Clean Energy Transition: Pharmaceuticals

 

 

 

Can the industry improve the health of the planet?

While the pharmaceuticals industry doesn’t pump out anywhere near the CO² volumes of industries such as energy, transport and the production of iron and steel, it still contributes close to 5% of global emissions. As an industry it is also still vulnerable to the economic impacts of climate driven adverse weather events, including supply chain interruptions and challenges to the production of some feedstocks.

According to the World Health Organization, climate change is the greatest threat to global health. Extreme weather events such as heatwaves and droughts can lead to illnesses and deaths through heat stress, dehydration, malnutrition, increased levels of food-borne pathogens and contaminated water supplies. Flooding can also result in an increase of water-borne diseases. Air pollution can cause or exacerbate illnesses such asthma and cardiovascular disease.

Can pharmas reduce global greenhouse gases?

How can the industry cut its own emissions, and can such actions create opportunities for industry growth as well as improving the health of the planet?

This is question that much of the industry is already exploring. For some this is driven by legislative direction, such as the EU’s Corporate Sustainability Reporting Directive and the Inflation Reduction Act in the US. For others, clean energy transition is the logical next step in response to the kind of price fluctuations seen in the recent energy crisis.

Many of the manufacturing processes used in the pharmaceuticals industry are energy intensive. Some require fossil fuel feedstocks, and many are part of long tailed supply chains that criss-cross the globe. Transitioning to clean energy will be a massive undertaking for the sector, potentially impacting production, ingredients and supply chains. However, it is one that our industry underwriters note is already underway in several markets and regions.

Scope 1, 2 and 3 refer to emissions created by a company during the process of its operations

 

What do Atradius underwriters see as the primary issues for the sector?

Innovation

Our pharmaceuticals underwriters in China, the world’s biggest producer of pharmaceuticals, point to the importance of innovation and notes the potential of “new technology to improve efficiency and sustainability”. This is a view echoed by all of the industry specialists we spoke to across the world.

In fact, all of the specialists answered “yes” in response to the question: “Do you expect the majority of pharmaceutical companies to implement innovative technologies such as smart logistics, machine learning, AI, digital platforms, IoT, etc. over the next three years?”

Costs

Some of the greatest risks and challenges facing the industry revolve around costs. R&D costs in the industry can be exceptionally high, often with long lead times between the initiation of research and a new drug or therapy coming to market. Adding the cost of regulatory compliance and the capital expenditure associated with clean energy transition to that is likely to put a squeeze on margins.

However, for an industry used to looking decades into the future as part of normal operational planning, most also note the potential long-term cost savings that clean energy transition could bring. This was articulated by our underwriters in Germany when they said: “Transitioning to clean energy often involves adopting innovative technologies and processes, which can improve overall operational efficiency and stimulate innovation within the sector.”

Our sector specialists in France pointed to the importance of energy security and the threat to business that volatile energy costs can present. Our specialists in Belgium agreed and said: “Cost reductions will be a main driver of shifting to renewable energy, especially in view of the energy intensive character of the market.” They added: “Clean energy might give more security over energy supply in periods of geopolitical tensions, where classic energy sources could be cut off, by making energy supplies more self-sufficient.”

Collaboration

Our underwriters in Italy and Poland also acknowledged the importance of collaboration within the industry and pointed to the opportunities presented by being part of the EU bloc. Our colleagues in Poland said: ‘Recent political changes in Poland have enabled the government to access national and EU funds for clean energy transition, which in turns has helped to increase investor confidence in the sector.”

In Italy, our colleagues said: “Cooperation with public research centres and open collaboration with domestic and European peers present a major opportunity for the industry during the next few years.”  Our sector specialists in France also made this point and said: “Global cooperation can present opportunities for the pharmaceuticals industry.”

Government support

Our colleagues in the UK, Ireland, the Netherlands and Hungary also acknowledge the important of government subsidies, particularly for helping make their markets more attractive for investors. Our pharma specialist in Indonesia said: “Government incentives for investing in the medical device industry can be applied to companies that support clean energy”.

 

 

Where next?

For many, solutions may lie in a new way of working, such as the opportunities for collaboration presented by the Schneider Electric Energize programme. Among the approaches explored in this programme is the chance for pharmaceutical suppliers to collaborate on sourcing and pricing for renewable electricity.

Regulatory compliance is also likely to play an increasingly important role. The EU’s Pharmaceutical Strategy, for example, is designed to promote greater transparency, environmental accountability and sustainability across global pharmaceuticals supply chains. Will this regulation and others like it across the world deliver improved sustainability? This remains to be seen.