Building a More Sustainable Supply Chain in Pharma

Mounting global concern about global warming and climate change, from consumers to business partners, has made sustainable practices a business imperative.

While many pharma companies are making progress in reducing direct emissions and improving ESG performance, their biggest challenge lies beyond their operations and, instead, is actually with their supply chains. These indirect, third-party emissions are known as Scope 3 emissions.

Addressing these challenges requires a change in how companies interact with suppliers and partners.

“While some suppliers may lack familiarity with strong ESG practices, we see this as an opportunity to collaborate, share knowledge, and promote better standards. By emphasizing partnership and education, we’re fostering a culture of continuous improvement, even if it means parting ways with those who don’t align with this vision,” says Sucheth Davuluri, Vice Chairman and CEO of Neuland Labs.

The blog below captures his valuable insights and presents four innovative strategies to collaboratively reduce supplier-related emissions and drive impactful change.

What is Scope 3 Emissions?

The U.S. Environmental Protection Agency has provided a clear framework for categorizing corporate GHG emissions into Scope 1, 2, and 3:

Scope 1 emissions are GHG emissions that come directly from a company’s operations (e.g., company facilities and vehicles), while Scope 2 emissions are GHG emissions that come indirectly from purchased energy to drive company operations, such as electricity, steam, heating, and cooling.

By contrast, Scope 3 emissions are indirect GHG emissions resulting from activities a company doesn’t own or control. This can occur either upstream (e.g., purchased goods/services, transportation and distribution, etc.) or downstream (e.g., transportation and distribution of sold products, processing of sold products, etc.) of company operations.

In other words, they are emissions from a company’s supply chain.

The Challenge of Managing Scope 3 Emissions

For many companies, scope 3 emissions contribute to most of their environmental impact.

And the pharmaceutical industry is no exception: Global companies like Novartis, Merck KGaA, and GSK have disclosed that Scope 3 emissions account for 90%, 79.9%, and 92% of their total emissions, respectively.

But addressing these concerning figures is easier said than done.

The pharma industry relies on a vast network of third-party international suppliers with different, country-specific regulations, making tracking complex. In addition, not all suppliers track or report emissions, and if they do, there is no standardized way in which they do it. This limits the ability of pharma companies to collect accurate, consistent, and complete Scope 3 data across suppliers.

Finally, in such a heavily regulated industry, sustainability goals are often deprioritized in favor of “more important” GMP and QC/QA requirements.

4 Proactive Strategies for Reducing Scope 3 Emissions

At its core, reducing scope 3 emissions requires engagement with third-party suppliers, which Neuland Labs has prioritized. From this engagement with suppliers, Rao touches on 4 ways we’ve raised awareness and driven meaningful action.

Sustainability Audits

Building visibility into a supplier's sustainability practices starts with collecting sustainability data through a thorough audit. While in-person audits provide higher assurance, they’re often impractical at scale, with hundreds of suppliers.

A practical compromise is integrating ESG assessments into existing quality audits for critical suppliers. Third-party certifications can also streamline this process. Standards like ISO 14001 (which deals with Environmental Management Systems) and ISO 45001 (which deals with Occupational Health and Safety Management Systems) offer recognized benchmarks and can reduce the amount of effort that goes into doing supplier audits.

Incentivizing Sustainability

While audits can be time-consuming, the result enables pharma companies to set baselines for each supplier. With baseline data comes goals for improvement. Setting goals requires an open dialogue with internal and external stakeholders to set realistic goals and expectations.

Pharma companies can also incentivize more sustainable practices by setting up preferred partner programs that reward third-party suppliers who show progress. Ultimately, this sends the message that sustainability is a priority and plays a role in procurement decisions.

Providing and Receiving Education

Offering online training or hosting supplier conferences lets companies share best practices while listening to on-the-ground challenges. At Neuland Labs, we’ve found that such events not only build trust but also spark valuable collaboration and peer learning.

Tailoring content to regional contexts is essential, particularly for large, global suppliers. What works in one region may not be practical or relevant elsewhere.

Work with Suppliers that “Walk the Walk”

Your critical suppliers have their own suppliers, who also have their own suppliers, and the further upstream you go, the harder it becomes to monitor ESG performance. The solution to this issue is to work with suppliers who practice what they preach and follow the 3 points discussed above.

Do they audit their providers? Do they incentivize sustainability? Do they provide education and listen to their suppliers?

Ask for transparency into how they assess their partners and what improvements they’re making. This extends your visibility and is a proxy for supplier commitment to sustainability.

Real Change Requires a Collaborative Ecosystem

Building real, sustainable business practices comes from building a collaborative ecosystem of suppliers. Scope 3 emissions may be the most challenging to address, but the above strategies hold the most significant potential for long-term impact.

At Neuland Labs, we’ve invested and prioritized a sustainable supply chain to support our CDMO services and API portfolio. By auditing, educating, incentivizing, and aligning with these like-minded partners, we’ve transformed supply chain sustainability from an obstacle into a strategic advantage.

To learn more about how Neuland Labs can support your company's ESG efforts, contact us here.