November 28, 2021
By: Lyat Avidor Peleg
Big Pharma is Cleaning Up its Act
The pharmaceutical industry fills a crucial niche in our world, producing the treatments, vaccinations, and medications that combat disease, improve health, and literally sustain life. But the industry has an image problem, with “big pharma” coming in for a lot of resentment.
Most of this is due to high drug prices, but there’s also growing awareness of pharma companies’ large carbon footprint. A key study revealed that the emissions intensity of the pharmaceutical industry is about 55% higher than that of car manufacturers. In total, the pharma market is 28% smaller than that for automotive, but it’s 13% more polluting.
For the moment, there’s relatively little pressure on the pharma industry to become more sustainable, compared with other manufacturing verticals, but that’s changing. “The pharma industry appears to have conveniently hid behind its image of clean factories making life-saving drugs,” says Lotfi Belkhir, associate professor of engineering and chair of eco-entrepreneurship at McMaster University.
Some companies have read the sustainability memo and are stepping up to the plate, but there’s a huge variation between them, and those still ignoring the issue. The same study found that the range of sustainability impact across the top 15 pharma companies is far greater than that between the top 10 carmakers.
Some companies, like Johnson & Johnson, Roche Holding AG, GlaxoSmithKline, and Amgen Inc. are already operating at the level needed to meet the Paris climate accords, and GSK was actually one of the principal partners for COP26. But those bringing up the rear have a carbon intensity that’s up to 5 times greater than the front-runners. The good news is that this shows that sustainability is possible, but it also shows the extent to which pharma companies can shirk commitment.
However, time is running out for the laggards. It’s vital for those in the rear to clean up their act, and those leading the way not to rest on their laurels. Dr. Robert Paffen, Risk Consulting Leader at PwC Europe, predicts that “Firms that pursue a sustainable strategy and solidify their reputation as a sustainable company will gain the trust of governments, global institutions, and other stakeholders – partners on whom the long-term success of the industry depends.”
What Are the Primary Sustainability Issues for Pharma Companies?
Unlike most manufacturing industries, pharma companies are struggling significantly with all three pillars of the environmental, social, and governance (ESG) sustainability triad. Issues of concern include:
- Reducing waste
- Cutting carbon emissions and greenhouse gas (GHG) pollution
- Reducing pharma in the environment (PIE) through multiple vectors
- Addressing energy and water consumption, including fossil fuel usage rates
- Improving anti-corruption and transparency practices
- Ensuring fair access to pharma products
Environmental Issues are at the Fore
Like other industries, its main priority is still its environmental footprint, thanks to climate change remaining at the forefront of media headlines and public consciousness. The polls and survey organization Verdict ran a survey of pharmaceutical employees and found that environmental sustainability was the primary concern, with 43% citing it as the top issue.
That said, “environmental sustainability” covers a lot of topics. The same study found that climate change, namely energy consumption, supply chain issues, and clean operations, was the most important environmental issue, followed by pollution, natural resource usage, and biodiversity.
PWC analysis pretty much coincided with the survey findings, concluding that the industry should focus on addressing high energy consumption, global supply chains, and environmental pollution from pharma production as well as packaging waste.
As a result, most pharma companies are focusing on:
- Reducing carbon and GHG emissions across the entirety of pharma production, distribution, and disposal.
- Addressing PIE. Medications enter the environment through leaks and improper disposal by consumers. Studies worldwide have found high levels of pharmaceutical residue such as antidepressants, painkillers, antimicrobials, and contraceptives in the animal chain, drinking water, and soil. This residue frequently has serious effects; for example, thousands of babies in Hyderabad, India, died from multi-resistant infections as a result of high levels of antibiotics in the environment.
- Lowering energy and water consumption across operations.
Social and Governance Still Have a Place on the Agenda
Admittedly, they come second to environmental sustainability, but pharma companies are also concerned about social and governance policies.
Social issues include:
- Opening up access to affordable medicines and treatments to countries with poor and underfunded healthcare systems.
- Improving the balance between profits and healthcare, which has been thrown into the spotlight recently following the opioid crisis and questions about COVID-19 vaccines. Amnesty International blamed pharma for “putting profit before access to health for all” by refusing to share intellectual property on vaccines.
However, these don’t seem to be a priority for most organizations.
Governance issues include:
- Improving product quality, which encompasses establishing ethical standards for drug production and distribution and moving towards a patient-oriented business model.
- Reducing the number of fake drugs on the market. It’s estimated that 10% of pharma products worldwide are counterfeit, with the global counterfeit drug market valued at over $75 billion and fake drugs thought to cause 10 million deaths by 2050.
- Solid data protection policies as the foundation for the data that drives sustainability reform. “In order to obtain a sustainable and trustworthy business model, a high level of data protection must be guaranteed. Hence, highest ethical standards must be systematically established in order to successfully drive digitalisation forward within pharmaceuticals and life sciences companies.” points out Paffen.
What is Driving Sustainability in the Pharma Industry?
The motivating factors for pharma companies to take sustainability seriously are many and varied.
1. Attract top digitally-skilled talent
Like most manufacturing verticals, the pharmaceuticals industry is facing a labor shortage, together with a skills gap at a time when digitalization is a crucial source of competitive difference.
Gen Z and millennials are more idealistic generations who look for employers that match their values, and for many, sustainability and eco-friendliness are among their highest principles. Pharma companies that can prove ESG sustainability can stand out in a job seeker’s market and attract top, digitally-skilled talent.
2. Save money by cutting waste
Sustainability goals such as reducing energy and water consumption, lowering raw material waste, and cutting the amount of product lost to poor quality batches also have the positive side-effect of saving money.
When equipment operates at optimum efficiency and human error is removed as much as possible, less product is lost in the process, which helps boost profit margins.
3. Increase revenue
Experience is proving that sustainable companies don’t lose out financially. In fact, the reverse is true: three of the companies leading the way in cutting their carbon footprint have also seen revenues rise. Between 2012 and 2015, Roche, Johnson & Johnson, and Amgen increased their revenue by 27.2%, 25.7%, and 7.8% respectively, and lowered their emissions by 18.7%, 8.3%, and 8% at the same time.
It makes sense for sustainability to be good for the bottom line. As mentioned above, big pharma already has a reputation problem. By addressing sustainability, they can improve how they are perceived by consumers and align themselves better with the interests of patients (their end customers), healthcare groups, investors, and industry partners who are also concerned about their sustainability profile.
Giacomo Chiesi, head of global rare diseases at the Chiesi Group, points out that “Companies that exclude social and environmental considerations from their operating missions risk losing market share and damaging shareholder value.”
4. Respond to investor pressure
Pharmaceutical companies rely on investors for capital injections, but investors are increasingly taking ESG compliance into consideration. To give one example, the prominent investment firm BlackRock, which has nearly $7 trillion under management, recently announced that sustainability issues would be at the center of its investment strategies moving forward.
Chris Lo, a senior writer at Verdict, noted that investors are the ones who recognize the profit argument for sustainability and are pushing firms to pursue it.
5. Pressure from external bodies
Besides pressure from investors, customers, and stakeholders, pharmaceutical firms are also under pressure to comply with external organizations, and a growing number of non-profit organizations are dragging pharma pollution into the spotlight.
For example, the European Commission (EC) issued a Communication to pharma companies in 2019, outlining 6 areas for action to address PIE. Likewise, the UN identified pharmaceutical pollution as an emerging global priority under its Strategic Approach to International Chemicals Management.
Sandor Schoichet, co-founder of the Biopharma Sustainability Roundtable, points out the number of directions from which sustainability pressure is originating. “It’s being baked into standards, it’s being baked into regulations, it’s being baked into stock exchange listing requirements, it’s being baked into tender offer structures, and bank loan requests now,”
What Are Pharma Plants Doing to Improve Sustainability?
1. Adopting assessment and monitoring
It’s already a cliche that you can’t fix something if you don’t know what’s wrong, so sustainability assessment and monitoring are the first step in any plan. Too few companies are measuring their carbon footprint, resulting in a lack of useful data. Only 25 out of 200 companies in the global pharmaceutical market consistently reported their direct and indirect greenhouse gas emissions between 2015 and 2019, up from the 15 that did so from 2012.
Thankfully, more pharma firms are beginning to assess their current business practices; uncover inefficiencies in the value chain; carry out health economic studies; and prepare and implement new policies, services, and processes to align with the UN’s Sustainable Development Goals (SDGs).
Companies are running tests to measure the relative footprints of different drugs and take steps to improve the highest pollution. The Chiesi Group ran an assessment of its products across the entire lifecycle and found that its pressurized metered-dose inhalers (pMDI) for asthma and COPD have the largest environmental impact. In response, Chiesi introduced a recycling program that accepts used inhalers. The company now reuses the aluminum canisters, recycles the plastic components, and reuses remaining propellant gas in electrical appliances.
Backing up the need for more data, three of the six areas for action mentioned in the EC’s Communication concern environmental risk assessment; environmental monitoring; and filling knowledge gaps.
2. Setting targets and accepting regulations
Pharma firms are able to turn to a growing number of sustainability organizations, such as the European Federation of Pharmaceutical Industries and Associations (EFPIA). An EFPIA statement notes that most EFPIA members have set sustainability goals for themselves, saying “EFPIA member companies strive to invent, produce and distribute new medicines and vaccines in a safe and environmentally responsible manner. Furthermore, we are actively providing a safe and healthy workplace while reducing the environmental impact in our operations and those of our supply partners around the world.”
EFPIA, AESGP, and Medicines for Europe collaborated in producing the Eco-Pharmaco Stewardship (EPS) Initiative, which strives to protect patient access to medicines while considering environmental aspects, strengthening the environmental risk assessment process, considering the entire life-cycle of the medicine.
Analysts at PWC warn that already heavily-regulated pharma companies will face more regulations in the form of carbon tax, price regulations, or restrictions placed on the use of antibiotics and insecticides in the agricultural sector, and these changes have already been happening.
3. Adding transparency and accountability
Besides being one of their ESG goals, more accountability and transparency are among the tactics pharma companies are using to help them reach environmental sustainability goals. For example, AstraZeneca committed itself to meeting the Paris Agreement’s most ambitious emissions reduction targets, and measures its business initiatives against the UN’s 17 Sustainable Development Goals.
More companies are holding themselves accountable to independent standards, like disclosing CO2 performance according to recognized methodologies such as the World Resources Institute Greenhouse Gas Protocol. They are also aiming for more transparency about progress towards their climate goals, what the goals they are aiming for, economic contributions, and clinical trials and data, by releasing regular updates about their progress.
4. Improving energy efficiency
Pharma plants require a lot of power. While they are introducing measures to improve energy efficiency, companies are also working to use more renewable energy. They’re doing so by looking for new partners, or making new Power Purchase Agreements with the same partners to decarbonise the electrical supply with more green power. Other firms are developing on-site power generation, like solar panels and ground source heat pumps.
5. Developing greener products
Pharma products themselves can be greener too. GSK is improving metered-dose asthma inhalers, which represents 45% of GSK’s total carbon emissions. A lower-emission propellant currently in preclinical testing could cut greenhouse gas emissions from inhalers by 90%.
Companies are also switching slowly to flow chemistry instead of batch chemistry, which is safer, cleaner, and incidentally more cost-effective. The antifungal medicine flucytosine is now increasingly produced using flow chemistry instead of batch chemistry.
Packaging is no less important for pharma sustainability. Traditional plastics and metals are being replaced with more sustainable packaging like biodegradable packaging and plastics made from sugarcane.
6. Implementing a circular economy
The circular economy is a sustainable goal for most industries. It involves recycling and reuse, so unused products or packaging that’s no longer needed is returned to the companies and converted into energy or raw materials for the next batch of products.
In that vein, we’re seeing a jump in take-back programs for unused medications implemented by companies like Sanofi, and Chiesi’s aforementioned inhaler reuse scheme.
7. Shortening the supply chain
Sustainability and global economics intersect when it comes to shortening the supply chain. The pandemic reminded companies and governments alike of the dangers of an extended supply chain when plants ran short of raw materials stuck in ports or airfields. A shorter supply chain also requires less energy for transportation of raw materials and finished products, so pharma companies are increasingly reshoring and nearshoring suppliers.
8. Increasing process efficiency
Combining the data from Internet of Things (IoT) sensors with machine learning (ML) enables automated systems that can detect inefficiencies like fouling, bottlenecks, and friction while they are still emerging, allowing for earlier alerts that can stop damage before it spreads.
New technology supports better tracking and tracing of pharma products, helping to stamp out counterfeit drugs, prove whether medications are genuine or fake, and prevent people from being duped by fraudsters.
Pharma plants are also tapping into better technology for effective wastewater treatment, enabling more usable water supplies.
What is Holding Pharma Companies Back from Achieving their Goals?
1. Confusing and inefficient regulations
Pharma is already among the most heavily-regulated industries in the world. For companies to comply with more regulations, those regulations need to be streamlined, coordinated globally (or at least regionally), and avoid conflict with existing compliance requirements. To give just one example, pharma firms already face varying rules and regulations for packaging compliance depending on the region.
It doesn’t help that many regions still have few ESG regulations. The FDA in the US and the European Medicines Agency in the EU still haven’t included environmental standards in good manufacturing practices guidelines for pharma, and there’s no legislation requiring pharma companies to report environmental incidents.
In place of regulations there are often recommendations, which are confusing and vary from region to region. “Greater clarity is certainly something that [pharma] would be looking for,” says ESG advisor and Biopharma Sustainability Roundtable partner Myrto Kontaxi. “And certainty in terms of what’s required, because global companies, not just for climate, have this consistent issue of one region wants this and the other wants that, in terms of regulators and policymakers.” Consistent obligations, rather than voluntary recommendations, would make it easier for companies to know what’s expected of them.
Additionally, sometimes pharma firms face regulations that place hurdles in the way of sustainability, such as rigid requirements about child-proof packaging that don’t move fast enough to keep up with innovation.
2. Lack of external pressure
Leading companies are voluntarily taking on carbon emissions goals, PIE goals, setting public targets, and publishing performance, but such measures are still on a company by company basis. There are no broader standards that all companies are forced to measure themselves against. And despite rising irritation towards Big Pharma, pharmaceutical companies still get off lightly in the sustainability stakes when compared with oil and gas companies, to name but one.
3. A highly complex supply chain
The pharma supply chain is one of the most complex and globally stretched in the world, covering raw materials suppliers, chemical plants that process some of the components, packaging providers, and partners dealing with medication disposal at the end of the lifecycle.
Ensuring visibility across so many partners, enforcing ESG practices, and measuring progress is challenging, to say the least, and takes time to roll out across the full supply chain.
4. Packaging requirements
Sustainable packaging for pharma products is particularly challenging, due to the need to provide child-proof packaging and ensure that the efficacy and quality of medications are preserved. Packaging generally has to comply with certain regulations, and be made from specific materials, thickness, etc. that make it difficult to innovate sustainably. For example, blister packs are child-safe, but hard to recycle because they are a composite of metal together with plastics, making it hard to separate the two components for reuse.
Pharma Companies Are Working Hard to Meet Sustainability Goals
Pharma companies are relatively slow off the marks in the sustainability race, and still don’t face the same pressure as some other manufacturing industries. However, savvy pharma firms are aware of the benefits of sustainability and are taking steps to set goals, measure progress, and adopt practices that improve their environmental, social, and governance compliance.
Their journey is hampered by a complex and sometimes contradictory regulatory landscape and extended supply chains, but by adopting advanced technologies to improve process efficiencies, raise energy efficiency, and adopt green power, and setting targets and publishing their progress, pharma companies can stay ahead of sustainability demands.