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). This is our first qualitative TCFD disclosure, building on our responses to the CDP climate questionnaire in previous years. We aim to provide quantitative disclosure on climate-related topics in the future as we incorporate the TCFD recommendations into our business.

Governance

Board oversight

The Governance, Nomination and Corporate Responsibilities Committee of the Novartis Board of Directors receives regular updates on climate risk 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) has responsibility for approving the company’s environmental sustainability strategy, and climate and water targets and goals. The Chief Ethics, Risk & Compliance Officer, a member of the ECN, is responsible for fully integrating climate-related risks into the Enterprise Risk Management (ERM) process, including oversight of actions to reduce exposure to risks. The Chief Sustainability Officer provides an annually updated climate scenario analysis and information on physical risks 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.

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 threaten 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. This was underlined in 2020 by climate change meeting 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 has 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. The analysis was based on a scenario that aligns to the 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. This represents a conservative approach to risk (assuming greater exposure), and does not assume improvements that would require significant policy or technology changes. The scenario analysis was a multiphase project for detailed climate risk analysis of a key site, and an initial global assessment of 70 critical sites for the production and research portions of the company, examining scenarios in 2030, 2050 and 2070.

In 2020, 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 to achieve our water neutrality target.

We provided the outcome of the MIT analyses to Novartis associates 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.

Progress

The following Novartis accomplishments in 2020 are relevant to the TCFD recommendations:

  • Awarded contracts for a Pan European Virtual Power Purchase Agreement that 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
  • Completed life cycle assessment (LCA) studies of two Breezhaler inhaled products that included the whole product lifecycle, including climate considerations covering the device, active pharmaceutical ingredients and the optional sensor
  • Completed a long-term sensitivity and stress-testing analysis for climate and water, as well as a further analysis on water scarcity risks, and provided the results to associates in relevant business functions
  • Held focused environmental sustainability risk and ESG risk workshops with a diverse group of internal stakeholders to further prioritize and incorporate climate risks and other ESG risks into the ERM process
  • Started a process to assess climate-related risks for our development pipeline and existing medicines. Continued to make progress in research and development across our flagship global health programs, maintaining our focus on diseases that might be impacted by climate change:
    • Announced a new collaboration with Medicines for Malaria Venture and the PAMAfrica consortium to evaluate a new formulation of Coartem for infants weighing less than 5 kilograms, for whom there is no current treatment option
    • Launched a clinical study to evaluate the safety and efficacy of Entresto in 900 patients with Chagas-related heart failure
    • The Novartis Institute for Tropical Diseases (NITD) launched a Chagas disease drug discovery program pursuing potentially curative therapies
    • Continued development of a compound with the potential to be the first direct antiviral treatment for adults and children with dengue fever, and the first antiviral for prevention of dengue infection

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 C2.2, C2.3a, C2.4a, C3.1, C3.1d, C3.1e and C3.1f.

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 C3.1a and C3.1b.

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 strategic 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 the section “Holding ourselves to high ethical standards.”

In 2020, climate change was recognized as a financially material risk to Novartis, and was disclosed in our 2020 filing to the US Securities and Exchange Commission. 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 increasingly at risk of substantial flooding. Other facilities that depend on the availability of significant water supplies are located in areas where water is increasingly scarce. As a result, we could experience increased costs (production or other), business interruptions, and destruction of facilities, all of which would have a material adverse effect on our business, financial condition, or results of operations. Our distributed supply chains are also vulnerable to these effects.

Climate change may also trigger the adoption of new regulatory requirements across the globe. Such legislation could include increased requirements to invest in technology to reduce energy use, water use and greenhouse gas emissions, beyond what we expect to invest in our existing plans. In addition, legislation could include carbon pricing, climate risk disclosure mandates, and changes in zoning or building codes to increase climate resilience. The combined impact of these transition risks could increase our direct operating costs and result in the same impact across our supply chain.

In addition to the ERM process, our global materiality assessment evaluates our impact on society and the environment through a dialogue with internal and external stakeholders about value, risks and opportunity. Please see page 22 for more information.

Relevant disclosures:

TCFD recommendations (risk management)

Novartis disclosures

a) Describe the organization’s processes for identifying and assessing climate-related risks.

Refer to CDP questions C2.1, C2.1a, C2.2 and C2.2a.

b) Describe the organization’s processes for managing climate-related risks.

Refer to CDP questions C2.1, C2.1a and C2.2.

c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management

Refer to CDP question C2.2.

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.
  • In 2020, Novartis reduced greenhouse gas emissions by 19% when compared to our 2016 baseline.
  • Additional details on our 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 of 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 C4.2, C4.2a, C4.2b and C9.1.

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, C4.1b, C4.2, C4.2a and C4.2b.