The importance of reporting to tackle climate change

Climate change has the potential to significantly impact human health, the environment, and the economy. By reporting greenhouse gas emissions, companies can demonstrate their commitment to reducing their environmental impact and mitigating the effects of climate change.

Many countries and organizations have established reporting requirements as a way to address climate change. By reporting regularly, companies can provide transparency about their environmental impact and allow stakeholders to hold them accountable for their actions.

In addition to regulatory compliance, accounting for emissions can also provide benefits. For example, it can help companies identify opportunities for reducing waste, lowering energy costs, and improve their reputation and relationship with stakeholders.

Benchmarking to understand the evolution of how companies are tackling their emissions can have a positive effect in providing clarity on progress and highlight areas where the greatest impact can be had.

Tracking the progress of the pharma industry

To begin analysing the current progress of the pharmaceutical industry, IQVIA extracted the commitments and progress from ESG reports of the top 100 pharma companies by value (IQVIA MIDAS FY2021).

Companies report their emissions in three scopes: Scope 1 are all direct emissions from activities under the company’s control, Scope 2 are indirect emissions from purchased energy, and Scope 3 are all other indirect emissions from sources outside a company’s control.

Reporting from the top 100 companies was sparse, with 46 companies reporting more than two years of Scope 1 and 34 with more than 2 years of Scope 3 data; most of which is incomplete. There is a lack of data being reported across the industry as explored in IQVIA’s article on healthcare’s commitment to net zero, but the existing reports can give a sense of progress throughout the industry.

From the companies that had over 2 years’ worth of data and had committed to net zero or carbon neutrality in any of their scopes, IQVIA took an unweighted average to get an estimate of the reduction in emissions compared to the individual company’s base year (Figure 1).

The picture is mixed with emissions from each scope being reduced at different rates.

Scope 1 reductions

In the middle of the three curves lies the average of Scope 1 reductions from 11 companies. These are defined by emissions from a company’s direct operations, such as the manufacturing of drugs, operating facilities and company cars. The rate of this reduction tracks closer to the hypothetical linear rate that converges on 2050, the year carbon neutrality should be achieved according to the Paris Agreement.

Scope 2 reductions

The fastest reductions from IQVIA’s sample are in Scope 2 emissions, which are made up of purchased energy (e.g. electricity, heating, cooling) and tracking a rate that will land in 2030, which is the earliest year that companies have committed to net zero.

The steeper curve is likely because of the commoditised nature of energy units where most of the progress can be achieved through purchasing greener energy contracts. It is not all so simple, this presents challenges where these contracts are inflexible or out of the control of the company, such as long-term deals, unavailability of green energy in a country or where the energy is purchased by landlords of multi-tenant facilities.

Electricity is the largest of the fuel types purchased and targeting its reduction can drive Scope 2 success. RE100, an initiative to use 100% of all electricity from renewable sources, has tracked 10 pharma corporations as of 2021 and a further 10 new signees will begin reporting in future. In their latest report, Biogen, Novo Nordisk and AstraZeneca led the pack with over 90% of purchased electricity from renewable sources (Figure 2).

Scope 3 reductions

Worryingly, the limited data on Scope 3 emissions showed a flat trajectory above the baseline set out by the five companies in the sample – on average there has been no significant reduction, let alone one that tracks to a 2030-50 target.

Scope 3 emissions are both the greatest contribution to a company’s carbon footprint and the most complex to audit due to their multi-party nature. They encompass upstream and downstream activities such as purchased goods and services, end of life treatment of products, business travel and distribution amongst others (Figure 3).

These activities generate up to 96% of emissions according to data from the most comprehensive reports found in IQVIA’s dataset (Figure 4).

Upstream activities that include R&D, the purchasing of intermediates and running clinical trials commonly generate more emissions than downstream activities such as the distribution, use of medicines and the disposal of devices.

The processing and use of medicines is the largest contributor to downstream emissions for companies that sell intermediates or use devices. In GSK’s example, 86% of downstream emissions are generated from the use of propellant-based inhalers by patients. The use of inhalers is a strategic focus for healthcare systems and IQVIA estimates that 97% of emissions are generated by pressurised metered-dose inhalers with little action taken to date in introducing greener alternatives like dry powder inhalers.

As indirect activities are associated with all parties both up and downstream, healthcare systems have a large interest in reducing emissions from this network if they are to meet their own goals. This confluence of interests suggests pharma companies should work together with healthcare systems to tackle areas outside their direct sphere of influence.

Tackling indirect emissions

The results demonstrate that progress is being made, albeit in the smaller Scopes 1 and 2. The comparatively larger Scope 3 requires more focus, firstly on measuring it, then on breaking it down further. The limited data from companies shows that indirect upstream emissions tend to be the largest source, and within that, ‘purchased goods and services’ is the largest category. For example, this category contributes 81% of Novartis’ and 83% of Gilead’s Scope 3 figures.

Here the industry needs to work with supply partners to bring greater transparency and incentivise them to set carbon reduction targets. As an example, pharma companies can engage with their suppliers and provide favourable terms and greater weighting to greener goods and services.

Suppliers should think proactively on how to reduce their emissions now as they will be pressed by their most demanding customers to change and may lose business if they do not stay ahead of the competition. This collaborative approach, led by purchasers, will bring greater understanding of where to allocate resources to tackle challenging areas and maximise the likelihood the pharma industry meets its climate pledges.

Finally, policymakers hold significant leverage in addressing Scope 3 emissions because they can set a strategic direction, coordinate across multiple operators and employ incentives at a national level. To date, 21 countries have committed to net zero healthcare systems, which is a good start, yet more can be done to align activities and milestones. Like with companies, these countries are also beginning to see the value in quantifying and reporting their carbon footprint.

For more information, please reach out to aurelio.arias@iqvia.com

Contributions from Wendy Wang, Holly Oscroft and Hung-Jen Wu are gratefully acknowledged.

If you are interested in further reading, please see the following articles:

• Three ways healthcare systems can reduce their carbon footprint
• It’s time to get real with healthcare’s commitment to net zero