Implementing a Comprehensive Energy and Climate Strategy: Novartis

By WBCSD Staff, WBCSD
Published: July 24, 2008

[Editor's Note: This case study is part of a series of profiles of World Business Council on Sustainable Development member company good practice examples on energy efficiency.]

Novartis realizes the following benefits from investing in energy efficiency and climate change mitigation:
• Cost savings at sites and for individual businesses -- substantially decreased energy intensity resulting in reduced operating expenses
• Benefits for its associates -- with training and capacity building on energy and climate issues
• Environmental sustainability -- achieving the Kyoto target through reduced energy use and reduced GHG emissions
• Benefits for the company as a whole -- by enhancing its reputation with its leadership approach on energy and climate

Overall, the implementation of Novartis' energy and climate strategy results in improved performance with substantially lower environmental impact and enhanced efficiency.

The Situation

Novartis, a global healthcare company, provides solutions that address the evolving needs of patients and societies. Focused on growth areas in healthcare, Novartis offers a diversified portfolio to best meet these needs: innovative medicines, cost-saving generic pharmaceuticals, preventive vaccines and diagnostic tools, and consumer health products.

In 2007, the Group's continuing operations achieved net sales of $38.1 billion and a net income of $6.5 billion. Approximately $6.4 billion was invested in R&D activities throughout the Group. Headquartered in Basel, Switzerland, Novartis Group companies employ over 98,000 full-time associates and operate in over 140 countries around the world.

In 2000, Novartis decided to include the triple bottom line inherently into its business management to commit to sustainable business development, and became a member of the United Nations' Global Compact. Novartis embarked on this route as early as in 1992 when its predecessor companies were among the founding members of the World Business Council for Sustainable Development (WBCSD).

A Sustainable Corporate Citizen

Corporate citizenship at Novartis is an integral part of how to operate and a key to success. Novartis strives to be known for being a responsible corporate citizen and does everything to operate in a sustainable way. The overarching commitment rests on four pillars: patients, people and communities, environmental care, and business conduct. As part of this commitment, Novartis decided in 2004 to complement communication and reports on corporate citizenship with a report that follows the Global Reporting Initiative's (GRI) Sustainability Reporting Guidelines.

Targets

With growing energy prices, improvements in energy efficiency and the use of alternative sources have started to become important drivers for cost reduction. Despite the substantial economic growth of the company, Novartis has been able to slow down increases in total energy consumption at 16.7 million GJ (for 2007), and strives to maintain this trend in the coming years (Figure 1).

In 2007, the amount of electricity from renewable sources, including standard hydro-electric as well as purchased green electricity amounted to 34.7 percent of total electricity use.

In 2007 the company exceeded its annual 2.5 percent energy efficiency target with an improvement of 7.5 percent. A new target was established that calls for a further 10 percent improvement by 2010, based on 2006 figures.

Strategy in Line with the Kyoto Protocol

Today, it is a generally accepted fact that the use of fossil energy sources, with their associated GHG emissions, contributes to the man-made increase of CO2 in the atmosphere, as well as related adverse effects on the global climate. While the pharmaceutical industry is not an energy intensive sector, proactive management of energy use and related GHG emissions are seen as an important aspect for the long-term success of Novartis.

In 2005, in line with the objectives of the Kyoto Protocol and in the course of the UN Global Compact, Novartis publicly committed to applying the rules of the Protocol throughout the company worldwide. A voluntary reduction of on-site GHG emissions to the level prescribed in the Kyoto protocol was fixed: i.e., 5 percent below the 1990 level for the period 2008-2012.

By the time Novartis announced this intention, strong net sales growth had pushed energy consumption well above the 1990 benchmark level. Projections for sustained growth through 2012 indicate that annual GHG emissions would be about 150 kilotons of CO2e higher than the target. During 2007, Group-wide on-site Scope 1 GHG emissions from combustion and processes totaled 401 kilotons (Figure 2).

Novartis wants to achieve this ambitious target through a dual strategy:
• Maximized internal efforts – i.e., optimizing own operations to maximize energy efficiency and to minimize climate impact
• Additional external efforts – i.e., engaging in carbon offset projects to compensate for part of GHG emissions

Activities

To maintain credibility, and from an economic perspective, Novartis is focusing on internal measures until its internal investment options have been exhausted. A comprehensive approach is needed in order to achieve the target reduction of GHG emissions within the projected seven years (2005–2012) and to substantially increase energy efficiency. Internally, two types of implementation challenge emerged:
• Obtaining detailed, accurate performance data from all sites (100 percent of operations)
• Gaining the support of employees and local management for energy-related programs.

In terms of data gathering, the challenge lies in determining appropriate baseline figures, and in capturing accurate performance data from over 200 reporting units worldwide. These are determined on a site-by-site basis by the local health, safety and environment (HSE) officers. The rollout of a new HSE data management system in 2006 advanced the quality of data reporting. All site HSE officers and data managers received dedicated training in calculating and entering the environmental indicators. Energy and emission figures are verified by the financial audit firm in the Annual Report.

The second challenge involves winning the hearts and minds of Novartis associates at various levels of the organization. The company's business structure is very decentralized. This means that the divisions and business units have significant decision-making autonomy. Therefore, obtaining "buy-in" to the GHG and energy efficiency improvement actions needs constant convincing at site level when a site manager is not passionate about the directions from Corporate Headquarters.

Efforts in Minimizing Climate Impact

The energy and climate strategy incorporates a balance of targets and incentives to build pride in achieving the challenging objectives, as well as to maintain the commitment of associates at a high level. But only maximum efforts on internal activities will result in the necessary credibility for external compensation with carbon offset projects. On-site GHG emissions are mainly related to energy use for processes, buildings and infrastructure, and for mobility. Substantial reductions can be achieved by lowering energy consumption (or increasing energy efficiency), and through a continued shift to less carbon intensive or renewable energy sources – something that has long been actively promoted throughout Novartis.

Along with adoption of bio and organic waste fuels, solar energy is being implemented in a number of projects within the Group. For example, Bagasse, a sugar cane-based residue, is used for process and steam generation in India (Figure 3).

A wood-chip heating installation is implemented for a factory in Germany. At the Vaccines and Diagnostics Division production site in Rosia, Italy, an ongoing energy-efficiency program includes installation of photovoltaic and thermal solar panels on the roofs of existing buildings. And solar panels have already been installed at other Novartis sites worldwide.

Supporting Actions for Energy and Climate Excellence

Novartis has developed and implemented a wide array of measures to support and promote action to reduce GHG emissions. These are:
• Annual energy efficiency and GHG emission reduction targets at corporate and divisional level
• Change of rules regarding capital appropriation to favor energy excellence projects with relaxed payback schedule of up to the lifetime of the asset
• Appointment of site and divisional energy managers to encourage and oversee energy excellence programs
• Release of comprehensive energy minimum standards for buildings and for equipment to use best-in-class energy efficiency techniques and to support renewable energy
• Stringent processes for energy auditing of sites and buildings, and energy challenging as part of capital projects
• Regular energy management training and capacity building for all operations worldwide
• Continuous experience sharing and promotional activities such as Novartis' annual Energy Excellence Award.

Energy Management Instruments

Novartis uses a number of management tools to increase energy efficiency internally and to achieve its energy and climate objectives:

Energy challenge of capital projects
Considering energy as a separate aspect in investment projects provides the opportunity for cost saving, as well as for achieving operational and environmental best practice. It is therefore critical to ensure that the process for capital appropriation encompasses a solid energy challenge at an early enough stage. The Novartis approach includes the mandatory application of an "Energy Challenge" in all investment projects. This is in conjunction with the relaxed investment rules on energy projects, i.e., to allow for a pay-back time up to the full lifetime of the asset for energy saving and renewable energy projects.

The objectives of the Energy Challenge are to reduce both energy costs and energy consumption, together with minimizing GHG emissions. The scope of an investment project that requires an Energy Challenge could be anything from a piece of energy-consuming equipment, the change of a process, a building installation, up to an entire building, new plant, or new facility.

Energy management fitness
An index to measure the fitness of their energy management system gives the sites and business units a tool to measure how well they are prepared for successful energy management and effective energy excellence implementation. It represents a "Leading Indicator" that enables units to be best prepared for further possible improvements. The index consists of 23 questions in three areas -- organizational issues, procedures and performance. Sites can respond to these as part of a self assessment or within the context of a site audit.

Energy audits
Energy flows and distribution of costs related to energy are continuously analyzed to derive key figures from businesses and processes. This leads to discovery of the most effective energy-saving measures. Comprehensive investigations of state of the art technologies can then be conducted. The optimization and saving potentials are systematically obtained with energy audits as part of Novartis' professional energy management. With the help of energy audits, many Novartis sites have already reduced losses and considerably increased their energy efficiency.

Capacity Building for More Energy Awareness

Because individual commitment to save energy is crucial for the implementation of Novartis' ambitious energy and climate strategy, the company uses a variety of promotional activities to train its specialists, share experience among experts, and further raise awareness among all associates. It also communicates extensively -- both internally and externally -- on energy and climate issues. Details of Novartis' energy use can be found on its external website, together with information on its further efforts towards sustainable business development.

Associates in general, together with the energy expert network, are kept informed about the latest energy and climate news via the Novartis intranet page. Training and promotional activities presented there include:

Regular Energy Workshops
With Energy Workshops, Novartis provides the necessary knowledge sharing and networking opportunity for site energy experts, facility managers and members of engineering teams. Such workshops take place regularly in all major global regions. A key goal for these workshops is to ensure knowledge transfer within the engineering community on:
• Incentives beyond commonplace behavior: Heterogeneity of participants, coming from different working fields within Novartis provides new insights and helps share best practice between sites.
• Improved identification with energy related issues: Through the informal meeting of energy-concerned colleagues, new relationships are created and the sometimes encapsulated working area of the energy managers is opened up via links to a worldwide network. New Novartis energy management tools and methodologies are introduced in a direct and effective way.
• New procedural and contextual knowledge: Through simplified informal transfer of knowledge, together with learning from external experts.

Energy Excellence Awards
In 2008, for the fifth consecutive year, Novartis associates are showing that innovative initiatives on energy efficiency and GHG emission reduction are being realized in all divisions and regions worldwide. In 2007, 46 projects from 16 countries were submitted to the Novartis Energy Excellence Awards. They provided high potential for cost reduction, energy savings and emission reduction. Overall, the 2007 projects allow for about $40 million in net savings over the next five years with an investment volume of $17 million. A large number of the projects demonstrate very short payback periods: more than half being less than two years, more than one-third even less than one year.

For Novartis, the Energy Excellence Awards are an effective vehicle for achieving its goal of excellence on energy and climate. Suitable projects include those related to saving energy, resource costs or reduction of GHG emissions. The award objectives can be achieved either through technological improvement or through cultural change. Project saving numbers and payback times are key indicators for ranking
the projects, but there are other ways to demonstrate excellence in the proposed projects, including creativity/innovation, higher efficiency/effectiveness, new combinations/integrated approaches, replication/scalability, and changed behavior.

A collection of energy case examples
In 2007, a database was launched with a set of case studies on energy management, best practices, and lessons learned. Each case study contains links to contacts and further information. Local energy managers, engineering teams or HSE officers can make their case part of the collection. The cases further help in recognizing energy savings potential and support other energy saving and renewable energy projects in making them happen.

A Global Energy Newsletter
Novartis also distributes a quarterly energy newsletter, which gives regular updates on best-practice examples and lessons learned from energy-related projects and strategies. Information on energy management tools, conclusions from workshops, tutorials and an events calendar are also published. By providing an overview of what is going on in the area of energy management within and beyond Novartis, this
tool further helps share knowledge and best practices. While primarily addressing the site energy managers, all employees can register to receive the newsletter.

Results and Next Steps

Annual energy efficiency target surpassed
Throughout Novartis, energy-saving projects helped total energy consumption to almost plateau, with only a 22 percent increase over 2003-2007 -- despite the Group's economic growth of 67 percent. In 2007, the company achieved energy efficiency improvements of 7.5 percent compared to 2006. This is well above the 2.5 percent defined as the target annual improvement for the years 2007 to 2010. Internal measures taken at Novartis succeeded in slowing down the growth in energy consumed, mainly by raising energy awareness and through
promotion of emission reduction projects.

GHG emissions reduction on a promising path
When the Kyoto target was set in 2005, the total relevant emissions at Novartis were over one-fifth higher than the target annual emissions. Using estimates of its projected sales growth and of the business-as-usual linkage between sales and emissions, an approximation was made of the expected emissions in 2008-2012 if no emissions reduction program were in place.

This calculation determined that over the five-year target period, the average difference between business-as-usual and target emissions would be 152 kilotons CO2e per annum -- or 760 kilotons over five years -- almost twice the 2007 business-as-usual emissions of 402 kilotons. This proves that the Kyoto target is indeed significantly more difficult to achieve than just business-as-usual.

Energy efficiency and GHG emissions reduction measures have already resulted in stabilizing energy use and reducing GHG emissions. Thereby, the original expected 150 kilotons per annum Kyoto gap for the five years 2008-2012 decreased by 25-30 percent to a remaining annual gap of about 100 to 110 kilotons. Novartis will meet the remaining gap by exemplary external carbon offset projects, based on the Clean Development Mechanism. By further intensifying internal measures, a further reduction of the gap is expected in the coming years.

Implementing a Comprehensive Energy and Climate Strategy: Novartis

Measure & Verify

Reduce Emissions

Climate Sponsor

Integrated Facilities Management Sponsor

Design Sponsor

Document Management Sponsor

Work Environment Sponsor

Environmental Services Sponsor

Charter Sponsor

Energy Management Sponsor

Innovation Sponsor

Technology Sponsor

Public Relations Sponsor

Legal Sponsor