Even though the healthcare and pharma industry has been the centre of the world's attention over the last few years, there has been much less focus on the global carbon footprint of this sector compared to other industries. However, as studies are beginning to highlight, it's a bigger problem than many realise. And it's a two-way street. Mitigating and adapting to climate change will have positive impacts on societal health, while supporting the future-proofing of vulnerable supply chains and protecting nature and biodiversity can unlock the molecular diversity necessary for successful drug discovery efforts in the future. Given the industry's size and impact, it's imperative that the global healthcare & pharma sector transition to net zero as quickly as possible. This is especially the case given the opportunities for climate action that the sector represents. We outline the key levers and drivers for this transition below.
It has been reported that the healthcare sector contributes to 4.4% of global net emissions – that's two gigatons of CO2e, which is more than the aviation or shipping sectors. Indeed, if healthcare was a country, its carbon footprint would make it equal to the fifth-largest emitter globally.
Meanwhile, the pharma industry has been estimated to generate around 52 megatons of CO2e annually, with analysis suggesting it is far more emissions-intensive than the automotive sector. By 2025, it needs to reduce its emissions intensity by an estimated 59% from 2015 levels to meet the goals of the Paris Agreement. It's clear that setting clear targets to reduce emissions and ultimately reach net zero will therefore have far-reaching benefits for human health and companies alike.
Globally, the healthcare market worldwide is expected to reach US$ 83.4bn by 2025, while the growth in prescription medicines is projected to climb to US$ 1,562.1bn by 2026. Meanwhile, environmental issues such as air pollution and extreme temperatures are all associated with health impacts and so contribute to healthcare costs (an annual estimated US$ 800m in the US), creating a vicious circle.
In addition to carbon emissions, healthcare and pharma organisations are becoming increasingly exposed to the impacts of climate change, such as extreme temperature variations, flood risks and water scarcity. As a sector that must remain fully functional and accessible at all times, shocks and stresses from climate impacts can be particularly detrimental. Physical healthcare sites, such as hospitals, need to consider the suitability of their infrastructure and their accessibility, while manufacturing sites should review the placement of their operations for climate resilience. The impact of climate on the workforce is a further consideration.
On the investment side, there is pressure for greater transparency from the industry: investors want to know how healthcare and pharma companies are managing their environmental impact (via ESG metrics) and are willing to fund companies that can demonstrate tangible progress.
Against this backdrop, it's vital for the industry to strive towards reaching the new industry standard of climate goals – net zero- This is for the planet as well as the bottom-line.
'Net zero' refers to a state in which the greenhouse gas (GHG) emissions being released into the atmosphere are balanced by the equivalent removal of GHG emissions from the atmosphere. While the term 'net zero' is industry-agnostic, the expectation is that all companies need to reach this state on or before the year 2050. The Science Based Targets initiative (SBTi) defines two key criteria for a company to reach net zero:
As with any other company, for businesses in healthcare and pharma, the first step on the journey to net zero is always to measure. Conduct a comprehensive accounting of your energy usage and the emissions resulting from your business operations. It's crucial to also include your indirect (scope 3) emissions and then set ambitious yet achievable targets for emission reductions and transitioning to renewable energy. The Science-Based Targets Net Zero standard is a reputable framework that focuses on six criteria critical to limiting global warming to 1.5°C by the end of the century: standardisation, ambition, impact, accountability, transparency and credibility.
Next, reduce your emissions. The best way to do this is to invest in energy efficiency measures. These should look at the saving potential from all sides, from changing employee behaviour to investing in modern technology; this way you can start reducing your scope 1 and 2 emissions at the source. When it comes to scope 2 emissions (purchased energy), sourcing renewable energy is one of the most effective ways to achieve reductions quickly and contain rising energy costs. This makes it a powerful place to begin and a cornerstone of an integrated climate strategy.
If you're looking for an easy first step, Energy Attribute Certificates (EACs) are widely available globally and can be transacted in a matter of a few weeks. However, there will always be a cost involved in purchasing EACs and, particularly as manufacturing is energy intensive, you may want to look for cost-saving opportunities in geographies that would be better served by other solutions. The key is to develop a holistic, long-term strategy that can unlock those cost-savings and also provide energy price risk management alongside meeting your sustainability objectives. This can mean considering off-site power purchase agreements (PPAs), on-site generation, or bundled/unbundled EACs.
The emissions from a company's supply chain are on average 11.4 times higher than those from its core operations. Add to this the growing pressure to report scope 3 emissions and it's clear that managing GHG emissions and product impacts throughout your supply chain is crucial to remaining competitive and resilient.
As a manufacturer of pharma products or medical equipment, you are ideally positioned to demand transparency from your suppliers. The 2021 CDP Global Supply Chain Report found this to be a highly effective mechanism in driving disclosure and encouraging suppliers to cut emissions and costs. How do you address these indirect emissions? One very effective plan of action is to start repowering your supply chain by accelerating your suppliers' transition to renewable electricity. This will be a global effort that fosters collaboration and long-term relationships with your suppliers.
While companies need to transform their operations and positively impact their supply chains, we must also dramatically increase the speed and scale of climate action today to avoid the irreversible effects of climate change tomorrow.
We must find effective and credible ways, which align with the SBTi, to finance clean technology, fair transitions, and global emission reductions. In all of this, the role of the private sector in ramping up climate action projects is critical, particularly in light of highly insufficient action by governments. Healthcare and pharma, in belonging to the private sector, can also play a crucial role.
So called 'carbon credits', sold via the Voluntary Carbon Market (VCM), are validated and verified via rigorous standards backed up by third-party auditors, and have already channelled billions of dollars into driving verifiable climate change mitigation – well ahead of government regulation on climate change. These standards continue to improve in line with new science and technologies, and lessons learned, ensuring high quality.
Adopting carbon credits as part of a science-based net zero strategy immediately funnels crucial financing to projects that are lowering emissions today (and cannot find funding in local capital markets). It also – and this is key – “puts a price on carbon" which essentially means that you see what your emissions are costing your business. This becomes an immediate incentive to lower emissions over time and thus avoid this compensation cost.
There are other factors at play for the healthcare and pharma industry: rising healthcare costs, the increase in diseases, including those that cross animal–human barriers, and the impact of deforestation. Surprisingly, perhaps, these three elements are linked. A 'radical listening' study in the mid-2000s looked at the drivers of deforestation, and found one driver to be illegal logging, which was carried out to pay for healthcare. Fast forward to the creation of a healthcare clinic and deforestation had decreased by 70% over a decade.
Retaining forests has clear benefits for carbon sequestration, but safeguarding nature and biodiversity also means protecting a molecular treasure that is so vital for research. It also – and this is an underappreciated factor – helps prevent the spread of infectious diseases: this is because the destruction of complex ecosystems through land-use change can result in an increase in transmissible diseases from mammals to humans, as well as a rise in vector-borne diseases from mosquitoes and ticks.
The UN Sustainable Development Goals specifically target good health and wellbeing, with a goal to substantially reduce the number of deaths and illnesses from hazardous chemicals and air, water and soil pollution and contamination by 2030. Actions for this and the goals for Life on Land and Climate Action can address the issues of climate change, forest degradation, and good health through investment in carbon credits.
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Everyone, including your stakeholders, investors and customers, is aware of the climate crisis and is looking for ways to act in their daily lives. In particular, they are engaging with companies who share their climate action values and are buying products with these values in mind.
You can showcase your climate action for your company or product with South Pole's Funding Climate Action label - learn more here.
By lowering emissions and striving to reach net zero, health systems and related organisations can contribute to better health. This, in turn, can reduce the cost of healthcare – one of the biggest challenges the global health system is currently facing – and help tackle climate change, in one powerful move.
At South Pole, we work with key players in the healthcare and pharma industry and help them to transform ambition into action, with measurable, positive impacts on the environment and the bottom line. We design solutions with the big picture in mind, leveraging our expertise in the interrelation of challenges, opportunities, and solutions to help companies take meaningful climate action.
South Pole offers a suite of options for pharmaceutical and healthcare organizations seeking to lower their environmental footprint.