ESG Pharmaceutical companies

The pharmaceutical industry has started to feel pressure from governments, regulators, and the market to report and disclose upon their ESG credentials and performance, mainly due to the sector being a major contributor to global greenhouse gas emissions (GHG). The global healthcare industry contributes 4.4% of all GHG emissions meaning if it were a country, it would be the fifth largest emitter on the planet, whilst also having a greater impact than the automotive manufacturing industry!

The impact the pharmaceutical industry has is multi-faceted from across the supply chain including R&D activity, transport and logistics, the disposal of pharmaceutical products, and chemistry work. Leaders in the industry such as GSK and AstraZeneca have committed to an ambitious zero-carbon goal by 2025, however an ageing population and increase in chronic diseases has resulted in a higher demand for pharmaceutical products.

As market demand rises, businesses must scale production to meet demand, and with greater production outputs the rate of emissions typically rises in tandem. To control that, businesses in the pharmaceutical industry need to capture and understand their ESG data to in turn mitigate the impact that their industry has.

Let’s explore further across the ESG scope potential material areas for concern, and what the industry must consider when it comes to ESG.

Environment
Pharmaceutical companies must recognise the potential harm their activities can inflict on local and global health through contributions to climate change and pollution. It would be counterproductive for a sector dedicated to health improvement to inadvertently compromise well-being by neglecting the environmental impact of its own operations.

The initial manufacturing processes are energy-intensive, contributing to a substantial carbon footprint. When it comes to machinery and running production lines, pharmaceutical companies may find their scope 2 footprint is a considerable contribution to their overall impact. When it comes to scope 2 however, companies in the sector need to consider:

• The carbon impact of a considerable scope 2 footprint
• The cost impact thereafter

Even if organisations swap to a renewable tariff and eliminate carbon, the consumption of energy still has a cost to business. Determining efficiencies in the production process to reduce consumption and control costs can then offer considerable savings for businesses! ESG is not just about being green, it’s about commercial thinking and identifying opportunities.

Wastewater from cleaning processes, waste materials like solvents that need to be disposed of appropriately, and wasted medicines that do not get used before their expiration dates due to overproduction to ensure all patient demand is met are all significant sources. This chemical contamination poses a threat to aquatic ecosystems and can even affect drinking water.

Another major waste concern for the industry is single use plastic. Single-use plastic can be found throughout the pharma supply chain, from the manufacturing of drugs to the packaging of individual doses. This widespread use is driven by various factors such as convenience, cost, and safety concerns. However, the use results in significant amount of plastic ending up in oceans and landfill, again compromising aquatic ecosystems.

The pharma industry therefore needs to focus on industrial and domestic waste created by the production and use of its products.

Social

In terms of social impact, the pharmaceutical industry’s commitment to ESG can underscore its push for health equity. This commitment to reducing health disparities not only supports societal well-being but also aligns with the industry’s broader goals.

Healthcare is a fundamental human right by the UN, however limited access to advanced healthcare and cutting-edge pharmaceuticals, means many communities are disadvantaged. Covid-19 is a perfect example of this, there were many calls for companies to open up the intellectual property behind their vaccines, to allow developing countries to manufacture their own supplies and meet demand. These were all blocked by the EU however as there were fears it would reduce the incentive for larger companies to develop vaccines in the future.

Another key social consideration is diversity in clinical trials with a recent study revealing that in the UK many people believe that trials should have a diverse range of participants. However, it is thought that efforts are lagging. If trial participants are not representative of the broader population, there is a risk that medications and treatments may not be as effective or safe for certain demographic groups, which is a concern for some individuals.

Governance

The pharmaceutical industry has a rich history of governance problems, including fraud, price-fixing, kickbacks, and the unlawful promotion of drugs. Adhering to relevant regulations and standards is a therefore an importance governance consideration.

Governance concerns extend to how executive compensation aligns with ESG goals. Linking executive pay to the achievement of ESG targets demonstrates a company’s commitment to sustainable practices and reinforces the integration of ESG considerations into corporate strategy.

Governance practices should also include robust risk management strategies that consider the environmental and social concerns as mentioned above. By addressing these governance concerns, pharmaceutical companies can enhance their overall sustainability to contribute to positive social and environmental impacts.

Conclusion

In conclusion, the pharmaceutical industry is facing increasing pressure to address its ESG.

Environmental concerns extend beyond emissions, with substantial waste generated in the form of single-use plastics and other by-products. Wastewater from manufacturing processes, disposal of solvents, and overproduction leading to wasted medicines further contribute to the industry's environmental footprint.

On the social front, the industry's commitment to ESG principles can play a crucial role in promoting health equity. However, challenges persist, such as limited access to advanced healthcare in certain communities and lack of diversity in clinical trials.

Governance issues in the pharmaceutical industry, underscore the importance of adherence to regulations and standards for achieving ESG goals. By addressing environmental, social, and governance concerns comprehensively, the industry can align itself with broader ESG goals, fostering a positive impact on global health and the planet.