Blog | 11 Nov 2024

The pharmaceutical sector must find a remedy for its climate-related risks

Shilpita Mathews

Senior Economist, Economics & Sustainability

Climate adaption of pharmaceutical companies

Globally, the pharmaceutical sector is responsible for significant greenhouse gas emissions. Equally, the pharmaceutical sector is exposed to climate risks and is highly dependent on nature in its production processes.

As world leaders gather in Baku, Azerbaijan for COP29, the 2024 United Nations Climate Change Conference, there is an urgent need to respond to climate impacts on society and businesses. In our August blog post, we discussed how extreme heat impacts the travel and tourism sector. This month, we look at the climate-related risks and responses of the pharmaceutical sector.

According to the Lancet, climate change is the greatest global health threat in the 21^st century, disproportionately affecting vulnerable groups, such as children and older people. From increases in hospitalisation rates due to extreme weather events, to the rise in vector-borne diseases, disruption of food systems, and mental health issues, climate change is having an adverse impact on human health. The rise in climate-related health impacts has come at a time when various public health services are already overburdened, as discussed in our Greenomics podcast episode on climate adaptation. Consequently, there is an urgent gap to be filled by the private sector in addressing climate-related risks.

Navigating climate-related disruptions

The pharmaceutical sector is at the forefront of generating private sector solutions to address climate and health-related risks. At the same time, the sector itself is exposed to climate-related disruptions both to its own operations as well as within the broader supply chain. For example, when Hurricane Maria hit Puerto Rico in 2017, more than 500 medical product facilities—producing 10% of all drugs consumed in the US—were affected or damaged.

Pharmaceutical companies are at risk from climate-related events due to several factors. First, the global nature of the sector means they are exposed to a wide range of climate-related impacts from extreme heat to cold snaps and flooding. The nature of the sector also makes them more vulnerable to climate risks due to specialised processes and high asset tangibility, or dependence on specific physical assets for production. For example, in 2018 a pharmaceutical company had to cut back on production in a Swedish facility because of excessive heat and humidity which jeopardised manufacturing processes. The same holds true across the supply chain, as companies often rely on product-specific temperature-controlled transport and storage facilities and on-time deliveries of hazardous chemicals and pharmaceutical products.

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Moreover, most products are highly specialised with low substitutability, or the availability of alternative components or suppliers, and have constrained production capacity. As a Cervest white paper notes, “many pharmaceutical companies operate with only one site available for the production of each product, due to the cost of building new facilities […] if that site is subject to extreme weather, it has a devastating impact on the supply chain.” The sector is also geographically concentrated in some countries. For example, 50% of the Indian pharmaceutical sector’s supply chain is domestic, according to analysis by Oxford Economics’ Economics & Sustainability team. Indian pharmaceuticals’ supply chains also rely heavily on other sectors that are exposed to climate risks. These include domestic chemicals and raw pharmaceutical and petroleum products. Understanding where these climate-related risks can be mitigated can help pharmaceuticals reduce the likelihood of supply disruptions.

An ounce of prevention is worth a pound of cure

There is a close relationship between the pharmaceutical sector’s climate-related impacts and risks. Globally, the pharmaceutical sector is responsible for significant greenhouse gas emissions, which are estimated to be about 52 megatonne CO₂ equivalent per year – and this is without considering indirect energy-related emissions through the entire supply chain. Equally, the pharmaceutical sector is exposed to climate risks and is highly dependent on nature in its production processes. This duality in relationship between climate-related impacts and risks is discussed in our Greenomics podcast episode on biodiversity.

In view of the above, the pharmaceutical sector would benefit from addressing impacts and risks simultaneously. For example, one pharmaceutical company has an initiative to plant and maintain 200 million trees globally by 2030. The forest is part of the company’s science-based decarbonisation strategy contributing toward CO₂reductions while also promoting climate resilience. Specifically, reforestation projects are designed to maximise co-benefits by reducing the risk of natural disasters, such as floods and landslides, promoting a healthy water cycle and supporting disease prevention by providing cooling spaces and improving air quality, all of which can be exasperated by climate change.

The pharmaceutical sector can also benefit from an integrated approach to climate and biodiversity, as argued in an opinion piece published by Oxford Economics’ Economics & Sustainability team. An integrated approach can help identify solutions that may otherwise go unidentified or undervalued when assessed in isolation. One example of this is the Sustainable Markets Initiative Health Systems Task Force’s Joint Supplier Targets. Leading pharmaceutical companies have developed sustainability targets for their suppliers ranging from reducing emissions, reusing materials, improving water efficiency, and increasing uptake of renewable energy. The joint targets are designed to reduce the complexity for suppliers as they develop action plans. In particular, the Taskforce aims to develop solutions to support their suppliers in achieving these targets simultaneously, such as aligning renewable energy uptake with emissions reductions.

Pharma’s role in shaping climate-resilient futures

Finally, while the pharmaceutical sector faces significant climate-related impacts and risks, it also has various opportunities to generate innovative solutions which address the global health risks posed by the climate and biodiversity crises. This is seen in the pharmaceutical sector’s contribution towards research and development to fight vector borne diseases, such as malaria and cholera, in partnership with global health organisations, governments, and charities. By participating in coalitions such as the United Nations High Level Champions on health-related initiatives, the pharmaceutical sector can champion climate resilience in the global health system through effective partnerships. Conferences such as the upcoming COP29 are an opportunity for pharmaceutical companies to seek out similar collaborations. In doing so, the pharmaceutical sector has a crucial role to play in meeting global sustainability targets.

This blog is produced by our Economics & Sustainability team. To unlock the power of economics for climate and sustainability insights, contact us.

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Tags:

Climate Climate Adaptation Pharmaceuticals Sustainability