Explore: understand your DIROs

Understand impacts, dependencies, risks, opportunities

1 Explore impacts
2 Plan actions
3 Choose metrics

Pharmaceutical Sector

The pharmaceutical sector, which exists to improve human health and quality of life, relies on nature for many of its operations and innovations, such as water for the production of biological medical products like vaccines.  

The sector, while focused on improving human health, is also a contributor to environmental impacts. The sector’s complex value chain brings unique challenges in identifying and managing nature-related impacts and dependencies.  

Pharmaceutical sector value chain 

The pharmaceutical value chain encompasses a variety of processes. These range from inputs such as raw material production to manufacturing, processing and the distribution of pharmaceutical products, as well as patient use and end-of-life disposal.  

The value chain mapping aligns with TNFD’s Additional Guidance by sector and working group members refine it through their input. 

Dependencies, impacts, risks and opportunities

A sector-level overview of dependencies, impacts, risks and opportunities (DIROs) provides a useful foundation for a company-level materiality assessment because it highlights the typical DIROs relevant to companies operating in the same sector.  

The DIROs capture how businesses in a sector interact with nature – relying on and impacting ecosystem services – and how these translate into risks and opportunities.  

Companies should do a company-level materiality assessment – as recommended by the Natural Capital Protocol, SBTN and TNFD frameworks – to evaluate how the potential sector-level DIROs apply to the specific context of that company. The materiality assessment provides greater visibility into the company’s relationship with nature, enabling it to: 

  • Identify and manage risks; 
  • Uncover new business opportunities; 
  • Respond effectively to evolving investor and regulatory expectations.  

This ultimately helps future-proof the business.  

Methodologies for company-level materiality assessments include the Taskforce on Nature-related Financial Disclosures Guidance on the identification and assessment of nature-related issues: the LEAP approach and Science Based Targets Network’s Step 1: Assess your impacts on nature.  

Dependencies and impacts in the pharmaceutical sector 

A sector-level overview of dependencies and impacts provides a useful foundation for a company-level materiality screening. It highlights the typical dependencies and impacts relevant to companies operating within the same sector.  

Below are the top dependencies and impacts identified for the pharmaceutical sector.  

Top 5 dependencies

Water supply

Pharmaceutical manufacturing processes and the use of water as an ingredient for products – such as water for injection – depend on a consistent, pure and plentiful freshwater supply. Climate change impacts on precipitation patterns and surface water evaporation, along with increased water consumption due to human activities, can contribute to disrupted and depleted water supplies. 

Water purification

The pharmaceutical sector is increasingly facing regulation focusing on water pollution. Companies adhere to strict systems and protocols to minimize Active Pharmaceutical Ingredients (APIs), harmful substances and other pollutants. However, due to technical limitations, they also rely on the bioremediation and filtration capacity of local ecosystems to manage the effects of the smaller volumes of pollutants released into the environment. Natural physical and biological processes (such as microbial decomposition) help remediate these pollutants and improperly disposed waste materials from agricultural, industrial and domestic sources. 

Climate regulation 

The pharmaceutical value chain depends on a stable climate as hazards can disrupt crop growing, the mining of key metals and any transportation of products by air, rail, road and sea. Climate regulation is necessary to prevent manufacturing operation outages and downstream product delivery. Climatic variability and extremes can also impact health due to associations with extreme temperatures, food insecurity and malnutrition. Additionally, climate change may exacerbate the transmission and spread of certain diseases, such as malaria, by altering the habitat ranges of Anopheles mosquitoes. 

Genetic material research 

R&D departments can use research models and genetic information from non-human organisms and pathogens to improve the scientific understanding of disease. This can lead to insights and innovations that contribute to the development of new medications and vaccines, and improved biotechnology processes. 

Bio-based products 

The pharmaceutical sector increasingly relies on biomass inputs for products, production processes and energy generation. For instance, limulus amoebocyte lysate (LAL), derived from the blood of horseshoe crabs, is a critical bio-based product used to test for endotoxins in pharmaceutical products, ensuring patient safety. Regulatory authorities in certain jurisdictions mandate its use. Similarly, many pharmaceutical products rely on agricultural products such as pharmaceutical-grade starch from crops like corn or potatoes. This starch functions as an excipient in drug formulations, aiding in tablet binding, disintegration and the stabilization of capsules and liquid medications. Additionally, pharmaceutical packaging frequently uses bio-based materials like wood fiber for paper production. This growing reliance underscores the importance of sustainable biomass resources in advancing pharmaceutical innovation and safety. 

Top 5 impacts

GHG emissions

Manufacturing processes, which require specific ambient conditions such as humidity, temperature and sterility, along with company vehicles and purchased energy, all contribute to direct operational GHG emissions. The extent of these emissions depends on the energy sources used to meet these requirements. Additionally, sourcing inputs, product distribution, transport and product use significantly contribute to value chain emissions.

Land-use change

The pharmaceutical sector can lead to some changes in land use, particularly in the upstream value chain, through the sourcing of raw materials and intermediary products. For example, pharmaceutical companies often derive the compounds used in manufacturing processes from agricultural or forestry-based feedstocks, such as palm oil, soy or sugarcane. This can contribute to deforestation, habitat loss and altered land-use patterns. Additionally, forestry products like paper and cardboard used in packaging may indirectly impact land use. While smaller in scale, land-use change also results from the construction or expansion of manufacturing sites and office facilities. Such activities can lead to ecosystem destruction or fragmentation, reducing biodiversity, impairing vital ecosystem connectivity and diminishing resilience to stressors such as climate change.

Solid waste 

Generated across the pharmaceutical value chain, solid waste includes materials that may have been in contact with active pharmaceutical ingredients (APIs) or biological or genetically modified materials – requiring additional considerations for treatment and disposal. Examples of solid waste include raw material containers for chemicals and solvents, components such as tubes, filters and single-use processing systems, as well as product packaging and distribution devices such as syringes, insulin cartridges, injectors and asthma inhalers. Waste classified as hazardous or clinical presents unique challenges for effective and compliant disposal or re-processing. The incorrect disposal of unused medicines by patients poses unnecessary risks to the environment and waste handlers and can potentially contribute to the presence of APIs in the environment. 

Water use

Companies use both groundwater and surface freshwater as an ingredient in medicines, production processes, the cultivation or extraction of raw materials, and for cleaning and sterilization. Consumers and patients also use them at the point of product use. The production of both specialist and commodity agricultural crops used in the sector, along with the upstream manufacturing of APIs, excipients and precursor chemicals, can be highly water intensive. 

Water pollution

The release of APIs (including antibiotics), harmful chemicals and other substances can occur due to activities across the pharmaceutical value chain, including following patient use, improper disposal of unused medicines and post-use excretion by users. Tight regulations and controls aim to prevent the release of APIs in waterways, such as the EU Water Framework Directive, Environmental Quality Standards and the USA’s Clean Water Act. However, some discharges into water can occur in the manufacturing process. 

The tables below provide a complete list of potential nature-related impacts and dependencies, where they are likely to occur in the pharmaceutical value chain and their potential materialities.  

The list is the result of a generalized assessment and will require further risk and opportunity evaluation before companies use it to inform the development of nature-related actions and targets.  

The materiality ratings in the diagrams are based on the 2024 version of the ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) database.   

Key nature-related impacts for pharmaceutical sector 

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Key nature-related dependencies for the pharmaceutical sector 

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Risks & opportunities 

Nature-related issues can affect every part of a business – from physical and operational disruptions to transition pressures like new regulations, litigation and reputational risk, and even systemic threats as ecosystems start to fail.  

Companies that respond proactively by transforming business models, products, services and investments can leverage those same forces. They can gain a competitive edge, strengthen investor and stakeholder confidence, and build the operational resilience needed to thrive in a changing world.  

The table below outlines examples of key risks and opportunities for the pharmaceutical sector, based on the TNFD framework.  

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Further reading

  • For more technical details, refer to the Methodology page. 

Supply chain

Nature-related impacts and dependencies frequently originate in supply chains, associated with particular geographies and ecosystems several tiers removed from a company’s operations. To strengthen accountability along the value chain, companies operating downstream can align their nature-related actions and corresponding metrics to those of their suppliers.

These are the material dependencies and impacts in your supply chain

If your company sources bio-based products from the forest or agri-food sectors—such as paper, packaging, timber, or agricultural derivatives—it is likely exposed to specific risks and opportunities linked to these materials in its supply chain. If not managed sustainably, both sectors can drive land degradation, conversion, and other forms of biodiversity loss. However, bio-based products also play a crucial role in the transition to a low-carbon, nature-positive economy, supporting ecosystem restoration while ensuring the supply of raw materials for the bioeconomy – 99% of which comes from the agri-food and forest value chains.

The Portal currently covers only bio-based materials sourcing from the forest and agri-food sectors, with plans to include other key material inputs in the future.

Agri-food

Top 5 dependencies

Freshwater

Businesses need sufficient quantity, quality and flow of freshwater (in the form of groundwater, surface water and seasonal precipitation) to produce crops and animal feed, provide water for raising animals and maintaining land, and for use in downstream washing and processing. 

Land and soil quality

High-quality land and soils help optimize crop growth, produce sustainable yields, provide natural protection against erosion, floods and storms and build resilience against environmental challenges. 

Pollination

Pollinators play a vital role in the reproductive process of flowering plants, including numerous crops that yield fruits, vegetables, nuts and seeds and for some crops used as animal feed

Disease and pest control 

Nature’s ability to regulate diseases and pest populations is essential for safeguarding crops, ensuring food security and maintaining the productivity and quality of agricultural systems, as well as ensuring the health of livestock for animal protein. 

Climate regulation

Climate regulation is provided by nature through the long-term storage of carbon dioxide in soils and vegetable biomass. It is critical to optimize plant growth, enhance crop yields, protect companies from disruption (for example extreme weather events) and ensure the long-term sustainability of the agri-food system. 

Top 4 impacts

Freshwater use 

The vast withdrawal and consumption of groundwater and surface water for agricultural and livestock production puts pressure on finite freshwater resources. This results in water scarcity, ecological imbalances and competition for freshwater, while also contributing to environmental degradation, depletion of freshwater ecosystems and reduced soil water holding capacity. 

Land and water use change and degradation 

Damage to terrestrial and freshwater ecosystems contributes to biodiversity loss and negatively affects stored carbon. Impacts arise from land conversion (for example, approximately 50% of the world’s wetlands have been drained for agriculture6), deforestation (with agricultural expansion driving around 90% of global tropical deforestation7), intensification and soil degradation to grow agricultural products for human consumption and crops for animal feed and from the use of vast areas of land to feed, raise and produce animals. 

Pollution 

The agri-food system contributes to widespread pollution including freshwater, land, soil and non-greenhouse gas (GHG) air pollution. Key causes are the overuse of agrichemicals (including mineral and organic fertilizers and pesticides), fuels and feed supplements (for example, antibiotics) used to grow crops and raise animals, the use of energy from fossil fuels (for example, in transport and refrigeration) and plastics and packaging. 

Greenhouse gas (GHG) emissions 

Agri-food systems account for one-third of total anthropogenic GHG emissions, which  are released at all stages of the value chain and are, significantly contributing to climate change. Key sources include agricultural and livestock production (carbon dioxide and methane); land conversion and deforestation for crops and livestock; ineffective manure management; emissions from fertilizer production (carbon dioxide from fossil fuels) and field application (nitrous oxide); and fossil fuels used in processing and transportation (carbon dioxide). 

Forest

Top 6 dependencies

Wood fiber  

Wood is a key direct physical input throughout the production process. 

Freshwater 

Water is needed at many stages of the value chain including forest operations, pulp and paper mills, as well as paper recycling operations. 

Land and soil quality 

Healthy soil is essential for the growth of healthy forests. Degraded soils are prone to erosion and are nutrient-poor and water-permeable.

Bio-remediation ecosystem services 

Bioremediation occurs when biological systems such as micro-organisms prevent the contamination of soils and water by transforming toxic pollutants (for example, from fertilizers) into less hazardous or non-hazardous forms. 

Disease and pest control 

Without nature’s ability to regulate disease and pest populations, forests would be left vulnerable to parasites, bacteria, fungi or viruses, resulting in widespread losses or reductions in yields.

Climate regulation  

Climate regulation is critical for the sector as non-adapted forest ecosystems become increasingly unstable in a warming climate, leading to greater incidences of forest fires, droughts and pest outbreaks. 

Top 4 impacts

Biodiversity and habitat loss

Forests are the largest terrestrial carbon sinks, and they provide habitat for 80% of global terrestrial biodiversity. Forest conversion, as well as forest degradation and deforestation linked to unsustainable forest management leads to biodiversity loss and climate change. Although agriculture is the main driver of deforestation, between 2001-2015, 2-13% of forest conversion to other uses was due to tree plantations for wood products, with a sharp decline since 2013. Over the same period, an estimated 26% of global forest disturbances were due to degradation linked to forest products. This figure represents a temporary reduction in tree canopy cover (e.g., after harvest), without any indication of the severity. 

Greenhouse gas (GHG) emissions

As some segments of the forest products sector are energy intensive, reducing the reliance on fossil fuels is crucial. In 2021, on average, 67% of forest products companies’ energy came from renewable sources, mostly through the use of woody biomass derived from harvesting, processing and manufacturing wood fiber. 

Freshwater use  

In forest production, water-demanding tree species and nursery irrigation require large amounts of water. Water is also a critical input in industrial facilities used mostly to pull the wood and recovered fiber, to make paper and generate power. 

Pollution 

Production facilities can cause significant air, water, soil and noise pollution. In industrial facilities, these impacts come mainly from the incineration of process residuals and waste, the discharge of chemicals and wastewater, as well as solid waste disposal. They also come from waste disposal and decomposition in landfills further downstream. 
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