Non-Financial Statement**

The combined management report of Merck KGaA, Darmstadt, Germany, and the Group for the fiscal year 2022 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. 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.

KPMG AG 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 KPMG – excluding references to our Sustainability Report. Our Sustainability Report 2022 is produced in accordance with GRI Standards. It will be available online as of April 13, 2023. With this, we also disclose topics set forth by Sustainability Accounting Standards Board (SASB) and 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 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 multiple challenges that we too as a company face. 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 describe our sustainability strategy in the “Strategy” section of the management report within the Annual Report for 2022 and, in more detail, in the Sustainability Report for 2022 in the chapter entitled “Sustainability Strategy”.

Measuring progress made with the sustainability strategy

On the basis of 14 key indicators, which we defined back in 2021, we record and assess our progress towards achieving our sustainability goals. In 2022, we implemented various digital working tools that we believe will allow us gain greater transparency with regard to our achievements. Moreover, we added a sustainability factor to the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany (LTIP) in 2022. It measures the performance of three selected sustainability goals over a period of three years, thus making it possible to increase or reduce target achievement resulting from the key financial performance indicators by up to 20%. Details on how this sustainability factor is calculated can be found in the Compensation report.

Roles and responsibilities

Our Executive Board has Group-wide responsibility for our sustainability strategy. It has adopted our three strategic goals. In 2030, we will achieve human progress for more than one billion people through sustainable science and technology. By 2030, we will integrate sustainability into all our value chains. And by 2040, we will achieve climate neutrality and reduce our resource consumption (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. Consequently, overarching Executive Board 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 (previously Corporate Sustainability Council), which was set up in 2022. Our Sustainability Board is chaired by the Head of SQ and consists of representatives from our business sectors and from key Group functions, such as Procurement, Communications, as well as Controlling and Risk Management.

The Sustainability Board steers and monitors the Group-wide implementation of the sustainability strategy. It aligns the strategy with the individual business strategies, defines priorities and specifies globally applicable sustainability guidelines. 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 2022, the Sustainability Board met nine times by video conference. The participants addressed the following topics: Implementing the sustainability strategy in the business sectors, key indicators for measuring and steering sustainability within the company, lowering greenhouse gas emissions, and supply chain due diligence requirements.

An external expert committee for sustainability issues has been supporting our company since 2021. Our Sustainability Advisory Panel (MSAP) consists of six independent experts on sustainability-related topics from several institutions worldwide. They advise the members of the Sustainability Board on selected issues and assess the sustainability of our company’s business models as well as planned activities. Moreover, they provide their external insights to help address societal and political challenges and developments that could be strategically relevant for our businesses. This panel is chaired by the Head of SQ.

Topics for the non-financial statement

Pursuant to section 289c para 3 of the German Commercial Code, 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 business activities affect non-financial aspects. And secondly, the information is necessary to understand the company’s course of business, results of operations and economic position. In 2022, 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 2022. They cover fiscal year 2022 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 part of the audit of the financial statements but was subject to a separate limited assurance audit by KPMG.