Sustainable practices in life sciences: meeting ESG standards

Posted: 12/12/2024

In November, the International Organization for Standardization (ISO) launched the ISO ESG Implementation Principles (IWA 48) at the 2024 COP 29 UN Climate Change Conference. Nearly 2,000 experts from standards organisations around the globe collaborated on these principles, to define and examine each aspect of environmental, social, and governance (ESG). The principles set out a standardised framework to assist organisations in integrating ESG into their culture by establishing key performance indicators and improving reporting and assessment of ESG practices.

These principles sit alongside existing legislation in the UK in respect of companies’ ESG reporting obligations. ESG considerations are of critical importance to organisations in the life sciences sector due to the potential environmental and social impact that such organisations can have. This is of ever greater significance when considered against the possible consequences of failing to meet ESG-related regulatory requirements. This article will set out the key compliance requirements and provide practical recommendations as to how life sciences organisations can meet such requirements.

Legislative background

ESG considerations are important for several reasons. Not only are they beneficial for society as a whole, but failing to meet ESG standards can harm a company’s reputation and could result in action being taken against companies or their directors. In order to ensure companies in the UK meet such standards, there are several pieces of legislation that they are required to comply with in respect of ESG. Life sciences organisations are no exception. The key legislation is as follows:

Companies Act 2006
The Companies Act (as amended by The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013)) requires companies (other than those subject to the small companies exemption) to submit a strategic report and, in cases, also a directors’ report as part of their annual obligations. Regulations require that such reports contain an analysis of ESG considerations, including environmental and employee matters.

Listed companies and large private companies with at least 250 employees and either a turnover of more than £36 million, or a balance sheet total of more than £18 million, are also required to produce a non-financial information statement pursuant to the Companies, Partnerships, and Groups (Accounts and Non-Financial Reporting) Regulations 2016, which amends the Companies Act 2006. These regulations place a greater reporting burden on such companies, as the statement must contain information ‘to the extent necessary for an understanding of the company’s development, performance and position and the impact of its activity, relating to, as a minimum’, the following:

• environmental matters (including the impact of the company’s business on the environment);
• the company’s employees;
• social matters;
• respect for human rights; and
• anti-corruption and anti-bribery matters.

The Streamlined Energy and Carbon Reporting (SECR) framework
Large or listed companies are required to report on energy and water use, as well as greenhouse gas emissions under this framework (as implemented by the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018).

Modern Slavery Act 2015
Commercial organisations in the UK with an annual turnover of £36 million or more must produce an annual statement setting out their policies for identifying and addressing modern slavery and human trafficking in their supply chain.

There are also other requirements for companies that meet certain criteria, including those found in the FCA’s Disclosure Guidance and Transparency Rules. The Task Force on Climate-related Financial Disclosures (TFCD) also made recommendations that mandate certain TFDC-aligned climate-related disclosures for large entities in the private sector, but which are currently voluntary for other entities.

Failure to accurately comply with these requirements can result in fines for the company or the directors involved, disqualification of directors, and reputational damage to the organisation itself. It is therefore crucial that life sciences organisations consider ESG issues throughout their operations and supply chains, and report on them appropriately, with effective policies in place where necessary.

Where to focus ESG considerations and practical steps

Life sciences companies are coming under increased scrutiny when it comes to ESG. Pharma supply chain and procurement processes are notoriously energy intensive and use high volumes of the world’s water supplies. In addition, the amount of chemical waste produced during the drug manufacturing process is substantial. A study conducted by My Green Lab in 2021 (available here) indicated that the global biotechnology and pharmaceutical industry has a significant carbon footprint (197 million tonnes of carbon dioxide equivalent), which is more than the forestry and paper industry, and equal to nearly half the annual carbon output of the United Kingdom. 

Here are some key areas that life sciences companies should focus on:

• internal policy – companies could implement more robust and targeted internal policies that set standards in respect of ESG. This could include policies on issues such as:
  • energy efficiency and the implementation of efficient energy technology in the built environment to reduce emissions and conserve water. This could be achieved by implementing renewable energy sources, smart building technologies and water-saving technologies, or practices like low-flow fixtures and rainwater collection. Life sciences companies should also consider how such measures could be adopted in the wider life cycle, such as in the research, manufacturing and distribution of products;
  • sustainable design and the use of sustainable materials for construction to reduce environmental impact;
  • the health and well-being of occupants when designing the built environment. This is particularly important in areas like labs where occupants spend considerable periods of time, and air quality, natural lighting and ergonomic design should be considered;
  • engaging with communities in respect of the activities of life sciences companies and how their buildings fit within a community is crucial when considering wider ESG implications. Companies should consider engaging with local communities and stakeholders during the development of their facilities to mitigate local social impact or to look for ways that it could in fact enhance social impact, such as through providing job opportunities or spaces for the community as part of the development;
• supply chain – life sciences companies should assess their supply chains carefully from an ESG perspective. This could include adopting mandatory policies when contracting with suppliers and customers, that set standards in waste and greenhouse gas emissions reductions and fair labour practices that safeguard workers’ rights, or encourage the ethical sourcing of products or materials;  
• compliance with codes of practice (if only voluntary), such as the Task Force on Climate-related Financial Disclosures recommendations, can also encourage the consistent implementation of appropriate practices.

Summary

It is clear through the regular introduction of new legislation and guidance that ESG considerations and reporting are of an ever-increasing importance, and this trend will continue. Life sciences companies are likely to be subject to ever greater reporting burdens due to their extensive supply chains and use of resources, as well as their impact on the wider communities in which they work. It is crucial that such companies consider ESG issues and their respective reporting obligations in order not only to comply with existing requirements, but to future proof against new reporting or ESG requirements that may well be introduced at a later date.

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