As other pharmas get on the ESG bandwagon, Merck exec says it's in the company's DNA

Late this summer, Merck & Co. continued its now yearly tradition of sharing the latest on its environmental and social goals. For industry watchers—and Merck acolytes in particular—the move was to be expected, following an increasingly steady release of progress reports.

More than ever, pharmaceutical companies across the field are turning their attention to environmental, social and governance efforts, or ESG—a measure of corporate responsibility that’s increasingly come to the fore as social media and the COVID-19 pandemic shine a spotlight on the industry.

According to Merck executive Carmen Villar, ESG “is in our DNA as a company.” And it’s nothing new for the Kenilworth, New Jersey-based drug behemoth, either, which Villar, the company’s vice president of social business innovation, likened to a “steady Eddy” in the industry.

“We’ve had a really long historical commitment to having a social impact or community impact,” Villar told Fierce in a recent interview.

She held up the drugmakers’ many access initiatives—from programs around vaccines and COVID-19 therapeutics to Merck’s recent donations of diabetes meds Janumet and Januvia in war-stricken Ukraine—as an example of its efforts in the space.

While ESG is nothing new at Merck, the intensity of the company’s focus on corporate stewardship is.

Merck now performs an ESG materiality assessment to include employees and stakeholders in the ESG process roughly once every 18 months, more frequently than it once did, when the process was repeated every three years or so, Villar explained.

COVID-19 didn’t radically alter Merck’s existing ESG commitments, but it did help “sharpen the focus on access and health equity,” Villar said.

“Disparities we started to see along all stratas of society showed us that there was a need there that we needed to try to better address,” the executive explained.

Access comes up frequently in Merck’s latest ESG report (PDF) and forms “a huge part of what a global healthcare company like ours should be doing,” Villar said, noting shareholders and employees have made that opinion known, too.

In fact, one project in Villar’s wheelhouse is a dedicated health equities team, which she noted coincidentally came to fruition as COVID-19 and protests over the death of George Floyd made social and health inequities top of mind for much of the U.S.

The timing turned out to be right, arming Merck with a “framework and understanding of what some of the community needs might be,” Villar said. She stressed that those efforts are far from over.

“This is hard, long-term work, but so, so critical to the success of any business,” she said, adding that “if we can’t ensure access in the value chain in and out of all these communities, then we’re going to be stuck.”

Beyond its social efforts, Merck is making employment strides and cleaning up its carbon footprint, too.

When it comes to its workforce, Merck said in a recent release it’s made “ambitious commitments to increase representation at all leadership levels with strategies to elevate historically underrepresented ethnic groups (UEGs)."

Between 2020 and 2021, Merck says it boosted total UEG representation, which included a 5% increase in senior management.

“I think we’ve done a really good job with our executive team and with our board in terms of representation,” said Villar, adding that it “sets the example right for the rest of us to really push forward.”

Aside from the public-facing goals laid out in Merck’s report, the company has “greatly expanded” its collaborations with historically black colleges and universities as well as other organizations like the College Diversity Network and the National Urban League, she said.

On a more personal level, Villar noted she’s been deeply involved in Merck’s efforts to advance Latinx leadership at the company.

Meanwhile, Merck is one of a growing roster of drugmakers holding the planet’s health beside that of the people who live there.

In its most recent ESG update, Merck noted it’s “on track” to achieve carbon neutrality by the middle of the decade. Further, the company is working toward transition to renewable sources to meet its 2025 energy target.

That covers scope 1 and scope 2 emissions, which refer to direct emissions from company sources like production plants and indirect emissions from purchased power, heat and cooling, respectively. But many ESG-focused pharma execs suggest the white whale of environmental responsibility lies with scope 3: the indirect environmental footprint that come’s from a company’s value chain, including suppliers, distributors and contract manufacturers.

Merck has that angle covered, too, Villar explained, pointing out that Merck is a founding member of Energize. Energize is a collaboration established by pharma outfits like Merck, AstraZeneca and Novartis, plus Schneider Electric and Carnstone.

The aim of the project is to spur “hundreds” of suppliers to take “bold climate action” in a bid to decarbonize the pharmaceutical value chain. The “pre-competitive” collaboration is aimed at helping suppliers address scope 2 emissions through green power procurement, which will in turn reduce the participating companies’ scope 3 emissions.  

Merck’s latest ESG progress report marks the second under new CEO Rob Davis. Prior to Davis’ ascent from CFO, Merck was helmed by Ken Frazier, who was the first—and so far, the only—Black CEO of a Fortune 500 pharmaceutical company. Frazier, who’s sticking around at Merck as executive chairman, made a name for himself over the years railing against racial injustice, pandemic promises and more.

Early on in his tenure, new CEO Davis admitted Frazier’s shoes would be hard to fill, “both within Merck but also including his many principled and valued contributions to important issues facing society today.”

But as Villar sees it, Merck’s new captain is deeply committed to ESG and “sees it as an ongoing strength of our company,” noting Davis views Merck’s stewardship as a “continuation of our commitment over the last 130 years.”

“Today, we see this approach as being able to help propel our business and enable our business strategy,” Villar added.