Ambition, Courage, and Sustainable Innovation: Q&A with Belén Garijo

Driving superior customer value through sustainability

Video: Driving superior customer value through sustainability

Jacques Bouwens

Thank you, Belén, for being available for this discussion. I am Jacques Bouwens, Managing Director at Russell Reynolds Associates, a member of the Board and CEO Advisory Partners and the global Healthcare sector. With me today is Belén Garijo, who is currently the Chair of the Executive Board and the CEO of Merck.

Belén and I go back quite a long time. I looked back into my notes – you will get a smile about this, let me read it out loud. In August 2004, we had a conversation in your office in Madrid, and this is what I wrote down afterward: “Belén is one of the rising stars in the pharmaceutical industry. She has a strategic mind and clearly represents the new generation of executives in the pharmaceutical industry. With a true focus and deep knowledge regarding the industry, the products, and the customers, she brings the right capabilities to further grow within the industry.” My forecasting proved true.

Belén Garijo

Thank you very much, Jacques, for taking me back to 2004. This was a long time ago. We have gone a long way – the world has gone a long way – and before all this we had met already and discussed strategic topics like the ones we are going to discuss today. It is great to be here. Thank you for giving me the chance to speak about a topic that I am very passionate about.

Jacques Bouwens

Before we move onto the business side, I am curious to find out what sustainability means for you personally, and where your drive to become a leader in sustainability comes from.

Belén Garijo

First of all, it comes from my values and, foundationally, my common sense. I believe our health as individuals and as a society are the key to social and economic development.

Today, we are stuck in a complex feedback loop that is putting our health at serious risk: increasing climate instability, leading to higher social instability, which accelerates financial and geopolitical instability. I believe that we generally need to break this feedback loop if we are to restore humanity to full health. We frequently ask what is the business case. I would raise the question in a different way: What are the risks of doing nothing? What is the harm that will be caused by the displacement of 200 million to 1.2 billion people due to climate change, as some are predicting by 2050?

I have been a senior leader at a company that has been in business for more than 350 years. A company with a clear purpose to advance human progress, and I have to be a living illustration of that purpose. In my job today and together with the Board, I have to push for integrating sustainability into our culture, our business decisions, and our value chains. Being part of Merck helped me to adopt a longer-term view.

We are a family-owned company – we have been in business for 353 years and across 13 generations – and the family does not see themselves as merely the owners, but rather as trustees or custodians of the business. They want to hand the company over to the next generation in an even better, stronger position. We want to be positioned as a science and technology leader, creating innovative sustainable solutions that can make a real difference.

And we, the Executive Board, are the ones to execute on this aspiration; we are accountable to make that happen. We should be able to look beyond the next year or quarter and set goals that will have a positive impact for generations to come, and this is very fascinating.

To complete my answer, I would like to make two things very clear. First, I believe it is possible to create long-term value for society and for our business at the same time, and that is an important combination. Second, we should start to benefit from positive actions in the near term, not just in a generation from now. For me, leading the way on sustainability is simply the right thing to do, not only because of my responsibility to the board but because it is a great opportunity for us to accelerate growth.

Sustainability is about so much more than setting environmental targets for CO2 emissions or renewable energy, which we also do. It is about fundamentally changing the way we think and act for our long-term health as individuals, as companies and as a global society. This is why for me, sustainability begins with culture.

Jacques Bouwens

This brings me to my next question because I think this is the biggest challenge. How did you bring the organization along to drive such a business-wide transformation?

Belén Garijo

It is widely understood in our organization that sustainability has now reached the level of a strategic imperative as one of our four enterprise priorities. Obviously, people understand that this is part of our social license to operate. First of all, I truly want to better serve my customers by offering sustainable products and solutions. Second, I want our products and solutions to create more sustainable value than those of our competitors. These are two messages that resonate very well within the organization, but at the same time, this rapid transformation is tough. Most business models are highly resistant to certain elemental changes. In fact, I think there is only one thing that could be a catalyst of this transformation: a high-impact culture, where people, portfolios, and processes are laser-focused on generating superior customer value through sustainability. This is exactly what we are doing.

Leadership – bold, inspiring leadership – can be a catalyst and can make companies more proactive, more engaged, with leaders who are ready to overcome potential challenges and roadblocks. I believe that our challenge as leaders is to enable this cultural shift through awareness, through communicating the risk of not doing it, and most importantly through role modeling, through our own leadership behaviors. At Merck, we are trying to advance fast on this front.

First, we have learned to dedicate ourselves to advancing human progress with innovative science and technologies. Our constant pursuit of this purpose has allowed us to reinvent ourselves over time. It has given us the mandate and, importantly, the confidence to harness the power of science and technology to provide more sustainable solutions.

Second, Merck is a value-based company, and our values serve as the compass, guiding our actions. Our leadership in diversity and inclusion is one example that I frequently bring to discussions. Sustainability is another one, as they are very much connected. So when a company like ours finds a course that can benefit millions of lives, we are very ready to go all-in.

The third element of this is that our senior leadership team is fully committed to building and becoming a more sustainable company. This tone from the top and the buy-in at the top has allowed us to make sustainability a cornerstone of our daily behaviors, strategies, and processes. 

In recent years, we have focused on building up competencies as a sustainable business; we have learned what is working best and how to scale it. Now our focus is to go one step further. We want to embed sustainability deeply into our business and innovation models so that it becomes a clear competitive advantage. We are not going to rest until sustainable innovation touches the entire customer value chain, or perhaps I should say, the customer value circle.

Improving status quo through sustainable innovation

Video: Improving status quo through sustainable innovation

Jacques Bouwens

You mentioned sustainable innovation – how would you differentiate sustainable innovation versus being a sustainable company?

Belén Garijo

A very good question. A sustainable company uses business activities to drive long-term value creation in ESG (Environment, Social, Governance), to create value for shareholders, customers, and society. The value generated by sustainable companies is really reflected in their goals. Many sustainable companies refer to the 17 Sustainable Development Goals (SDGs) of the United Nations. We are targeting five SDGs where we have the capabilities to make a bigger impact: 1) good health and well-being; 2) industry, innovation, and infrastructure; 3) decent work and economic growth; 4) partnerships for the goals; and 5) responsible consumption and production. But these goals were not really designed by companies for companies, and we felt that we also needed specific business-related guidance and that is why we primarily focus on three core objectives of our own.

Goal number one: By 2030, achieve human progress for more than 1 billion people through sustainable science and technology. This one is difficult to measure, and we are making progress by understanding what accountable indicators would be appropriate for this.

Goal number two: By 2030, integrate sustainability into all our value chains.

Goal number three: By 2040, achieve climate neutrality and reduce resource consumption.

These are our current goals as a sustainable company. This is a good start, but we will not stop here – we will continuously assess where we can do better.

Sustainable companies mainly focus on their own internal targets; sustainable innovators do that and beyond. It is important for Merck and companies that empower other companies to develop and share innovative solutions that deliver clear social or environmental benefits to our customers and for society. This helps our customers and their customers to exceed their own targets. And this is the difference – as a sustainable innovator, you can potentially multiply your own internal contribution by 1,000 times or more. I think it is unlikely that humanity will reach its global sustainability goals without embracing the full power of science and technology, and that is what makes sustainable innovators so vital. In my view, these are the companies that will give society the tools they need to outperform and to aim higher.

Examples of sustainable innovation that we support include the use of blockchain to power a fully circular economy; direct air capture systems to decarbonize the atmosphere; and in our life sciences sector, bioprocesses for enzymatic recycling of plastics or biomass conversion.

We have been partnering with several startups to identify alternative food sources, such as cultured meat, and we are also supporting research in alternative sources of energy, such as photosynthetic bacteria. All these technologies have one thing in common – not only are they sustainable but they also have the potential to be better than the status quo.

Merck has a major role to play as a sustainable innovator, and we are extremely proud to be doing much of our work via a partnership with academia, industry colleagues, and startups that have the skills and ambition complementary to our own.

Jacques Bouwens

The pandemic obviously had a big impact on the world, the business world, and you and your company as well, during the last 18 months. Helping the world fight the pandemic has been a priority for you this year – has that had an impact on your ability to drive sustainability further?

Belén Garijo

Let me first acknowledge that pandemics have traditionally been directly linked to sustainability issues. Pressure is placed upon natural ecosystems, and people and animals are brought into close proximity. It is only a matter of time, and it was only a matter of time before viruses like COVID-19 made the jump to humans. Pandemics, like this COVID-19 pandemic, also trigger unsustainable situations and tremendous consequences. For example, social inequality has increased over the last 18 months. Women are suffering far more from job losses and the burden of unpaid care.

But back to your question – it is true that we have been heavily engaged with the pandemic and we have been on the frontlines with all three of our sectors. We have supported more than 80 vaccine manufacturers worldwide, provided critical materials and our expertise and services in development and manufacturing processes, and helped with several therapeutics and diagnostics. We have had to dramatically increase our manufacturing capabilities and keep our supply chains running while enabling our customers with their projects. However, this does not mean at all that sustainability was either deprioritized or negatively impacted; I think the exact opposite occurred.

The pandemic has shown the world once again the power of science and technology. Can you imagine not having vaccines or advanced diagnostic tools like CRISPR in our current situation?

The public trust in science and scientists is at an all-time high, and this momentum is actually helping us to aim higher when it comes to sustainability. In a way, the pandemic made the case for sustainability even stronger.

Also, the pandemic has made people tired of hearing the same old excuses – investors, policymakers, customers, our own employees, and society overall want us to stop speaking and take action, and they are increasingly willing to prove their resolve with their money, their votes, and their loyalty. When it comes to climate change, for example, much of the focus is on answering one question: When will your behaviors become climate neutral?

The winners in this new world will be those who show courage and leadership, those who are setting ambitious targets and are ready to beat those targets.

While Merck has stepped up to fight the pandemic, we have also doubled down on sustainability. Earlier this year we introduced very concrete targets for reducing greenhouse gas emissions, water and waste, and we signed our first virtual power purchase agreement that will match 65% of our US electricity consumption, and more such deals will follow.

At our annual shareholder meeting this year we approved the new compensation system for the Executive Board, where targets are directly linked to ESG. Sustainability is even more of a priority now than it was even before the pandemic; the pandemic has been an accelerator for sure.

Committing to purpose-driven investments

Video : Committing to purpose-driven investments

Jacques Bouwens

Clearly, you have to make decisions running a large organization like yours, and you must have examples where you made tough decisions with the longer-term sustainability goals in mind. Would you mind sharing some of those?

Belén Garijo

With pleasure. I had a conversation recently with a senior leader from another company and this person was sharing that the cost of investing in a new system related to sustainability was just too high to justify. We have heard that before – I have even heard that from politicians who are on the frontlines of sustainability action, and this is definitely an understandable reaction when you see the level of investment needed to execute on our commitments.

At the same time, a failure to invest in going green will actually be detrimental to your bottom line, and here I can give a few examples. First, carbon credits and the European Union emission training system doubled in the last year to $60 a ton and it will rise very soon to $90. The number of sustainable regulations that we must comply with within the European Union has almost doubled in the last five years. And last but not least, fines for environmental violations in the US have quadrupled since 2018, reaching $1.7 billion last year. Keeping this in mind, not making investments in sustainability will put our businesses at risk. We will lose from growth, either from fines, investment loss, or from customers.

We see sustainability as a key to our long-term success. Among the next generation, sustainability helps tremendously in attracting top talent. Our customers also have their own sustainability ambitions, and when they understand what we are doing, they want to do business with us – this is useful for opening up new markets. Eventually, it will lower operational costs, increase market capitalization in the eyes of investors and, most importantly, ultimately help us to deliver superior performance compared to more traditional alternatives.

Going back to decision-making, allow me to give you a few examples. I spoke already about “clean meat,” and this is one of the key focuses for sustainable innovation at Merck. If humanity converted from a livestock-based diet, global land use for agriculture could be reduced by three quarters and opportunities to convert land for ecological purposes would explode. Today, cows, pigs, and other livestock account for 60% of total mammal biomass. Meanwhile, agriculture represents a distinctive level threat of around 30,000 species. We are supplying customers with a technology that will produce real meat grown in a lab. This will make the supply of animal protein more sustainable and eventually healthier and more ethical.

The healthcare supply chain is another example. It accounts for around three-quarters of the carbon emissions in the sector. By shifting from air to sea freight for most of our medicines we will reduce annual CO2 emissions by approximately 10,000 metric tons. We are also working with our suppliers to reduce their emissions, progressively shifting to renewable or reusable packaging whenever possible.

Using innovative technologies like digital health, we can also decarbonize R&D. New solutions such as biosensors, for example, can bring clinical trials into the patient's home, and this can dramatically reduce the carbon footprint of a clinical trial.

In life sciences, we supply more than 300,000 products, and recently we have been focusing on launching what we call “SMASH packaging,”, which will substantially reduce the weight, energy usage, transport emissions, and use of natural resources.

As a final example: we were sending our waste from the US site in St. Louis to a nearby landfill. By sending it to a nearby waste-to-energy facility instead, we have reduced our CO2 emissions from waste at the site by almost 90%.

Overall, three principles in summary: close to our purpose, close to our business, and ultimately output-driven, measurable indicators to follow our progress. 

You can discuss the business case for hours, but in the end, it is a matter of human contribution to human progress and society. It is a matter of values and common sense. The problem is that in the case of sustainability, it is significantly more expensive. I believe that you have to look longer term and make sure you understand that creating customer value will always be worth it. Yesterday, I had a conversation with investors, and they were asking me: “How much do you believe this is going to influence your market cap?” I do not have a crystal ball and I thought it was a great question, but the question is more for them – how are the investors going to value and incentivize sustainability to become part of the ecosystem, how will this help with progress, and how are we ultimately expecting impact – this is how we will be differentiated by investors and in the market. I see many reasons to do it and I would like to encourage other companies to lead it and champion it from the top because this is where everything starts.

Jacques Bouwens

Thank you, Belén – very impressive, enthusiastic, and impactful. I really enjoyed our conversation, and I am highly impressed with the progress you and Merck have made. We will continue to watch the company and your career as it moves forward from 2004. Thank you again, truly enjoyed the conversation.

Belén Garijo

Thank you very much, Jacques, for giving me the chance to speak about this topic. I am very happy to see you and look forward to seeing you in person next time.