Impact investing
Merck
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Private sector
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#SDGAction33588
Description
Health care needs must be addressed at the appropriate level — it’s not a one-size-fits-all approach. That’s why we are growing our impact investing portfolio to address several SDGs, thoughtfully investing in organizations that are tackling diverse elements of the health care ecosystem, including developing treatments for infectious diseases that primarily affect people in the developing world, developing tools for financial inclusion, funding new hospitals and clinics, and providing vaccines and health supplies to children in low- and middle-income countries or disaster areas. With this approach, we’re able to support a spectrum of innovations that can provide better health care for people in need now, and in the future. The COVID-19 outbreak has strikingly underscored the need for strong, resilient and sustainable healthcare systems. Health system challenges are significant enough in highly developed countries; the challenges are enormous in low- and middle-income countries where physical infrastructure and human resources are traditionally limited. Through the long-term nature of our impact investing approach, we’re able to support the development of a spectrum of innovations that can provide better healthcare for underserved populations now, and in the future. Through our impact investing portfolio, Merck is working to bridge gaps in access to care-- one of our core approaches to advancing healthcare systems that are resilient and sustainable in the face of challenges like COVID-19 We take a thoughtful approach to our impact investing strategy, pursuing opportunities that reflect our core business objectives and align with the World Health Organization’s Sustainable Development Goals, which envision a world where people can access the health care they need without suffering financial hardship. We know that improving healthcare inequities is a complex challenge, so we invest in funds that address diverse elements of the healthcare ecosystem: drug and vaccine development, physical infrastructure, financial inclusion, diagnostics and digital tools and emergency relief. For us, impact investing is about fueling healthcare innovation while bringing value back into our business. By investing in venture capital funds that share our goal of addressing health disparities, we seek social impact and financial returns while helping to attract additional capital and developing commercial and partnership opportunities.
We made our first impact investment in 2014, and our efforts have grown significantly since then. Impact investing is led by our Office of Social Business Innovation with guidance from the Impact Investing Committee which was established in 2019. This cross-functional Impact Investing Committee is comprised of senior executives that review new investments in line with established policies and guidelines and monitors the financial and social returns of the impact portfolio. Notably, the Impact Investing Committee operates separately from our corporate responsibility and philanthropy organization, ensuring a high standard of governance and oversight. Our impact investing efforts helped fuel the creation of the Innovative Finance Exchange, a grassroots platform through which our Social Business Innovation and Global Market Access teams convene colleagues from across the enterprise to share best practices gleaned through impact investing and other novel approaches to expand access to healthcare. Regular meetings of the Innovative Finance Exchange see dozens of colleagues, often joined by external speakers, discussing creative solutions and offering advice. Merck’s leadership team sees a bright future for impact investing. To date, our CEO has authorized the allocation of $50 million towards our program, with $39 million currently committed across seven investment funds that aim to address SDGs 1, 3 and 17. A few examples are highlighted below. • In June 2020 we joined HealthQuadII, an India-based fund investing in early stage companies improving the affordability, accessibility and quality of healthcare services, including technology-backed models such as telemedicine, portable medical devices and digital solutions of increasing relevance in the COVID-19 context. • In 2019 we made three impact investments: LeapFrog Emerging Consumer Fund III, focused on businesses providing healthcare services and products to low- and middle-income consumers in emerging markets; TEAMFund, which is expanding access to medical technologies in India and sub-Saharan Africa; and Adjuvant Global Health Technology Fund, addressing infectious diseases, maternal and newborn health and nutrition. • In 2018 we invested in the UNICEF Bridge Fund, a loan fund which provides critical healthcare commodities to children in limited-resource settings and in disaster areas. • In 2016 we invested in Evercare, a growth market infrastructure fund that develops hospital and clinic networks in African and Asian countries, to reach patients lacking adequate healthcare. • In 2014 we invested in the Global Health Investment Fund (GHIF), which supports companies developing medicines, vaccines and diagnostic tools to address health challenges in the developing world. We are encouraged by growth of our program and we’re not stopping here. More exploration is underway to expand our portfolio in the years to come. COVID-19 has placed a harsh spotlight on gaps in access to quality healthcare infrastructure, underscoring the urgent need to bring better care to underserved communities around the world. There is much work to be done in this space, and as a company rooted in science, we recognize the importance of tracking progress and results. We’ve implemented a data-backed framework to determine how our impact investments are translating into meaningful results for underserved populations. Starting with the basics, we primarily measure impact by the number of people reached through the portfolio companies that comprise the funds in which we invest. Each of these companies improves the health of individuals by providing essential services, products or infrastructure, such as vaccines and clinical facilities. Data and narrative description of our impact investing work is published here: https://www.msdresponsibility.com/access-to-health/addressing-barriers-to-health/impact-investing/
We use our mission of saving and improving lives as a guiding principle to ensure the resources we invest in are making the greatest impact possible. We consistently measure how our investments are helping to save and improve lives, and the value our program brings back to support our goals. In 2019 alone, our impact investments helped more than 9 million people worldwide through diverse health interventions, including thousands of people served through Goodlife Pharmacy, now the largest retail pharmacy across East Africa; millions of doses of vaccines delivered with the support of the UNICEF Bridge Fund, for polio, tetanus, and other diseases; and thousands of patients receiving care at high-quality clinics and hospitals. We determine our total reach by aggregating data reported by each fund. Importantly, all metrics we receive from the funds and use within our calculations are independently validated by third-party groups or committees. To cite two examples: • The LeapFrog fund leverages an impact framework developed in partnership with the World Bank, with metrics validated by Tideline, a provider of independent impact verification services (https://leapfroginvest.com/impact-framework/). • The UNICEF Bridge Fund uses the United Nations’ Sustainable Development Goals (SDGs) as a framework for impact reporting (https://www.unicefusa.org/sites/default/files/BF19_AR__v13.pdf). Though our measurement approach is robust, even the most detailed spreadsheet will never fully capture the intangible ways our investments make a difference for people across the world, whether it’s opening a new hospital to serve a remote village, making possible the delivery of crucial vaccines to a poor community, or helping people finally access medicines that were once out of reach. For example, Goodlife Pharmacy places its facilities in locations easy to reach for Kenyan consumers and patients, such as shopping malls and gas stations, enabling previously underserved populations to have greater access to essential health services. In 2020 our impact investments were again on track to reach millions of additional people in underserved communities around the world. We are excited to carry forward this momentum to make an even greater impact with our investments over the next decade.
There are various factors that we can describe as enablers to our impact investment strategy and these include our executive board support, the overall sustainability of the business model as well as the expertise of our partners. Beyond this, Merck’s tagline, “Inventing for Life,” speaks to the innovation and drive we bring to our work. The core of this approach is inventing responsibly— this includes being intentional in identifying shared value opportunities that link strongly with our mission and make sense for our business, rather than relying on chance. We use three key criteria to evaluate impact investing prospects: 1. Social impact: How will this investment help to meaningfully improve the health of individuals and communities? 2. Financial return: What is the revenue and profit opportunity? 3. Commercial opportunities: Does this investment have the potential to open new avenues for our business? Like other forms of venture capital, it’s important to highlight that impact investing is a long-term commitment. Most funds have life spans of 10 years, enabling them to be strategic and sustainably increase their impact. While the full financial benefits of our investments will be realized several years from now as the funds reach maturity (for example, when companies in each fund’s portfolio are purchased, or have an IPO on a stock market), Merck is already collecting meaningful returns that go back to our balance sheet, despite the relatively short tenure of our investments to date. Over time, our aim is to generate low double-digit returns on our investments, and we are on track to achieve that goal. We view impact investing as an important facet of our overall corporate responsibility commitment and have a public pledge to re-deploy our impact investing proceeds into other corporate responsibility efforts. This allows us to extend the impact and sustainability of our work: the proceeds we receive from impact investing can offset costs of our corporate responsibility efforts and enables us to continue contributing to the SDGs. Our impact investing initiatives are also resonating with external stakeholders such as investors, who are increasingly interested in this sustainable approach to social impact; and academic institutions, who are eager to engage on the topic as students in public health and business seek to learn more about this growing field. In terms of innovations and new ideas that our impact investments have brought to light; although not our primary objective, impact investing has also enabled new commercial opportunities. The growth of our business hinges on making our medicines and vaccines available in new markets— and our ability to operate in new markets often requires new partners and new ways of working. It’s been exciting to see how our impact investing portfolio can stimulate creative approaches to build our business in key geographies. Equally rewarding are the strong partnerships we’ve built with leaders of the funds and portfolio companies in which we invest. We’re grateful to have a network of peers across the globe who provide a rich collection of cultural, regional and socioeconomic perspectives.
We are one of only a few pharmaceutical companies to have formally implemented an impact investing program. Based on our benchmarking research, Merck’s engagement exceeds our peers in the scope of our investments, our robust strategic framework, our tracking and reporting capabilities and our thoughtful governance approach. Our role as a pioneer in this space has prompted peers across the pharmaceutical industry and other sectors to reach out to our team for guidance, and several fund managers have remarked that our structure and governance model are among the most advanced they have seen. We expect that interest and activity in impact investing as a tool to advance the SDGs will continue to grow, for healthcare and other sectors, as the model proves itself to be sustainable and delivering impact. The case is compelling, as the very success of impact investing is based on its ability to deliver ongoing progress on the SDGs through mutually reinforcing social impact and financial return.
Our corporate responsibility report contains an overview of our impact investing work, at https://www.msdresponsibility.com/access-to-health/addressing-barriers-to-health/impact-investing/ Recently Merck’s impact investing program was recognized on Fortune’s 2020 “Change the World List”, which highlights companies that have had a positive social impact through activities that link closely with their core business strategy. We are strong believers in the power of impact investing to transform communities and businesses, so we proactively seek opportunities to engage, network and share our expertise. To highlight a few examples: • In December 2019, we provided insights for a feature story in Life Science Leader, including our internal evaluation scorecard for reviewing impact investment opportunities (https://www.lifescienceleader.com/doc/j-j-and-merck-detail-how-they-are-investing-for-impact-0001). • Ken Gustavsen, our chief of staff and strategy officer for Social Business Innovation and impact investing portfolio manager, participated in June 2020 on a corporate panel at the Global Corporate Venturing Digital Forum, as the sole representative from the pharmaceutical industry. • Gustavsen has also shared insights with the next generation of business leaders during guest lectures with MBA students at the Wharton School of the University of Pennsylvania, Baruch College / Zicklin School of Business, and Rutgers University. • Our engagements extend globally as well: In February 2020, our team organized and moderated a panel at the Latin America Impact Investing Forum in Mérida, Mexico. • Finally, our collaborations with the funds in which we invest extend beyond monetary support. By taking on advisory committee (non-voting) roles within certain funds, our leaders, including Gustavsen; Roger Perlmutter, former head of Merck Research Laboratories; and Rehan Khan, managing director of our India affiliate, play an important role in sharing business and scientific expertise. With each new venture we learn something new, and we’ll continue to look for avenues to engage and share ideas that will inspire new directions. Our impact investing leaders have authored or been featured in articles sharing insights on our approach, including: o Wall Street Journal (https://www.wsj.com/articles/adjuvant-capital-raises-300-million-global-health-venture-fund-11613642400) and Bloomberg (https://www.bloomberg.com/news/articles/2021-02-18/pandemic-stokes-interest-in-gates-backed-public-health-fund) coverage of our role in the Adjuvant Global Health Tech Fund. o An article in the Stanford Social Innovation Review, Corporate Impact Investing in Innovation. https://ssir.org/articles/entry/corporate_impact_investing_in_innovation o a Q&A in Medium, developed by FSG (https://medium.com/competing-by-saving-lives/advancing-an-integrated-value-strategy-at-merck-ea3d7ffe3453) o a perspective piece on World Economic Forum’s website on our impact investing efforts in Africa (https://www.weforum.org/agenda/2019/09/impact-investing-a-shot-in-the-arm-for-african-healthcare/) o a feature story in Life Science Leader (referenced in our prior response) (https://www.lifescienceleader.com/doc/j-j-and-merck-detail-how-they-are-investing-for-impact-0001)
The COVID-19 outbreak has strikingly underscored the need for strong, resilient and sustainable healthcare systems. Health system challenges are significant enough in highly developed countries; the challenges are enormous in low- and middle-income countries where physical infrastructure and human resources are traditionally limited. Through the long-term nature of our impact investing approach, we’re able to support the development of a spectrum of innovations that can provide better healthcare for underserved populations now, during the pandemic and in the future. In the near term, for example, our LeapFrog investment for companies engaged in financial inclusion enables underserved populations to use financial mechanisms that traditionally might be out of reach – things like payment systems and health insurance – that provide them with the type of resilience they need when they need it. In addition, our investment in Evercare helps build the physical infrastructure of hospitals and clinics, ensuring patients get the healthcare services they need with quality they can rely on. Over a longer horizon, our investments into funds focused on R&D for drugs and vaccines are supporting companies in their pivot to address COVID-19. For example, in the Adjuvant Global Health Technology Fund one company, Codagenix, is working on a vaccine candidate that optimizes the immune response without generating clinical symptoms. We are strong believers in the power of impact investing to enable communities to rebuild from the effects of COVID-19, helping to bridge gaps, by providing resources that support resilient and sustainable health care systems around the world.
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Our direct beneficiaries are people in underserved communities around the world – with highest impact in Africa and Asia. These include patients in low- and middle-income countries, children in limited resource settings. Through impact investing, we seek to address five complementary facets of a sustainable and resilient global health ecosystem: physical infrastructure, financial inclusion, digital and diagnostic solutions, pharmaceutical and vaccine R&D, and emergency response. The investment funds that we have invested in thus far are critical stakeholders for solving the disparities that exist in global health and they do this through sustainable business models. • Adjuvant is a successor to the Global Health Investment Fund that will invest in opportunities to address global health challenges such as infectious diseases, maternal and newborn health, and nutrition. • The Evercare Health Fund consists of a growing portfolio of hospitals, diagnostic centers and other facilities in high-growth countries in Africa and Asia. • UNICEF Bridge Fund is a novel investment vehicle that accelerates the provision of critical health care commodities to benefit vulnerable children in limited-resource settings, including for disaster relief. • Leapfrog Investments Fund III is developing a portfolio focused on investing in innovative businesses providing financial services and health care services and products to low- and middle-income consumers in high-growth emerging markets. • TEAMFund is expanding access to affordable, appropriate and sustainable medical technologies that address unmet health needs for underserved populations. • HealthQuad Fund II, an Indian healthcare venture capital fund which will invest in early stage opportunities in disruptive, technology-based and innovation-driven healthcare businesses that help create transformational healthcare solutions and deep social impact. The innovation and reach of our impact investing program are fueled by collaboration. Though Merck’s network and expertise are broad, this initiative could not exist without close partnership from public and private organizations who provide global and local perspectives, resources and know-how. Since the early stages of this effort we have actively sought counsel from organizations like FSG, the Business Council for the United Nations (BCUN), TONIIC, the Global Impact Investing Network (GIIN), and the Foro Latinoamericano de Inversiόn de Impacto (FLII), all of which have been instrumental for exchanging guidance, feedback and best practices.
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Ken Gustavsen, Chief of Staff / Strategy Officer, Social Business Innovation
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