Environmental, Social, and Governance (ESG) concerns have grown in global importance in the last few years due to several factors, including increased awareness of and demand for sustainable investing, the need for companies to maintain what McKinsey calls their ‘social license’, and the potential financial benefits of strong ESG performance.
Both Indian pharma firms and multinationals implanted in the country are now talking a good game on ESG and setting clear targets, but there is clearly still work to do. For instance, as India has ascended to become the world’s pharmaceutical manufacturing hub, accounting for over 60 percent of its vaccines and 20 percent of its generics, it has also become a major contributor to global antibiotic residues and pharmaceutical waste.
In particular, India’s family-owned pharma companies are having to adjust to ESG criteria to make themselves more appealing targets to the global investment community. “ESG is a major concern in Indian pharma with ‘G’ – governance – being the most important issue,” says the representative of a leading investment firm. “Indian pharma’s leading companies tend to be family-owned and promoter-driven, meaning that investors need to look carefully as to whether these companies have proper governance processes in place and where all transactions are above board.”
He does, however, add that “On environmental issues, Indian companies tend to perform better as India has a very stringent environmental regulator, the National Green Tribunal, as well as powerful and rigorous state pollution control boards.”
Sandeep Khosla of the Bombay Chamber of Commerce & Industry suggests that multinational companies can help local companies in promoting ESG. “The Chamber actively engages in addressing diverse sustainability challenges,” he says. “We appreciate the role of multinationals in this push, as many of our international members, such as Siemens, consider sustainability and ESG principles integral to their operations. This ethos extends to their Indian counterparts, influencing the entire supply chain.”
For the multinational companies that have set up low-cost manufacturing footprints in India, there is a difficult line to tread between providing much-needed medicines at a reasonable price while aligning with global ESG targets. However, Sandeep Verma, consumer health division head for German giant Bayer, is bullish on his firm’s ability to do both. “The production being localised in India has enabled us to maintain affordability and sustainably,” he proclaims. “Indian pharma manufacturing is top-notch, meeting global quality standards. These local manufacturing facilities are regularly audited to meet Bayer quality and manufacturing standards. Additionally, these practices align with our sustainability goals. At a global level, our objective is to reach 100 million underserved consumers by 2030, and our localized production in India is a pivotal part of our sustainability efforts.”
For Peter DeYoung of Piramal Pharma, a rare non-Indian CEO at a leading national firm, growth and sustainable practices are not mutually exclusive. He explains that Piramal “has made significant commitments in environmental sustainability, particularly in areas such as carbon emissions, energy consumption, waste management (solid and liquid waste), and air quality. Commitments include aligning with science-based targets to reduce the environmental impact while continuing to grow.”
DeYoung continues, “By integrating growth and sustainability, the pharma business is not only focused on financial success but is also dedicated to being a responsible corporate citizen, demonstrating values-driven practices and contributing positively to the environment and society.”
However, for smaller companies, ticking all the ESG boxes can seem an arduous, costly task that potentially distracts from their core business. Khosla suggests that associations like his can play a role in alleviating this burden. “The Chamber takes a proactive role in training and guiding SMEs on sustainability practices,” he notes. “For example, a major company within the Chamber may have implemented successful water conservation measures in its large facility, and the Chamber facilitates the transfer of these practices to smaller companies, enabling them to benefit without having them to use up their funds.”
Technological advances also have the potential to move the dial on ESG in Indian pharma. For example, over at the National Chemical Laboratory – a government-run lab aimed at helping the Indian chemical industry achieve global competitiveness – Director Ashish Lele is keen to highlight the prospects of continuous flow chemistry. In a manufacturing industry that has traditionally relied on batch processes – whereby coal or gas is burned to create the steam needed for distillation – continuous flow chemistry represents a greener option.
“Batch processes are like cooking in a pot,” explains Lele, “yielding a mixture of desired and undesired chemicals. 20 percent of energy goes into downstream purification to extract the desired chemicals. Continuous flow chemistry, conducted in a pipe, offers clarity in the resulting mixture, with significantly reduced downstream costs and enhanced safety.”
However, making the shift to these new manufacturing processes will not happen overnight. “Although large pharmaceutical companies are embracing this approach and heavily investing in continuous flow chemistry R&D, the challenge in achieving this transformation relates to current assets,” notes Lele. “There are current assets, such as batch plants, with depreciated values that still generate profits. Company management faces the dilemma of investing in a new plant that utilizes continuous flow chemistry or depending on old processes.”
In several areas then, Indian pharma faces some tough decisions in the coming years on the thorny topic of ESG, balancing the quest for profits with striving for sustainability. Nevertheless, canny first-movers should be able to achieve both.
