General
Information
Last Update:
Mar. 10, 2011
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Part of the audited Consolidated Financial Statements and Management´s Analysis

Organization, responsibilities and tools

Risk management process

  • Identification of opportunities and risks
  • Assessment and quantification
  • Aggregation of opportunities and risks to determine impact at a Group level
  • Management, measures and control
  • Monitoring and further development of the process

Organization of BASF Group’s risk management

The BASF Group’s risk management process is based on the international risk management standard COSO II Enterprise Risk Management – Integrated Framework, and comprises the following steps:

  • Identification of opportunities and risks

    The identification of opportunities and risks generally takes place decentrally, in the operational divisions and competence centers, using a variety of tools, such as expert interviews and team-based approaches. It is based on internal and external information sources as well as market, competitive and environmental analyses and statistical evaluations in addition to macroeconomic scenarios that evaluate important factors such as industry growth rates. The identification process is supported by our company-wide risk catalog, which acts as a checklist.

    Company management is informed about operational opportunities and risks in the monthly management report produced by the Corporate Controlling unit. Furthermore, if an individual risk is identified which has an impact on earnings of more than €10 million, it must be immediately reported. The Legal, Taxes & Insurance division and the Chief Compliance Officer report directly to the Board of Executive Directors on legal and tax risks as well as on compliance risks.

    As part of the strategy development for our strategic business units and when major investment decisions are to be made, the Strategic Planning & Controlling unit conducts opportunity/risk analyses for a ten-year period, together with the respective business units. These analyses are reviewed during the course of the strategic controlling and are updated if necessary.

  • Assessment and quantification

    Where possible, opportunities and risks are quantified as to their probability of occurrence and impact on profitability. The respective business plan serves as the reference base. In addition, we quantify the dependence of the individual business units on macroeconomic factors, such as exchange rates and raw materials prices.

  • Aggregation

    Opportunities and risks as well as the dependence on macroeconomic factors are aggregated on the division and group level using a Monte Carlo simulation to determine the spectrum of possible effects on profit and the probability distribution. Correlations between individual events and factors, as well as internal interactions within the Verbund, are taken into account.

  • Management, measures and control

    The management of opportunities and risks as well as the taking of measures occurs at the divisional level. Measures are taken at the BASF Group level for certain risks, such as risks associated with raw materials prices and exchange rates, which are partially reduced by Group-wide hedging effects. The details are governed by our risk management handbook, upon which divisional specific regulations are based. The Board of Executive Directors is regularly informed about the BASF Group’s aggregated opportunity and risk exposure by the Strategic Planning & Controlling and Finance corporate divisions.

  • Monitoring and development

    Corporate Audit regularly reviews our risk management system. As part of the annual audit, the external auditor assesses the proper functioning of the early risk detection system set up in accordance with Section 91 (2) of the German Stock Corporation Act. In order to continuously develop our risk management system, we regularly enter into discussions and share ideas with comparable industrial companies and service providers in the risk management field. When BASF was included in the Dow Jones Sustainability Index in September 2010, the company once again received special recognition for its risk management system.

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