one and group settings to collect their input on the topics most important to them. The goal is to identify ESG areas that should be prioritized. Based on the expected impact on stakeholders, strategic business value, and the Sustainable Accounting Standards Board (SASB), a company can then identify suitable key focus areas and initial quantitative indicators.
With this information in hand, the double materiality assessment can proceed to the second phase: external stakeholders. Depending on a pharma company’s overall size and capabilities diversity, this can include surveying hundreds of, even thousands of, customers, suppliers, investors, and local community partners, who are asked to rank sustainability issues in order of importance. Notably, if a pharma company places emphasis on positive changes in the local communities it serves (and it should), it is critical to include the voices of community members and partner organizations to help shape an ESG program.
This two-phased approach allows pharma companies to gain a comprehensive understanding of stakeholder priorities and concerns, informing long-term business strategy. The insights amount to fundamental building blocks, allowing for a data-driven determination of which metrics to track, what to disclose, and where to focus meaningful performance improvements.
Figure 1 shows the results of a real-life Double Materiality Assessment conducted by my company. Carbon footprint and energy efficiency were topics most inquired from stakeholders and external audits. As indicated by the colored dots, which represent existing sustainability pillars, the majority of ESG impact categories were already in alignment with stakeholders’ priorities. Still, the research served to confirm what company ESG leaders already surmised in terms of which factors to emphasize.
Figure 1: Double Materiality Assessment Results
But of course, this exercise is about learning more than what is already strongly suspected. As Figure 1 also shows, Data Security, Product Quality & Safety, and Health & Safety had the highest impact materiality scores – all of which understandably reflect stakeholders’ primary focus on the core activities of a pharma company producing mission-critical medicines and delivery systems. While Health & Safety was already one of nine defined ESG Impact Categories, Data Security and Product Quality & Safety are not currently formally captured in ESG Impact Categories and metrics. Given these takeaways, plans can be made to formally integrate the two identified topics into the ESG Program from a measurement standpoint, so that progress can be tracked and regularly communicated.
Facts & Fast Tracks: Accelerating Impact with Science-based Targets
It is strongly advised that pharma companies align environmental targets and action plans with the latest recommendations set forth by the Science Based Targets Initiative (SBTi). Science-based target setting allows for an ambitious, credible, and clearly defined emissions reduction pathway for companies serious about preventing the worst impacts of climate change. Staying in line with the latest climate science showcases a commitment to reducing total greenhouse gas (GHG) emissions, using resources efficiently, investing in renewable energy, and adopting new ways of conducting business.
Notably, greenhouse gas emissions are segregated into three categories, formally known as Scopes. Briefly, Scope 1 comprises direct emissions from on-site manufacturing activities, heating, cooling, refrigerants; Scope 2 involves indirect emissions from purchased electricity; and Scope 3 encompasses supply chain emissions – for example, from upstream and downstream activities like business travel, employee commuting, transportation and, of course, product shipping and distribution.
Figure 2 shows a real-life target-setting plan announced in my company’s latest ESG report. As shown, the commitment has been made to reduce by 40% Scope 1 (direct) and Scope 2 (indirect) GHG emissions intensity (a figure normalized to revenue) by 2030. To give this promise real teeth, this pledge involved signing a commitment letter with the Science Based Targets Initiative to submit targets for verification this year. Plans also are in place to reduce energy intensity by 50% and to utilize 100% renewable energy, both by 2030.
Figure 2: The company’s FY23 reporting period included several new sites, accounting for the increase in total energy consumption from FY22 to FY23. During the same time period, the company’s energy consumption intensity declined, reflecting an overall reduction in its energy consumption intensity despite the addition of new business sites.
Assessing company-related carbon footprint, energy usage, and establishing formal targets are crucial first steps. However, tangible efforts to limit global warming below 1.5°C above pre-industrial levels by 2030 require companies to go beyond their four walls and focus on the wider value chain. After all, value chain, or Scope 3 emissions, often account for the vast majority of a company’s carbon footprint.
Unsurprisingly, this presents a sizable challenge. Since it can involve any number of external entities – ones associated with a pharma company but by no means under its explicit control – Scope 3 is typically a different animal. Considering this, setting firm goals may require a longer lead time, as shown by Figure 2’s stated commitment to a net-zero Scope 3 value chain by 2045. This allows a pharma company ample time to set and enforce ESG requirements for doing business with it, understanding that supply chain interruption is an absolute nonstarter.
Making It Matter: A Commitment to Actionable Change
To define actions that will result in the achievement of Scope 1 & 2 reduction targets, an all-hands-on-deck approach is typically best. This includes, but may not be limited to, soliciting ideas from employees, researching industry best practices, and identifying the most high-impact action plans. Here are some examples:
- Creating and updating policies requiring new purchases and processes to consider environmental impacts in line with targets
- Changing all facility lighting to LED
- Implementing leak detectors for energy intensive systems, including compressed air
- Implementing a refrigerant use tracking and reporting system along with traffic light system to switch off equipment not in use
As a company accrues granularity into its Scope 3 baseline and prepares to submit targets for Science Based Targets Initiative validation, it can begin making strides toward this longer-term goal. Examples include:
- Identifying relevant Scope 3 categories using publicly available data, along with internal spend-based data, to capture Scope 3 measurements, and selecting credible partners for data accuracy and progress towards Net-Zero strategy
- Updating company policies and procedures to reflect ESG commitments and outline expectations to reach out targets
- Assessing ESG/carbon footprint maturity of top spend suppliers via ESG assessments, and identifying opportunities for emission reductions, training, and collaborations
- Prioritizing suppliers that align with the pharma company’s ESG vision, commit to science-based targets, and comply with a set of internally produced responsible suppliers standards
Conclusion
Every company around the world is expected to reduce its carbon footprint, across both its internal operations and associated supply chain relationships. Pharmaceutical companies have the added challenges of a restrictive regulatory environment and a lack of cohesive ESG standards. However, it is possible to clear these hurdles – and comfortably at that.
Internally, companies should assemble a multidisciplinary team specifically dedicated to ESG, and conduct a materiality assessment to identify stakeholder priorities and align short- and long-term goals. From there, this team can partner with leadership to develop an ESG strategy that mandates the entire organization work together to implement meaningful and measurable action.
Aligning to global frameworks like the Science Based Targets Initiative, Race to Zero or We Mean Business Coalition can offer another level of credibility for companies who are serious about driving positive impact on the environment. By sharing ideas and working together as an industry, we can not only change the narrative around pharma’s progress and commitment to ESG, but cultivate a long-lasting positive impact.
About the Author
Gigi Bat-Erdene is Global ESG Program Manager for PCI Pharma Services, a leading global CDMO providing integrated end-to-end drug development, manufacturing and packaging capabilities that increase their products’ speed to market and opportunities for commercial success. The company currently has 30 sites across seven countries (Australia, Canada, U.S., Ireland, Wales, Germany and Spain), and over 6,000 employees working to bring life-changing therapies to patients. www.pci.com
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