Task Force on Climate-related Financial Disclosures (TCFD)

Novartis committed in 2020 to fully support the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and included a qualitative disclosure in the Novartis in Society Report that year. This is our first quantitative TCFD disclosure, building on our qualitative disclosure and responses to the CDP climate questionnaire in previous years. We aim to provide iterative qualitative and quantitative disclosures on climate-related topics on a recurring basis as we incorporate the TCFD recommendations into our business, enterprise risk management and strategy development and become more mature in how we create actionable information on climate risks and opportunities.

Governance

Board oversight

The Governance, Nomination and Corporate Responsibilities Committee of the Novartis Board of Directors receives regular updates on climate risks and opportunities as part of its oversight of environmental, social and governance (ESG) topics. These are scheduled as written updates semi-annually, with verbal updates in alternating quarters.

Management oversight

Under the leadership of the CEO, the Executive Committee of Novartis (ECN) is responsible for approving the environmental sustainability strategy of Novartis, including climate, water, and waste targets. The Chief Sustainability Officer provides an annually updated climate scenario analysis, and information on physical and transition risks and opportunities to the ECN. The Trust & Reputation Committee, chaired by the CEO, meets every two months to assess progress as part of a quarterly ESG scorecard submission process. It also updates the ECN and the Board on progress and challenges.

Novartis launched a new environmental sustainability strategy in 2021. Per the revised governance, under the leadership of the Chief Sustainability Officer, the Environmental Sustainability Office will provide the leadership, subject matter expertise and portfolio management support that will support the implementation of our strategy. The primary steering committee for this strategy is the Environmental Sustainability Strategy Implementation Steering Committee (ESSI), while the Trust & Reputation Committee will continue to oversee its delivery.

Relevant disclosures:

TCFD recommendations (governance)

Novartis disclosures

a) Describe the board’s oversight of climate-related risks and opportunities.

Refer to CDP question C1.1b.

b) Describe management’s role in assessing and managing climate-related risks and opportunities.

Refer to CDP questions C1.2 and C1.2a.

Strategy

Climate change will have a major impact on our business, including our operations, strategy, financial planning and value chain, as well as on stakeholders such as patients. For example, climate change is already causing extreme heat and poor air quality in some areas, which threatens to exacerbate pre-existing health conditions such as heart failure, lung cancer and respiratory diseases. In addition, an increase in temperature and humidity may cause a proliferation of insects that carry vector-borne diseases, including dengue fever, malaria, Chagas disease and leishmaniasis. Novartis is working to understand and anticipate these risks to ensure we can continue to discover, develop and deliver life-saving medicines.

Novartis has been active in integrating climate and environmental considerations into our financial planning. For example, we apply a threshold of USD 20 million for capital expenditure projects requiring an environmental sustainability review. We also operate with a USD 100 per ton shadow carbon price to help inform our strategic decision-making and budget planning with respect to carbon impacts. In 2020 and 2021, climate change met the financial materiality threshold for inclusion in our core Annual Report and in our ERM process as part of a broader strategic risk focused on ESG topics.

Processes

Novartis conducted a long-term sensitivity and stress-testing analysis for climate and water in collaboration with the Massachusetts Institute of Technology (MIT) Joint Program on the Science and Policy of Global Change as the first-generation climate risk analysis. The analysis was based on a scenario that aligns to the Representative Concentration Pathway (RCP) 6.0 model for temperature change, which assumes that climate policy remains constant in the wake of the Paris Accord after 2030, and that significant technology advancements in low-carbon emissions technologies take time to scale. The scenario analysis was a multiphase project which included a detailed climate risk analysis of a key site, as well as an initial global assessment of 70 sites that are critical for the production and research parts of the company. The scenarios used 2030, 2050 and 2070 as timelines.

During 2021, Novartis initiated a second round of climate scenario analysis to define physical and transition risks across its operations and supply chain. The physical risk analysis was based on a comparison of outcomes aligned to RCP 4.5 and RCP 8.5 over two timeframes (2030 and 2050). Physical risk was assessed at 21 sites to include business-critical operations sites, major research and development locations, and other major support sites. The transition risk analysis related to the transition to a low-carbon economy was based on a 1.5-degree outcome and a 3.0-degree outcome, and was run over four timeframes (2025, 2030, 2040 and 2050). Initial risks and opportunities were assessed at the enterprise level.

The ongoing climate scenario analysis is being coordinated with Novartis employees in production, procurement, facilities, finance, risk and business continuity, with the aim of supporting the existing ERM process as well as business decisions in areas such as utilities procurement, physical adaptation, and potential future changes in therapeutic research and development.

In 2020 and into 2021, we conducted a further analysis with MIT of water scarcity risks in three critical water basins in China, Europe and South Africa. The analysis is being used to plan for investments in water stewardship and to achieve our water neutrality target.

Progress

The following Novartis accomplishments in 2021 are relevant to the TCFD recommendations:

  • Novartis conducted environmental life cycle analysis (LCA) pilot studies for its respiratory dry powder inhaler (DPI) devices across six environmental categories in accordance with the Greenhouse Gas (GHG) Protocol’s sector guidance for pharmaceuticals and medical devices. The study suggested that the Novartis DPIs have, on average, a carbon footprint of less than half compared to other published DPI LCAs – with classical pressurized metered dose inhalers (pMDIs) using HFC-134a as propellant gas displaying an average carbon footprint of up to 50 times higher than the Novartis DPI. Including carbon impact and pricing into early-stage development of drugs can drive investment optimization and reduce carbon emissions during the scale-up of new products.
  • Following the success of DPI devices, we launched a new sustainability study on Coartem to make it our next and our first large-scale carbon-neutral project.
  • We reached the milestone of 1 billion treatments of our artemisinin-based combination therapy (ACT) delivered since 1999, with more than 90% supplied without profit. More than 450 million were a pediatric formulation developed jointly with Medicines for Malaria Venture. The World Health Organization estimates that adopting ACTs as a first-line treatment for malaria, together with prevention efforts and better diagnostics, have saved 7.6 million lives since 2000.
  • Construction started for new generation capacity as part of our pan-European virtual power purchase agreement. It will deliver 100% renewable electricity and carbon neutrality for procured electricity in Novartis European operations by 2022 through newly built solar and wind projects in Spain.
  • Novartis partnered with One Young World to organize and sponsor Operation Planetary Health to raise awareness about environmental sustainability and to create a movement to accelerate change within the organization. The theme of “planetary health” aligned with and built on Novartis environmental sustainability targets and strategy. The event aimed to inspire employees to address specific environmental challenges with actionable and sustainable solutions. Our focus was on carbon neutrality (Scope 3 emissions; emissions in our value/supply chain) and the circular economy. We also sought to gain insights and solutions for emerging issues that do not yet form part of our company targets.
  • We developed the Novartis Green Expectations from Suppliers document to outline what is needed from our suppliers and support them on that journey. Using the ACCA model, we track and measure suppliers’ journey toward carbon neutrality. The four-stage ACCA framework involves:
    1. Awareness building
    2. Comprehension of the requirements of the carbon emission targets
    3. Commitment to achieve carbon neutrality
    4. Definition of action plans to meet environmental sustainability targets
  • The Green Expectations framework was issued to 43 suppliers in 2021. Our Green Supplier Summit complemented the Green Expectations initiative, with 88% of participating suppliers acknowledging receipt. We are engaging our suppliers in dialogue, and this will be underpinned with concrete tools and mechanisms to facilitate their journey as much as possible. The breadth of this engagement – approximately 36 000 suppliers – means the process needs time to yield significant results, particularly among suppliers with whom we do not have direct interaction.
  • In 2021, Novartis joined the 100-plus company EV100 initiative, demonstrating our commitment to transition our fleet to electric vehicles (EVs). Novartis plans to reduce vehicle fleet emissions by over 63% by 2025, and 94% by 2030. In 2021, implementation began in 30 countries, impacting 18,000 of 26,000 vehicles in the Novartis fleet.
  • We also joined RE100 in 2021, a global initiative bringing together the world’s most influential businesses committed to 100% renewable electricity. Our power purchase agreements with renewable power developers, both existing and in the commissioning phase, are a key vehicle to us achieving our target 100% renewable energy in the US, Canadian and European markets by 2023.
  • We made further progress in reducing our emissions: Scope 1 and 2 emissions decreased by 34% in 2021 versus the 2016 baseline.
  • In 2021, business travel was 85% less when compared to 2019. While this was largely due to COVID-19 restrictions, internal processes have been adapted to maximize virtual meeting technology and dramatically reduce future travel even as pandemic restrictions are relaxed in the future.
  • Scope 3 data accuracy has been enhanced in terms of extent and method of calculation. This has resulted in higher 2019 emissions and a revision of the 2016 baseline. A more robust tracking system is in place to enable comparability of calculations and data across years. Currently, we can account for over 90% of our Scope 3 emissions.
  • New manufacturing technologies have been implemented and utility equipment has been upgraded to improve process efficiencies. These updates include continuous manufacturing, biocatalysts and high-intensity perfusion batches.
  • In 2021, Novartis identified 59 locations as being situated in regions that are either currently water-stressed or will be classified as such in the coming years. Seven of these locations are currently deemed high-risk. We will work with these locations to minimize their water consumption, and we aim to achieve neutrality by ensuring that an equivalent of water that cannot be avoided is returned to the same watershed.
  • In 2021, Novartis supported the development of a watershed project in the Telangana, India, region that will address the long-term challenge of water availability in water-stressed areas. The goal is to help local communities in the long run by increasing water availability, providing additional and safe drinking water, supporting agricultural best practice, building personal hygiene structures for schoolchildren, and contributing to the local ecosystems. This will serve as a pilot to also examine how Novartis can most successfully contribute to water security in water-stressed regions of the world where we may have water-intense production operations.

Relevant disclosures:

TCFD recommendations (strategy)

Novartis disclosures

a) Describe the climate-related risks and opportunities the organization has identified over the short, medium and long term.

Refer to CDP questions C2.1a, C2.3, C2.3a, C2.4 and C2.4a.

b) Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning.

Refer to CDP questions C2.1b, C2.2, C2.3a, C2.4a, C3.1.

c) Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.

Refer to CDP questions C3.2, C3.2a and C3.4.

Risk management

Novartis integrates risk and strategy issues in a cross-functional ERM process. All risks are consolidated in a framework called the Novartis Risk Compass, which enables senior management, the ECN and the Novartis Board of Directors to focus on key risks and to align the company strategy to our risk exposure. For more information on how we identify, assess and manage our risks, please see pages 22-25.

Novartis is potentially exposed to physical risks from varying extreme weather events such as hurricanes, tornadoes, floods, or any other event that may result from the impact of climate change on the environment. For example, some of our production facilities are located in places that, because of increasingly violent weather events, sea level rise, or both, are at a progressively higher risk of substantial flooding. Other facilities that depend on the availability of water for manufacturing processes may be impacted by water scarcity.

During 2021, Novartis initiated a second round of climate scenario analysis to define physical and transition risks across its operations and supply chain. All of the detailed calculations were provided by an expert third party, Environmental Resources Management, using initial data collection. Knowing that this is an iterative process and that both data granularity and understanding of company-specific risks will increase over time, Environmental Resources Management and Novartis have estimated risk exposure and management costs associated with these limited initial risks as:

Risk A

Novartis operates globally, and we have significant financial exposure to carbon pricing due to the carbon footprint of our production facilities. Our sites in Kundl (Austria), Lendava (Slovenia), Menges (Slovenia) and Ringaskiddy (Ireland) are all subject to the EU’s carbon pricing mechanism (EU ETS), while our site in Grimsby (UK) is subject, as of 2021, to the UK ETS, which closely tracks the EU ETS. The benchmark price for EU carbon allowances has been on an upward trajectory for the most part of the past few years, rising from EUR 5 a ton in 2017 to over EUR 80 a ton in 2021. We estimate potential exposure in a possible range of USD 19 million to USD 150.9 million related to the carbon price in 2030, according to our best current knowledge. Please note that the quantification of our exposure was realized by Environmental Resources Management and that these numbers might change significantly in the future.

Risk B

Novartis is exposed to physical risks from climate change, both chronic and acute. The most common types of global risk events are heat events, wildfires, water stress/scarcity, cyclones and flooding from sea level rise or severe weather events. Our exposure to physical risk due to flooding and cyclones was estimated using scenario analysis based on Representative Concentration Pathways (RCP) 4.5 and 8.5, which represent a best case and a worst case scenario of potential disruption to Novartis operations. Reasonable best and worst risk exposures in 2030 range from USD 80 million to USD 112 million, and in 2050 range from USD 151 million to USD 163 million. Please note that the quantification of our exposure was realized by Environmental Resources Management and that these numbers might change significantly in the future.

Risk C

Forty-nine nations have announced that they will decarbonize their healthcare systems, requiring Novartis to also reduce its carbon footprint to align with national healthcare sector decarbonization targets, and maintain its competitive position in order to have continued opportunities to sell medicines in these markets. The current revenue generated in these markets is USD 27.5 billion. This is also an opportunity, as success in decarbonizing ahead of our competitors may open up more opportunities for revenue in these markets. Potential exposure is USD 27.5 billion if Novartis products are not net zero by country-specific deadlines leading up to 2050. Please note that the quantification of our exposure was realized by Environmental Resources Management and that these numbers might change significantly in the future.

Further work is already underway and will be completed in 2022 to provide greater clarity on physical and transition risks upstream and downstream in our supply chain, and on risks to our core business related to loss of biodiversity and the burgeoning impact of climate change on human health.

Metrics and targets

  • Novartis has a goal to be carbon neutral in our own operations by 2025.
  • Novartis has a goal to be carbon neutral across the entire value chain (Scopes 1, 2 and 3) by 2030, and to be plastic and water neutral by 2030.
  • Novartis has an approved 1.5°C Science Based Target for 35% absolute emissions reductions across Scopes 1, 2 and 3 by 2030.
  • Novartis has a goal to be net zero carbon across the entire value chain (Scopes 1, 2 and 3) by 2040.
  • In 2021, Novartis reduced greenhouse gas emissions by 34% compared to our 2016 baseline.
  • Additional details on our year-on-year emissions and other data can be found in the Novartis Environmental Sustainability and Occupational Health and Safety Data Supplement. Our most recent CDP climate questionnaire has details on methodologies, climate mitigation and climate adaptation efforts. Both are available on the Novartis website.

Relevant disclosures:

TCFD recommendations (metrics and targets)

Novartis disclosures

a) Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.

Refer to CDP questions C4.1, C4.1a, C4.1b.

b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.

Refer to CDP questions C6.1, C6.3 and C6.5.

c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets.

Refer to CDP questions C4.1, C4.1a, C4.2, and C4.2a.