Biodiversity: It’s Time to Protect Our Only Home - N°6 Chemicals & Pharmaceuticals sectors

This paper is the concluding section of a thematic paper series on biodiversity, resulting from the discussions we had during meetings dedicated to biodiversity engagement with various companies in the pharmaceuticals and chemicals sectors¹.

This dialogue followed a framework based on ten questions structured around:

1. biodiversity strategy and governance,
2. biodiversity related impacts, dependencies, risks and opportunities, and
3. biodiversity metrics, targets and reporting.

Companies within the chemicals and pharmaceuticals sectors may have quite different level and type of exposure to biodiversity depending on the nature of their business. Biodiversity challenges are not the same when producing medicines or industrial gas, or for a flavor and fragrance company or a plastic manufacturer. Likewise, biodiversity impacts and dependencies are more or less direct and manageable depending on the business.

Yet, the chemicals and pharmaceuticals sectors have a lot in common when it comes to biodiversity as their impacts, dependencies, risks, and opportunities are diffused across the value chain:

• Upstream through the supply chain: most drugs (by volume) are chemically synthetized, or require chemicals at some point in the production process;
• Within operations through chemical leakages or inadequate pollution control notably at the manufacturing site;
• Through product use (e.g. forever chemical leaking into nature; active pharmaceutical ingredient excretion, etc.)
• Further downstream, via poor management of products’ end of life (e.g. poor handling of final product waste, plastic pollution).

Companies in our engagement pool demonstrated mixed awareness around the topic of biodiversity (as illustrated in Figure 1). Only a few of them had actually discussed biodiversity at the top management level, or initiated any type of work to evaluate risks, impacts, dependencies and opportunities. All companies in our sample were nevertheless interested in discussing biodiversity with us. Even the companies less advanced on the topic were keen to engage dialogue and learn about biodiversity. Corporates were notably interested in better understanding our investor needs and how we consider they could deal with the issue and better address biodiversity loss. 

Figure 1: Biodiversity Strategy Engagement Score

Interestingly, the degree of commitment to biodiversity was not necessarily linked to the magnitude of company’s exposure to natural capital. Some companies had very limited biodiversity strategies relative to their highly negative impact on nature. Conversely, a couple of companies with only limited direct impact on natural capital had embedded biodiversity as a core feature of their ESG strategy and were devoting significant resources to initiatives and research on the topic. For instance, it is on the issue where the pharmaceuticals industry has the most direct and specific connection to biodiversity, i.e. on pharmaceutical residues in the environment, that we found the most weakness in dealing with biodiversity.

A majority of companies admitted they were struggling against the challenge biodiversity represents due to the complexity in understanding all facets of biodiversity, and the lack of tools and resources dedicated to assessing their connection to nature. Some companies did not even understand how they could directly be exposed to biodiversity. In addition to this lack of expertize, companies were also citing insufficient bandwidth and biodiversity not being identified as a top priority as justifications for their lack of commitment to biodiversity.

All companies were nevertheless tackling adjacent topics without necessarily making the link to biodiversity. A good illustration of a biodiversity loss driver addressed by companies is climate change, to which several companies admitted they were dedicating a majority of their sustainability resources. We cannot agree more on the importance of climate change, but its strong relation to biodiversity should not be ignored.

We discussed biodiversity strategy and governance with companies, notably with the aim to better assess to what extent biodiversity is a specific subject at the board level, as well as the degree to which the company has formalized its biodiversity strategy. We noticed that while biodiversity topics were expected to be increasingly present at the board’s agenda, the discussion remained largely focused on climate change. We noticed significant efforts on biodiversity-related topics but rarely on an overarching strategy.

• Chemicals: With the exception of one company at the early stage of its sustainability journey, the companies we met had launched initiatives aiming at limiting their negative impacts on biodiversity. These initiatives were nevertheless often swamped in numerous sustainability projects with various purposes, or implemented through environmental management systems. The companies had rarely developed an overarching biodiversity strategy but were focusing on partial drivers of biodiversity loss, specific activities or business units, or locations. For example, they may have dedicated significant resources to addressing deforestation caused by palm oil, even though this issue represented limited impact at company level compared to other significant drivers of land use change caused by the company. Only very few companies formalized a biodiversity dedicated policy and committed to specific targets such as enhancing biodiversity on a specific area, improving soil health or being land or nature positive by 2030 for example.
• Pharmaceuticals: Two companies within our sample demonstrated best practice by approaching biodiversity holistically. Despite having relatively low direct exposure to biodiversity, they consider they cannot fulfill their core mission of contributing to the world’s population good health without addressing biodiversity, as they see the link between a healthy and biodiverse environment and good human health. They also both perceived the social dimension of biodiversity as certain indigenous population cannot survive without the rich biodiversity surrounding them. The most advanced of these two companies had developed several targets around biodiversity and set an ambitious goal to become net positive on nature by 2030. A third company in our panel was also developing specific initiatives around biodiversity but focusing essentially on its non-pharmaceuticals business with strong exposure to biodiversity. Its efforts towards biodiversity were neither holistic nor sufficient with regard to the potential harm it may cause. The other companies we engaged with did not discuss biodiversity at board level, only address adjacent environmental topics, primarily climate, or were taking environmental initiatives, which they did not directly connect to biodiversity.

We cannot discount the efforts most companies were making on topics related to biodiversity such as climate, water, waste management and pollution. These are valid efforts but we encouraged companies to connect these efforts to an overarching biodiversity strategy, such as only a few companies we engaged with were able to do.

We asked companies about the extent to which they identify and manage impacts, dependencies, risks, and opportunities linked to biodiversity. We noticed that biodiversity risk management was still a field to be developed for most companies.

The most advanced companies considered their impacts and tried to assess their dependencies on biodiversity, notably through their supply chain. For instance, one company calculated the land used for corn or palm. It also mentioned different indicators it could use, such as an ecosystem vitality index, biodiversity and habitat index or species protection index. The same company also cited several risks related to biodiversity loss: loss of capital attractiveness and higher capital cost since investors are more concerned with biodiversity issues, penalties or increasing cost to comply with the regulation, the potential disruption of its raw material supply chain, and the loss of market share due to customers growing concerns about products harming nature.

Aside from a few instances, companies in our panel did not evaluate impact and dependencies, nor risk and opportunities, related to biodiversity. However, most of them were conducting assessment on adjacent topics, such as climate change, and some were taking some initiatives to reduce their negative impacts.

Table 1: Examples of impacts, dependencies, risks and opportunities provided by companies during our engagements

Overall, we noticed that most companies were managing biodiversity-related topics without realizing it and without connecting the dots holistically to biodiversity. Examples of assessment and management included:

• Measuring and managing carbon emission and setting target to reduce them, including encouraging their suppliers to adopt the same strategy.
• Making inventories of raw material supplies and assessing their dependency on nature. Some companies mentioned palm oil being used in tiny quantities and ethanol, with possibilities for alternative sources.
• Measuring the local footprint of their plants and buildings, and protecting their local environment notably when its biodiversity is more fragile.
• Measuring and controlling pollution risks at the production site (water discharge), including at their supplier’s level.
• Conducting life cycle analysis of their key products.
• Monitoring and managing packaging, with initiatives to reduce the use of virgin plastic and packaging size. Yet, several companies mentioned that packaging represented a tiny part of their operations.
• Looking for greener production processes (adoption of “green chemical principles” in drug synthesis) or greener alternative to their products (e.g. microbial pesticides instead of agro-chemical products).
• Attempting to control the risk of pollution from product use and disposal (e.g. drugs, fertilizers, pesticides). This encompasses several initiatives, including: collaborative work, education on how to properly dispose unused drugs, R&D on drug degradation in the body and the impact of excreted residue on nature, developing alternative to current products with a safer impact on the environment, etc.
• Managing forestry projects or other nature-related projects (such as watersheds) in order to both account these projects as carbon offsets, but also as part as what they considered being their ultimate goal to protect nature and the local populations that depend on this nature to survive. Companies specifically mentioned afforestation projects with careful reintroduction of local species in partnership with local people who depend on local biodiversity. Some of these companies also are signatories of the LEAF (Lowering Emissions by Accelerating Forest finance) Coalition, which aims at halting deforestation by financing large-scale tropical forest protection.

This part of the dialogue we had with companies focused on how they were measuring and assessing biodiversity, how they were measuring their performance and the metrics they might use for targets and reporting as well as the extent to which they were working collectively to address related difficulties.

Some of the interviewed companies mentioned were using the IBAT tool (Integrated Biodiversity Assessment Tool) to get a sense of where they were, to better understand where they operated, notably if they operated in or near protected areas, in high-risk sites. Several companies told us they were monitoring if their production sites were located in or near protected areas, mapping their sites with IUCN (International Union for Conservation of Nature) or the Ramsar conservation areas. This is something they have to do when responding to the GRI biodiversity dedicated indicator (GRI 304), for instance. Some companies used UN World Heritage Sites (WHS) list to map their operations with protected areas and areas of high biodiversity value, with some of them following the GRI 304 indicator and providing related disclosure. Some companies were also developing more innovative options, based on blockchain for instance, to improve the traceability of raw materials and offering sourcing analysis. We lastly discussed with companies part of the TNFD consultation, or following associated developments closely, or considering setting science based targets for nature.

Table 2: Noteworthy collaborative initiatives and tools cited by companies during our interviews

Table 3: Recommendations and best practices

The chemicals and pharmaceuticals sectors have a wide range of impacts disseminated across the value chain as well as varying biodiversity impacts, dependencies, risks and opportunities, likewise the wide range of products and services they offer. At the same time, the companies we engaged with demonstrated mixed results on their consideration of biodiversity.

As illustrated by the high variability of results, we noticed strong heterogeneity between companies in terms of awareness and management of biodiversity. Companies were often tackling biodiversity related topics but without connecting the dots to biodiversity in order to form an articulated strategy. While they may incorporate some biodiversity concerns into their ESG strategies, there remains a long way to go for companies to integrate these elements into a more comprehensive biodiversity strategy.

The responses to our engagement were nevertheless very positive, with most companies willing to better assess and manage biodiversity issues, as well as better understand investors’ expectations. As the topic continues to grow in awareness, we can hope to see great momentum on action.

¹ This report was written based on engagements that took place in 2021 and 2022.