Pharma’s silent sustainability risk and the supply chain fix

Capital access now depends on emissions transparency

Institutional capital isn’t neutral anymore; it’s actively moving towards ESG-aligned firms. In PwC’s 2022 surveys, nearly 90% of investors had divested, or would divest, from companies with weak ESG strategies¹. For 78%, regulatory risk was a key concern². Pharma’s dependence on long-term, risk-tolerant capital (whether for R&D pipelines, M&As, or facility upgrades) makes it sensitive to this shift.

Meanwhile, ESG assets are outperforming market averages¹. That creates a structural bias: companies with low-emission value chains are favoured, while those without them face growing liabilities. ESG performance is fast becoming a stand-in for risk management.

Governments are formalising these expectations through emission reporting mandates. The EU’s Corporate Sustainability Reporting Directive (CSRD), taking effect in mid-2026³, requires large firms to report greenhouse gas emissions across⁴:

• scope 1: direct emissions from operations
• scope 2: indirect emissions from purchased energy
• scope 3: all upstream and downstream emissions – usually 75% of pharma’s total footprint⁵.

In the US, the Securities & Exchange Commission (SEC) now mandates Scope 1 and 2 disclosures for public companies⁶. Scope 3 is optional⁷, but not irrelevant. Investors increasingly factor it into their risk models.

Material costs and emissions are converging

The EU Emissions Trading System (ETS) is Europe’s flagship climate policy. It caps emissions from high-intensity sectors (power, steel, cement, aluminium, chemicals) and requires companies to buy carbon allowances equal to their emissions⁸. Since 2021, that cap has shrunk by 2.2% each year, steadily raising the price⁹. Pharma may not be directly covered, but its upstream vendors are. These packaging material suppliers not only pass on the costs – they shape the carbon profile of the entire value chain.

The EU’s Carbon Border Adjustment Mechanism (CBAM) is in place since 2023 to prevent “carbon leakage”, wherein manufacturers relocate operations to countries with looser climate rules. It requires importers to report emissions embedded in ETS-covered materials¹⁰. From 2026, they’ll also have to pay a carbon price matching the ETS rate¹¹.

In short: emissions are becoming part of the price tag. The longer pharma delays the transition, the more exposed its margins and supply chains become.

Packaging is a visible, underleveraged tool for ESG and emissions

Packaging accounts for as much as 15% of pharma’s total emissions, per a 2023 McKinsey report⁵. That number is neither trivial nor fixed. The same report estimates that by optimising volume and using low-carbon materials, companies could cut packaging emissions by up to 90% by 2040. That makes packaging one of pharma’s most visible and high-impact ESG levers.

Today, the industry still leans on conventional materials like aluminium and fossil-based plastics. That isn’t just inertia; it’s due to their proven machinability, sterility, and barrier performance. Still, these materials are now in regulators’ crosshairs – and increasingly subject to carbon pricing. For context, every tonne of fossil-based plastic emits 5 tonnes of CO₂ across its lifecycle¹⁵, while producing a tonne of virgin aluminium releases over 14 tonnes¹⁴. CBAM currently covers upstream materials, but firms like EY and KPMG expect it to expand to plastics and downstream products soon¹² ¹³.

The value equation is shifting. Packaging is no longer just about protection and compliance. It’s also a lever to cut material costs, attract financing, and future-proof against regulatory shocks. Companies reducing packaging emissions, through design, materials, or supplier choices, are better equipped to meet evolving expectations.

Pharma is exempt from recyclability rules – but not indefinitely

Pharma packaging still benefits from specific regulatory exemptions, which are essential to ensuring drug availability while circular economy policies catch up.

• California’s SB 54 requires single-use plastic packaging to be cut by 25%, with 65% recycled and 100% recyclable or compostable by 2032. But it exempts prescription drug packaging and federally regulated medical devices¹⁶.
• The EU’s Packaging and Packaging Waste Regulation (PPWR) aims for full recyclability by 2030, banning non-recyclables and mandating minimum recycled content. Medicinal packaging is exempt for now, but that status will be reviewed by 2035¹⁷.
• In the UK, where extended producer responsibility (EPR) fees are based on recyclability, medical packaging gets partial relief due to sterility and regulatory constraints, but not a full exemption¹⁸.

These aren’t green lights – they’re grace periods. As innovation unlocks new materials that meet pharma-grade standards, the bar for “technically necessary” exemptions will rise. Today’s flexibility is a narrowing window.

Shift towards lower emissions, recyclability, and function

Materials that are halogen-free or bio-based are often considered more sustainable, as they avoid dioxin release and minimise carbon emissions during manufacture, recycling, or disposal. Many of these are increasingly being employed in FMCG and nutraceutical packaging. However, it remains a critical challenge to match the product stability and shelf-life provided by legacy materials.

• Mono-material blisters, made of polypropylene or PET, align with EPR-based fee structures. They sidestep the recyclability problem of composite PVC-aluminium packs.
• Bio-based plastics like bio-PET and bio-PE use fossil-free feedstocks (e.g. sugarcane), reducing emissions and preserving recyclability. PLA, though biodegradable, is suited to different use cases due to its barrier profile.
• Sustainable pre-filled syringes use lightweight cyclic olefin polymers, fewer composite parts, and smaller packs – cutting emissions across manufacturing, packaging, sterilisation, and distribution.

At ACG, we’re contributing to this shift by developing recyclable, compostable, and biodegradable primary packaging options. We’re also slashing emissions in our own operations and helping suppliers decarbonise – lowering our scope 3 emissions, and our customers’ too¹⁹.

Conclusion

Packaging is no longer just an operational detail. It’s a strategic lever for risk, compliance, and capital access. Scope 3 emissions and plastic waste are becoming financially material, not just reputational issues. As regulators pivot toward full-lifecycle accountability, pharma packaging is under pressure on two fronts: emissions and waste.

Firms that move early, by rethinking materials and suppliers, can turn compliance into competitive advantage. Those that wait may find their exemptions gone before their risk models adjust. In a sector where margins are protected but not guaranteed, sustainable packaging isn’t just good PR – it’s resilience by design.

References:

1. PwC. “Asset and wealth management revolution 2022: Exponential expectations for ESG”. 2022.
   https://www.pwc.com/gx/en/financial-services/assets/pdf/pwc-awm-revolution-2022.pdf
2. PwC. “The ESG execution gap: What investors think of companies’ sustainability efforts”. 2022.
   https://www.pwc.com/gx/en/issues/esg/global-investor-survey-2022.html
3. European Commission. “Commission welcomes agreement on postponing adoption deadlines for certain European Sustainability Reporting Standards”. 2024.
   https://ec.europa.eu/commission/presscorner/detail/en/mex_24_707
4. EUR-Lex. “Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU of the European Parliament and of the Council as regards sustainability reporting standards”. 2023.
   https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:32023R2772
5. Maria Fernandez, Lucy Perez. McKinsey & Company. “Accelerating the transition to net zero in life sciences”. 2023.
   https://www.mckinsey.com/industries/life-sciences/our-insights/accelerating-the-transition-to-net-zero-in-life-sciences
6. U.S. Securities and Exchange Commission. “SEC Adopts Rules to Enhance and Standardize Climate-Related Disclosures for Investors”. 2024.
   https://www.sec.gov/newsroom/press-releases/2024-31
7. Deloitte. “Comprehensive Analysis of the SEC’s Landmark Climate Disclosure Rule”. 2024.
   https://dart.deloitte.com/USDART/home/publications/deloitte/heads-up/2024/sec-climate-disclosure-rule-ghg-emissions-esg-financial-reporting
8. European Commission. “About EU ETS”.
   https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/about-eu-ets_en
9. European Commission. “The EU Emissions Trading System (EU ETS)”. 2016.
   https://climate.ec.europa.eu/document/download/5dee0b48-a38f-4d10-bf1a-14d0c1d6febd_en?filename=factsheet_ets_en.pdf
10. European Commission Taxation and Customs Union. “Carbon Border Adjustment Mechanism”. 2025
    https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en#faq
11. European Commission Taxation and Customs Union. “Carbon Border Adjustment Mechanism (CBAM) Questions and Answers”. 2024.
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12. Nathan Richards, Ashish Sinha, Jeroen Truin. Ernst & Young. “Will CBAM impact your transactional model, your compliance and costs?” 2022.
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13. Stephan Freismuth. KPMG. “Acht Mythen über den CBAM und ihre Aufklärung” 2024.
    https://klardenker.kpmg.de/acht-mythen-ueber-den-cbam-und-ihre-aufklaerung/
14. International Aluminium Institute. “Global aluminium industry greenhouse gas emissions intensity reduction continues with total emissions below 2020 peak”. 2024. https://international-aluminium.org/global-aluminium-industry-greenhouse-gas-emissions-intensity-reduction-continues-with-total-emissions-below-2020-peak/
15. Material Economics. “Industrial transformation 2050: Pathways to net-zero emissions for EU heavy industry”. The strategic innovation program RE:Source. 2019.
    https://circulareconomy.europa.eu/platform/en/knowledge/industrial-transformation-2050-pathways-net-zero-emissions-eu-heavy-industry
16. California legislature. “SB-54 Solid waste: reporting, packaging, and plastic food service ware.” 2022. https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220SB54
17. EUR-Lex. “Regulation (EU) 2025/40 of the European Parliament and of the Council of 19 December 2024 on packaging and packaging waste, amending Regulation (EU) 2019/1020 and Directive (EU) 2019/904, and repealing Directive 94/62/EC”. 2025.
    https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L_202500040&pk_campaign=todays_OJ&pk_source=EUR-Lex&pk_medium=X&pk_content=Environment&pk_keyword=Regulation
18. Department for Environment, Food & Rural Affairs and Environment Agency. “The Producer Responsibility Obligations (Packaging and Packaging Waste) Regulations 2024”. 2024. 
    https://www.legislation.gov.uk/uksi/2024/1332/made/data.html
19. ACG. “ACG Packaging Materials GHG Commitment Validated and Approved by SBTi”. 2025.
    https://www.acg-world.com/media/acg-packaging-materials-ghg-commitment-validated-and-approved-sbti
20. Booth A, Jager A, Faulkner SD, Winchester CC, Shaw SE. “Pharmaceutical Company Targets and Strategies to Address Climate Change: Content Analysis of Public Reports from 20 Pharmaceutical Companies.” Int J Environ Res Public Health. 2023;20(4):3206. https://pmc.ncbi.nlm.nih.gov/articles/PMC9967855/