Following climate consultancy EcoAct’s latest report on climate reporting trends for global companies, EPM speaks to Stuart Lemmon, MD of EcoAct, an Atos company, Northern Europe, to discuss the efforts the biopharma industry is making to become more sustainable and what else needs to be done.
Are pharma companies under more scrutiny now when it comes to their sustainability targets and overall emissions?
Regarding direct emissions and indirect emissions generated by the electricity purchased to run their operations, researchers revealed already in 2019 that, despite being significantly smaller, the pharmaceutical industry releases significantly more carbon emissions than the automotive industry; the difference in 2015 alone was 55%. Besides the energy needed to produce their products, we are talking about facilities that need to be constantly sanitised and kept under very precise conditions, involving high consumption of water and chemicals. In a moment where many nations are focussing on scaling up Covid-19 vaccinations, all eyes seem to be on the pharmaceutical industry and its environmental legacy.
Concerning the pharmaceutical companies analysed in EcoAct’s 2021 Climate Reporting Performance Report, these have generally performed well in terms of their reduction achievement. This year, 75% have managed to reduce their Scope 1 and 2 emissions in line with a 1.5°C pathway, and 50% have done so for their Scope 3 emissions. Considering that in this industry, specifically, upstream and downstream emissions are significantly higher than Scope 1 and 2 emissions, this shows real progress. To put it into perspective, only 22% of companies over the whole study have achieved 1.5°C-aligned Scope 3 reduction this year.
However, more can be done. Looking into the technology that currently sits behind many pharmaceutical processes, we saw a low number of low-carbon products or services developed by the pharmaceutical companies analysed - 38% against the global average of 78%. For example, moving from ‘batch manufacturing’ to continuous manufacturing can be crucial to reducing emissions from manufacturing. Companies like Sanofi have already invested in such facilities, which can lead to a reduction of chemical and water use of more than 90%.
What standards and practices have companies implemented from last year to help improve both climate reporting and a reduction in emissions?
Science-based targets (SBTs) seem to be considered by a vast majority of the pharmaceutical companies analysed in our Climate Reporting Performance Report, with 88% of companies setting Scope 1 and 2 SBTs. In terms of Scope 3 SBTs and commitment to net-zero, they are close to the average scores. SBTs are emission reduction targets aligned with the rate of decarbonisation required by science to limit global warming to well below 2 degrees or 1.5 degrees. The more companies we see setting SBTs, the bigger the impact will be on climate action and transparency.
AstraZeneca stands out as a strong leader by setting a verified 1.5°C-aligned SBT for their Scope 1, 2 and 3 emissions as well as setting ambitious targets to be carbon negative across all Scopes by 2030. It will be interesting to see in future analysis how many of these adhere to the ‘Net-Zero Standard’ recently launched by the Science Based Targets initiative, which provides companies science-based certification on their net-zero targets.
Given the importance of forward-looking assessment of climate-related risk, the Task Force on Climate-Related Financial Disclosures (TCFD) believes that scenario analysis is an important and useful tool for organisations to use, both for assessing potential business implications of climate-related risks and opportunities and for informing stakeholders about how they are positioning themselves in light of these risks and opportunities. Three-quarters of the pharmaceutical companies analysed in our report are using Climate Scenario Analysis (CSA) to inform their business plans, which is a huge uplift compared to previous years. In 2019, no pharmaceutical companies were undertaking a CSA. Almost the same number of pharmaceutical companies analysed are assessing climate-related opportunities. However, there is space for improvement, considering one-quarter of these companies are not yet prepared to mitigate risks, nor seem to understand the opportunities of the low-carbon transition.
How important is transparency when it comes to companies reporting on their emissions?
If we want to achieve real change, companies must disclose their emissions. Transparency can help understand what companies are doing to protect the environment but also to understand the impact climate change is having on companies. Both in terms of risks and opportunities. That type of information is key for the efficiency of markets, investors, consumers and even employees. As the information is factored in by relevant stakeholders there are more chances that companies will not only commit to cut emissions but also reach high reduction achievements.
Transparency enables access to data and information on the climate impact and risks, from which all companies benefit, especially when tackling value chain emissions. These typically account for the largest and most diverse share of companies’ emissions and disclosing these is becoming essential in our journey to net-zero. Value chains can be varied and complex and being able to reduce related emissions is key to understanding what these are, learning about key suppliers and identifying hotspots across the value chain to where mitigation efforts can be directed.
The lack of transparency and information in companies’ value chains can also bring inaccurate claims, putting companies at risk of greenwashing. It’s not always easy to know if a supplier is operating as sustainably as it claims. Being transparent, especially across a company’s supply chain, through data collection, information sharing and monitoring and evaluation systems can help companies back up their claims, as well as build collaboration opportunities to fill existing gaps.
Has the pandemic played a part in helping reduce pharma emissions and is there a chance they could increase from 2021-2022?
The pandemic has had a marked impact on corporate emissions reductions last year. 74% of companies analysed, including pharmaceutical companies, have reduced their direct emissions in line with a 1.5-degree warming pathway. However, as mentioned above, only 22% achieved the same level of reductions in their supply chains. The ripple effects from Covid-19 are likely to be felt for many years, and the current health crisis will be challenged on many fronts. Pharmaceutical industries are aware that both the climate and health crisis are strongly interlinked and will need to accelerate their climate action efforts, especially around their supply chain emissions.
How important is it that the larger pharmaceutical companies rank highly in their climate reporting?
Besides demonstrating leadership in their industry and standing out among competitors, these companies are sending out a strong signal, raising the bar for others to follow. AstraZeneca’s switch to a fully electric vehicle fleet and Bayer’s measure to increase production efficiency, including heat recovery and more effective steam generation are clear examples that many pharmaceutical companies are heading in the right direction. All the companies analysed are also using renewable electricity.
More importantly, our report helps businesses understand what others in their industry are doing. By mirroring their progress and results, they can see what has worked for their peers, identify areas of improvement and apply international best practice.
We have just recently seen how 10 of the world’s biggest pharmaceutical companies have committed to improving their energy efficiency, including AstraZeneca, GSK and Sanofi. A call for more collaboration within the same industry is key to unlocking climate action.
Overall, the report puts pharma in a good light in terms of sustainability. Is this the case or does more need to be done to ensure emissions are kept in alignment with the 1.5°C goal?
Recent studies show that in the entire history of human civilization, CO2 levels have never been this high. In terms of climate action, nothing is ever enough. Our report reveals that there is still no clear consistency strategy for achieving the net-zero transformation in time. Although pharmaceutical companies have shown real progress and are ahead of other industries when tackling their Scope 3 emissions, as we mentioned above, we have also identified various areas for improvement. Progressively, pharmaceutical companies will have to demonstrate they have solid strategies to reach net-zero. As mentioned above, the newly launched ‘Net-Zero Standard’ will provide guidance and tools for achieving corporate net-zero strategies. It’s the first standard to require long-term targets and strategies for implementation that include reducing emissions within and even beyond the corporate value chain. The standard contains ambitious reductions in all scopes which at this point are indispensable to achieve the change we need not only by 2030 but also by 2050.
In terms of COP26, what commitments for business would you like to have seen come out of that conference?
More transparency and accountability on how businesses are tackling their emissions, across all scopes, focussing on a deeper engagement with supply chains. Nowadays, outsourced manufacturing is part of most companies’ supply chains. These usually take place in developing countries where environmental protection regulation is still being formulated and the carbon intensity of such processes cannot be overlooked. Aware of the need for urgent mitigation efforts across their value chains, businesses are understanding the critical role collaboration must play - within their industries and across sectors.
The climate math is indisputable. Countries will need to commit to more ambitious targets if we are to meet the objectives of the Paris Agreement, and although COP26 might not deliver this level of ambition, businesses are no longer waiting and are already facilitating space for multi-stakeholder platforms, where investors, employees, suppliers, policymakers and many other stakeholders are working on common solutions. There is a clear commitment to accelerate innovation, focussing on low-carbon products and services, as well as new, transformative, business models that can drive change.