International Integrated Reporting Framework, Social and Environmental reports

 

Novo Nordisk A/S – Annual report – 31 December 2019

Industry: pharmaceuticals

Consolidated Social Statement (supplementary information)
Statement of social performance
for the year ended 31 December

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  1. Scope of Access to Insulin Commitment expanded in 2019 to also include middle-income countries and selected organisations providing humanitarian relief.

Notes to the consolidated social statement
Section 6
Basis of preparation
General reporting standards and principles
Novo Nordisk’s annual reporting complies with the Danish Financial Statements Act. Sections 99a and b specify the requirements of the EU Directive on disclosure of non-financial and diversity information to report on management of risks related to the environment, climate, human rights, labour and social conditions, anti-corruption and gender distribution. This requirement is addressed in the Management Review. Novo Nordisk also adheres to the following internationally recognised voluntary reporting standards and principles:
• The International Integrated Reporting Framework, <IR>, developed by the International Integrated Reporting Council. The framework consists of a set of content elements and guiding principles intended to improve the quality of information available to providers of financial capital.
• The Biotechnology & Pharmaceuticals Sustainability Accounting Standard developed by the Sustainability Accounting Standards Board (SASB). The standard consists of a set of topics and accounting metrics companies can use to guide their reporting.
• The UN Guiding Principles Reporting Framework, the only comprehensive guidance for companies to report on how they respect human rights. Novo Nordisk’s implementation of the Guiding Principles on Business and Human Rights is reported at novonordisk.com.
• The UK Modern Slavery Act, adopted in 2015, requires commercial organisations operating in the UK to publish an annual slavery and human trafficking statement. Novo Nordisk’s annual statement is available at novonordisk.com.
• The AA1000AP(2018) and AA1000AS(2008) framework, which states that reporting must provide a complete, accurate, relevant and balanced picture of the organisation’s approach to and impact on stakeholders and society.
• The UN Global Compact, a strategic policy initiative for businesses that are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, labour, environment, anti-corruption and broader UN Goals. Novo Nordisk’s obligation as a participant in the UN Global Compact to provide a Communication on Progress is met by inclusion of material information in the Annual Report and additional information at novonordisk.com and submitted to the UN Global Compact database at unglobalcompact.org.

Novo Nordisk applies AA1000AP(2018) as a component in creating a generally applicable approach to assessing and strengthening the credibility of the Group’s public reporting of social and environmental information. Novo Nordisk has designed processes to ensure that the qualitative and quantitative information that documents the social and environmental dimensions of performance is assured, as well as the systems that underpin the data and performance. The principles outlined in AA1000AP(2018) have been applied as described below.

Inclusivity
As a pharmaceutical business with global reach, Novo Nordisk is committed to being accountable to those stakeholders who are impacted by the organisation. From the perspective of social responsibility, the key stakeholder groups are patients who rely on Novo Nordisk products, employees at Novo Nordisk and throughout the Group’s value chain, business partners and local communities. Novo Nordisk maps its stakeholders and has processes in place to ensure inclusion of stakeholder concerns and expectations. In addition, Novo Nordisk continuously develops its stakeholder engagement and capacity to be a sustainable business at corporate, regional and affiliate levels. See how Novo Nordisk defines what is meant by sustainable business in ‘Leading a sustainable business’.

Materiality
Key issues are identified through ongoing stakeholder engagement and trendspotting, informed by data-driven analysis and addressed by programmes or action plans with clear and measurable targets. Long-term targets are set to guide performance in strategic areas. The issues presented in the Annual Report are deemed to have a significant impact on the Group’s future business performance and may support stakeholders in their decision-making.

Responsiveness
The Annual Report reflects how the company is managing operations in ways that respond to and consider stakeholder concerns and interests. The report reaches out to a wide range of stakeholders, each with specific needs and interests. The management report is prepared with investors in mind. To these stakeholders, however, as well as to the many other groups who may seek information in the Annual Report, this is just one element of interaction and communication with the company.

Impact
Understanding, measuring and communicating the positive and negative impacts on society and the environment of Novo Nordisk’s activities are important. Novo Nordisk is currently working on developing methodologies to be better able to do just that covering the entire value chain.

Applying materiality
The consolidated social statement is a result of assessing legal requirements and disclosure commitments applicable to Novo Nordisk. Whether information is tied directly or indirectly to Novo Nordisk’s ability to create value over the short, medium and long term is also assessed.

When assessing whether a disclosure is material to include in the consolidated social statement, Management considers whether the matter is of such relevance and importance that it could substantively influence the assessment by providers of financial capital of Novo Nordisk’s ability to create value over the short, medium and long term. See more at novonordisk.com.

The conclusion from the external assurance provider is available in the ‘Independent limited assurance report’.

Principles of consolidation
The consolidated social statement and disclosures cover the Novo Nordisk Group comprising Novo Nordisk A/S and entities controlled by Novo Nordisk A/S.

Social accounting policies
The accounting policies set out below and in the notes have been applied consistently in the preparation of the consolidated social statement for all the years presented.

Changes to accounting policies and disclosures
The following disclosure changes have been made:
• ‘Patients reached with diabetes care products via the Access to Insulin Commitment’ is expanded in scope to reflect new initiatives, effective as of 2019. In addition to the least developed countries, the number now also covers patients reached in selected middle-income countries and through sales to selected organisations providing relief in humanitarian situations. The comparative information has not been restated.
• ‘Fulfilment of action points from the Novo Nordisk Way’ is replaced with ‘Facilitations of the Novo Nordisk Way’, to align with the new approach to assessing adherence to the Novo Nordisk Way.
• ‘Company reputation’ is replaced by ‘Company trust’ as a meaningful proxy for supportive stakeholder behaviours. The methodology has been adjusted and simplified.

Other accounting policies
Employee engagement
Employee engagement is measured on a scale of 1–5 and based on questions relating to employee engagement in the annual employee survey, OurVoice. The score is calculated as the proportion of employees who responded favourably (4 or 5) to relevant questions. For 2019, the response rate was 90% compared with 91% in 2018.

Section 7
Patients
7.1 Patients reached with Novo Nordisk’s diabetes care products (estimate)
Accounting policies
The number of full-year patients reached with Novo Nordisk’s diabetes care products, excluding devices and PrandiMet®, is estimated by dividing Novo Nordisk’s annual sales volume by the annual usage dose per patient for each product class as defined by the World Health Organization (WHO). PrandiMet® is not included as no WHO-defined dosage exists.

The number of full-year patients reached with Novo Nordisk’s diabetes care products via the Access to Insulin Commitment is estimated by dividing Novo Nordisk’s annual sales volume in the least developed countries as defined by the United Nations and 29 middle-income countries as defined by the World Bank as well as selected organisations providing relief in humanitarian situations, by the annual usage dose per patient for human insulin in vials as defined by WHO. WHO has not yet assigned a daily dose for Rybelsus®. For this calculation, it is assumed that one tablet equals one patient treatment day.

The WHO-defined daily dosage has not changed since 1982, except for Victoza® which was changed in 2019, and may not reflect the recommended or prescribed daily dose accurately. Actual doses are based on individual characteristics (e.g. age and weight) and pharmacokinetic considerations. Despite this uncertainty, Novo Nordisk assesses this to be the most consistent way of reporting.

Development
The estimated number of full-year patients reached with Novo Nordisk’s diabetes care products increased from 29.2 million in 2018 to 30.0 million in 2019. This 3% increase was primarily driven by sales of long-acting, premix and fast-acting insulins and GLP-1 products.

In 2019, the estimated number of patients reached via the Access to Insulin Commitment was 2.9 million, compared with 0.3 million in 2018. The significant increase is due to an expansion of the Access to Insulin Commitment to also include selected middle-income countries as well as selected organisations providing relief in humanitarian situations. Novo Nordisk sold insulin according to this commitment in 31 countries. Beyond this scheme, Novo Nordisk also sold human insulin below the ceiling price in other countries reaching an estimated additional 2.2 million patients in 2019.

7.2 Donations
Accounting policies
Donations by Novo Nordisk to the World Diabetes Foundation (WDF) and the Novo Nordisk Haemophilia Foundation (NNHF) are recognised as an expense when the donation is paid out or when an unconditional commitment to donate has been made.

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WDF, an independent trust, supports sustainable partnerships and acts as a catalyst to help others do more. In 2019, WDF provided funding to 12 partnership projects in 11 countries. The projects focus on awareness, education and capacity building at local, regional and global levels. See ‘Note 5.2’ in the consolidated financial statements and worlddiabetesfoundation.org.

Novo Nordisk also provides financial support for improving global access to haemophilia care. NNHF supports programmes in developing and emerging countries. Initiatives focus on capacity building, diagnosis and registry, education and empowerment. Since 2005, NNHF has provided funding for 284 programmes in 75 countries. See nnhf.org.

7.3 Animals purchased for research
Accounting policies
The record of animals purchased for research comprises the number of animals purchased for all research undertaken by Novo Nordisk either in-house or by external contractors. The number of animals purchased is based on internal registration of purchased animals and yearly reports from external contractors.

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The number of animals purchased for research in 2019 decreased by 24% compared with 2018 and reflects the changes in stages of the different research projects. Furthermore the reduction in the number of rodents purchased, reflects Novo Nordisk’s continuous focus on reducing the number of animals per research project. 97% of the animals purchased were rodents.

Section 8
Employees
8.1 Employees
Accounting policies
The number of employees is recorded as all employees except externals, employees on unpaid leave, interns, bachelor and master thesis employees and substitutes at year-end.

Employees are attributed to geographical regions according to their primary workplace across the commercial units, research and development, production and support functions. Employees in corporate functions are included in Region Europe and employees in the global service centre in Bangalore, India are included in Region AAMEO (Africa, Asia, Middle-East and Oceania).

The rate of turnover is measured as the number of employees, excluding temporary employees, who left the Group during the financial year divided by the average number of employees, excluding temporary employees. Employees working for Group companies that have been disposed are not counted as having left the Group.

Diversity at Novo Nordisk is reported as the percentage split by gender in all managerial positions. Managerial positions are defined as all managers at Novo Nordisk (global job level including Executive Vice Presidents (EVP), Senior Vice Presidents (SVP), Corporate Vice Presidents (CVP), Vice Presidents (VP), General Managers (GM), Directors, Managers and Team Leaders).

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The underlying growth in employees was mainly driven by Region China.

All management teams, from entry level upwards, are encouraged to focus on enhanced diversity, with the aim of ensuring a robust pipeline of talent for management positions. Among employees as a whole, the gender split was 49% women and 51% men in 2019, same as in 2018.

The table below shows the gender split among managers.

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8.2 Frequency of occupational accidents
Accounting policies
The frequency of occupational accidents with absence is measured as the internally reported number of accidents using full-time employees, excluding externals, employees on unpaid leave, interns, bachelor and master thesis employees, and substitutes, per million nominal working hours. An occupational accident with absence is any work-related accident causing at least one day of absence in addition to the day of the accident.

Development
The average frequency rate of occupational accidents with absence was 2.2 per million working hours in 2019, compared with 2.4 in 2018 due to an 8% decrease in the number of accidents. In 2019, Novo Nordisk had one work-related fatality compared with none in 2018. Novo Nordisk works with a zero-injury mindset and has a long-term commitment to continuously improving safety performance.

Section 9
Responsible business
9.1 Relevant employees trained in business ethics
Accounting policies
The mandatory business ethics training is based on the Business Ethics Code of Conduct in the form of globally applicable e-learning, and related tests released annually by the Novo Nordisk Business Ethics Compliance Office. The target groups for the individual tests vary in size and are defined by Novo Nordisk. The target groups are all employees of Novo Nordisk at the end of the reporting period except employees on leave, student assistants, PhDs and postdocs. The percentage of employees completing the training is calculated as the percentage of completion of training in both the Code of Conduct and related tests, based on internal registrations.

Development
In 2019, as in 2018, 99% of relevant employees were trained in business ethics.

9.2 Business ethics reviews
Accounting policies
The number of business ethics reviews is recorded as the number of business ethics reviews performed by Group Internal Audit in subsidiaries, production sites and headquarter areas. During a business ethics review, Group Internal Audit will examine procedures and processes in place to ensure ethical behaviour. Any gaps identified in procedures, processes or behaviour are presented to Management and the Board of Directors as findings. An action plan to mitigate findings is agreed between Management and Group Internal Audit, and Group Internal Audit follows up on the implementation of the agreed actions before closing the findings.

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Based on the completed business ethics reviews, it is Group Internal Audit’s assessment that the business ethics compliance level, in 2019 as in 2018, is sound. Management action plans and closure of findings have progressed as planned, and there were no overdue management actions or findings at the end of the year.

9.3 Facilitations of the Novo Nordisk Way
Accounting policies
Facilitations of the Novo Nordisk Way is measured as the number of facilitations and culture coachings completed. Both are internal audit processes for assessing compliance with the Novo Nordisk Way. The assessments are based on review of documentation and feedback from stakeholders followed by an on-site visit during which randomly selected employees and management are interviewed. Identified gaps and improvement opportunities related to the Novo Nordisk Way are presented to management. The facilitators and management agree on an action plan to address those gaps and improvement opportunities.

In Q4 2018, culture coaching was introduced as a variation of the facilitation service to support the company-wide culture journey focused on ‘think bigger’, ‘cut complexity’ and ‘be more agile’. Culture coaching builds on the same methodology as standard facilitations and is also anchored in the Novo Nordisk Way. In the information below, no distinction is made between a standard facilitation and culture coaching – both are referred to under the term ‘facilitations’.

Development
In 2019, a total of 32 units were facilitated covering approximately 11,000 employees, of whom around 1,500 were individually interviewed. In addition, feedback on those units was collected from approximately 400 stakeholders. The reduction in the number of assignments compared to previous years is mainly a result of merging assignments to cover entire functional areas instead of facilitating many departments individually.

Overall, the 2019 process has shown a high level of adherence to the Novo Nordisk Way. The highest rated Essential continues to be the ‘Patient-centred business approach’, while the lowest rated Essential ‘Focus on personal performance and development’ continues to be an area of improvement despite efforts to raise the level of adherence.

9.4 Supplier audits
Accounting policies
The number of supplier audits concluded by Novo Nordisk’s Corporate Quality function includes the number of responsible sourcing audits and quality audits conducted among suppliers.

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The number of audits concluded in 2019 decreased by 20% compared with 2018. The decrease in quality audits was due to the additional qualification audits in 2018 supporting, among others, the diabetes API project in the US. There were no critical findings related to the quality audits, but one critical finding was issued in connection with a responsible sourcing audit regarding working hours. An action plan with concrete deadlines has been agreed upon and a responsible sourcing re-audit is planned for 2020 to follow up on improvements.

9.5 Product recalls
Accounting policies
The number of product recalls is recorded as the number of times Novo Nordisk has instituted a recall and includes recalls in connection with clinical trials. A recall can affect various countries.

Development
Novo Nordisk had four product recalls from the market in 2019, compared with three in 2018. As in 2018, none of the recalls were critical. Local health authorities were informed in all instances to ensure that distributors, pharmacies, doctors and patients received appropriate information.

9.6 Failed inspections
Accounting policies
The number of failed inspections is measured in relation to the US Food & Drug Administration (USFDA), the European Medicines Agency (EMA), Notified Body (TÜV SUD) and domestic authorities for strategic manufacturing sites. Failed inspections are defined as inspections where Warning Letters or EMA non-compliance letters related to GMP inspections are received, GMP/ISO certificates for strategic sites are lost, pre-approval inspections result in a Warning Letter, study conclusions are changed due to GCP/GLP inspection issues, or marketing or import authorisations are withdrawn due to inspection issues. Strategic sites are defined as the manufacturing sites in Brazil, China, Denmark, France and the US.

Development
In 2019, as in 2018, there were no failed inspections among those resolved at year-end. During the year, 66 inspections were conducted compared with 75 in 2018. At year-end, 44 inspections were passed and 22 were unresolved, as final inspection reports had not been received or the final authority acceptance was pending, which is normal. Follow-up on unresolved inspections continues in 2020.

9.7 Company trust
Accounting policies
Company trust is measured annually. The total score is measured as the mean company trust score among people with diabetes, general practitioners and diabetes specialists across key markets. Trust is measured on a scale of 0–100, with 100 being the best possible score. A score above 80 is considered excellent; a score between 70 and 80 is considered strong. Data were collected between June and September 2019.

The data are collected through annual surveys carried out by external consultancy firms.

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The decline in trust can best be explained by the increased scrutiny on pharma throughout 2019, in particular in regards to pricing, access and affordability of medicines, which continues to be reflected in media sentiment and social media conversations. The decline in trust is not unique to Novo Nordisk, but is a trend across the pharma sector.

9.8 Total tax contribution
Accounting policies
Novo Nordisk’s total tax contribution is measured as the taxes borne or collected by Novo Nordisk, which have been paid in the respective year. Taxes borne are defined as taxes where Novo Nordisk carries the cost. Taxes collected are defined as taxes collected by Novo Nordisk on behalf of others, e.g. employee income taxes deducted from the employee salary and paid on to the government.

Tax on company income
Tax on company income primarily consists of corporate income taxes and withholding taxes on company dividends.

Employment taxes
Employment taxes primarily consist of taxes collected from the employees on behalf of the government and social security costs.

Indirect taxes
Indirect taxes consist of non-refundable VAT, net VAT collections, customs duties, environmental taxes and property taxes.

Other taxes
Other taxes consist of country-specific taxes not linked to one of the categories above, e.g. the US branded prescription drug (BPD) fee.

The total tax contribution in 2019 amounted to DKK 27,527 million split into 54% on taxes borne and 46% on taxes collected compared with 2018, where the total tax contribution was DKK 25,825 million split into 53% on taxes borne and 47% on taxes collected.

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Notes to the consolidated environmental statement
Section 10
Basis of preparation
General reporting standards and principles
The consolidated environmental statement has been prepared in accordance with the same standards as those for the consolidated social statement. See ‘Section 6 Basis of preparation’ of the consolidated social statement for general overview. In addition, the following standards have been applied:
• Recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). TCFD aims to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. Novo Nordisk’s actions taken in line with the TCFD recommendations are reported at novonordisk.com.
• CDP (formerly Climate Disclosure Project). CDP runs a global environmental disclosure system, which supports companies with measuring and managing risks and opportunities related to climate change, water security and deforestation. Novo Nordisk’s CDP disclosures are publicly available at cdp.net

Principles of consolidation
The consolidated environmental statement covers the production sites, laboratories and offices with significant activities. CO2 emissions related to transportation cover cars leased or owned by Novo Nordisk, business flights and suppliers distributing Novo Nordisk products.

Environmental accounting policies
The accounting policies set out below have been applied consistently in the preparation of the consolidated environmental statement for all the years presented.

Changes to accounting policies and disclosures
The following disclosure changes have been made:
• ‘Energy consumption for operations’ is expanded in scope from covering all facilities at production sites to also include office buildings and laboratories outside of production sites. Comparative information has been updated accordingly.
• ‘CO2 emissions from production sites and product distribution’ has been taken out. This information is included in ‘CO2 emissions from operations and transportation’.
• The accounting policy for ‘CO2 emissions from business flights’, included in the note for ‘CO2 emissions’ has been updated to include passenger class. Comparative information has been updated accordingly.

Section 11
Resources
11.1 Energy consumption for operations and share of renewable power
Accounting policies
Energy consumption for operations is measured as consumption of power, steam, heat and fuel. The fuel is mainly from natural gas, biogas and wood. Energy consumption is based on meter readings and invoices and covers all energy types at production sites and laboratories and consumption of power at office buildings outside of production sites.

Share of renewable power used at production sites is reported according to the Greenhouse Gas (GHG) Protocol Scope 2 Guideline. It is calculated as the sum of power in each country that comes from 100% renewable sources, either sourced or self-produced.

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Energy consumption for operations has expanded in scope from covering all facilities at production sites to also include office buildings and laboratories outside of production sites. In 2019, energy consumption for operations decreased by 3% compared to 2018. Energy consumption for production decreased 2% due to reduced energy use to produce diabetes finished products. Energy consumption decreased by 10% from offices and laboratories due to various smaller changes across multiple sites.

In 2019, 76% of power used at production sites was sourced from renewable energy, a decrease from 77% in 2018. This is due to lower power consumption at the largest production site in Kalundborg, Denmark which uses wind power. With an agreement to have solar power in the United States, effective as of 2020, Novo Nordisk is on track to achieve 100% renewable power at all production sites in 2020.

11.2 Water consumption for production sites
Accounting policies
Water consumption is measured based on meter readings and invoices. It includes drinking water, industrial water and steam used at production sites.

Development
In 2019, water consumption at production sites increased slightly by 2% compared with 2018. This was due to an increase in water consumption for production of API for Diabetes and Obesity care.

Three facilities, in Algeria, Brazil and China, are in regions subject to high water stress or large seasonal variations, consuming 14% of the total water for global production. There have been no water shortage incidents in 2019 and overall, water consumption at these facilities increased by 2% in 2019.

Section 12
Emissions and waste
12.1 CO2 emissions from operations and transportation
Accounting policies
CO2 emissions from operations (production, office buildings and laboratories)
CO2 emissions from operations cover consumption of power, fuel, heat and steam at office buildings in Denmark, global production sites and laboratories, and consumption of power in office buildings outside Denmark. Emissions are measured in metric tons, calculated according to the GHG Protocol and based on emission factors from the previous year.

CO2 emissions from product distribution
CO2 emissions from product distribution are calculated by external transportation suppliers as the estimated emissions from product distribution in metric tons. CO2 emissions are calculated based on the worldwide distribution of semi-finished and finished products, raw materials and components by air, sea and road between production sites and from production sites to subsidiaries, direct customers and importing distributors. CO2 emissions from product distribution from subsidiaries to pharmacies, hospitals and wholesalers are not included.

CO2 emissions from business flights
CO2 emissions from business flights are estimated based on mileage and emission factors for short, medium and long-haul flights along with passenger class obtained from travel agencies.

CO2 emissions from company cars
CO2 emissions from company cars cover cars leased or owned by Novo Nordisk. Emissions are calculated by multiplying emission factors by the volumes of diesel and gasoline used.

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Novo Nordisk has a long-term target of zero CO2 emissions from operations and transportation by 2030.

In 2019, CO2 emissions from operations and transportation increased by 10%. The increase was primarily from product distribution, due to an increase in distributed volume, along with using more air freight than sea freight as a result of supply and market driven-challenges.

CO2 emissions from global offices and laboratories decreased by 54% in 2019. As part of the new Circular for Zero strategy, all offices and laboratories will source renewable power by 2030. In 2019, there was a significant reduction in CO2 emissions from the R&D site in Beijing, sourcing wind power.

CO2 emissions are expected to decrease significantly in 2020 due to various renewable energy projects, including solar power across all US operations, wind power in Europe and green steam in Denmark. Emissions from transportation are also expected to decrease due to a company car policy that encourages transition to hybrid and electric vehicles and through collaboration with EV100.

A full breakdown of Scope 1, 2 and 3 emissions from Novo Nordisk can be found at cdp.net.

12.2 Waste from production sites
Accounting policies
Waste is measured as the sum of all the waste disposed of at production sites based on weight receipts.

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In 2019, waste from production sites decreased by 13% compared with 2018. The amount of waste recycled decreased 8% in 2019 primarily due to a decrease in organic residues from the fermentation of insulin.

The amount of waste sent for energy recovery decreased by 36% primarily due to the implementation of a distillation method within API production to reuse ethanol instead of sending it for incineration with energy recovery.

In 2019, 93% of the total waste from production sites was recycled, used for biogas production or incinerated at plants where the energy is used for heat and power production.

18% of the waste is categorised as hazardous waste, a decrease from 21% in 2018. This decrease was due to a reduction in ethanol waste from the production of API for Diabetes and Obesity care.

Section 13
Responsible business
13.1 Breaches of regulatory limit values
Accounting policies
Breaches of regulatory limit values cover all breaches reported to the environmental authorities.

Development
In 2019 there were 16 breaches, a decrease from 27 breaches in 2018. The breaches were mainly related to wastewater, and all had minor impact on the environment.