Suppliers

Strategy

With our sustainability-oriented supply chain management, we contribute to risk management by clarifying our expectations and standards for our suppliers, and by supporting them in carrying out our specifications. We count on reliable supply relationships and want to make our suppliers’ contribution to sustainable development transparent. In order to achieve this, we set ourselves an ambitious goal: By 2020, we aim to evaluate the sustainability performance of 70% of the BASF Group’s relevant suppliers¹ pursuant to our risk-based approach and develop action plans for any necessary improvements. The proportion of evaluated relevant suppliers was at 32% by the end of 2016. Furthermore, our Procurement competence center supports BASF’s business units in developing solutions to stand out from the competition in addressing customers’ market-specific requirements.

Worldwide procurement

From our suppliers, we obtain raw materials, technical goods, and services – from technical to logistics and building facility services. BASF acquired raw materials, goods and services for our own production totaling approximately €34 billion in value from more than 70,000 suppliers around the world in 2016. Around 90% of this was locally sourced. With regard to our suppliers, there were no substantial changes in our value chain in 2016.

What we expect from our suppliers

• Global Supplier Code of Conduct
• Country-specific risk analysis forms basis of new supplier selection

Both new and existing suppliers are selected and evaluated not only on the basis of economic criteria, but also on environmental, social and corporate governance standards. Our Supplier Code of Conduct is founded on internationally recognized guidelines, such as the principles of the United Nations’ Global Compact, the International Labor Organization (ILO) conventions and the topic areas of the Responsible Care Initiative. The Code of Conduct covers compliance with human rights, labor and social standards, and antidiscrimination and anticorruption policies in addition to protecting the environment. The Code is available in 26 languages.

A country-based risk analysis forms the basis of our selection process for new suppliers. As a result of the country-related risks identified in South America and Asia, we queried around 2,100 suppliers in 2016 on their commitment to the values of our Supplier Code of Conduct. We moreover provided training to a total of 267 suppliers with an elevated sustainability risk, especially in Asia and South America, in 2016.

In addition, we instructed 292 procurement employees on sustainability-oriented supplier management. These are ways in which potential supply chain risks can be identified and minimized together with our suppliers.

Evaluating our suppliers

• “Together for Sustainability” initiative aims to harmonize and standardize supplier assessments and audits
• 104 raw material supplier sites audited

BASF is a founding member of the Together for Sustainability (TfS) initiative of leading chemical companies for the global standardization of supplier evaluations and auditing. With the help of TfS, we promote sustainability in the supply chain. The initiative aims to develop and implement a global program for the responsible supply of goods and services and improve suppliers’ environmental and social standards. The evaluation process is simplified for both suppliers and TfS member companies by a globally uniform questionnaire. The initiative’s members conducted a total of 1,773 sustainability assessments and 241 audits in 2016. Membership has tripled since the initiative was founded; there were 19 members in 2016.

We conducted a Supplier Day in Mumbai, India, in 2016 as part of the TfS initiative. TfS also provided training to suppliers at the annual China Petroleum and Chemical Industry Federation (CPCIF) Conference in Shanghai, China, in order to strengthen awareness for sustainability in the region.

Using TfS evaluations, we pursue a risk-oriented approach with clearly defined, BASF-specific follow-up processes. We drive these processes through a sustainability-oriented IT tool. Suppliers with an elevated sustainability risk are identified using risk matrices. Furthermore, our purchasers indicate the suppliers for whom they see a potentially elevated sustainability risk. We additionally check various information sources to see if any suppliers have been observed in connection with negative sustainability incidents. Based on these analyses, we audited a total of 104 raw material supplier sites on sustainability standards and had 551 sustainability assessments conducted by an external service provider in 2016.

If we identify potential for improvement, we support suppliers in developing measures to fulfill our standards. We conduct another review according to a defined timeframe based on the sustainability risk measured. If the weak points discovered were particularly severe and we are unable to confirm any improvement, we reserve the right to terminate the business relationship. This occurred in two cases in 2016. We use this approach to evaluate suppliers with an elevated sustainability risk at least every five years. The approach itself is reviewed every two years to identify possibilities for optimization.

Supplier training

In 2016, we continued our collaborations in China and Brazil to instruct suppliers on sustainability standards. We have developed a training program for China together with the East China University of Science and Technology in Shanghai. In Brazil, we are pursuing the same approach together with the Espaço Eco^® Foundation. Through these cooperations, 267 suppliers received training in 2016.

Audit results

Our audits have revealed some deviations with respect to working hours and payment of the minimum wage, especially in China. Here, we have called for improvements on the part of our suppliers. None of our 2016 audits identified instances of child labor. For the suppliers we reviewed, persons under 18 were excluded from overtime and dangerous work; we found one case of unauthorized night work. We did not find any incidences of forced labor in 2016.

In August 2012, during an extended mining strike involving workers of the London-based platinum supplier Lonmin Plc in Marikana, South Africa, the conflict escalated and culminated in a violent confrontation between mine workers and armed South African police. Lonmin mine workers were among the fatalities. In June 2015, the Farlam Report commissioned by the South African government was released on the incidents.¹

BASF undertook a thorough examination of the issues raised. We intensified our regular exchange with both Lonmin and with local stakeholders, such as leading industry and human rights representatives. Discussions included Lonmin’s measures for improving the living conditions of its workers.

At the end of 2015, BASF had an Environment, Social, Governance audit conducted at Lonmin by an internationally recognized audit firm, in accordance with enhanced TfS requirements. In the process, deficits were detected in areas such as the grievance process for workers and residents, as well as safety and security. Based on the results, BASF enhanced the questionnaire and expanded it with a view to industry-specific challenges in the mining sector. A follow-up audit conducted in January 2017 is currently being evaluated. We will use our sphere of influence within the platinum value chain to create awareness for industry-specific challenges and develop approaches for solutions together.