Non-Financial Statement**

The combined management report of Merck KGaA, Darmstadt, Germany, and the Group for the fiscal year 2023 includes a combined non-financial statement in accordance with sections 315b and 315c in conjunction with 289b to 289e of the German Commercial Code (HGB) in the form of a separate chapter. The scope of consolidation of this non-financial statement corresponds to that of the Annual Report for 2023. The concepts and results presented relate to both Merck KGaA, Darmstadt, Germany, and the Group. We explicitly state when, in individual cases, the information provided deviates from this. Our non-financial statement orients towards the requirements of the Global Reporting Initiative (GRI) standards. It also includes our reporting in accordance with the EU taxonomy regulation.

Deloitte GmbH Wirtschaftsprüfungsgesellschaft conducted a limited assurance engagement of the combined non-financial statement. References to information not included in the management report are not part of the non-financial statement. The additional content provided on both the company’s websites as well as external websites that are linked in this report are not part of the information assured by Deloitte. Our Sustainability Report 2023 is produced in accordance with GRI Standards. It will be available online as of April 11, 2024 and will also be subject to a separate limited assurance engagement by Deloitte. With this, we also disclose topics set forth by the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD).

Description of our business model

Our business model as well as our Group structure, governance and strategy are described under “Fundamental Information about the Group”.

Governance

The requirements we place on responsible corporate governance are derived from our company values on the one hand and from the regulations, external initiatives, and international guidelines to which we are committed on the other hand. We have integrated these requirements into our “sustainability strategy” and our Group-wide guidelines. These guidelines comprise charters and principles that are valid for the entire company as well as specific standards and procedures for individual business sectors and sites.

Some examples: Our Human Rights Charter aligns with the UN Guiding Principles for Business and Human Rights. Our Group-wide Social and Labor Standards Policy reflects the labor standards of the International Labour Organization (ILO). Our EHS Policy (Corporate Environment, Health and Safety Policy) for environmental impact mitigation and health and safety forms the basis for implementing the chemical industry’s Responsible Care^® Global Charter within our company. Our standard entitled Corporate Chemicals Regulations Governance describes the processes and management structures required to ensure global compliance with the pertinent chemical and product safety regulations.

We endeavor to comply with all applicable laws as a matter of principle. Where necessary, we review our internal guidelines, standards and instruction manuals on compliant behavior and adapt them to reflect changes in the regulatory landscape.

Roles and responsibilities

Based on the requirements set forth in charters, principles and policies, our internal standards give specific guidance for operational processes. They are constantly updated by the relevant departments and are available on our intranet. Our managers implement these standards in their respective areas of responsibility and ensure that they are adhered to. In addition, we educate and train our employees on all guidelines that apply to them.

We employ management systems to steer processes and define goals, actions, and responsibilities. These systems are based on standards such as the internationally recognized quality management standard ISO 9001, good working practices (GxP) in the pharmaceutical industry and ISO 14001 for environmental management. Our company regularly undergoes ISO 14001 and ISO 9001 certification, which are conducted by an independent auditing firm. We hold group certificates for both standards.

We support the following responsible governance initiatives:

• United Nations Global Compact,
• Chemical industry’s Responsible Care^® Global Charter,
• Company network Together for Sustainability (TfS),
• Pharmaceutical Supply Chain Initiative (PSCI),
• Initiative Chemie³, 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).

Strategic and organizational approach to sustainability

The world is facing numerous challenges that also affect us as a company. These include climate change, international conflicts and economic crises, for instance. Our ambition is to leverage science and technology to achieve sustainable progress for mankind.

We pursue three overarching sustainability goals. In 2023, we revised our sustainability strategy, which we had communicated in 2020. In particular, we sharpened the second goal.

• In 2030, we will achieve human progress for more than one billion people through sustainable science and technology.
• By 2030, we will fully integrate sustainability into our value chains.
• By 2040, we will achieve climate neutrality and reduce our resource consumption.

We describe our sustainability strategy in the “Strategy” section of the combined management report within this Annual Report for 2023 and, in more detail, in the Sustainability Report for 2023 in the chapter entitled “Sustainability Strategy”.

Measuring progress made with the sustainability strategy

We use 14 key indicators to record and assess our progress towards achieving our sustainability goals. We defined these indicators back in 2021 and did not identify any significant non-financial performance indicators. The key indicator “Percentage of employees trained in sustainability” was dropped in 2023 because we had achieved the associated target. Instead, as of 2023, we began using several questions in our annual Employee Engagement Survey to measure how mature the sustainability culture is within our organization.

Moreover, our annual Long-Term Incentive Plan (LTIP) for Executive Board members and senior executives contains a sustainability factor. We use it to measure performance over a period of three years based on selected key indicators for each of our three sustainability goals. Consequently, target achievement based on the key financial performance indicators can increase or decrease by up to 20%. Details on how this sustainability factor is calculated can be found in the “Compensation Report”, which is subject to both a formal audit and a separate content audit performed by Deloitte. In 2023 and for the first time, the company tied 15% of variable employee compensation to sustainability parameters. Details on this can be found under “Sustainable innovation and technology” within this non-financial statement.

Our key indicators

Roles and responsibilities

Our Executive Board has Group-wide responsibility for our sustainability strategy. It has adopted our three strategic goals (details can be found under “Strategy”).

The Group Corporate Sustainability unit is responsible for developing and shaping the sustainability strategy and it informs the Executive Board at least once a year about the progress made and the need for action. It is part of the Group function Corporate Sustainability, Quality and Trade Compliance (SQ), which reports to the Chair of the Executive Board. At Executive Board level, responsibility for Environment, Social, Governance (ESG) also lies with the Chair of the Executive Board.

Group Corporate Sustainability is also responsible for coordinating our Sustainability Board, which is chaired by the Head of SQ, who simultaneously serves as Chief Sustainability Officer. The committee consists of representatives from our business sectors and from key Group functions, such as Procurement, Communications and Controlling.

The Sustainability Board steers and monitors the Group-wide implementation of the sustainability strategy, defines priorities and stipulates globally applicable sustainability policies. In addition, the Sustainability Board ensures that the initiatives of our various business sectors, Group functions and subsidiaries align with our global sustainability strategy. Moreover, it recommends corresponding initiatives to the Executive Board. Within their respective area of responsibility, each Executive Board member is also responsible for sustainability, reviews the priorities that have been set, and decides on the implementation of initiatives.

In 2023, the Sustainability Board met 11 times by video conference. In addition to climate-related issues and new sustainability reporting requirements, it also addressed the adaptation of the strategy and new objectives for circular economy and water management.

Our Sustainability Advisory Panel (MSAP) supports our company as an external expert committee for sustainability. The panel is chaired by the Head of SQ. It comprises independent experts on sustainability-related topics from various institutions worldwide whom we invite on an ad hoc basis. The MSAP advises our company on selected issues and assesses planned activities. Moreover, the members apply their knowledge to help address societal and political challenges and developments that could be strategically relevant for our businesses.

Topics for the non-financial statement

Pursuant to section 289c (3) and section 315c (2) of the German Commercial Code (HGB), we are obligated to review topics for their double materiality. The principle of double materiality requires companies to disclose non-financial information as soon as the following two criteria are met: Firstly, the information makes it possible to understand how the company’s activities affect non-financial aspects. And secondly, the information is necessary to understand the course of business, results of operations and economic position of Merck KGaA, Darmstadt, Germany, and the Group. In 2023, we examined the topics identified within the scope of a materiality analysis in accordance with the Global Reporting Initiative standards (GRI) for their double materiality.

The following topics achieved the relevance threshold for double materiality in 2023. They cover fiscal year 2023 and pertain to our entire Group. Any deviations from the reporting framework are indicated on a case-by-case basis.

As part of our approach to comprehensive risk and opportunity management, we also identify current and potential risks and opportunities resulting from environmental, social and governance aspects. This includes tracking information on the gross risks in terms of potential damage and probability, as well as the residual net risks remaining after mitigation measures have been executed. As of the reporting date and pursuant to the risk analysis of the material non-financial topics, no significant risks within the meaning of section 289c (3) sentence 1 no. 3 and 4 of the German Commercial Code (HGB) from the company’s own business activities or from business relationships are known that are very likely to have or will have serious negative effects on non-financial aspects. Additional risks are described in the “Report on Risks and Opportunities” in the combined management report.

** The summarized non-financial statement was not subject to a content review as part of the audit of the financial statements but was subject to a separate limited assurance audit by Deloitte.