Pressure Mounts On Pharma To Act On Environmental Targets
There are growing demands from government officials, investors and employees for the pharmaceutical industry to reduce emissions and waste, and – most of all – make environmental sustainability a core part of its business.
To satisfy a growing concern among investors about climate change, Teva Pharmaceuticals two years ago sold $7.5bn in bonds that were tied, in part, to its progress in reducing greenhouse gas emissions across its business. The company then sold another $2.5m in bonds earlier this year that were linked to the same target, among others.
Mindful of the same issue, AstraZeneca signed an agreement in 2020 with My Green Lab, a non-profit focused on sustainability in science, which has since certified that dozens of the company’s laboratories around the world require company scientists to implement measures to save energy and water, reduce waste, and eliminate the use of hazardous and toxic chemicals from their protocols.
And recently, Sandoz, the generic drugs unit at Novartis, agreed to participate in a new program that will certify whether facilities that manufacture antibiotics – or the active ingredients used in these medicines – take steps to reduce harmful waste discharged in nearby bodies of water. The hope is that government procurement agencies will take notice and help it win contracts.
These diverse steps reflect growing demands from government officials, investors and employees for the pharmaceutical industry to reduce emissions and waste, and – most of all – make environmental sustainability a core part of its business. The pressure comes as scientists sound alarms about the accelerating nature of global warming.
And while some other industries may face greater challenges addressing the problem, the pharmaceutical sector has its share. These extend from emissions generated by laboratories and production plants to the waste that creeps into waterways. Then there is the ability to oversee suppliers that may not have the resources or the will to change practices that affect their own carbon footprints.
“The environmental impact of the health care sector is enormous, but it’s also a difficult sector to get change.” – Frank Wagemans
For pharmaceutical companies, the picture appears mixed. As of last fall, 53% of biopharma companies had committed to the United Nations Race to Zero, which looks to halve global emissions by 2030, according to a report by My Green Lab. This was up from 25% a year earlier, which was a striking improvement. But at the same time, only 4% of the companies are on track to achieve that goal.
Another gauge comes from Sustainalytics, an independent research firm that tracks ESG performance. The average score for nearly 100 pharmaceutical companies based on low carbon transition ratings was 2.8 Celsius degrees, falling short of the United Nations goal of 1.5 Celsius degrees by 2030. More broadly, management scores were on the lower side at an average of 42 out of 100.
“In general, the environmental impact of the health care sector is enormous, but it’s also a difficult sector to get change,” said Frank Wagemans, senior engagement specialist at Achmea Investment Management, which is based in the Netherlands and has been urging pharmaceutical companies to become more responsive to environmental, social and governance, or ESG, goals.
The Need For Better Adherence Is Acute
Globally, a total of 231 large, publicly traded biotech and pharmaceutical companies were responsible for 227 million metric tons of carbon dioxide and equivalent emissions in 2021, a 15% increase from the previous year, according to My Green Lab. Adding in 151 privately held companies increased the total another 15% to 260 million metric tons.
The bulk of emissions are tied to the manufacturing process, but can also be traced to a long list of activities for which a company is not directly responsible. These include purchased fuel, employee commuting, product distribution and packaging selection, all of which contribute to a worsening carbon footprint. But these can also be quite difficult to measure.
Meanwhile, a recent study found one-quarter of 1,052 samples taken from sites along 258 rivers and other bodies of water in dozens of countries had concentrations of at least one active pharmaceutical ingredient at levels considered unsafe for aquatic organisms. The most contaminated sites were associated with poor wastewater, waste management infrastructure and pharmaceutical manufacturing, according to the study published in the Proceedings of the National Academy of Sciences.
Yet insights into the extent of the problem are often lacking.
Take the European Union. Data on environmental impacts of active pharmaceutical ingredients is not available to the public or authorities, assessments of environmental risks cover only a minority of pharmaceuticals, and no specific emission limits are in place for releasing active ingredients from manufacturing plants, according to the European Environmental Bureau.
In a bid to address these issues, the European Union recently moved to strengthen requirements for the environmental risk assessments that drug makers must submit as part of their marketing applications for new products. The scope was extended to manufacturing and antimicrobial resistance. Significantly, the requirements, which were contained in proposed legislation, will have more teeth and failure to comply can impact applications as well as products already on the market.
All of this occurs against a sobering backdrop. Global temperatures are likely to surge to record levels over the next five years and breach the 1.5 degrees Celsius threshold set in the Paris climate agreement, according to a recent report from the World Meteorological Organization. Specifically, there is a 66% likelihood that annual global temperatures will exceed the threshold above pre-industrial levels by 2027.
Making ESG Pay
This helps explain why more companies – not just in the pharmaceutical industry, but all sectors – are being pushed toward sustainability. At the same time, more drug companies are aware that any moves taken to address the problem can pay dividends. How so? For one, the issue matters to a growing number of employees, so taking steps to reduce emissions and harmful waste can boost morale and also make recruitment easier, particularly when jockeying to fill key positions.
Then there are shareholders to consider. More investors are placing money in funds that make ESG goals a priority. As a result, more analysts and fund managers regularly consult reports and ratings generated by different groups, such as Science Based Targets, a nonprofit that sets climate goals for companies. Another is the Carbon Disclosure Project, which scores individual companies in different industry sectors.
“Shareholders care about it, because there’s been a tremendous flow of money into ESG funds.” – David Maris
As with certification programs, these metrics are seen as crucial tools for preventing greenwashing. The term refers to pronouncements by companies that say they will commit to certain actions to lower their carbon footprints, but then fail to follow through on the activities needed to achieve those goals.
“Companies are taking it very seriously and for very good reasons,” said David Maris, a former Wall Street securities analyst who tracked the pharmaceutical sector and now runs Phalanx Investment Partners, which focuses on ESG issues. “Shareholders care about it, because there’s been a tremendous flow of money into ESG funds. So if that’s a mandate, you should be pushing the companies held in your portfolio for progress in sustainability.”
He added, “Socially, we’ve all become more aware of problems with the environment and, historically, these have been extremely expensive and problematic. Pollution and groundwater affects a community. And a company that fails to take this seriously can take a giant reputational hit that can have lasting problems, because there are clean-up costs, but also trust issues… But whether companies hit the goals or not is questionable.”
Room For Improvement
Indeed, there appears to be room for improvement no matter where one looks. Consider a recent study published in ACS Sustainable Chemistry & Engineering that examined the effect of producing one particular type of medicine.
The study examined the entire full-cycle carbon impact for a specific HIV treatment called TDF. The authors concluded that pharmaceutical companies – notably, generic makers in this instance – could reduce the environmental fallout by up to 45% by optimizing manufacturing processes and supply chain networks, as well as switching to renewable energy sources.
The authors noted many generic drugs, including TDF, are made in India, which primarily relies on coal. So drug makers should be encouraged to power operations with renewables instead. But large distances between raw material sources and production facilities are also obstacles. However, the authors said fine-tuning supply chain networks alone could reduce the life-cycle carbon footprint by up to 9.3%. They worked with the Clinton Health Access Initiative, which made it possible to obtain full-cycle details.
“Different pharmaceutical companies may have different practices and many systems. So there is no way these numbers are applicable to everything. That’s not what we claim,” said Fengqi You, who was one of the authors and is a professor of energy systems engineering at Cornell University. “We tried to develop a framework to inform the public and policy makers there is an opportunity here. It has to be case-by-case for specific products. But this can serve as a template.”
The findings underscore concerns about efforts to grapple with supply chains, given the myriad activities that occur between the production plant and the patient. But some activities can be hard to measure since they largely remain out of the purview of the pharmaceutical manufacturer. As a result, mitigating emissions and waste requires exercising more oversight of vendors, but also creating incentives if pharmaceutical companies want to meet their own goals to reduce carbon footprints.
“We work with thousands of suppliers. How do we encourage all these vendors and suppliers to do what we are doing?” says Pam Cheng, executive vice president for global operations & IT, and the chief sustainability officer at AstraZeneca. “I can’t move to different suppliers overnight, but we need to have that dialogue. Ultimately, though, we will not be able to work with suppliers that are not sustainable.”
That said, the drug maker expects to hit its goals for what are known as Scope 1 and 2 activities, which are emissions that are owned or controlled by a company. By 2025, Cheng says that AstraZeneca expects to have reduced emissions by 98% from 2015 levels. For Scope 3, which describes actions stemming from sources a company does not own or control, the drug maker aims to reduce emissions by 50%.
“When you start, you have low-hanging fruit. It becomes more and more challenging.” – Amalia Adler Waxman
Another large player that is attempting to live up to its publicly stated commitments is Teva Pharmaceutical, which has been aiming at investors.. In a first-of-its-kind move, the company generated attention in November 2021 by selling $5 billion in bonds that were tied to environmental and access-to-medicines goals. The drug maker then went back to investors with another $2.5 billion in bonds this past March that were tied to the same targets.
“Addressing environmental issues is embedded in the business now,” explained Amalia Adler Waxman, senior vice president for ESG at Teva, which is trying to reduce emissions by 46% each year so it reaches the United Nations goal by 2030. “We were nervous when we made the commitment, because when you start, you have low-hanging fruit. Then, it becomes more and more challenging.”
She continued, “This is not ideology, though. We’re trying to apply an accountable mindset to everything we do and I don’t think it’s going to go away. If you pollute a river, you’re destroying the well-being of your own employees in their own communities, and it will eventually cost you a lot of money. If we put it bluntly, we need to be good stewards for our employees and our planet.”
For some smaller companies, though, sustainability seems more abstract.
For instance, only 30% of development-stage, publicly traded biotech companies referenced ESG topics in their regulatory filings and other disclosures, according to a survey released last year by the Fenwick & West law firm. Even so, 76% of biotech executives agreed that ESG disclosures should be mandated. But among those who maintained disclosures should not be required, two-thirds argued metrics are unclear and one-third also acknowledged they lack internal resources to track any metrics.
“There is a lot of work that the pharmaceutical industry is doing. The large pharma companies are working to reduce (their carbon footprint) year-over-year. But there’s a cross section of efforts,” said James Connelly, chief executive officer at My Green Lab. He argues that more bench scientists, at companies big and small, can be central to influencing change in the industry.
AMR Targets And ESG
Meanwhile, one new effort targeting pollution hopes to pull in companies of all sizes.
The AMR Industry Alliance, a group of about 100 companies that focus on antimicrobial resistance, recently launched a new program to certify companies that make active ingredients for antibiotics or the finished medicines. The hope is to create one widespread standard for measuring discharge from antibiotic production facilities, since standards currently vary from country to country.
The certification is seen as particularly important because antibiotics that find their way into water supplies can cause people to become resistant to the medicines.
Although this is a voluntary program – much like the certification issued by My Green Lab – some pharmaceutical companies already say the effort is justified. By agreeing to certification – which lasts for three years and requires annual reviews with third-party verification – a manufacturer may catch the eye of government procurement agencies that place emphasis on meeting environmental goals.
In some countries, nearly one-third of the criteria used in supply agreements already refer to environmental goals, according to Courtney Soulsby, global director for health care at BSI, which develops programs for improving business practices and worked with the AMR Alliance to develop the new system. Certification can provide a lever for awarding contracts, she explained. This already seems to clear to one of the world’s largest generic pharmaceutical companies.
“We hope it will make it easier for buyers to identify responsible manufacturing,” explained Dominic de Souza, who is global head of anti-infectives, sustainability and AMR at Sandoz. “We think it will help us, because we saw various government organizations are thinking about introducing (environmental) requirements (for contracts), but it was difficult for them to find the right criteria.”
Toward that end, a handful of Nordic countries – Finland, Sweden, Denmark, Norway and Iceland – agreed to implement the new certification system. To win a contract, companies will be asked questions about pricing, delivery and environmental goals, among other things.
“They could lose the bid, and that’s the whole point,” explained Eirik Sverrisson, who chairs the procurement group at the Nordic Pharmaceutical Forum, which will represent the five countries.
“So we want to send a signal. We see this as important, and we think that, by working together, we can make a change that no one country among us can get on our own. We are not like the US, which is so big. We are small, so we have to cooperate. And hopefully, other countries will look at the work, because this will test the willingness to pay for a better product, and improve the environment.”