5 Steps to Successfully Navigate Big Pharma’s New Supply Chain Emissions and Climate Reporting Requirements
On July 20, 2023, AstraZeneca, GSK, Novo Nordisk, Merck, Roche, Sanofi and Samsung Biologics, seven of the world’s largest pharmaceutical manufacturers, published an open letter to all of their suppliers with an urgent plea to become greener, more efficient, and circular. The manufacturers have joined with the World Health Organization (WHO) in a strategic effort to decarbonize the healthcare sector and move it toward net zero.
What is different from each individual company’s previous corporate climate communications is the fact that they have joined together and broadened their collective goals to require reporting and commitments from their supply chains. The companies’ leaders have set joint, minimum climate and sustainability targets as well as definitive deadlines, beginning in 2025, to disclose emissions, climate and waste reductions, and science-based target goals. They are also requiring their suppliers to make commitments to switch to renewable power by 2030, to set climate and reporting standards for suppliers further upstream, and to set targets to increase water efficiency and establish comprehensive water stewardship practices.
This is a LOT for suppliers to take in! Many, particularly small and privately owned companies, have never had to calculate their own Scope 1 and 2 emissions, consider their Scope 3 emissions (emissions from their own upstream and downstream supply chains), or address the setting of science-based targets for the future. This is a huge lift for any company, and embarking on a sustainable climate journey can seem like an insurmountable task, particularly with a reporting deadline in just two years.
SCS has been helping companies navigate sustainability challenges for four decades and assists companies in making the transition toward robust climate and environmental objectives. We understand what it takes to start from scratch on a corporate climate strategy, the steps involved to achieve an initial corporate carbon footprint, and how to successfully present accurate data in a sustainability report that can be fully verified. We’ve worked with many global companies, large and small, to understand what is considered material within a particular industry and business type, what should be reported, and how to move where you are today towards setting achievable and meaningful targets based on science and fact instead of marketing spin and fiction.
Whether you are in the Pharma supply chain or any other supply chain that is beginning to require emissions reporting, and regardless of the size of your company, below are our five recommendations for meeting the new emissions reporting requirements and setting a new standard for your ongoing corporate sustainability practices.
1. Offset Panic with a Plan
Many companies may find themselves in a tailspin. That is understandable, but panic will not solve the problem. Planning will. Pull together your internal stakeholders, including members of your leadership team, operations, supply chain management, procurement, IT, accounting and others who are involved in any activities that utilize power (generation and usage), transportation, waste, emissions and recordkeeping. Unless you already have an experienced sustainability leader well-versed on greenhouse gas calculations, reporting and climate mitigation on your team, it is best to bring into your kick-off discussions an external climate consultant with experience in emissions calculations, science-based target setting, sustainability reporting, sustainable supply chains, and water stewardship practices. This will help you understand the breadth and scope of what you will be undertaking to meet the reporting and science-based target requirements, and support you in putting together a successful internal ESG Management System. For many companies, this will be a new approach to doing business that will require significant internal shifts to ensure successful entry into the circular economy.
2. Get Educated to Take Advantage of the Latest Climate Science
Once your company has created an internal sustainability team focused on meeting your customers’ emissions and climate requirements, your team would benefit from learning about the range of factors contributing to climate change. Companies focused solely on carbon dioxide emission reductions could be missing a lot of low hanging fruit when it comes to establishing and meeting science-based targets with meaningful, short- and long-term climate impact. For instance, your team will be inspired to learn that methane mitigation has far more short-term climate benefit than most people recognize, and that reductions in nitrous oxide and other “long-lived” climate pollutants are also powerful ways to reduce impacts from your company and supply chain. Moreover, you can now get credit for reducing very “short-lived” climate pollutants, such as black carbon from combustion and tropospheric ozone, which have historically been left out of carbon footprinting. These potent climate pollutants are having a major impact on the earth’s excess trapped heat, which in turn is wreaking havoc on global and regional temperatures and increasingly dangerous weather-related events. This is not the climate science of a decade ago, and sustainability teams owe it to themselves to be fully educated so they can make informed decisions when reporting and setting achievable science-based targets.
3. Develop the Basics
For suppliers new to emissions and sustainability reporting, the first place to start is with a Materiality Assessment. A materiality assessment, in essence, is a determination of the myriad ways in which your company operations, including your own supply chains, may be contributing to climate change as well as other environmental, social and economic impacts. The assessment will help you discover what to report based on your industry, how to collect quantitative and qualitative data, how to engage with stakeholders, and how to align with the different emissions reporting frameworks such as GRI, CDP, TCFD and others that might be required by the companies you supply. Of particular concern will be assessing the materiality of Scope 3 emissions, which fall into 15 categories including emissions from both your upstream and downstream value chain.
In addition, you’ll want to calculate your company’s corporate carbon footprint or Greenhouse Gas Inventory and have your data independently verified to ensure that it is accurate increasing confidence in the data reported. Care should be taken to ensure that the data meet the supply chain requirements of your customers as well as the requirements of any regulatory requirements in the regions where you do business, such as the EU Corporate Sustainability Directive (CSDR), California SB 253, and many of the proposed regulations in the U.S. and abroad. You’ll also want an inventory format that can be used year after year to ensure consistency in reporting.
4. Get Grounded in the Different Emissions Disclosure Frameworks
There are many different emissions disclosure frameworks used in the market. For instance, if your company is a supplier to both pharmaceutical companies and other large entities such as retailers, you may find yourself needing to report the same data in different formats. When preparing a sustainability report, either for the first time or on an ongoing basis, keep in mind the changing reporting landscape and the requirements of each of your “requesters” (the companies and agencies requiring you to report your emissions data).
AstraZeneca, for example, is requiring suppliers to report through CDP. Samsung Biologics is also a member of the CDP Supply Chain, enabling its suppliers to report directly through the CDP framework. Other frameworks such as TCFD and GRI may also be used by other pharma companies requiring supply chain reporting, and companies in multiple supply chains will need to be aware of the differences in reporting frameworks to ensure accuracy of reporting.
For companies new to emissions reporting, working with a reputable sustainability consultancy can offer significant insights and support in understanding the nuances of sustainability reporting frameworks and ESG risk rating systems that all of the pharma companies are scrutinized under, such as Institutional Shareholder Services (ISS), MSCI, Bloomberg ESG, DJSI, Sustainalytics, and others. Supplier reporting, which is considered part of the pharma companies’ Scope 3 emissions, will continue to have a growing impact on how pharma companies are rated.
5. Get Serious About Your Company’s Future Climate Impact
Scope 1, 2, and 3 emissions reporting is simply the tip of the iceberg when it comes to shifting gears towards becoming a circular company. The pharma companies are requiring science-based target setting as a way to not only future-proof your company but also to detail how your company will facilitate becoming part of a low-carbon economy. These are well-defined and achievable targets for emissions reductions both internally and within your own supply chain leading to successful climate mitigation. Science-based target setting can also be an integral part of creating your own sustainable supply chain, another requirement set forth by the pharma companies.
Integral to the lowering of emissions, both internally and externally, is the creation of new pathways for additional climate strategies that move beyond a solo focus on carbon emissions and dig deep into other forms of pollutants that negatively impact air, land and water. Many companies are implementing corporate zero waste strategies that address the reduction, recycling, and diversion from landfills of all forms of solid, liquid, and chemical waste. In tandem, water stewardship practices are considered by many, and in particular by the ESG risk rating organizations, to be “the next carbon” as the level of chemical and plastic pollution in our waterways continues to escalate and access to clean water diminishes throughout the world. While the pharma companies have extended an olive branch in these areas by moving requirements for implementing such programs back to 2030, now is the time to be adding these into your comprehensive sustainability strategy to ensure that your company and all its facilities are able to pivot to meet the requirements and achieve a lower carbon and pollution footprint.
Regardless of your previous reporting requirements, whether full-on ESG reporting or none at all, the time has come for all companies that fall within the supply chains of large, publicly traded entities to realize that the new, green economy is upon us, and required reporting is quickly becoming the norm, not the exception. To be a part of this economy requires diligence, education, and support from others who are well versed on the regulations, reporting frameworks, and the science that’s driving a more climate-friendly way of business. We are here to help and work together with you towards building a greener, cleaner planet.
