Editor’s Note: This article was published in Pharmaceutical Technology Europe’s January 2023 print issue.
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In light of increasingly stringent sustainability requirements, bio/pharma companies need to make sure they formulate effective ESG strategies.
Environmentally conscious business practices are much more prominent nowadays in many parts of the world and across all industries. For Europe, in particular, a common goal that has been set out by national governments and regulatory authorities is to achieve sustainability in the near future (i.e., in the next decade), and the bio/pharma industry is no exception to this objective.
To learn more about the sustainability requirements that bio/pharma companies in Europe are facing, what companies have been and should be doing to meet relevant objectives, and how Europe matches up to the rest of the world in sustainability progress, Pharmaceutical Technology Europe spoke with Andre Valente and Verena Ahnert, both partners at L.E.K Consulting—a global strategy consulting firm.
PTE: Could you highlight how the sustainability requirements of regulatory authorities have changed over the past few years for European pharma companies?
Valente and Ahnert (L.E.K. Consulting): We would distinguish between regulations related to drug development, marketing authorization, and monitoring set by the EMA [European Medicines Agency] and national pharmaceutical regulators, such as the MHRA [Medicines and Healthcare products Regulatory Agency] in the UK [United Kingdom], and sustainability-related legislation passed by national governments or the European Union (EU).
There has been a tightening of regulatory/legislative changes in both areas—from medicines regulators and governmental bodies—a few examples include [the following].
EMA. We observe a tightening of requirements in the environmental space: environmental risk assessments (ERAs) have been an integral part of marketing authorizations by EMA for a long time—an ERA is required for all new marketing authorization applications for medicinal products. An ERA does not constitute a criterion for refusal of a marketing authorization, but EMA can require specific arrangements to limit a drug’s environmental impact (1). While this requirement was introduced in 2006, a more recent revision of the guideline in 2018 has led to a tightening in some areas (e.g., inclusion of medicinal products previously exempted; efforts to avoid unnecessary repetition of animal studies; review of monitoring requirements, and so on) (2).
Other guidelines relate to ‘social’ aspects of ESG [environmental, social, and government], for example to ensure drug quality and safety or to incentivise the development of medications for rare diseases. A key example is the pharmacovigilance legislation which defines the monitoring requirements for marketed drugs to ensure drug quality and safety, a critical consideration under the ‘social’ dimension of ESG. This was introduced in its current form in 2012 and had a significant impact on strengthening patient protection.
National governments and the EU. In recent years there has been increasing pressure both nationally and at the European level in relation to sustainability, both within the pharmaceutical industry and across sectors. For example, Germany introduced its Supply Chain Due Diligence Act in 2021 (3), which seeks to ensure that human rights and environmental standards are met across the entire global pharma supply chain, from the extraction of raw materials to the delivery of medicines to customers. The requirements are internationally compatible and are based on the ‘due diligence standard’ of the UN [United Nations] guiding principles. The requirements will apply from 2023 for companies with at least 3000 employees in Germany and from 2024 for companies with at least 1000 employees in Germany.
Editor’s Note: This article was published in Pharmaceutical Technology Europe’s January 2023 print issue.
In the UK, as part of a broad UK Government commitment to net zero, the NHS [National Health Service] has published ambitious plans to reach net zero by 2045 (4). These plans include profound changes to its procurement process with a view to limit scope 3 emissions, including those coming from pharma and medtech vendors.
At the EU level, we observe a tightening of ESG-related reporting requirements. At present, non-financial reporting is regulated by the EU NFRD (non-financial reporting directive; first introduced in 2014), a sustainability reporting legislation to which the largest EU-based companies are currently held and which requires companies to disclose ESG impact information in their non-financial statements (5). The NFRD is expected to be replaced by the more widely applicable and more stringent Corporate Sustainability Reporting Framework (CSRF). The CSRF will widen the scope of companies included (from approximately 12,000 to 49,000), notably including large non-EU-based companies with subsidiary activity in the bloc. It will also expand reporting requirements, now mandating inclusion of further information such as supply chain emissions, and the entity’s wider impact on society and the environment (6).
More broadly, the Pharmaceutical Strategy for Europe, defined by the European Commission (EC) and adopted in November 2020, aims to create a regulatory framework to support the availability of medicines in Europe (7). This strategy goes beyond ESG requirements and aims at ‘future-proofing’ the pharmaceutical sector in Europe in the face of global challenges (e.g., supply chain concerns and pandemic preparedness). However, a few topics are directly touching on ESG priorities (e.g., ensuring access to affordable medicines, including in rare diseases, tackling antimicrobial resistance, and environmental sustainability of drug manufacturing). As part of this strategy, the EC plans to revise general legislation on medicines in a few key areas (e.g., legislation on medicines for children and rare diseases to address unmet needs; legislation to improve access to generics and biosimilars).
PTE: What are the current regulatory goals for sustainability in pharma for Europe? Are these goals achievable in your opinion?
Valente and Ahnert (L.E.K. Consulting): Considering varying regulatory goals between countries and the variety of regulations that are applicable across sectors, we are focusing our answer on pharma‑specific Europe-wide regulatory goals; this is best summarized in the European Commission’s Pharmaceutical Strategy for Europe (7).
As stated above, not all aspects of the Pharmaceutical Strategy for Europe are ESG-related; however, a few are directly linked to ESG and are expected to lead to legislative changes, including: legislation to improve accessibility of medicines for children and rare diseases; review of legislation to introduce measures to restrict and optimise the use of antimicrobial medicines; enforcement of EU competition rules to counter some pharma activities hindering the entry or expansion of affordable medicines (generics/biosimilars); reviewing the provisions on environmental risk assessments to be submitted as part of a marketing authorization application; reviewing the manufacturing and supply provisions to improve transparency and oversight of the supply chain and clarify responsibilities to ensure overall environmental sustainability and safeguard the quality of medicines.
These goals build on existing legislation and industry practices; this is particularly the case for the incentivisation of R&D on rare disease, environmental risk assessments and the expansion of affordable medication. Further improvements in these areas are achievable, but specific targets have yet to be defined.
In a broader sense, we believe that there is sufficient interest from a wide set of stakeholders, including patients, investors, governments, and staff, in the reduction of carbon emissions. The goal of reducing emissions seems achievable, the bigger question is by when.
PTE: What should pharma companies be doing now to meet these regulatory goals? What might the outcome be if these goals are not met?
Valente and Ahnert (L.E.K. Consulting): Given the increasing stringency of regulatory requirements, paired with growing pressure from stakeholder groups such as shareholders, customers, and the general public, pharma companies need to formulate an ESG strategy which prioritizes the areas that are most material to their stakeholders. Careful prioritization will be important given the volume and diversity of ESG demands. In this prioritization, regulatory requirements will of
course form the baseline.
We would, however, stress that fulfilling regulatory requirements is not enough—beyond these, pharma companies have to comply with increasingly stringent demands by their customers. Fulfilling these will become a table stake to be able to compete.
One example is the NHS’ Net Zero roadmap with the goal to reach net zero for all emissions across scopes, including from the supply chain, by 2045 (4). This will require all suppliers to the NHS to formulate plans to reduce carbon emissions by 2024, to publicly report targets for emissions reductions by 2027, and to demonstrate progress in achieving these targets by 2030. Failing to do so will disqualify them from selling into the NHS.
The introduction of ethical considerations into pharmaceutical supply contracts by statutory health insurance funds in Germany is another example. Last year, Germany’s largest statutory health insurance fund, the AOK, launched a tender for the supply of five antibiotics. This tender included a number of ESG conditions, including protection of workers’ rights and environmental standards. Unlike in previous tenders, the principal criterion was not price: companies that had invested in higher environmental standards had a higher chance to win the contracts.
PTE: Has there been an overriding sense that pharma companies within Europe are doing enough or does more need to be done?
Valente and Ahnert (L.E.K. Consulting): Pharma companies are increasingly aware of the importance of setting and working towards sustainability targets. Whilst many have already incorporated ESG standards and criteria across their value chain (R&D, manufacturing, supply chain), more can be done with regards to setting targets and reporting on individual progress.
L.E.K. conducted a survey of circa 50 pharma companies this year  which shows a clear divergence in ESG maturity between the largest pharma companies (revenues of >US$10 billion [>€9.5 billion]) and the smallest ones (revenues of up to US$500 million [€471 million]). While all reported that they are in the process of defining policies to address ESG concerns (measured across a set of 42 ESG metrics), Big Pharma was most advanced in implementing these policies. Our survey showed that the difference in maturity was particularly pronounced on setting environmental standards for suppliers, water resource use, energy efficiency, and drug availability in low and middle‑income countries.
As an outcome of the recent COP27 in Egypt, seven global pharma companies (as part of the SMI Health Systems Task Force) have come together to commit to reduce GHG [greenhouse gas] emissions and accelerate the transition to net zero healthcare. Although this represents a minority of global players, it is an indication of the future as the industry looks to take greater ownership of its sustainability agenda and work with the public sector to achieve wider sustainability and decarbonization goals.
PTE: How does Europe match up to the rest of the world in terms of sustainability in pharma? Are there any lessons to be learned, either by Europe from other regions or vice versa perhaps?
Valente and Ahnert (L.E.K. Consulting): Europe has been a leader with respect to widespread legislation requiring the disclosure of climate-related risks and emissions irrespective of industry. The CSRD looks to extend the mandate of disclosure from circa 11,000 EU companies (in the NFRD) to circa 50,000 from 2024 and to widen the scope of reporting requirements to include scope 3 emissions. This momentum has also seen the United States Securities and Exchange Commission table a new proposal which would bring US climate-related disclosure in line with European requirements (8).
In addition, the inclusion of ESG‑related criteria as common practice in the payer decision-making process across the EU5 (France, Germany, Italy, Spain, and the UK) is something which many other European states are reviewing if not already implementing (e.g., recent decision by the Nordic states) and is a strong driver of momentum for the wider sustainability agenda. Pharma companies are likely to increase their investment in environmental standards and policies to be able to continue competing for European tenders.
1. EMA. EMEA/CHMP/SWP/4447/00 Rev. 1. Guideline on the Environmental Risk Assessment of Medicinal Products for Human Use 15 Nov. 2018.
2. EMA. EMA/CHMP/SWP/65429/2016. Concept Paper on the Revision of the ‘Guideline on the Environmental Risk Assessment of Medicinal Products for Human Use’ (EMEA/CHMP/SWP/4447/00 corr 2) 28 April 2016.
3. BMWK. Lieferkettensorgfaltspflichtengesetz. BMWK.de/Redaktion/DE/Gesetze/Wirtschaft/lieferkettensorgfaltspflichtengesetz. 3 March 2021 (accessed 15 Dec. 2022).
4. NHS England. Delivering a Net Zero NHS. England.nhs.uk/greenernhs/a-net-zero-nhs/ (accessed 15 Dec. 2022).
5. EC. Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 Amending Directive 2013/34/EU as Regards Disclosure of Non-Financial and Diversity Information by Certain Large Undertakings and Groups (October 2014).
6. BDO. EU Sustainability Reporting—Comparison of Draft CSRD to NFRD Requirements. BDO.com/insights, 24 May 2022 (accessed 15 Dec. 2022).
7. EC. Pharmaceutical Strategy for Europe; November 2020.
8. Allen & Overy. U.S. Securities and Exchange Commission Proposes Extensive Climate-Related Disclosure Regime Covering All SEC Registrants. AllenOvery.com. 23 March 2022 (accessed 15 Dec. 2022).
Felicity Thomas is the European/senior editor for Pharmaceutical Technology Group.
Pharmaceutical Technology Europe
Vol. 35, No. 1
When referring to this article, please cite it as F. Thomas, “Setting Goals for Sustainability,” Pharmaceutical Technology Europe 35 (1) 2023.