Due to the imminent threat of climate change and expected legal measures, companies across different sectors are increasingly driven to set and actively pursue sustainability objectives.
The pharmaceutical sector, faced with rising stakeholder expectations and tightening regulations, is accelerating efforts to reduce its environmental impact. Several major players in the industry have committed to achieving net-zero emissions as their climate sustainability target. These leading pioneers are blazing the trail by implementing policies and undertaking initiatives, including the purchase of carbon credits, to accomplish this ambitious objective.
The pharmaceutical industry’s carbon footprint
The pharmaceutical sector is a significant contributor to global emissions. If it were a country, its carbon footprint would rank 9th in the world. Energy-intensive manufacturing processes, extensive distribution networks, and greenhouse gas-emitting propellants in inhalers drive up the industry’s climate impacts. Experts urge pharmaceutical companies to act, as unmitigated warming could strain global health systems and hinder access to vital medications.
While daunting, the mission is not impossible. Industries like tech and retail are demonstrating that reaching net-zero is within grasp. Google aims to run entirely on carbon-free energy by 2030. IKEA plans to become climate positive by 2030 by reducing more greenhouse gas emissions than its value chain emits. These commitments raise the bar for pharmaceutical companies to take equally bold climate action.
Major industry players are stepping up. AstraZeneca, Novartis, and Takeda have set ambitious net-zero targets, while investing in renewable energy, green chemistry innovation, and carbon removal. Their efforts are having ripple effects as peers follow suit. With collaboration and persistence, the pharmaceutical industry can curb its emissions in line with climate science.
AstraZeneca’s U$1BN of climate commitments
With over $26 billion in annual revenue, British-Swedish firm AstraZeneca is one of the world’s largest pharmaceutical companies. It manufactures blockbuster treatments ranging from diabetes to oncology medications.
In 2020, AstraZeneca announced its Ambition Zero Carbon strategy, aiming to achieve carbon neutrality across its entire value chain by 2030. This bold pledge puts AstraZeneca at the vanguard of climate action in pharma.
To meet its goal, AstraZeneca is transitioning to 100% renewable electricity at its sites by 2025. It is also optimizing manufacturing to curb emissions, while partnering with suppliers to reduce their carbon footprints. Further, AstraZeneca plans to eliminate fossil fuel vehicles from its fleet by 2030.
Beyond its operations, AstraZeneca is developing a portfolio of over $1 billion in green investments. These include carbon removal and storage solutions expected to offset about 2.5 million tonnes of CO2 annually by 2025.
AstraZeneca’s commitment is spurring the industry to accelerate sustainability initiatives. Being the pioneer in the pharmaceutical industry to establish a bold net-zero objective that encompasses its entire value chain, AstraZeneca is setting a remarkable example that its competitors will have to strive to emulate.
Novartis to use 100% renewable energy within 2023
Headquartered in Switzerland, Novartis is a leading global medicines company with over $48 billion in 2021 revenue. Its therapeutic areas span eye care, immunology, and cardiovascular treatments.
In 2021, Novartis announced its aim to achieve carbon neutrality across Scopes 1, 2, and 3 by 2040. Scope 1 and 2 cover direct emissions from Novartis’ operations, while Scope 3 includes indirect emissions across its supply chain.
Novartis’ environmental policies are publicly available on the internet. The company has made meeting its net-zero ambition a top priority, with a strong and focused approach in four crucial areas: sourcing renewable electricity, enhancing energy efficiency, promoting innovative green chemistry, and investing in carbon removal offsets.
Already, Novartis sources 80% of its electricity from renewables. It is also optimizing production processes, deploying automation, and modifying fleet vehicles to curb emissions. The company is on track to source 100% of its power from renewables by years’ end of 2023.
Additionally, Novartis is pioneering molecular design techniques to develop medicines with lower environmental impacts. Furthermore, the company is actively investing in projects that focus on nature-based carbon removal, such as collaborating with Carbon Direct to expand the implementation of carbon forestry offsets.
By setting and working toward net-zero science-based targets, Novartis is positioning itself as a leader in green pharmaceutical manufacturing. Its multipronged approach can serve as a model for other companies.
Takeda Pharmaceuticals shows the way for Asia
Japan’s largest pharmaceutical company, Takeda Pharmaceutical generates over $30 billion in annual revenue from medicines treating conditions from cancer to rare diseases.
In 2021, Takeda announced its commitment to achieving net-zero greenhouse gas emissions by 2040. It is working to reduce and offset its entire carbon footprint, including Scope 3 emissions from its supply chain.
Takeda is achieving its goal by increasing renewable electricity usage, improving energy efficiency at its sites, electrifying its vehicle fleet, and reducing emissions from business travel. It aims to cut Scopes 1 and 2 emissions 46% by 2030.
Takeda is also collaborating with pharmaceutical industry partners and suppliers to curb emissions across its value chain under the Pharmaceutical Supply Chain Initiative. And it plans to utilize carbon removal offsets for hard-to-abate emissions.
Takeda’s pledge to achieve net-zero marks a groundbreaking moment for the pharmaceutical industry in Asia and beyond, as they lead the charge towards comprehensive decarbonization. Its 2040 target and interim science-based milestones demonstrate meaningful leadership.
Pharma’s challenges in reaching net-zero
Despite strong commitments from sustainability front-runners, achieving net-zero emissions poses complex challenges for pharmaceutical companies. Many production processes inherently rely on fossil fuels as heat sources and for transporting materials. Companies need major capital investments to transition these operations to clean energy alternatives.
Pharmaceutical distribution and long, complex supply chains also make emissions reductions difficult. Cold chain storage and last-mile delivery result in substantial greenhouse gas outputs. Meanwhile, developing green chemistry solutions requires years of research and development, along with new manufacturing infrastructure. These costs can be prohibitive. Further, credibly offsetting all residual emissions will necessitate scaled up, verifiable carbon removal markets. Technical and economic hurdles remain for many offset types.
Overcoming Challenges
While obstacles exist, experts emphasize they can be solved through collaboration, innovation, and policy action.
Companies can join forces and share their knowledge and resources through initiatives like the Pharmaceutical Supply Chain Initiative. This collaboration enables them to not only expand their renewable energy procurement, but also boost their efficiency and make strides in green chemistry.
Governments can help by offering incentives for clean technology investments and funding research into pharmaceutical process improvements.
International cooperation can accelerate decarbonization of global supply chains. And standardized offset methodologies will ensure carbon removal credits have integrity.
Ultimately, reaching net-zero will depend on persistence, investment, and cross-industry partnership. But the health and environmental benefits make it imperative for pharmaceutical companies to see it through.
Opportunities from net-zero efforts
Pursuing net-zero also opens up opportunities for pharmaceutical companies to add business value, beyond environmental benefits. Optimizing processes for energy efficiency provides cost savings from reduced power consumption and heating needs. Streamlining supply chains also cuts costs over the long-term.
First movers on net-zero can boost their reputations with consumers and investors, who increasingly prioritize sustainability. These companies may have better talent recruitment and retention.
Developing and marketing lower carbon medicines can become a competitive advantage. Doctors and health systems are paying more attention to the climate footprint of drugs.
AstraZeneca’s partnerships have the potential to unlock opportunities for companies to venture into the burgeoning green investment markets. Through these collaborations, businesses can not only contribute to the sustainability of our planet but also reap financial benefits by investing in carbon removal and renewable energy projects.
Finally, building climate resilience helps ensure business continuity as physical impacts of climate change accelerate.
Government policy propels climate action
Governments are ramping up policies aimed at decarbonizing pharmaceutical value chains through incentives and requirements.
The Inflation Reduction Act of 2022 in the United States presents an extraordinary opportunity, providing over $60 billion in incentives dedicated to fostering energy efficiency, electrification, and groundbreaking advancements in green chemistry. This can offset costs for companies pursuing these strategies.
The EU’s pharmaceutical strategy aims to make drug manufacturing and distribution more sustainable by implementing green product design and procurement requirements. This will help reduce emissions.
India released a roadmap in 2022 pushing pharmaceutical companies to adopt renewable energy and assess Scope 3 climate impacts. It aims to help India meet its national climate targets.
Such policies encourage pharmaceutical companies to take ownership of their emissions and are likely to expand as more governments declare net-zero commitments.
The Road Ahead
While the 2030s and 2040s may seem like distant milestones, reaching net-zero requires immediate action across pharmaceutical supply chains. Industry leaders have provided a blueprint – including renewable energy procurement, distribution optimization, green chemistry, and carbon removal.
New technologies and nature-based solutions are expanding decarbonization opportunities. With collective willpower, strategic investment, and transparent reporting, net-zero is within the pharmaceutical industry’s reach. All stakeholders must maintain pressure and hold firms accountable to their pledges for a sustainable future.
Photo credit
Photo by Myriam Zilles on Unsplash
The accounting differences that decide whether your nature investment shows up in inventory, in BVCM, or nowhere at all.
The question reaches a procurement team about three weeks before the next sustainability committee meeting. Someone has read about insetting. Someone else has just signed off on an offset purchase. The CSO wants to know if the two are interchangeable. The answer is no, and the GHG Protocol Land Sector and Removals Standard is the reason why.
This article walks through what each term means at audit-grade specificity, what the standards actually say about how each gets counted, and how to decide which tool fits which target. The insetting vs offsetting question is one of the most-searched in corporate climate strategy, and one of the most poorly answered. By the end of this piece, you should be able to brief a committee on the difference without notes.
The two definitions, in plain English
Offsetting means buying carbon credits generated outside your value chain and retiring them against your residual emissions. The reduction happens somewhere else, financed by you, and the credit is the receipt.
Insetting means investing in emission reductions or removals inside your own value chain, typically with suppliers, where the reduction is directly linked to the products and services you buy. The reduction happens inside the boundary of your Scope 3 inventory, and the accounting treatment is fundamentally different.
The shorthand from the University of Oxford’s Nature-based Insetting Initiative is useful: insetting is what you do with the supply chain you have; offsetting is what you do with the supply chain you do not have.
What the GHG Protocol Land Sector Standard actually says
The GHG Protocol Land Sector and Removals Standard, finalised in 2024 after a multi-year pilot, sets the rules for how land-based emission reductions and removals enter corporate inventories. The Standard distinguishes between inventory accounting (Scope 1, 2, and 3) and project or intervention accounting (a separate methodology for crediting).
For insetting, the practical implication is that supplier-level interventions, when properly measured and attributed, can reduce your Scope 3 category 1 (purchased goods and services) emissions in your inventory. The reduction is not a credit retired against the inventory; it is a lower inventory number, period.
For offsetting, the credit is retired separately. It can be reported as a contribution toward a net-zero claim under the SBTi Beyond Value Chain Mitigation framework or as part of a VCMI Carbon Integrity claim, but it does not lower the inventory number.
A practical consequence: if your Science Based Target requires a 50% absolute reduction in Scope 3 emissions by 2030, insetting moves you toward the target. Offsetting does not. This single point of difference reshapes the procurement decision.
When insetting counts toward Scope 3 (and when it does not)
Insetting counts toward Scope 3 only when several conditions are met:
- The intervention must occur with an entity in your value chain.
- The emissions reduction or removal must be measured against a defensible baseline.
- The reduction must be attributed to your share of that supplier’s output, not double-counted with other buyers.
- It must follow the inventory accounting rules in the GHG Protocol Land Sector Standard, not the project accounting rules used to generate credits.
The most common failure mode is double counting. If your supplier sells the same reduction as a credit on the voluntary market and also reports it to you as a Scope 3 reduction, the math breaks. The Standard requires you to address this risk, typically by purchasing and retiring the supplier-issued credit as part of your inventory or by contractual provisions that prevent the supplier from selling the reduction twice.
When insetting does not count toward Scope 3: when the intervention sits with a supplier you do not buy from, when the baseline is not defensible, when the attribution is unclear, or when the documentation does not survive audit. Those cases default to Beyond Value Chain Mitigation, which is still useful but operates on a different ledger.
The procurement and supplier engagement question
Insetting is harder than offsetting. That is the unfashionable truth most buyers eventually confront. Offsetting is a transaction; insetting is a relationship.
To run an insetting program, you need supplier mapping precise enough to know which farms or facilities sit at which Scope 3 boundary. You need an engagement model that gets suppliers to participate, which usually requires multi-year commitments and shared economics. You need an MRV architecture that measures the right things and produces audit-ready documentation. And you need a contractual structure that prevents double counting and protects both sides.
The trade-off you receive in return is significant. Reductions count against your inventory rather than your residual. Supplier relationships deepen, which protects sourcing continuity. Yield and quality improvements often follow regenerative interventions, which reduces your input cost over time. And the regulatory file, under CSRD, CSDDD, EUDR, and the SBTi FLAG Guidance, is materially stronger.
Choosing the right tool for the right target
A practical decision rule. If your target is a science-based Scope 3 reduction and you operate in a FLAG sector or source FLAG commodities, insetting is the structurally correct tool. If your target is a net-zero claim that includes neutralising hard-to-abate residual emissions outside your value chain, BVCM via high-integrity offsets is the structurally correct tool. Most companies with material Scope 3 exposure need both, in different proportions, sequenced over time.
The sequencing matters. Insetting takes longer to stand up but produces a permanent reduction in the inventory. Offsetting can be transacted faster but does not change the inventory and now sits under tighter claim restrictions. Treat them as complementary tools with different jobs, not as substitutes. The Accountability Framework Initiative and the IUCN Global Standard for Nature-based Solutions both provide useful guardrails for the insetting side, with biodiversity, human rights, and benefit-sharing requirements that go beyond carbon math.
If you are mapping a Scope 3 reduction roadmap and need to scope which interventions count toward your inventory versus which sit in Beyond Value Chain Mitigation, the carbon and sustainability experts at Carbon Credit Capital can help you structure a nature-based supply chain investment program that fits your FLAG exposure, your target architecture, and your audit horizon. Schedule a consultation.
Net zero is often described as a balancing act: cut what you can, account for the rest, and reach zero on the ledger. That framing is useful, but it leaves something out. It treats every tonne of carbon as interchangeable and every route to zero as equally sound, while the science tells a more specific story.
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