The ‘net zero’ supplier roadmap: new requirements for NHS contractors

Posted: 04/04/2023

There is an increasing focus on environmental, social and governance (ESG) issues within the pharmaceutical industry. In particular, the environmental impact of businesses’ supply chain, manufacturing methods, transport, distribution and waste management processes are being brought into the spotlight.

As part of the UK government’s Net Zero Strategy, significant carbon reduction targets have been set for the NHS. Current NHS ‘net zero’ targets will place escalating ESG obligations on its suppliers over the next few years, as part of the NHS net zero supplier roadmap. An upcoming milestone on this roadmap begins in April 2023, when bidders for NHS contracts over £5 million will be required, as part of their bid, to include a carbon reduction plan for their emissions in the UK. Bidding suppliers must also confirm their commitment to achieve net zero by 2050 or earlier for their UK operations, a new and significant requirement.

This obligation is in addition to an earlier NHS roadmap milestone in place since April 2022 which requires all NHS trusts to apply a minimum net zero and social value weighting to tenders. In practice, this obligation requires suppliers to demonstrate how they will help the NHS to meet its net zero goals.

The NHS net zero supplier roadmap

Under the ‘Delivering a net zero NHS’ initiative, the NHS aims to be the first ‘net zero’ health service by meeting the following targets:

• elimination of ‘direct’ emissions (controlled directly by the NHS) by 2040;
• elimination of ‘indirect’ emissions (through goods and services supplied by third parties) by 2045; and
• 80% reduction in carbon footprint by the years 2036-2039.

The process for achieving these goals is laid out in the NHS net zero supplier roadmap. Some NHS organisations (such as NHS Business Services Authority) have declared their intention to reach net zero even earlier the UK government targets.

Carbon reduction plan requirements

In February 2023, NHS England published details of the carbon reduction plan requirements for the procurement of NHS goods, services and works. The NHS requirements align with the UK Cabinet Office’s procurement policy PPN 06/21, which introduced a requirement for government suppliers of major public sector contracts to publish details of their commitment to achieving net zero through a carbon reduction plan (CRP), and specified the required standards for those plans.

According to the NHS CRP requirements, CRPs that comply with the guidelines of PPN 06/21 will be accepted by the NHS from April 2023. The CRP must cover the supplier’s UK emissions from the sources included in scope 1 and 2 of the Greenhouse Gas Protocol and a defined subset of scope 3 emissions. Relevant scope 3 emission categories include transport and distribution, waste generated in operations, business travel and employee commuting.

NHS carbon footprint: the impact of medicines

According to information published by the NHS, medicines account for approximately 25% of greenhouse gas (GHG) emissions within the NHS in England, with inhalers and anaesthetic gases accounting for a combined total of around 5% of emissions. Parts of the supply chain (for all goods and services) account for more than 60% of the total NHS carbon footprint. One NHS commitment is therefore to have a net zero supply chain, to be achieved in part by working to ensure that ‘suppliers are decarbonising their own processes’.

A report published in November 2022 by the Office of Health Economics (OHE) outlines the challenges facing the pharmaceutical industry as the result of ‘green’ initiatives. The report, which was commissioned by the Association of the British Pharmaceutical Industry (ABPI), discusses how the UK government, the NHS and the pharmaceutical companies can take action both individually and collectively to minimise the environmental footprint of pharmaceuticals.

Challenges facing the industry include increasing costs and complex global supply chains. As an example, raw material extraction and manufacture of APIs are a significant source of emissions. Further emissions are created in transporting the APIs or other materials required for manufacture of the product, and delivery of the final product to the user. The main API manufacturers are based in China and India, and products ultimately for use in the UK may be packaged within Europe.

The OHE’s report provides some recommendations for the pharmaceutical industry including transparent emissions target reporting, improvements in the energy efficiency of industry processes and greater collaboration to create industry-wide solutions to reduce emissions.

Future obligations for NHS suppliers

The roadmap includes further and stricter milestones, which are rapidly approaching:

• from April 2024, the requirement for CRPs will be extended to all procurements, regardless of value;
• from April 2027, all suppliers will need to publish a CRP that takes into account their global emissions, aligned with the NHS’s net zero target;
• from April 2028, new requirements to provide ‘carbon footprinting’ of individual products supplied to the NHS will come into force;
• from January 2030, the NHS has pledged to no longer purchase from suppliers that have not aligned with its move towards net zero carbon. Suppliers will not qualify for NHS contracts unless they can demonstrate progress in reducing carbon emissions, reporting using the NHS ‘Evergreen’ supplier assessment tool which is due to launch in 2023.

The NHS has sent a clear message to its suppliers that it expects them to be aligned with the NHS net zero target. It is recommended that suppliers keep these upcoming milestones in mind and take steps to prepare for them, such as:

• ensuring that you are familiar with the CRP reporting mechanism and the required standards;
• putting systems in place to calculate and record scope 1 to 3 emissions; and
• setting achievable carbon reduction targets for the business, which will need to be reviewed and updated regularly.

The NHS is offering support for SMEs and voluntary, community and social enterprises (VCSEs) at each stage of the roadmap. According to NHS guidance, a two-year grace period will be available for SMEs and VCSEs on key future milestones and requirements.

This article was co-written with Sheelpa Maroo, knowledge paralegal.

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