Efficiency and Sustainability: A Perfect Fit for Life Science Companies - Part 1

Part 1 - Why?

Introduction

Many believe that sustainability hurts profits. This is a damaging myth that even many astute executives believe. By dispelling this myth, you unlock enormous innovation and growth potential.

According to E. Freya Williams in Green Giants, there are at least 9 companies, with over $1 billion in annual revenue, that have sustainable products generating $100 billion a year in revenue.

Williams explains how these green products are diverse and cut across price points and industries.

We explore how life science firms can also join the burgeoning green revolution. Doing so will benefit your profit margins, reputation, and the environment.

Sustainability is important for Life Science Companies

If the global healthcare industry were a nation, it would be the fifth-largest GHG emitter on the planet. A country's healthcare carbon footprint has a significant relationship with its health spending.

The health sector aims to safeguard and improve human health. So, sustainable business is all the more vital. Despite this, the healthcare industry's emissions are double those of aviation.

The potential for green disruption and innovation is thus greater than in many other industries. For forward-thinking life science leaders, this is an enormous opportunity to capture a competitive advantage. But let us first explore the main causes of healthcare's GHG emissions.

For pharmaceutical companies, the culprit is usually upstream. Goods and services account for 50% of total emissions.

For the industry as a whole, supply chains are responsible for the majority of emissions. This involves the production, transportation, and disposal of chemicals, devices, equipment, and pharmaceuticals.

Fossil fuel consumption is at the core of healthcare's emissions. Over half of the sector's footprint is from the burning of fossil fuels. In contrast, the carbon footprint of facilities and purchased energy sources is minimal. Purchased energy sources usually refer to electricity, steam, and cooling.

For Medtech companies, purchased goods and services account for 45% of total emissions. Sold products account for just 28%. Within the purchased goods and services category, packaging, plastics, metals, and other raw materials drive 70% of emissions.

A key challenge for the industry involves addressing scope 3 emissions from assets that are beyond the direct control of life science organisations.

Benefits of Increased Sustainability

Sustainable systems undeniably generate more value than outdated and inefficient ones. But it's important to understand the numerous benefits and their full implications.

Repurposing and retrofitting existing carbon-intensive production methods cut costs. It does so without causing major disruptions. Early adopters of green technology can win contracts before green premiums rise.

A study of S&P 500 companies found that sustainable strategies help firms beat competitors without such strategies. Companies that planned for climate change beat those that didn't disclose emissions by a staggering 67%. Notably, healthcare equipment stands out with an especially pronounced correlation.

Yet, higher ROI isn't the end of the story. Lower volatility and stronger dividend returns are also linked to reducing carbon emissions.

Another example of investors favouring sustainable strategy is Norges Bank, with assets totalling $260 billion. This pension fund expects portfolio companies to show robust strategies for climate change risk mitigation.

These facts undermine the idea that investors do not value green strategies and a lower carbon footprint. The reality is that green strategies will continue to entice investors. This makes perfect sense. Green strategies and lower emissions drive innovation and efficiency.

Johnson & Johnson has attributed its 11.9% decrease in emissions intensity to revenue growth. This shows that a strong sustainability strategy can provide financial benefits for life science firms. You can deliver financial results for shareholders while also decreasing your GHG footprint and emissions intensity.

You must also consider the benefits of staying ahead of new, strict regulations. For example, Novartis monitors national net-zero target legislation. They do this to avoid losing licensing rights to operate in certain jurisdictions.

It's essential to understand the long-term trends. Experts expect global health spending to increase from $9.2 trillion in 2014 to $24.2 trillion in 2040. Most of this growth will take place in middle and high-income nations, as they decouple healthcare investment from GHG emissions.

Companies that adapt early to new regulations will outpace competitors. They will gain market share and maintain access to markets. This is especially pertinent given the long time it takes to develop lower-carbon products and shift to green suppliers.

‍