Sustainability – the ability to maintain or support a process continuously over time – is first defined in the United Nations Brundtland Commission Report 1987 ‘Our Common Future’, as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” Sustainability has become a prime focus of every organization, including the pharmaceutical and healthcare sector, after the declaration of the 17 interconnected Sustainable Development Goals (SDGs) by the United Nations in 2016 with an aim to build a peaceful and prosperous planet for now and the future.

Impact of Pharmaceutical Industry on Global GHG Emissions

Among the key environmental issues, climate change has been recognized as “a fundamental threat to human health” by the World Health Organization (WHO). The healthcare sector contributes about 5% of global greenhouse gas (GHG) emissions, as per a WHO report. In 2015, the aggregate global emission of the pharmaceutical industry was estimated to be approximately 52 million metric tons of carbon dioxide equivalent, which increased to around 260 million metric tons of CO₂ equivalent by 2022.

In the United Nations Investigative Team to Promote Accountability for Crimes Committed by Da’esh/ISIL (Unitaid) report “Strategy 2023-2027″, climate and health have been a key priority that needs the promotion of practices and products that make the provision of healthcare more sustainable.

In December 2024, the WHO also issued a call for action, entitled “Greener Pharmaceuticals’ Regulatory Highway”, for transformative action toward a greener future in pharmaceutical manufacturing and distribution. This initiative urges global regulatory bodies and stakeholders in the pharmaceutical and healthcare industries to adopt innovative practices that prioritize sustainability and significantly reduce environmental impacts, all while upholding the highest standards of safety and efficacy.

Importance of Tracking Environmental Sustainability

Tracking environmental sustainability is essential for ensuring a healthy planet and a prosperous future for all. It helps in policy making, target setting, and progress made towards environmental sustainability – that is, addressing the preservation of natural resources and ecosystems, and aims to promote long-term well-being by balancing economic, social, and environmental needs.

It empowers organizations and companies to assess their environmental impact, pinpoint areas for improvement, implement effective strategies that significantly reduce their ecological footprint, and diligently track their progress, directly aligning their operations with the Sustainable Development Goals (SDGs) – particularly related to GHG emission control, energy efficiency, and resource management.

Moreover, robust environmental reporting attracts stakeholders, as investors actively seek out companies with strong environmental sustainability practices. Importantly, effective environmental reporting not only enhances a company’s reputation but also builds unwavering loyalty among environmentally conscious customers.

In response to global warming and its related impact on climate change, the pharmaceutical sector is committed to reducing its GHG emissions to limit global warming to 1.5 °C (2.7 °F) compared to pre-industrial levels in accordance with the Paris Climate Agreement-2015 and the requirement of the Science Based Target Initiative (SBTi) standards. Pharmaceutical companies are actively monitoring their GHG emissions per the Greenhouse Gas Protocol (GHGP), in addition to other environmental sustainability metrics. They report these findings in their annual Sustainability, Environmental, Social, and Governance (ESG), or Integrated Annual Reports. Tracking environmental sustainability is crucial for assessing companies’ progress toward sustainability goals and the targets they have set to get there.

Tracking GHG Emissions

The selection of a “base year” is the first step in tracking emissions. A base year refers to the year used by a company to track future emissions against. It provides a point of comparison to ensure that a business is reducing emissions at the necessary rate. The earliest relevant year with reliable data is selected as the base year.

Most companies choose a single year as their base year. However, it is also possible to select an average of annual emissions over several consecutive years.  The base year may be different for different environmental sustainability metrics (for example, different base years for Scope 1&2, and Scope 3 emissions). Further, the base year emissions can be adjusted/recalculated as necessitated by structural changes (such as mergers, acquisitions, etc.), or changes/improvements in calculation methodologies, etc.

Thereafter, the emission sources are identified as Scope 1, Scope 2, and Scope 3 (upstream and downstream) emissions. The emissions of each of the seven greenhouse gases (namely CO₂, CH₄, N₂O, HFCs, PFCs, SF₆, and NF₃ as recommended by GHG Protocol) are calculated separately and converted to CO₂ equivalents (CO₂e) based on their “Global Warming Potential (GWP)”. The reported information should contain separate GHG emissions data for each scope in metric tons of CO₂e (tCO₂e).

Performance Evaluation

The three main aspects of performance that are important to management as well as stakeholders are –

• Absolute amount of an environmental metric (such as GHG emissions released into the atmosphere, energy consumed, waste generated, etc.).
• Percentage indicator expressed as a percentage of the base year or reference year of an environmental metric (such as current GHG emissions as a percentage of base year GHG emissions).
• Business metric (creating a ratio indicator) that measures environmental metric per unit of economic output instead of just absolute amount. Business metrics are key metrics for evaluating a company’s performance and progress made towards environmental sustainability. Often used business metrics are based on environmental impact per unit of economic output (such as emission intensity expressed as the ratio of tCO₂e per million USD revenues). A declining intensity ratio reflects a positive performance improvement.   

Trend in GHG Emissions of the Pharmaceutical Industry

Scope 3 emissions often contribute about 90% and even more to the total GHG emissions of a company. Of these, upstream activities (emissions generated during the production and transportation of goods and services purchased by a company) contribute around three fifth, and downstream activities (emissions occurring when customers use the company’s products or services) contribute one fifth to the Scope 3 emissions.

The graph below (of three major pharma companies) affirms the dominance of large and complex Scope 3 (value chain) emissions over Scope 1 and Scope 2 emissions.

While pharmaceutical companies have successfully reduced their carbon footprints in Scope 1 and 2 GHG emissions, Scope 3 remains challenging and elusive to tackle. Nevertheless, addressing Scope 3 is vital for effective carbon assessment, meaningful GHG emissions reduction efforts, and achieving the Net-zero target (≥90% reduction in total GHG emissions) by 2050.

Trend in Emission Intensity of the Pharmaceutical Industry

The pharma industry is emission-intensive, and its emission intensity is 55% higher than the automotive industry.

Emission intensity is a key metric for evaluating a company’s GHG emission efficiency and progress made in reducing emissions. By lowering emission intensity, companies enhance environmental sustainability and lessen their climate change impact. It measures GHG emissions per unit of economic output instead of just total emissions.

The emissions intensity of the pharma industry was estimated at 48.55 metric tCO₂e per million USD earned in 2015. If left unimpeded, the pharma sector’s carbon footprint is forecasted to triple by 2050. The pharmaceutical industry, therefore, must take decisive action to cut emissions intensity by 59% from 2015 levels by 2025 to meet the goals of the Paris Agreement.

A glance at the trends of emission intensities (2021 to 2024) of randomly selected three major pharma companies reveals three important aspects –

• dominance of emission intensity due to Scope 3 emissions in overall emission intensity of a company;
• decreasing trend of emission intensity due to Scope 1 and 2 emissions, and;
• the varying trends of emission intensity due to Scope 3 and, in turn, overall emission intensity from company to company.

Thus, emphasizing the need to formulate and implement plans/initiatives for the reduction of Scope 3 emissions to be on plan to achieve the targets.

Targets/Commitments to GHG Emission Reduction and Net-zero of the Major Pharmaceutical Companies

The pharmaceutical companies have aligned their GHG emission reporting and targets/commitments with all or some of the climate treaties, policies or initiatives, including the UN Sustainable Development Goals (SDGs), the UN Global Compact initiative, the Paris Agreement, the Science Based Targets initiative (SGTi), the Intergovernmental Panel on Climate Change (IPCC) Report, and the European Green Deal. All these aim for a critical goal: limiting the increase in average global temperatures to below 2°C, with a strong preference for keeping it to just 1.5°C, compared to pre-industrial levels.

To achieve this, the pharma companies have reported their short-term and long-term climate targets through commitments to percentage emission reductions, Net-zero, or carbon neutrality essential for a sustainable future and a healthy planet.

Public Targets Set for Reduction in GHG Emissions – Short-term and Net-zero (Long-term)

As of 2022, 91% of 75 publicly traded pharmaceutical companies did not have climate commitments aligned with a 1.5°C pathway. Nevertheless, 46% of the pharmaceutical industry (by revenue) has committed to achieving Net-zero carbon emissions by 2050.

Companies have reported their short-term and long-term (Net-zero) GHG reduction targets through commitments to one or more targets – carbon neutrality, Net-zero, or percentage emission reduction.

The percentage GHG Emission Reduction targets (committed and/or SBTi approved) for Scope 1 and 2 emissions, and Scope 3 emissions to their respective base year levels, along with the Net-zero targets, of the 15 major pharmaceutical companies has been graphically presented for an overall view.

Most of the pharmaceutical companies are committed to a Net-zero target (≥90% reduction in GHG emissions) by 2050.  

Of the top 100 pharmaceutical companies examined in a 2023 study, 11 are on target to reach Scope 1 reductions by 2050, and 15 are on target to reach Scope 2 reductions by 2030. However, reducing Scope 3 (value chain) GHG emissions is a significant challenge that needs to be addressed on priority. Scope 3 emissions not only make up the largest portion (70 to 90%, and even more) of a company’s carbon footprint but also pose complexities in auditing due to their multi-party nature.

According to a 2023 study, only 34 pharma companies out of the top 100 have been reporting with more than two years of Scope 3 emissions, and most of which is incomplete. Scope 3 emissions represent a compelling opportunity for meaningful improvement in companies’ efforts to reduce GHG emissions. By addressing these emissions, they can make a substantial impact on their environmental footprint and drive positive change.

Next in This Series

In the next set of articles, the environmental sustainability metrics (GHG emissions, energy usage, water usage, and waste generation) of major pharmaceutical companies will be examined in terms of absolute and business (ratio indicator) metrics.

The findings will be presented statistically and graphically to track their progress toward achieving reduction targets for improving environmental sustainability. These engaging series of articles are foundational in understanding the pharmaceutical industry’s environmental impact and also present their subsequent responses in the form of varying green initiatives to mitigate their environmental impact needed to achieve environmental sustainability.

Click here for details about the analysis and the data source for the article.