Tracking sustainability metrics: CDMOs should act now to prevent catch up

Ahead of his presentation at Connect to Frankfurt (opened September 28^th), EPM spoke exclusively with Heiko Schmidt, Strategy & Consulting Life Sciences lead, Accenture AG, about why CDMOs should be prepared to track sustainability metrics now and how companies which wait now, will likely be forced to catch-up at higher costs. He also looks at why sustainability matters and what can CDMOs expect in contracts and regulatory requirements in the next 5 years.

Key insights:

• Sustainability metrics could become mandatory for investment opportunities, as many investors are emphasising that sustainability will be added to the decision criterium.
• Pharma companies which wait now to implement initiatives for sustainability will likely be forced later by regulation to catch-up quick at even higher costs.
• CDMOs tracking their sustainability metrics requires knowing which metrics should be reported, how to track those and which levels of metrics aggregation are desired by their customers.

Connect to Frankfurt is a new digital platform specifically designed for CPHI attendees to get the most out of their CPHI Frankfurt experience – even before they attend – it presents more than 30 on-demand webinars, and offers a head start on networking, meetings, and understanding the very latest in pharma industry developments.

The online platform is accessible to anyone registered for CPHI Frankfurt (November 1-3, 2022) and will remain open post event until 18^th November.

Q: Could you explain why sustainability matters and what are the focus areas in the pharma industry in the short and medium term?

A: We can see the results of non-sustainable behaviour almost daily on the news - e.g. the climate crisis. Our society's awareness of the importance of sustainable behaviour increased a lot during the last years. Pharmaceutical companies must manage sustainability expectations of multiple stakeholders and are in competition to satisfy those.

Accenture took a closer look at the sustainability development goals defined by the UN. Our study “Delivering on the promise of sustainability” provides you guidance on where to focus. Greenhouse Gas emission reduction, energy efficiency, abatement of water or resource adoption, waste management as well as driving health equity and improving diversity in clinical trials are some concrete examples for LS industry when it comes to sustainability. All these ambitions cannot be achieved from one day to another. Where to focus short and medium term depends on the individual situation and sustainability maturity level of the company.

Q: What are the best current metrics for measuring sustainability in pharma industry right from discovery to development and clinical to commercialisation?

A: This question is not easy to answer as pharmaceutical companies are currently applying various reporting principles due to the lack of a common reporting standard. Additionally, rating agencies build their own metrics and indices. Therefore, a company’s performance ranking compared to competitors can vary in certain categories or with regards to an overall index.

Q: Do you think in future we will need some sort of certifying agency for sustainability in pharma?

A: So far there is the opportunity to get emission related sustainability ambitions and corresponding plans certified by the Science Based Targets initiative (SBTi) which is a global coalition of UN agencies, business and industry leaders and defines best practice in emissions reductions and net-zero targets to meet the goals of the Paris Agreement. I would even go one step further.

Sustainable company performance is already driving investor's decisions and the importance of sustainability will even increase in the future. Sustainability metrics will probably become mandatory for investment opportunities, and it is also expected that for example, in the EU, non-financials get audited comparable to financial balance sheets and profit & loss calculations.

Q: Being sustainable comes with added costs, at least now. How can being sustainable be made economical for the pharma industry in the long run?  

A: All pharmaceutical companies of the same size are facing identical challenges now. Sustainability comes with additional costs but those are investments in the future which make economic sense. Many investors are expressing more and more that profitability is not the only decision criterium anymore as sustainability matters as well.

In the long run investments are leading to opportunities to grow by increasing brand value, attracting talents, decreasing credit costs, realising operational efficiencies, improving stability, and reducing risks which ultimately also leads to an improved business resilience. Pharmaceutical companies which wait now with the implementation of initiatives to reach sustainability will likely be forced later by regulation to catch-up quick at even higher costs.

Q: If we split sustainability into two aspects for pharma, one in terms of waste and recycling and the other covering total carbon footprint - what are the low hanging fruits, so to say, that could improve sustainability in each aspect?

A: Please let me allow the comment that sustainability relates to much more than the two mentioned aspects. Pharma specific focus areas are for example “equitable patient access to medicines” or “diversity in clinical trials”.

Coming back to your question regarding waste and recycling management I see, based on recent project experience, packaging improvements for example, reuse loops, manufacturing efficiencies including yield optimisation and improvements in monitoring waste of materials and takeback programs as low hanging fruits. In total carbon footprint optimisation potential options are renewable energy procurement, energy efficiency initiatives, procurement criteria optimisation, remote working, transportation mode mix optimisation and cold chain enhancements.

Q: Which regulatory bodies do you think are going to be more prescriptive in the next few years and what should manufacturers and CDMOs be preparing for to adhere to the new rules?

A: I am expecting new regulation by the European Commission and local governments from which more companies will get affected. In addition, I believe it is very likely that official reporting standards will be introduced. Those companies which are new to the topic should start to formulate their sustainability ambition and strategy. Sustainability performance measurement is key – supporting organisational structures and a corresponding mindset are important enablers.

Q: The recent CPHI annual survey finds 83% believe that specific ‘sustainability metrics’ will be implemented within the next 5-years in all CDMO contracts. Nearly 60% believed CDMOs will be required to provide their partners with both ‘sustainability metrics’ for projects and specific corporate ‘ESG goals’.

What are your thoughts on these findings do you believe these will be accurate?

A: The survey results are not surprising for me as sustainability is an E2E topic capturing the entire value chain. Pharmaceutical companies have a high interest in their partner's sustainability performance as it drives their own reporting.

CDMOs should get prepared to track their sustainability metrics. This requires knowing which metrics should be reported, how to track those and which levels of metrics aggregation are desired by their customers. In the context of sustainability reporting the right data source, corresponding IT and analytics are the enabler providing opportunities to differentiate against competition.

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