Annual Report 2014 Annual Report 2014
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Corporate Responsibility

Responsible conduct plays a key role in Merck’s corporate culture – with respect to employees, products, the environment, and society. Over the course of Merck’s nearly 350-year history, the principle of corporate responsibility has become a firm pillar of corporate governance. It is part of daily conduct and is thus a fundamental prerequisite for Merck’s business success.

Strategy and management

Our corporate responsibility (CR) activities are directed by our Group-wide CR Committee, which consists of representatives from the businesses and relevant Group functions. Stefan Oschmann, Vice Chairman of the Executive Board, became chairman of this committee in January 2015. As a global company, our ambition is to create added value for consumers, market partners and the community while also helping them lead better lives.

Mankind is confronted with global societal challenges such as climate change, resource scarcity and insufficient access to health in low- and middle-income countries. We believe that we can help resolve these global challenges through our innovative products in the Healthcare, Life Science and Performance Materials sectors, as well as through responsible governance.

All of our CR activities come under the umbrella of “responsible governance”. Based on our corporate strategy, at the end of 2014 we selected three strategic spheres of activity from our CR framework in which we seek to excel. Our aim is to hone Merck’s competitive edge while helping to sustainably secure its future.

CORPORATE RESPONSIBILITY at MERCK →

  • Health: We aim to help underserved populations in low- and middle-income countries to gain access to high-quality health solutions.
  • Environment: A number of our innovative chemical and life science products contribute to environmental protection or help our customers conserve energy.
  • Culture: Culture inspires people and opens up their minds to new possibilities. As a high-tech, research-based company, we therefore promote cultural projects worldwide. Moreover, we are engaged in educational projects, especially since education is key to making culture accessible.

Merck supports relevant initiatives concerning responsible governance. The company is a member of the United Nations Global Compact and is committed to complying with the compact’s principles regarding human rights, labor standards, environmental protection and anti-corruption. Moreover, we also live our corporate responsibility through our commitment to follow the guidelines of the Responsible Care Global Charter, an initiative of the International Council of Chemical Associations (ICCA). This charter aims to continuously improve the products and services of the chemical industry in terms of environmental protection, health, plant safety and security. Merck was among the first companies to sign the revised version of the Responsible Care Global Charter. In addition, we are a member of the “Chemie3” initiative, a collaboration between the German Chemical Industry Association (VCI), the German Employers’ Federation of the Chemical Industry (BAVC), and the German Mining, Chemical and Energy Industrial Union (IG BCE). As part of this globally unique collaboration, the partners aim to make sustainability a core part of the chemical industry’s guiding principles and to jointly drive the sector’s position within the German economy as a key contributor to sustainable development.

To Merck, corporate responsibility does not merely mean taking action, but also listening. The dialogue with our various stakeholder groups is therefore highly important to us. These stakeholders include our employees, our business associates, the Merck family, investors, regulatory agencies, and associations. We also engage in a continuous exchange in order to create transparency and clearly demonstrate how we live the Merck Values. One example of this exchange is a conference held on the topic of “Germany needs the chemical industry. Sustainability – a prerequisite for growth and prosperity?”, which Merck held in September 2014 in collaboration with its Chemie3 partners, VCI, BAVC and IG BCE. The sustainability conference took place during the German event series entitled “The Chemistry is Right in Darmstadt”, which Merck, Darmstadt – the city of science, and the Technical University of Darmstadt are offering from September 2014 to June 2015. To prepare for the conference, Merck organized an expert workshop in July 2014 with representatives from the worlds of politics, business and society.

Thanks to good performance with respect to responsible, sustainable entrepreneurial conduct, Merck was again included in the FTSE4Good index in 2014. To be included in this leading international sustainability index, a company must demonstrate socially conscientious, ecological and ethical conduct. In 2014, Merck maintained its good position in other major sustainability indices as well. For instance, we were once more included in the STOXX Global ESG Leaders index. Moreover, Merck has remained listed on the Euronext Vigeo Eurozone 120 index, which features the 120 most progressive companies in Europe in terms of ecological, social and governance-related criteria.

Strategic sphere of activity: Health

Access to Health (A2H) is a strategic priority for Merck (see Health for Everyone). Through our A2H approach, which spans all our businesses, we aim to help improve sustainable access to high-quality health solutions for underserved populations and communities in low- and middle-income countries. Recognizing that access is a complex and multifaceted challenge with no one-size-fits-all solution, our programs and initiatives are tailored to global, regional and local needs. We realize that we cannot work alone to address all the access gaps and that partnerships, collaboration and dialogue are key to delivering sustainable access results.

Stefan Oschmann, Vice Chairman of the Executive Board, plans to focus his presidency of the International Federation of Pharmaceutical Manufacturers & Associations (IFPMA) on accelerating access to high-quality health solutions for people in low- and middle-income countries. Oschmann was elected President of the IFPMA for a two-year term at the 27th IFPMA Assembly in New York, USA in November 2014.

In November 2014, the Access to Medicine Foundation of the Netherlands recognized our efforts to improve access to health. In the 2014 Access to Medicine Index, Merck ranked sixth, moving up two places compared to 2012 and 11 places compared to 2010. Every two years, the index assesses the world’s leading pharmaceutical companies with respect to their activities and initiatives to promote access to medicine in developing countries.

Merck’s holistic Access to Health strategy focuses on four areas, known as the “4As of Access” framework: Availability, Affordability, Awareness, and Accessibility. In its ranking, the Access to Medicine Foundation particularly recognized Merck for its strategic and comprehensive access approach and its access initiatives.

Availability

Availability entails the research, development and refinement of health solutions that address unmet needs and are tailored to local environments. Through partnerships and innovative alliances, Merck is working to tackle diseases most affecting developing countries. One example is our engagement within the Pediatric Praziquantel Consortium. Through this public-private partnership, Merck is developing a pediatric formulation of praziquantel to treat the worm disease schistosomiasis. In March 2014, the consortium was awarded a prestigious research grant from the Japanese Global Health Innovation Technology Fund. Another example is our partnership with the non-profit research foundation Medicines for Malaria Venture, to develop new anti-malarials.

Affordability

Merck seeks to address affordability challenges by providing assistance to those who are unable to pay for the health solutions they need. To tackle these challenges, we have taken a pro-access approach through our intellectual property initiatives and are engaging in equitable pricing strategies. In 2014, Merck joined WIPO Re:Search, an open innovation platform sponsored by the World Intellectual Property Organization. With over 90 members worldwide, the platform accelerates early discovery for infectious diseases through intellectual property and knowledge sharing. Furthermore, Merck is supporting the World Health Organization (WHO) in the fight against the worm disease schistosomiasis in Africa. Merck donates Cesol® 600 tablets containing the active ingredient praziquantel to WHO. In 2014, Merck’s donation to WHO amounted to more than 72 million tablets. Since the start of the program, over 54 million patients, primarily children, have been treated. At the end of 2014, Merck joined with partners to establish the Global Schistosomiasis Alliance in order to help eliminate schistosomiasis worldwide.

Awareness

Merck contributes to raising awareness by providing health workers, communities and patients with appropriate tools, knowledge, information and skills to help them make informed decisions. In its report on the Guiding Principles on Access to Healthcare (GPAH), the corporate network Business for Social Responsibility (BSR) recognized the Merck-initiated Access Dialogues as a best practice for information exchange and discussion between public and private stakeholders. In India, Merck initiated the Suswastha project. The aim is to provide underserved rural populations with affordable health solutions and to engage patients through community-level meetings as well as educative health programs. The Global Pharma Health Fund, a charitable organization funded by Merck, fights counterfeit medicines in developing countries and emerging economies. Additionally, within the scope of the Merck Capacity Advancement Program (CAP), Merck seeks to improve access to and the quality of diabetes treatment in Africa and India.

Accessibility

Merck promotes initiatives to strengthen supply chains and to develop localized health solutions in order to deliver and reach out efficiently at the point of care. One example is Merck’s Temptation Project, which uses heat and humidity sensors to monitor transportation conditions of all its products shipped from Europe to the rest of the world. Furthermore, the company supports the expertise and training of managers in Africa, Asia and Latin America to strengthen local quality manufacturing standards. The BSR GPAH status report recognized the River Ambulance in India as an innovative approach to reaching underserved populations. Merck supports the non-governmental organization River Narmada Samagra, which among other things transports health workers and provides solutions to local populations living in the remote region along the Narmada River.

Strategic sphere of activity: Environment

Through our products, we are helping to overcome global challenges such as climate change and resource scarcity. At the same time, we are also helping our customers achieve their own sustainability goals.

Developing sustainable products

We strive to continuously enhance the sustainability footprint of our products and are working to offer our customers products that enable them to reduce the negative impact of their own activities, as well as to achieve their own sustainability goals. For instance, we are developing innovative materials for energy-efficient liquid crystal and OLED displays and are thus helping our customers develop environmentally sustainable processes. Thanks to liquid crystals from Merck, displays consume approximately 20 % less energy in comparison to the preceding generation of technology. The new UB FFS technology (ultra-brightness fringe field switching) provides displays with up to 15 % more light transmittance, thus further reducing energy consumption. Merck is also developing liquid crystals for new applications. For instance, we are working with architects, glass makers and facade manufacturers to create the windows of tomorrow. Our ambitious goal is to use smart windows to make buildings more energy-efficient.

Within the scope of our cosmetic products business, we are working to sustainably procure and produce cosmetic ingredients as well as optimize the related production processes. In dialogue with our customers from the cosmetics industry, we are also developing cosmetic formulations that meet strict sustainability criteria and address the current trend towards more natural cosmetics. Several of our products have been certified by Ecocert, an independent organization that represents high international standards for environmentally sustainable products.

At Merck Millipore, the Design for Sustainability (DfS) program is especially aimed at reducing environmental impacts, also through customers’ own use, for example their greenhouse gas emissions and water use. In 2014, Merck Millipore completed the integration of the DfS approach into the product development process. Beginning with the concept stage, product teams identify potential environmental impacts in various product life cycle stages as well as opportunities to make improvements. A scorecard is used to assess product designs in six focus categories: Materials, Energy and Emissions, Waste, Water, Packaging, as well as Usability and Innovation.

Additionally, Merck fosters its employees’ ideas for new businesses through its Innospire program. In 2014, the program centered on the topics of energy conservation, conversion and efficiency, water treatment, water quality analyses, and efficient water consumption, along with patient focus, personalized medicine and digital / mobile health. Merck employees were called upon to submit suggestions for new materials and systems, as well as for new business models. During the 2014 Innospire program, 300 ideas were submitted, including some that pertained to the aforementioned topics.

Strategic sphere of activity: Culture

Cultural promotion is a core element of our engagement in society that reflects Merck’s centuries-old tradition of supporting art and culture. After all, culture nurtures characteristics that are indispensable to our business activities as a high-tech company: creativity, enthusiasm for new discoveries and the courage to transcend boundaries. Our cultural engagement focuses on music, literature and education.

Deutsche Philharmonie Merck

The Deutsche Philharmonie Merck is our musical ambassador. We consider classical music to be the universal language that brings people together; as such, it represents an important part of our culture. The concerts of this professional ensemble are highly popular, with around 26,000 people attending them per year. They represent an integral part of the cultural life in the vicinity of our global headquarters in Darmstadt. Special events for children and adolescents as well as collaboration with schools, such as the orchestra workshop held once a year since 2010, aim to make classical music more accessible to young people.

Additionally, the Deutsche Philharmonie Merck regularly invites international ensembles to play in Darmstadt while also touring the globe itself. In 2014 the orchestra gave a charity concert in the United Arab Emirates to raise money for patients with multiple sclerosis.

Fostering literature

Literature can stimulate the imagination; it can alleviate fears and give courage. Literature can also address scientific topics, thus furthering a deeper understanding of science and research. Through our engagement, we aim to help society better accept science and scientific progress. In addition, as an international company, we foster writers who further cultural exchange in our globalized world.

Merck grants and promotes four literary prizes worldwide. Since 1964, we have been sponsoring the renowned Johann Heinrich Merck Award for Literary Critique and Essay, which is presented by the German Academy for Language and Poetry at its annual autumn conference. The award, which comes with a € 20,000 prize, went to publicist Carolin Emcke in 2014.

For 12 years, Merck has been sponsoring the Premio Letterario Merck in Italy. This award is worth € 10,000 and recognizes authors who build bridges between literature and science, thereby making them accessible to a wide audience. In 2014, the award went to Carlo Rovelli, an Italian physicist, and to Francisco Gonzales-Crussi, a Mexican physician and writer.

In India, Merck collaborates with the Goethe-Institut Calcutta to present the Merck Tagore Award, which is worth 500,000 Indian rupees (around € 7,200); this literary prize is granted every two years to authors who have made a distinctive contribution to the cultural exchange between Germany and India. In April 2014, the award went to Professor Pramod Talgeri, Vice-Chancellor of the India International Multiversity.

In October 2014, Merck and the Goethe-Institut Tokyo presented the first-ever Merck Kakehashi Literature Prize. Worth a total of € 20,000, this award is granted to contemporary works by German authors that are made accessible to a wider readership in Japan. The prize went to German author Arno Schmidt for his book “Seelandschaft mit Pocahontas” (Lake Scenery with Pocahontas) and to the book’s Japanese translator, Jun Wada.

Education

We view education as a key component of culture – and vice versa. Education can help us understand culture. But culture can also build a bridge to education; it can stimulate curiosity and nurture creativity. We therefore support educational projects at many of our sites, by granting scholarships for instance, or sponsoring specific classes. In order to promote young scientists, for example, Merck has been organizing the renowned annual “Jugend forscht” competition for the German federal state of Hesse every year since 1996.

Responsible Governance

Responsible business practices form the foundation of our operating business. We minimize ethical, economic and legal risks so as to secure Merck’s license to operate. We take responsibility for our products, our employees, the environment and the community.

Responsibility for our products

The safety of our products is at the core of our corporate responsibility. As long as used properly, our products should pose no risk to customers or the environment, nor should our pharmaceuticals have a negative benefit-risk evaluation. We therefore examine safety across the entire life cycle of our products and continuously take steps to minimize risks. We make our products safer to use by providing patients and customers with extensive information material so that they can use the products in a responsible, safe and proper manner.

Through our Pharma Code for Conducting Pharmaceutical Business and Pharmaceutical Operations, we set standards for responsible marketing activities in order to ensure that patients and health care professionals have access to relevant information and that patients receive effective treatment.

(1) Safety of chemical products

There are numerous regulations intended to ensure that chemicals pose no risk to humans or the environment. Compliance with these regulatory requirements is an important part of our work. Through our Group-wide Product Safety Chemicals policy, we have introduced global processes for defining, steering and implementing product safety, and have established the corresponding management structures. Merck incorporates all relevant national and international chemical regulations into its policies and regulations and adheres to them. This includes for instance the EU chemicals regulation REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) and CLP (Classification, Labelling and Packaging of Substances and Mixtures, EU GHS). Furthermore, we are committed to transparency. For instance, in line with the Global Product Strategy, an international initiative of the chemical industry, we provide our customers with product safety summaries for hazardous materials.

Merck has successfully completed the second phase of REACH implementation. All substances we produce or import in quantities ranging from 100 to 1,000 metric tons per year – 70 different substances in total – were successfully registered with the European Chemicals Agency (ECHA) by June 1, 2013. We are currently in phase three, during which we are working to register all substances produced or imported in quantities between one and 100 metric tons per year by mid-2018. We are fully on schedule with our activities.

(2) Safety of drugs

In everything we do, our number-one priority is patient safety. Ultimate responsibility for drug safety at Merck Serono is borne by our Medical Safety and Ethics Board (MSEB), which is chaired by our Global Chief Medical Officer. Merck Serono’s Global Drug Safety unit is responsible for continuously and systematically monitoring the safety of our drugs (pharmacovigilance). This unit processes safety information from various sources such as clinical trials, adverse reaction reports and scientific literature in order to provide patients with risk-benefit evaluations during the entire life cycle of a drug.

(3) Quality of products

Our goal is to provide customers and patients with high-quality brand-name products. Through our quality vision, “Quality is embedded in everything we do!” we remind our employees of their responsibility – across all divisions, all Group functions and all levels of the company.

(4) Supplier management

Merck sources raw materials, packaging materials, technical products, components, and services from suppliers in more than 120 countries. Our basic expectations for suppliers and service providers include their compliance with fundamental environmental and social standards, which are primarily derived from the core labor standards of the ILO (International Labour Organisation), from the UN Global Compact, and from the Code of Conduct of the BME (German Federal Association for Materials Management, Purchasing and Logistics). Since 2013, our Group Procurement Policy and Responsible Sourcing Principles have defined our procurement practices and are now integrated into our general terms and conditions. They therefore constitute the foundation of every sourcing transaction and procedure.

Due to the growing significance of emerging markets as sourcing markets for Merck, we have reinforced our efforts to ensure adherence to our supply chain standards.

In addition, Merck regularly requests self-disclosures from suppliers and conducts supplier audits. In order to underscore the importance of supplier management as part of our corporate responsibility, we joined the Together for Sustainability (TfS) chemical industry initiative at the end of 2014. Starting in 2015, we will have access to a significantly greater number of supplier assessments via the TfS network, which we can then use to select and manage our suppliers.

Responsibility for our employees

Employees are crucial to the success of a company. They therefore play a central role in our business endeavors. In accordance with the Merck Values, we live a culture of mutual esteem and respect. We want to contribute to entrepreneurial success by recruiting, developing and motivating the most suitable employees. We therefore place a strategic focus on the topics of talent development, compensation and performance management. Furthermore, we want to strengthen the diversity of our employees (see also Employees).

Responsibility for the environment

In the manufacture of our products, we seek to impact the environment as little as possible. This especially includes efficiently conserving resources such as energy, water and raw materials while also continuously reducing our emissions and waste.

(1) Environmental management system

Our Corporate EHS Policy defines our principles and strategies for environment, health and safety. It is implemented through internal guidelines and instruction manuals on compliant behavior in day-to-day operations, such as the Merck Group EHS Security and Quality Manual. At all sites, the local EHS managers are in charge of operational environmental protection measures. These employees continually receive training and obtain additional qualifications.

Since our businesses are constantly changing, our environmental management system must also remain flexible and adaptable. For this reason, we have internal and external audits conducted on a regular basis to determine whether the ISO 14001 requirements are still being met. In 2014, Merck received the ISO 14001 group certificate for its environmental management system for the sixth consecutive year. This certificate covers 58 sites, including eight of the nine production sites of the newly acquired AZ Electronic Materials.

Spending on environmental protection, health and safety totaled € 146 million in 2014, which also includes investments made during the year.

(2) Focus topics: Energy efficiency, greenhouse gas emissions, water scarcity

Climate change and its consequences are one of the main challenges facing society in the 21st century. As a responsible company, it is especially important to contribute to climate protection, which is why we have set ourselves the goal of reducing total direct and indirect greenhouse gas emissions by 20 % by 2020, measured against the 2006 baseline.

In order to achieve this goal, Merck has launched a climate protection program called EDISON that consolidates all climate change mitigation and energy efficiency activities of the Merck Group. In 2015, as in the three preceding years, the Executive Board will earmark additional funds specifically for measures to conserve energy and reduce greenhouse gas emissions. Through more than 300 EDISON projects that have been initiated since 2012, Merck aims to annually save around 60 metric kilotons of CO2 in the medium term. In 2014, Merck lowered its total greenhouse gas emissions by around 9 % relative to the 2006 baseline, despite growth in its operating business.

Around two-thirds of the EDISON projects planned Group-wide have already been or are being rolled out, including major energy generation projects as well. In November 2014, Merck commissioned a carbon-neutral biomass energy plant in Goa, India. In December 2014, a further biomass energy station was commissioned in Jaffrey, New Hampshire, USA. At the Darmstadt site, Merck is spending around € 27 million on the construction of two state-of-the-art energy stations. The first of these two stations, which supplies the site’s pharmaceutical production operations and research activities with power, was commissioned in July 2014. The second station is currently under construction and will cover the refrigeration requirements of the site’s chemical plants and laboratories, among other power needs. Once both plants are in operation, the site’s CO2 emissions will decrease by around 2,500 metric tons per year.

Corporate Responsibility → Energy consumption (in GWh)

Show table
  2010 2011 2012 2013 2014
           
Total energy consumption 1,505 1,497 1,556 1,566 1,622
Direct energy consumption 919 920 940 1,001 1,071
Natural gas 799 802 827 884 937
Liquid fossil fuels 105 105 100 102 107
Biomass and other self-generated renewable energy 15 13 13 15 27
Indirect energy consumption 586 577 616 565 551
Electricity 518 519 502 500 466
Steam, heat, refrigeration 68 58 114 65 85
Portfolio-adjusted in accordance with the Greenhouse Gas Protocol (including the new production sites of AZ).

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Corporate Responsibility → CO2eq emissions (eq = equivalents)

Show table
Emissions in kilotons, Scope 1 and 2 2010 2011 2012 2013 2014
           
Total CO2eq emissions 577 541 551 567 524
Direct CO2eq emissions 352 318 321 350 323
Indirect CO2eq emissions 225 223 230 217 201
Portfolio-adjusted in accordance with the Greenhouse Gas Protocol (including the new production sites of AZ).

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Energy management plays a key role in our efforts for sustainable energy efficiency and climate change mitigation. Merck’s production sites in Darmstadt and Gernsheim account for around 40 % of Merck’s global energy consumption. In 2012, both of these sites qualified for ISO 50001 – Energy Management System certificates, which were reaffirmed in 2014. The Molsheim site in France, the Poseung site in Korea and the Taoyuan site in Taiwan received the ISO 50001 certificate in 2014 for the first time. The Wiesbaden site was certified for the first time in January 2015. Counting the Bari and Tiburtina sites in Italy, eight Merck production sites have a certified energy management system.

The results of the Carbon Disclosure Project likewise indicate that Merck is on the right path. In 2014, Merck again ranked in performance band B in the Climate Performance Scoring, and was thus clearly in the upper range of all participating companies in the Germany, Austria and Switzerland category. In the Climate Disclosure Scoring, which rates the thoroughness and transparency of a company’s reporting, Merck scored 87 out of 100 points, putting it well above the average. The Carbon Disclosure Project, an independent non-profit organization, assessed the emissions reduction progress and climate change reporting of companies.

In addition to energy, in 2014 Merck also focused on the topic of water. We examined our sites to determine which ones are located in regions where water is scarce and thus an especially precious resource. Based on a detailed assessment, we plan to implement sustainable water management systems at these sites.

Responsibility for society

Merck sees itself as part of society, not only at its individual locations, but also at a global level. Taking responsibility towards society is an integral part of our entrepreneurial approach. We believe that we can make an important contribution to the community through our knowledge, our skills and our products.

Our social responsibility activities are primarily focused on those areas in which we have specific expertise stemming from our core businesses. We are thus engaged in health and environmental projects and support education, specifically in the natural sciences. We provide disaster relief in emergency situations, especially in those regions in which we operate.

Our subsidiaries are also engaged in a wide variety of local projects. Merck has defined overarching criteria for selecting projects, while the decisions concerning specific local projects are made by our subsidiaries. In 2014, Merck spent a total of € 50.8 million on community engagement activities. Of the total monetary and non-monetary donations made by our subsidiaries in 2014, 61 % went to Emerging Markets (Latin America and Asia, excluding Japan), 37 % to Europe, as well as 2 % to the North America and the Rest of World regions.

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