Novo Nordisk A/S – Annual report – 31 December 2017
CONSOLIDATED SOCIAL STATEMENT SUPPLEMENTARY INFORMATION
STATEMENT OF SOCIAL PERFORMANCE
FOR THE YEAR ENDED 31 DECEMBER
NOTES TO THE CONSOLIDATED SOCIAL STATEMENT
Basis of preparation Patients Employees Assurance
In the Consolidated social statement, Novo Nordisk reports on three dimensions of performance: patients, employees and assurance. Progress is reported on one long-term target, namely company reputation (see pp 12,15 and note 4.6, p 103).
The Consolidated social statement contains additional performance information of strategic importance, such as patients reached with diabetes care products, employee turnover, employee engagement, gender diversity, training of employees in business ethics, supplier audits and product quality.
A long-term commitment to provide access to affordable insulin
The Novo Nordisk Way states that ‘our key contribution is to discover and develop innovative biological medicines and make them accessible to patients throughout the world’.
Novo Nordisk’s Access to Insulin Commitment guarantees provision of low-priced human insulin to ensure access to quality treatments for patients in the poorest parts of the world for many years to come. The guarantee applies to Least Developed Countries as defined by the UN and other low-income countries as defined by the World Bank as well as selected organisations providing relief in humanitarian situations.
The ceiling price for 2017 was set at 4 US dollars per vial, which is a level not exceeding 20% of the human insulin list prices in the western world. At this price, the cost for insulin treatment per patient per day was 16 cents. The average realised price for insulin sold under the programme was 3 dollars per vial, corresponding to 12 cents per patient per day.
In 2017, Novo Nordisk sold human insulin according to the Access to Insulin Commitment in 30 of the world’s 50 poorest countries. In total, 0.3 million patients were treated with insulin sold at or below the ceiling price.
Outside this scheme, Novo Nordisk also sold human insulin below the ceiling price in other countries, reaching an estimated 5 million patients in 2017 compared to an estimated 6.5 million patients in 2016. The decline was caused by lower sales of human insulin, mainly due to an impact from lower tender volumes of human insulin in some large tender markets in 2017, partly offset by growth in sales of modern and new-generation insulin as well as Victoza®.
Novo Nordisk is unable to guarantee that the price at which the company sells the insulin will be reflected in the price to the consumer. Printing the price on the actual products is one initiative to avoid mark-ups on price.
SECTION 1 BASIS OF PREPARATION
General reporting standards and principles
Novo Nordisk adheres to the following internationally recognised voluntary reporting standards and principles (for overview, see p 113):
- 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 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. As a participant, Novo Nordisk reports on progress during 2017 in its Communication on Progress, which can be found at novonordisk.com/annualreport.
- The framework AA1000APS(2008) and AA1000AS(2008), which states that reporting must provide a complete, accurate, relevant and balanced picture of the organisation’s approach to and impact on society.
Novo Nordisk applies AA1000APS(2008) 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 AA1000APS(2008) have been applied as described below.
As a pharmaceutical business with global reach, Novo Nordisk is committed to being accountable to those stakeholders who are impacted by the organisation. From a social responsibility perspective, the key stakeholder groups are patients who rely on Novo Nordisk products, employees at Novo Nordisk and throughout the Group’s value chain, 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.
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.
The report reaches out to a wide range of stakeholders, each with specific needs and interests. The management report is prepared with the retail investors in mind. To most stakeholders, however, the Annual Report is just one element of interaction and communication with the company. The Annual Report reflects how the company is managing operations in ways that respond to and consider stakeholder concerns and interests.
The Consolidated social statement is a result of assessing legal requirements and disclosure commitments applicable to Novo Nordisk. It is further assessed whether information is tied directly or indirectly to Novo Nordisk’s ability to create value over the short, medium and long term. When assessing whether a disclosure is material to include in the Consolidated social statement, Executive Management considers whether the matter could substantively affect the company’s strategy, business model, ability to access required resources or key stakeholders. The disclosures included in the Consolidated social statement are approved by the Audit Committee.
The conclusion from the external assurance provider is available in the Independent assurance report on p 111.
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 to align with Management priorities:
- ‘Patients reached with diabetes care products via the Access to Insulin Commitment’ is added as a separate line item to disclose progress on expanding access to care via the new commitment replacing the disclosure of ‘Least developed countries (LDCs) where Novo Nordisk sells insulin according to the differential pricing policy’. The number of LDCs with sales has been added to the note as additional information.
- ‘Sustainable engagement score’ replaces ‘Working the Novo Nordisk Way’ to align with a new methodology.
- The calculation of ‘Company reputation’ has been adjusted due to implementation of a new methodology for tracking ‘Sustainable engagement score’. This methodology does not allow for comparison with the RepTrak® methodology used for measuring company reputation among external stakeholder groups. Historical data have been restated accordingly.
OTHER ACCOUNTING POLICIES
Sustainable engagement score
Sustainable engagement score is measured on a scale of 1–5 and based on questions in the annual employee survey, OurVoice, related to sustainable engagement. The score is calculated as the share of employees who responded favourably (4 or 5) to relevant questions. For 2017, the response rate was 94%.
Relevant employees trained in business ethics
The mandatory business ethics training is based on globally applicable e-learning, the Business Ethics Code of Conduct 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 both the Code of Conduct and the related tests, based on internal registrations.
SECTION 2 PATIENTS
2.1 PATIENTS REACHED WITH NOVO NORDISK DIABETES CARE PRODUCTS (ESTIMATE)
The number of full-year patients reached with Novo Nordisk 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 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 other low-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.
The WHO-defined daily dosage has not changed since 1982 and may not reflect the recommended or prescribed daily dose accurately. Actual doses are based on individual characteristics (eg age and weight) and pharmacokinetic considerations. Despite this uncertainty, Novo Nordisk assesses this to be the most consistent way of reporting.
The estimated number of full-year patients reached with Novo Nordisk’s diabetes care products decreased from 28.0 million in 2016 to 27.7 million in 2017. The decline was caused by lower sales of human insulin, mainly due to an impact from lower tender volumes of human insulin in some large tender markets in 2017, partly offset by growth in sales of modern and new-generation insulin as well as Victoza®. An additional 0.9 million people were reached with modern and new-generation insulin.
In 2017, the estimated number of patients reached via the Access to Insulin Commitment was 0.3 million, and Novo Nordisk sold insulin according to this commitment in 30 countries. Beyond this scheme, Novo Nordisk also sold human insulin below the ceiling price in other countries, as well, reaching an estimated 5 million patients in 2017.
Donations by Novo Nordisk to the World Diabetes Foundation (WDF) and the Novo Nordisk Haemophilia Foundation are recognised as an expense when the donation is paid out or when an unconditional commitment to donate has been made. The WDF donation is recognised in Administrative costs in the Income statement. For additional information regarding WDF, see note 5.2 in the Consolidated financial statements.
2.3 ANIMALS PURCHASED FOR RESEARCH
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.
The number of animals purchased for research in 2017 decreased by 13% compared with 2016 and reflect the changes in stages of the different research projects. In all, 97% of the animals purchased were rodents. The variation in the purchase of large animals from year to year reflects the different development phases the research projects have reached.
2.4 NEW PATENT FAMILIES (FIRST FILINGS)
The number of new patent families (first filings) is based on new patent applications that were filed during the year.
A total of 65 new patent families were established in 2017, a decrease of 12% compared with filing activity in 2016, when 74 patent families were established.
The patent expiry dates for the product portfolio are shown in the table below. The dates provided are for expiry in the US, Germany, China and Japan of patents on the active ingredient, unless otherwise indicated, and include extensions of patent term (including for paediatric extension, where applicable). For several products, in addition to the compound patent, Novo Nordisk holds other patents on manufacturing processes, formulations or uses that may be relevant for exclusivity beyond the expiration of the active ingredient patent. Furthermore, regulatory data protection may apply.
SECTION 3 EMPLOYEES
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, manufacturing and support functions. Employees in corporate functions are included in Region Europe and employees in the global service centre are included in Region AAMEO.
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.
Diversity at Novo Nordisk is reported as the percentage split by gender in all managerial positions and for newly appointed managers. Managerial positions are defined as all managers at Novo Nordisk (global job level incl CEO, EVP, SVP, CVP, VP, Director, Manager and Team Leader). New managers are defined as all employees who have moved to a managerial position within the last 12 months – both promoted and externally hired.
The growth in employees was mainly driven by the global service centre in Bangalore, India. Employee turnover increased from 9.7% in 2016 to 11.0% in 2017. The increased employee turnover in 2017 was mainly due to the workforce reduction at the end of 2016; as a part of this workforce was still employed at the end of 2016 it affects the 2017 employee turnover.
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 2017.
The graph below shows the gender split among managers for the last three years.
3.2 FREQUENCY OF OCCUPATIONAL ACCIDENTS
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.
The average frequency rate of occupational accidents with absence was 2.7 per million working hours in 2017, compared with 3.0 in 2016, corresponding to a 10% decrease. There were no work-related fatalities in 2017, compared with one fatality in 2016. The performance improvement is mainly attributed to the mandatory training in product supply. Novo Nordisk works with a zero-injury mindset and has a long-term commitment to continuously improving safety performance.
SECTION 4 ASSURANCE
4.1 BUSINESS ETHICS REVIEWS
The number of business ethics reviews is recorded as the number of business ethics reviews and trend reports performed by Group Internal Audit in affiliates, production sites and headquarter areas. Any gaps between procedures and behaviour are identified and presented to Management and the Board of Directors as findings. An action plan for the closure of findings is agreed upon, and Group Internal Audit follows up on the implementation of the agreed actions before closing the findings.
A total of 34 business ethics reviews were completed in 2017 with 130 findings, compared with 52 reviews with 234 findings in 2016. It is Group Internal Audit’s assessment that the overall business ethics compliance level is sound. Closure of findings progressed as planned, and there were no overdue findings as of 31 December 2017.
4.2 FULFILMENT OF ACTION POINTS FROM FACILITATIONS OF THE NOVO NORDISK WAY
Facilitation is the internal audit process for assessing compliance with the Novo Nordisk Way. The assessment is based on review of documentation followed by an on-site visit where randomly selected employees, Management and stakeholders are interviewed. Any identified gaps related to the Novo Nordisk Way are presented to Management as findings. The facilitator and Management agree on an action plan to close the findings. The percentage of fulfilment of action points is measured as an average of timely closure of action points issued in the current year and the two previous years. The reason for using a three-year average as the basis for the calculation is that action lead times typically vary from a few months to more than a year.
A total of 65 units were facilitated covering approximately 21,000 employees, of whom almost 3,000 were interviewed. In addition, feedback on those units was collected from almost 700 stakeholders. Overall, the facilitations in 2017, as in 2016, showed a ‘high level’ of compliance with the Novo Nordisk Way. Corrective actions and corresponding deadlines were agreed with local management for all actions. The main areas of improvement identified, covering approximately 60% of all findings, concerned Essential 2 ‘We set ambitious goals and strive for excellence’, Essential 5 ‘We build and maintain good relations with our key stakeholders’ and Essential 7 ‘We focus on personal performance’. The 10 Essentials are part of the Novo Nordisk Way. See p 17 for additional information.
4.3 SUPPLIER AUDITS
The number of supplier audits concluded by Novo Nordisk’s Supplier Audit department includes the number of responsible sourcing audits and quality audits conducted in the areas of direct- and indirect-spend materials.
The number of audits concluded in 2017 increased by 10% compared with 2016. The increase in quality audits was mainly due to an expanded focus on outsourced services. There were no critical findings in 2017.
4.4 PRODUCT RECALLS
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 but only counts as one recall.
Novo Nordisk had six product recalls from the market in 2017, which is the same level as in 2016. None of these recalls were critical. Local health authorities were informed in all instances to ensure that distributors, pharmacies, doctors and patients received appropriate information.
4.5 FAILED INSPECTIONS
The number of failed inspections is measured in relation to the US Food & Drug Administration (USFDA), the European Medicines Agency (EMA), the Japanese Pharmaceuticals & Medical Devices Agency (PMDA), Lloyd’s Register Quality Assurance (LRQA) 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.
In 2017, as in 2016, there were no failed inspections among those resolved at year-end. In 2017, 83 inspections were conducted compared with 74 in 2016. At year-end, 54 inspections had been passed and 29 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 will continue in 2018.
4.6 COMPANY REPUTATION
Company reputation is measured annually using the RepTrak® methodology developed by Reputation Institute. The total score is measured as the mean company reputation score among people with diabetes, general practitioners and diabetes specialists across key markets. Reputation 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 2017.
The data are collected through annual surveys carried out by external consultancy firms.
STATEMENT OF ENVIRONMENTAL PERFORMANCE
FOR THE YEAR ENDED 31 DECEMBER
NOTES TO THE CONSOLIDATED ENVIRONMENTAL STATEMENT
Basis of preparation Resources Emissions and waste Compliance
In the Consolidated environmental statement, Novo Nordisk reports on performance in terms of resources, and emissions and waste. Progress is reported against long-term targets to continuously reduce environmental impacts. See pp 13 and 15.The Statement of environmental performance contains additional performance information of strategic importance, such as energy and water consumption, CO2 emissions, waste and breaches of regulatory limit values.
Steady progress on reducing CO2 emissions from production sites
In 2017, 79% of the power used at production sites came from renewable sources, such as wind, hydropower and biomass. With planned initiatives, the company is well on track to meet the target that all production sites are to be 100% powered by renewable energy by 2020. The target is in line with the Paris Agreement. The graph shows how CO2 emissions and sales have been decoupled.
SECTION 1 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 1 ‘Basis of preparation’ of the Consolidated social statement on p 99.
Principles of consolidation
The Consolidated environmental statement covers the production sites including office buildings and R&D facilities at the sites, except for CO2 emissions from product distribution, which covers external suppliers used to distribute Novo Nordisk products.
ENVIRONMENTAL ACCOUNTING POLICIES
The accounting policies set out below have been consistently applied 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 to align with Management priorities:
- ‘Organic residues’ and ’Waste’ were previously reported as two separate line items. As of 2017, organic residues will be reported as part of the disclosure of waste, and the note has been updated accordingly.
- ‘Non-hazardous waste’ is no longer reported as a separate line item but included as part of the information in note 3.2 Waste.
SECTION 2 RESOURCES
2.1 ENERGY CONSUMPTION AND SHARE OF RENEWABLE POWER
Energy consumption is measured as both direct supply of energy (internally produced energy), which is energy Novo Nordisk produces from mainly biogas, natural gas and wood, and indirect supply of external energy (externally produced energy), which is power, steam and district heat. The consumption of fuel (internally produced energy) and externally produced energy is based on meter readings and invoices.
Share of renewable power 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 from the market or self-produced.
In 2017, energy consumption decreased slightly. Novo Nordisk continues to focus on energy efficiency, and projects implemented in 2017 are expected to give annual savings of more than 18,000 GJ.
The share of renewable power increased slightly to 79% in 2017 from 78% in 2016. Novo Nordisk has a target to reach 100% power from renewable sources by 2020 and at year-end, 11 out of 16 production sites use power from renewable sources.
2.2 WATER CONSUMPTION
Water consumption is measured based on meter readings and invoices. It includes drinking water, industrial water and steam.
In 2017, water consumption decreased slightly. Water-saving projects remain in focus, and projects implemented in 2017 are expected to give annual water savings of more than 100,000m3, which corresponds to 3% of the total water use. More than half of the water-saving projects were implemented at a production site located in an area subject to high seasonal variations in water availability.
7% of Novo Nordisk’s water consumption is in areas subject to high water stress.
SECTION 3 EMISSIONS AND WASTE
3.1 CO2 EMISSIONS
CO2 emissions from energy consumption
The amount of CO2 emissions from energy consumption covers consumption at production sites measured in metric tons. CO2 emissions from energy consumption are 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 affiliates, direct customers and importing distributors. CO2 emissions from product distribution from affiliates to pharmacies, hospitals and wholesalers are not included.
CO2 emissions from energy consumption at production sites decreased slightly by 2% due to reduced energy use at production sites using fossil fuel-based energy.
Emissions from product distribution increased by 3% compared with 2016. Emissions from air and ground transport remained stable. More products were distributed by sea. Distributing as many products as possible by sea remains a priority for Novo Nordisk, as sea transport reduces both CO2 emissions and costs relative to product volume.
Waste is measured as the sum of all the waste disposed of based on weight receipts.
The total waste volume increased by 3% compared with 2016, which was mainly due to an increase in the organic residues from the fermentation of insulin. Ethanol waste decreased due to process optimisations and increased regeneration of ethanol.
18% of all the waste was categorised as hazardous waste, a decrease from 20% in 2016. This is mainly a result of the decrease in ethanol waste.
At Novo Nordisk, it is a priority to recycle as much waste as possible or ensure energy recovery when recycling is not possible. 96% of total waste is either recycled, used for biogas production or incinerated at plants where the energy is used for heat and power production.
SECTION 4 COMPLIANCE
4.1 BREACHES OF REGULATORY LIMIT VALUES
Breaches of regulatory limit values cover all breaches reported to the environmental authorities.
Incidents with breaches of regulatory limit values decreased from 42 in 2016 to 23 in 2017, primarily due to improved control of the pH and Biological Oxygen Demand (BOD) and Chemical Oxygen Demand (COD) at one facility. The majority of the breaches were related to wastewater, with minor impacts on the environment.