OECD report Due Diligence Essentials for Responsible Pharmaceuticals, on the pharmaceutical sector examines the growing environmental, social, and governance risks emerging from increasingly globalized pharmaceutical value chains.
The report notes that pharmaceutical manufacturing and research activities are steadily shifting toward emerging economies through contract manufacturing and outsourcing arrangements. India is highlighted as a major growth center for pharmaceutical contract manufacturing due to its lower production costs, skilled workforce, and established base of certified manufacturing facilities.
According to the OECD, this expansion has created complex multi-tiered supply chains where pharmaceutical companies often have limited visibility and control over upstream suppliers, particularly producers of Active Pharmaceutical Ingredients (APIs). This fragmentation increases risks related to environmental pollution, labor exploitation, counterfeit medicines, and corruption in procurement and regulatory systems.
The report identifies “pharmaceutical pollution” as a major concern, especially the release of active residues into water systems during manufacturing. It also highlights downstream risks associated with deceptive drug marketing, opioid dependency, illicit trade, and improper disposal of medicines.
To address these, the OECD recommends adopting digital traceability, participating in collaborative auditing initiatives like the Pharmaceutical Supply Chain Initiative (PSCI), and implementing "track-and-trace" systems to combat counterfeits and illicit trade.
Salient Risks and Value Chain Dynamics
Environmental Impact: High water intensity and the release of active residues into ecosystems during manufacturing.
Social & Health Risks: Adverse drug reactions, dependency (opioids), and data privacy concerns during clinical trials.
Governance Challenges: High risks of bribery in regulatory procurement and the rise of counterfeit drugs in global markets.
Supply Chain Complexity: Distribution often requires cold chain management for 50% of logistics, adding layers of vulnerability.
Regulatory Focus: Increasing global reliance on standards like WHO Good Manufacturing Practices (GMP) and serialisation for supply chain security.
What is "Downstream Due Diligence"?
Downstream due diligence refers to a company's responsibility to monitor and mitigate the risks associated with its products after they leave the manufacturing facility. In the pharmaceutical sector, this is exceptionally challenging as it involves controlling how drugs are marketed, distributed, and ultimately used by consumers. It aims to prevent issues like deceptive marketing to healthcare professionals, the diversion of medicines into illicit markets, and the environmental impact of improper drug disposal.
Policy Relevance
While the report is OECD-focused, its analysis of risks, challenges, and best practices is directly applicable to India due to the country's central role in global pharmaceutical supply chains. Indian companies and policymakers can use the report as a roadmap to align with international expectations and enhance responsible business conduct.
Manufacturing Hub Resilience: As a leading supplier of generics and APIs to OECD markets, Indian firms must align with these due diligence standards to maintain their "Pharmacy of the World" status.
Export Regulatory Pressure: Compliance with international traceability and serialization standards (like the EU Falsified Medicines Directive) is now a prerequisite for Indian exporters to access high-value markets.
Addressing Environmental Pollution: The report’s focus on water pollution is highly relevant for Indian pharmaceutical clusters, where sustainable waste management is critical for local ecosystem health.
Integration with Global Initiatives: Participation in international auditing bodies like Rx-360 or PSCI allows Indian manufacturers to demonstrate ESG compliance to global buyers.
Framework for Domestic Policy: Indian regulators can utilize the OECD framework to strengthen domestic oversight on clinical trial ethics and worker safety, ensuring Indian standards match global best practices.
Follow the Full Report Here: Due Diligence Essentials for Responsible Pharmaceuticals [OECD]