The Impact of the Top 3 Strategic Imperatives for Sustainability in the Pharmaceuticals Industry

Transformative Mega Trends

Why

• The United Nations (UN) Sustainable Development Goals (SDGs) create an urgent call to adopt sustainability and environmental, social, and governance (ESC) best practices. The World Health Organization (WHO) reports climate change has the potential to cause an additional 250,000 deaths annually between 2030 and 2050. About 46% of pharma and biotech companies (by revenue) have pledged to the UN's Race to Zero initiative. Suppliers, distributors, and contract manufacturers are now emphasizing decarbonizing supply chains.

Frost Perspective

• With a focus on lowering greenhouse gas (GHG) emissions, preventing pollution, and saving energy, vendors will adopt net-zero strategies focused on R&D in the long run, including developing products with low GHG emissions, saving energy and cutting waste in manufacturing and operations, and designing innovative drugs that prevent negative climate-change-associated health threats, especially public-health diseases that spread quickly because of global warming. (Tides of waterborne).
• In the next 2 to 5 years, pharma companies will be procuring renewable energy for production and transportation, using electric vehicles (EV), and enhancing energy-efficient (EE) practices.
• Pharma companies will ensure affordable and equitable access-to-medicines globally and in regions impacted by diseases due to climate change.

Disruptive Technologies

Why

• High energy use, carbon dioxide (CO2) and GHG emissions, pollution from manufacturing, and packaging put pressure on implementing sustainability-oriented technologies across the pharma value chain.
• The absence of sustainable cold-chain supply networks in lower-income markets increases focus on developing energy-efficient cold-chain technologies in the short term. Innovation is gaining importance in developing heat-stable formulations that require less energy and produce fewer transportation emissions.

Frost Perspective

• During the next 2 to 5 years, the pharma value chain will adopt green technologies, tools, and deploy hazardous chemical-free designs, real-time pollution prevention analysis, waste/recovery analysis, and learning as well as greater adoption.
• Energy-efficient continuous manufacturing and biocatalysis, photochemistry, yield optimization technologies, and material waste monitoring tools will be implemented in 1 to 2 years.
• The pharmaceutical industry will focus on manufacturing sustainable product packaging minimizing its use of raw materials, recycling, limiting emissions from waste materials, and limiting pollution.

Industry Convergence

Why

• Green practices are vital for organizations to remain competitive because of rising public awareness about climate change. Collaboration between contract development and manufacturing organizations (CDMOs), pharma companies, supply partners, and technology vendors will facilitate designing joint frameworks to meet ESG targets. Multistakeholder collaborations will support developing a common code and standardizing sustainability key performance indicators for pharma companies and CDMOs to evaluate sustainability performance competitively.

Frost Perspective

• During the next 2 years, value chain partners will work together to enhance business controls toward sustainable business practices.
• The industry will see greater combined efforts toward marketing and branding strategies that highlight ESG goal fulfillment to attract talent, lower financing costs, and create supply chain operational efficiencies.
• In the next 2 to 3 years, ESG strategy will integrate sustainable packaging management, sustainable sourcing material, and regulatory compliance regarding ESG, vital for enhancing reputation.

Scope of Analysis

• This research overviews ESG developments and sustainability initiatives in the pharmaceutical industry.
• The study will highlight and discuss pharma value chain companies implementing the 6P framework—policies, products, processes, people, partnerships, and platforms—for ESG strategy implementation.
• The study identifies the most prevalent and emerging business models supporting industry stakeholders in enhancing sustainability practices and meeting ESG goals.
• The study highlights primary market drivers and restraints, present and future market trends based on the European Union’s (EU’s) sustainable finance framework around pollution prevention and control, the sustainable use of water resources, the CE, and the protection of biodiversity related to the pharma industry and its participants.
• The study provides pharma industry use cases and companies’ call-to-action and will cover brief insights on game-changing companies implementing ESG practices with measurable contributions toward ESG goal fulfillment.
• The study will identify growth opportunities from pharma sustainability based on Mega Trends and business models.

Segmentation by Initiatives across the Pharma Value Chain

Sustainability in the Pharma Value Chain

Products Sustainable Research

• Resource-efficient R&D tools/techniques
• Green chemistry tools and trial designs limiting animal testing and promoting patient diversity/safety
• Use of green solvents and reagents in the drug discovery process
• The US Environmental Protection Agency (EPA) recognition of Amgen for developing a green synthesis technique for its LUMAKRAS® drug to treat non-small cell lung cancers

Processes Sustainable Manufacturing

• Utilizing green manufacturing workflows, processes, and strategies for carbon emission control, renewable energy procurement, and sustainable sourcing of materials
• Collaboration with ESG platform providers for manufacturing
• Implementing processes for waste reduction, biobrand management, conserving and recycling water, and promoting biodiversity
• Pfizer’s water-based strategy reducing water withdrawal, accruing $60,000 in annual savings because of water conservation in 2022

Partnerships Sustainable Packaging & Distribution

• Partnerships with recyclable packaging solution providers (pharma packaging components and biodegradable packaging polymer providers [NatuPharm])
• Partnerships for pharma waste management and unused medicines recycling (reverse logistics [RL] solution providers); Partnerships with green transportation companies to reduce carbon footprint and provide supply chain transparency and track-and-trace
• More than 45 biopharma companies leveraging AeroSafe Global’s cold chain enhancement solutions, preventing both drug inventory and reducing carbon usage by 65% and landfill by 90%

Growth Drivers

• The European Green Deal and the Paris Agreement have triggered several regulations in the pharma industry requiring major pharma companies to become more environmentally friendly and sustainable. Noncompliance with ESG standards hamper brand reputation, attract fines, and affect societal operation.
• The ever-rising demand for drugs and continuous R&D of innovative drugs has led to the growth of pharma R&D, manufacturing infrastructure, and environmental footprint. Simultaneously, regional environmental regulations around operations have become more stringent. Pharmaceutical companies are more conscious of the importance of sustainability post-COVID-19 pandemic and are adopting measures to attain ESG goals by aligning operations with changing regulations to conduct business competitively.
• Technological advancements, such as artificial intelligence (AI)-powered solutions, sensors, the Internet of Things (IoT), waste management, monitoring analytics, and continuous manufacturing technologies, drive ESG goal fulfillment by pharma companies.
• Investors who prefer to invest/fund companies based on their evaluation of the target company's sustainability efforts, climate-related disclosures, and corporate social responsibility (CSR) practices focus on ESG credit rating. Awareness regarding ESG is prompting end-users to purchase/consume manufactured products that use sustainable products and processes.
• Regional policy support (via tax benefits, financial incentives, and localized manufacturing) incentivizes pharma companies to integrate ESG into their business strategies and focus on green chemistry, energy efficiency, pollution control, biohazard management, and the CE.

Growth Restraints

• Increasing cost pressures are causing pharma companies to evaluate the return on investment (ROI) from implementing green technologies, which support the fulfillment of ESG commitments. Switching to sustainable solutions, such as energy-efficient tools, renewable sources, and green waste removal techniques, requires capital expenditures (CapEx). Companies must focus on cost/benefit analysis and specific high-impact areas around individual value chain steps regarding ESG.
• With the demand for complex small-molecule drugs increasing, chemical synthesis complexity has grown, leading to increased resource use. Demand for next-generation therapies is rising, increasing R&D and production of complex biologics, such as cell and gene therapies instead of simple proteins. This shift to complex biologics is leading to a transition from reusable stainless-steel fermenters and bioreactors to single-use plastic, negatively impacting CE practices.
• An absence of standardized ESG measurement metrics exists across regions. The complexity of ESG reporting in the industry prevents uniform implementation, relevance, and consistency in ESG performance reporting, posing a significant challenge and impeding pharma companies’ ability to holistically and effectively measure ESG performance across different regions of operation. Isolated ESG data, manual reporting processes, and improper quantification hinder optimal measurement and seamless collaboration across the supply chain for ESG goal fulfillment at each level.
• Demonstrating scalability (implementation across entire operations/facilities) and value to customers (of sustainability-focused products and solutions) is crucial to adopting sustainability practices in core strategies.