Simple steps to achieving a sustainable pharmaceutical supply chain.
In 2006, the pharmaceutical industry launched the Pharmaceutical Supply Chain Initiative, designed to “address five areas of responsible business practice: ethics, labor, health & safety, environment, and management systems.” Today, 71 members worldwide are committed to making positive changes in the industry. Nearly every major pharmaceutical manufacturer has pledged to work toward net zero, creating a carbon-neutral environment. One study by GlobalData found that nearly half of all respondents (43%) said the environment was the industry’s most pressing environmental, social and governance (ESG) issue.
This focus on ESG was a solid start, but there’s still work to be done. The environmental component in particular, has challenged the industry. Today, for instance, the carbon footprint of the pharmaceutical industry is 55% higher than that of the automotive industry, and organizations are just starting to understand that an ESG plan must include not only what goes on in their own processes but also what partners and contractors do. James Goudreau, now Vice President of ESG at CVS Health, agreed, based on comments made at a 2022 Fierce Biotech panel.
“We can’t make changes happen at a large scale individually as companies. Even as we clean up our own operations and move as quickly as possible, we know we have to not just demand that our partners improve their performance,” he said. “We have to provide them avenues, education, and opportunities to collaborate. We have to remove obstacles and barriers for them as well.”
As Goudreau explained, pharmaceutical companies must look at ESG as a marathon rather than a sprint. ESG is not something to be fixed overnight or in a vacuum. There’s no endpoint. ESG must be part of everything an organization does going forward, from hiring to sourcing raw materials to packaging to transport. This may sound daunting, but as Adam Anderson, Executive Vice President, Pharma at Informa, said, the move to ESG is a positive one — and one that brings huge benefits to all involved. And it’s a journey that must start sooner rather than later, he explained. “For an industry that’s historically been driven by the twin imperatives of cost and speed of development, the impact of sustainability continues to create positive ripples across the industry, with profound implications for infrastructure planning as well as for how contract service providers market their services to innovators. The consensus among CPHI Annual Report experts is that investments need to be made now in modern manufacturing to prepare for these shifts.”
This playbook will cover why companies work to make the pharmaceutical supply chain more sustainable, the challenges they face along the way, and the best practices they can use to start or expand their own ESG journeys. It will discuss where the biggest environmental challenges are in the supply chain, why creating metrics and understanding what needs to change should come first, and what the best practices for creating a more sustainable supply chain.
Section 1 – The Spoonful of Sugar
The pharmaceutical industry comes to ESG from a unique place. It’s a highly regulated industry that’s faced myriad challenges over the past three years. COVID-19, in particular, affected the industry’s operating model and supply chain. One of the most visible changes was a shortage of raw materials, which led companies to source ingredients farther from factories and order in smaller batches, which — from a transportation and carbon footprint perspective — negatively affects the environment. In addition, companies are under increased pressure to bring drugs to the market quickly, so there’s less time spent on formulation. This equates to new medicines potentially being less shelf stable, putting more burden on packaging materials, said Justin Schroeder, PCI’s Global Vice President of Technical Services.
“What that means is, you need high barrier materials to help protect the product and make sure that you don’t sacrifice any shelf life,” he said. These materials aren’t always sustainable or environmentally friendly due to the nature of high barrier materials and frequently layering of materials to achieve higher protective properties, be it for moisture, light, degradant gases like oxygen, etc. These tend to come in conflict with traditional recycling recovery stream infrastructure and guidelines. “At the same time, a sharp increase in overall product development costs as well as high inflation have pushed the needs for ESG and profitability against each other. Couple this with evolving ESG standards and regulations, and it’s not surprising that most pharmaceutical companies have a difficult time keeping up without a strategic foundation and devoted resources to meet their committed goals.”
Consumer opinions may vary, and some may demand that companies step up their ESG efforts. And yet some organizations are focused more on the social aspects of ESG rather than the environmental side, according to PwC. The consulting firm’s recent study found that 77% of pharmaceutical ESG efforts over the past 16 months were social, 12% were environmental and 11% governance. However, some companies are taking a more holistic approach, focusing on all three disciplines – environmental, social, and governance.
Section 2 – Starting With the Basics: You Can’t Change What You Don’t Measure
This August, French multinational pharmaceutical and healthcare company Sanofi S.A. released a 30-page guide titled “ESG Key Performance Indicators.” Using Global Reporting Initiative standards as a basis, the guide detailed the company’s ESG progress over the past three years. The company’s numbers were impressive, but this wasn’t a surprise to those following Sanofi’s efforts. Earlier in the year, Sanofi was recognized by Standard & Poor’s Global Ratings as one of the most sustainability-committed companies. Not long after, the pharmaceutical giant announced earnings that featured strong sales growth.
A $123 billion market cap may make it easier for Sanofi to create and execute on an ESG plan, but the same opportunity is available for any pharmaceutical company willing to put in the work, Schroeder said.
“How do you measure success? From an environmental standpoint, you’ve got to have a starting point somewhere to be able to gauge what impact you’re having. ESG being such a broad topic, I think it can mean a lot of different things to a lot of different people, so having a defined framework and a defined way of measuring allows people to align in terms of what are the priorities, what are short-term or long-term goals, and what success looks like in terms of tangible measurements,” he explains Chris Davidson, Vice President, Sustainability at paper and packaging manufacturer WestRock, agreed. He suggested that companies start with a materiality assessment that includes polling all internal and external stakeholders to help identify and understand the key areas an organization should focus on.
“Supply chain mapping could be a part of that materiality assessment,” he said. “It helps to understand the areas that the organization needs to be focusing on. Another aspect, outside of the materiality assessment, is mapping your emissions. Putting together a greenhouse gas inventory so that you have an accurate baseline of where you stand today can allow the organization to actually move forward on its emission-reduction efforts.”
As consulting firm PwC points out, the best ESG assessments include a multi-pronged approach, a method PCI has adopted and encourages its clients and vendor partners to consider. To gauge environmental impact and efforts, total energy consumption should be broken down by types of fuel and total refrigerant used within the organization, as well as total fuel consumption from company vehicles. PCI’s assessment and annual sustainability report also tracks water usage, Scope 1, Scope 2 and Scope 3 carbon dioxide emissions, wastewater discharge, waste, and hazardous materials released into the environment. By following these guidelines, a company can monitor its entire manufacturing supply chain, accounting for how and where active pharmaceutical ingredients are sourced, keeping track of its energy providers and energy use along the entire supply chain, and focusing on every step from research to shipping. This includes employee use of electricity, resources, and transportation, as well as the company’s packaging, recycling, and waste generation.
Section 3 – Taking the First Steps
Once an organization has an idea of its baseline ESG levels, it’s easy to start making small changes that can add up quickly. In fact, there’s often common, low-hanging fruit that can be tackled right away.
Pharmaceutical company Novartis — which several years ago committed to becoming net zero in climate emissions by 2040 — is similarly pursuing a wide range of simple, quick-to-implement processes and changes. For instance, according to the company’s 2021 Enhancing Environmental Sustainability report, Novartis achieved its goal of eliminating 17 types of single-use plastics at 132 U.S.-based Novartis workplaces by replacing all single-use plastic bottles in vending machines with recyclable aluminum, glass or biodegradable containers.
Novartis found another easy target by looking at vendor selection. The company in September 2021 released an updated set of criteria for all its suppliers to help reduce its overall carbon footprint. Novartis asks its vendors to meet specific ESG goals so it can reduce Scope 3 emissions, for instance, reducing its total emissions output. “PCI Pharma Services has made similar commitments when selecting vendor partners to achieve our ESG goals, too,” states Ann Cartwright, PCI’s GSC and Sourcing Systems Strategy Director. “This assists our clients in making huge strides as well.” Cartwright pointed out that PCI is already helping some of its clients experiment with ESG pilots with solid results.
PCI’s customers can leverage the company for exploratory joint development projects and unique collaborations to test the waters and see if those changes work for them, potentially using those iterations as a spark for a broader change, Cartwright said. “It’s definitely finding out more about what our suppliers do and understanding their supply chains much more than we ever have in the past. We are asking questions. We’re exploring what’s out there.”
Cartwright suggested putting a vetting process in place to make sure company and partner visions align. This is especially useful when executing material selection, local manufacturers, packagers and shipping companies, she added. There are many benefits to these types of projects. For instance, collaborations up and down the supply chain can ultimately benefit all parties – not just the company implementing the changes. Partners can see improvements with sustainability as well as other key ESG principles such as diversity and inclusion and fair labor practices. “Initiatives from the pharma industry have positive ripple effects downstream for the good of all parties,” said TKNAME.
Every company across the globe faces the heavy burden of reducing its carbon footprint. Pharmaceutical companies have the added challenges of a restrictive regulatory environment and a lack of cohesive ESG strategies. However, it is possible to overcome these challenges.
Organizations will do best if they work collaboratively with their partners and customers to make real changes. They can also benefit from working with outside consultants who can help them find ways to improve ESG efforts and put them in place, Davidson said. “You can make changes without working with outside partners, but… the scope of what you could potentially do is significantly greater when you start collaborating.”
Internally, companies should assemble a team that focuses on ESG and starts with projects that have measurable outcomes, such as installing energy-saving lighting, movement sensors, and water-saving features, said Gigi Bat-Erdene, Global ESG Program Manager at PCI Pharma Services. Davidson also suggested switching to fuel sources with smaller carbon footprints and working with transportation and logistics partners to find the most efficient ways to move products around the world. Companies can also work with their local municipalities to get clear, consistent recommendations for recycling. The good news, Schroeder said, is that the industry is embracing the needed changes and coming up with solutions that make a difference today.
“There’s actually a step change in terms of the energy and resources being poured in from the supply side into research and development around more sustainable materials, where in the past that was probably a cost burden that they would have to bear and they weren’t necessarily incentivized to pursue it per se,” Schroeder said. “Now it feels like there’s such a groundswell of consciousness around ESG that there is that energy being poured into it, and you’re seeing it in some of the recent innovations that have been publicized that are really propelling the supply side to push it up.” Added Tim Wallensack, regional key account manager at WestRock: “In the past, the industry has always been focused on price, service and quality. Now it’s price, service, quality and sustainability. It’s gone from a three-pillar focus to a four-pillar focus. Sustainability is in the forefront.”