Pharma Inc, Climate Change, Decarbonisation

Earlier this year Microsoft announced that it will become Carbon-negative by 2030. This boldness was not forced by COVID-19. It was a matter of course. Part of its strategic long-term plan. In doing so, it openly acknowledged the environmental damage caused by the industrial world that’s resulted in a one-degree Celsius rise in temperature, most of it in the last 70 odd years. It went a giant step further by stating that it will also reverse, by 2050, the Carbon emitted directly or through the energy it has consumed since 1975, the year it was founded. The company has also committed $1 bill to a Climate Innovation Fund. Importantly the company has confirmed that it has not only set ambitious goals but has a robust implementation plan grounded in math and science. And in principles that support continuous investment in relevant technologies, empowering its entire value chain towards sustainability, pushing the agenda on advocacy and providing new opportunities to its own employees in propelling this change. 

Microsoft is not alone. Some 1000 companies are taking action by setting science-based targets. Roughly 50 per cent have confirmed setting them and have announced them to the world. In this group are 15 Indian companies that have set and announced targets, notable names being Wipro and multiple Mahindra group companies. Just three per cent of the Universe!

Globally there are less than 20 pharma companies that have set and announced climate change-related emission targets. The boldest among them may be Novartis and Novo Nordisk. The latter has promised to reduce by 2030, 100 per cent of its Scope 1 and 2 emissions based on a 2019 base. The former will reduce by 2030, its Scope 1,2,3 emissions by a third from a 2016 base. There are no generic companies in this list and no Indian pharma company yet. Why are climate change and de-carbonisation not a big deal yet for the generic pharma industry? 

To be sure, references to UN Sustainability Goals have started making an appearance in Annual Reports of a few companies. There are efforts that some are making on reducing wastage and water footprint and increasing the use of renewable energy. These efforts are yet to take a lead role in shaping overall corporate strategy. It is only an extremely evolved leadership that is aware of India’s obligations as part of the Paris Treaty. To recap, the country has three obligations – 

1. Reduce emissions by a third by 2030, from 2005 baseline, 
2. Increase share of the power generated by non-fossil fuels to 40 per cent by 2030, 
3. Create an additional carbon sink of 2.5-3 Gigatons of CO2e by 2030 – from enhanced tree and forest cover (this would need 25 million acres of new forests with five billion native trees – a 15 per cent increase – roughly the size of Tamil Nadu in new forest cover). 

It is a fact that generic pharma companies have had some serious challenges in the last decade – shrinking health budgets, consolidating value chains, exponentially increasing regulatory expectations that have led to rapid commoditisation and shrinking growth and margins. Those that have ventured on the innovation curve have found the going tough. These challenges are non-trivial. And then came COVID-19. The pandemic gave an opportunity to the industry to do what it does best – focus on access amidst twin challenges of business continuity and China dependence. Access, affordability, value chain innovation, COVID-triggered workflow re-imagination, productivity, supply chain sustainability will continue to be immediate focus areas. 

So, what are the compelling reasons for a pharma-co leader to invest in climate change mitigation through decarbonisation initiatives? Here are a few:

1. There are studies that have shown that there is a good inverse co-relation between sustained low emitters and their stock prices in the US
2. Green funds – those funds whose capital is directed towards companies focusing on sustainability practices or technologies that enable them – have been outperforming the S&P index by a fair margin
3. Many industries are seeing pricing power, growth and bottom-line improvements resulting in valuation-multiple expansion in offering green products – those coming from businesses with a visible commitment to sustainable practices. In the Western world, this move is imminent across sectors. The developing world will not be far behind in expectations. 
4. Climate change mitigation and sustainability initiatives may be strong, sticky, durable tools for both employee, community and customer engagement – more so in the post-COVID-19 reality. And global network partners such as Goodera, Pyxera and others help businesses and their employees embrace “circular economies”
5. There are industries that are seeing breakthrough innovation in product and process design, network and technology design leading to cost leadership – if “green” is set as an important “outcome measure”. Beyond Meat, with a market cap of $8 bill and Impossible Foods are the poster kids in this space. There are others like mass electric transport, Pyrolysis assisted plastic recycling, technologies for “capturing CO2 from the air and converting into fuel” and many more, making waves. 
6. There is emerging macro-level evidence that mitigation is substantially more cost-effective. As an example, there are estimates that the world should have normally spent $ 50 bill a year to prevent new diseases emerging from habitat disturbances in tropical environments. Having ignored this, the world will incur an astronomical cost, approx. $10 trillion in COVID-19 recovery
7. Important pharma clusters in India are in zones of high biodiversity – such as Goa, Sikkim. Goa is in the lap of the Western Ghats. These Ghats are one of the 12 biodiversity hotspots of the world with over 5,000 flowering plants, 130+ mammals, 500+ birds and 170+ amphibian species with at least 300 globally threatened species. The range covers 60,000km2 and forms the catchment area for a complex river system that drains almost 40 per cent of India. Similarly, Sikkim is in the Eastern Himalayas, India’s second biodiversity hotspot in the global group of 12, with over 4500 flowering plants, over 500 orchids, a stunning variety of rhododendrons, conifers, bamboos, ferns, primulas, oaks, medicinal plants, 100+ mammals, 500+ birds, 50 odd fishes and over 600 butterflies, with the incredible sights of 28 mountains/peaks, 80 glaciers, 200+ high altitude lakes/wetlands and 100+ rivers and streams. Shouldn’t corporates be sympathetic to the cause of protecting such sensitive eco-zones? Recently, a large Indian pharma company received a notice from National Green Tribunal that one of its factories was in breach of environmental norms and was allegedly polluting a bird sanctuary. A case that may have been the result of public activism. The COVID-19 lockdowns have triggered the revival of nature. People at large, have been inspired by the sights of wild exotic flora and fauna appearing in urban spaces and with the cleaner air. They will hate to see it go down again. Environmental activism will only go up, for mostly the right reasons. Indian pharma companies must be seen to be ultra-sensitive to these concerns

It may be time to take the lead to bell the climate change cat. At a minimum, companies must take stock of their total carbon footprint, especially on the manufacturing and logistics side, assess how they can integrate decarbonisation initiatives in their product and network design as well as their productivity and re-imagining initiatives. Then do a careful assessment of the scope of reductions and year-wise targets to get to carbon-neutrality. If digital and touchless future is all about the employee health and hygiene, then green is all about the hygiene of the planet. The two should go hand in hand. As a celebrated writer said recently, “the pandemic is a portal, a gateway between one world and the next”. Let’s ensure then the next one is Green. 

(The views in this article are personal)