Comparing Merck and Pfizer’s 2022 ESG Ratings

July 20, 2023 - Environmental, social, and governance assessments, commonly called ESG scores, are emerging metrics that are beginning to shape how pharmaceutical companies do business. MSCI Inc., an American finance firm specializing in ESG ratings, recently gave Pfizer an average score, while peer-firm Merck earned an above-average rating.

A closer look at Pfizer’s report shows that the company was flagged in 2022 for its poor social practices and laggardly governance, contributing to its placement in the 75th percentile of pharmaceutical companies. Comparing Pfizer to Merck, the two companies share similar environmental goals but diverge in their governing practices and attitude toward employees and customers.

Environmental and Climate Change

Merck and Pfizer share similar environmental targets and have made significant strides in achieving them. Both companies prioritize reducing greenhouse gas (GHG) emissions within scopes 1 and 2. Scope 1 emissions are directly owned or controlled by the company, while scope 2 and 3 emissions result from the company's activities but originate from external sources, not under its control.

Pfizer

Pfizer aims to reduce scope 1 and 2 GHG emissions by 46% within the next seven years compared to a 2019 baseline. In 2022, the company reported lowering these emissions by 11.2% despite increased GHG production from its COVID-19 products.

To achieve GHG emission goals, Pfizer plans to source 80% of its electricity from renewable sources by 2025 and 100% by 2030. As of 2022, the company has made little progress toward its goal, generating just 7.8% of electricity from renewable sources.

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In addition, the company planned on reducing emissions from distribution by 10% and travel by 25%. They far exceeded their travel goal, as emissions dropped by 78% during the pandemic, but distribution-related emissions rose for COVID-19 products.

Merck

Merck shares many of the same environmental targets as Pfizer, and both companies have made solid progress toward their goals.

Merck achieved a 9% reduction in scope 1 and 2 emissions compared to a 2019 baseline measurement and has sourced 41% of its purchased electricity from renewables as of 2022. The company also plans to achieve carbon neutrality by 2025, five years ahead of Pfizer.

Social Performance

Both Pfizer and Merck are taking measures to improve their social performance — especially regarding gender parity and medication access.

Pfizer

In three consecutive years, Pfizer has increased the proportion of women in director-plus positions and reached or exceeded gender parity in associate and manager roles. Although, since the start of COVID-19, employee engagement scores have dropped by 3%, and voluntary turnover has risen by 2%.

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The company has also fallen in the Access to Medicine Index Ranking, from 4th position to 6th position, after being edged out by Merck in 2022.

Excluding COVID-19 vaccines and treatments, Pfizer’s number of patients treated has dropped by 22 million since 2020. The pharmaceutical giant was also caught increasing the prices of several drugs faster than the rate of inflation, according to a report from HHS.

Merck

Social goals included in Merck’s ESG report involved advancing equity in low-income countries and improving workplace equality. Starting in 2022, the company donated $93 million worth of medications and products to organizations in Ukraine to assist refugees in the war-torn state. The corporation’s primary goal is to expand access to 100 million new customers in disadvantaged regions of the world by 2025. So far, the effort has impacted more than 66 million people.

Although Merck has signaled its commitment to increase medication access abroad, the company has also hiked the price of its US portfolio by 4.4% in 2022 and sued Medicare to halt drug price negotiations.

In the workplace, Merck has steadily increased gender parity in high-value positions, and its board of 13 includes six women. Pay parity is also greater than 99% at both Merck and Pfizer.

Governance and Ethics

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Pfizer and Merck have been striving to enhance their governance and ethics practices; however, both have encountered difficulties and controversies in these areas.

Pfizer

ESG targets or goals are set forth by several leadership committees that oversee Pfizer’s operations. Board turnover at Pfizer is frequent, with the average tenure lasting seven years. Governance goals at the company center around compliance, ethical conduct, and transparent audit and assessment processes. The company hasn’t provided any governance targets in its current ESG report and carries a record of significant ethics-related lawsuits and settlements.

In 2009, the company paid a record $2.3 billion settlement for drug fraud to resolve criminal and civil liability arising from the illegal promotion of certain pharmaceuticals. Shortly thereafter, it was fined $15 million by the US Department of Justice (DOJ) for allegedly bribing government officials in several Eastern European countries. Pfizer also agreed to settle a class action lawsuit for $345 million that alleged its anticompetitive practices resulted in the overpricing of life-saving EpiPens. Currently, the company is facing multiple lawsuits from firms that say it infringed on their patents with the creation of its COVID-19 vaccine.

Women comprise one-fourth of Pfizer’s governing body, and another third is ethnically diverse. Pfizer’s CEO and Chairman, Albert Bourla, commands an outsized role in the board’s leadership structure. He has garnered a 36% pay hike, making him one of the highest-paid executives in the pharmaceutical industry last year.

Merck

The ethics and values targets expressed in Merck’s ESG report are vague, and the company has been embroiled in its own scandals in recent years.

The latest updates show that Merck is involved in 89 cases regarding its Gardasil HPV vaccine. Plaintiffs in those cases allege that serious vaccine injuries occurred after taking the vaccine and that Merck failed to alert individuals to the extent of possible side effects.

Like Pfizer, Merck also paid the US DOJ a multimillion-dollar settlement to resolve allegations that the company had violated the False Claims Act in 2008. The year before, Merck settled a class action suit for $4.85 billion after it was alleged that its faulty drug, Vioxx, had resulted in serious injury and death.

Regardless of ESG score, both firms have continually flirted with illegality, and both have been financially penalized for their actions.

With time, the changing dynamics of the boardroom and an increased focus on equity within companies and markets may reduce some of the ethical and moral blunders committed by the pharmaceutical companies leading the field.