Supplier Management

Strategy

• Sustainability-oriented supply chain management
• New goal for sustainability evaluations of relevant spend

Our partnerships with suppliers are based on mutual value creation, as well as a reliable supply of raw materials, technical goods and services at competitive prices. We work together in an open and transparent way to generate long-term benefits for both sides. In doing so, we create added value that goes above and beyond procurement alone, for example, by developing solutions to target market-specific customer requirements together with our suppliers. Our sustainability-oriented supply chain management contributes to risk management by clarifying our expectations and standards for our suppliers, and by supporting them in carrying out our requirements. We count on reliable supply relationships and want to make our suppliers’ contribution to sustainable development transparent to us. That is why we have set ourselves the goal of evaluating the sustainability performance of 70% of the BASF Group’s relevant suppliers¹ and developing action plans for any necessary improvements by 2020. The proportion of relevant suppliers evaluated by the end of 2018 was 60%. Due to the size and scale of our supplier portfolio, our suppliers are evaluated based on risk, including both country and industry-specific risks.

As part of the updated corporate strategy, we resolved in 2018 to step up our efforts to improve our sustainability performance along the supply chain in the future. To this end, we have expanded our sustainability evaluations of relevant suppliers and integrated these into a new goal to improve our sustainability performance in procurement: By 2025, we aim to have conducted sustainability evaluations for 90% of the BASF Group’s relevant spend² and will develop action plans where improvement is necessary. We will work towards having 80% of suppliers improve their sustainability performance upon re-evaluation.

Worldwide procurement

Our more than 70,000 Tier 1 suppliers play a significant role in value creation at our company. We work in long-term partnership with companies from different industries around the world. They supply us with important raw materials, chemicals, investment goods and consumables, perform a range of services and are innovation partners. BASF acquired raw materials, goods and services for our own production totaling approximately €38.5 billion in value in 2018. There were no substantial changes to our supplier structure in 2018.

What we expect from our suppliers

• Global Supplier Code of Conduct

New suppliers are selected and existing suppliers are evaluated not only on the basis of economic criteria, but also 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 U.N. Guiding Principles on Business and Human Rights, 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. We updated our Supplier Code of Conduct in 2018 in response to stricter requirements and new developments relating to the U.N. Guiding Principles on Business and Human Rights and the ILO. Issues such as modern slavery and human trafficking were incorporated, as well as our requirement that suppliers implement grievance mechanisms for their employees and stakeholders. We also added a reference to our own grievance mechanism – our compliance hotline, which suppliers and their employees can contact if they have questions or complaints. We are informing our existing suppliers of the updated Code of Conduct.

In 2018, we started the step-by-step rollout of a new registration portal for suppliers, in which our Code of Conduct is already integrated. This requires suppliers to commit to these values on registration. 4,866 suppliers did this and registered via the portal in 2018. A country-based risk analysis forms the basis of our selection process for new suppliers. Based on the country-related risks identified, we specifically asked suppliers in South America and Asia in particular to commit to the values of our Supplier Code of Conduct in 2018. Only those companies that have committed to our Code of Conduct actually became new suppliers.

Training and partnerships

In 2018, we continued our collaborations in relevant procurement markets such as China to instruct suppliers on sustainability standards. 116 suppliers received training in 2018 as part of a local partnership with the East China University of Science and Technology in Shanghai, for example. In addition, we instructed 962 BASF employees on sustainability-oriented supplier management and responsible procurement. These are ways in which potential supply chain risks can be identified and minimized together with our suppliers.

BASF is one of 11 founding members of the German Business Initiative for Sustainable Value Chains established by the German sustainability network econsense and the Wittenberg Center for Global Ethics (WCGE). As part of this initiative, we help suppliers to improve their sustainability performance, for example, through training. The first supplier training events of the initiative were held in 2018 in China and Mexico.

In Brazil, we work together with the nongovernmental organization Integrare, which promotes diversity in supply chains. Integrare supports small and medium-sized businesses run by people with disabilities or socially disadvantaged minorities, for example, by offering special training and actively encouraging partnerships with larger companies.

Evaluating our suppliers

• Together for Sustainability initiative aims to harmonize and standardize supplier assessments and audits

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 22 members of the initiative conducted a total of 3,767 sustainability assessments – including both initial and follow-up assessments – and 358 audits in 2018. In 2018, over 200 suppliers attended sustainability training in Shanghai as part of the TfS initiative. The initiative was named the “Best Third-Sector/Non-for-Profit Procurement Project” by the global Chartered Institute of Procurement Supply (CIPS) in September 2018.

Using TfS evaluations, we pursue a risk-oriented approach with clearly defined, BASF-specific follow-up processes. A total of 100 raw material supplier sites were audited on sustainability standards in 2018. We also received sustainability assessments for 546 suppliers from an external service provider. 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 did not occur in any case in 2018. We use this approach to evaluate suppliers with an elevated sustainability risk at least every five years. The approach itself is regularly reviewed to identify possibilities for optimization.

Audit results

The audits conducted over the past few years have identified some deviations with respect to environmental, social and corporate governance standards, for example in waste and wastewater management and relating to occupational safety, working hours and minimum wage. In the follow-up audits conducted in 2018, we found improvements in all areas. None of our 2018 audits identified instances of child labor. For the suppliers we reviewed, persons under 18 were excluded from overtime and dangerous work. We did not find any incidents of forced labor in 2018.

BASF undertook a thorough examination of the issues raised at platinum supplier Lonmin Plc, London, U.K., in connection with the events in Marikana, South Africa.³ In 2018, we continued our regular dialog with both Lonmin and with local stakeholders, such as leading industry and human rights representatives. Topics discussed with Lonmin included the results of the follow-up audit, which we commissioned an internationally recognized audit firm to perform in 2017. This audit identified positive developments in several areas such as working standards, as well as a number of gaps, for example, not implementing a local, anonymous grievance mechanism. Lonmin introduced this in 2018. We will continue to monitor the audit process and maintain our dialog with Lonmin. In 2018, BASF played an active role in the establishment of a sector initiative by several precious metal processing companies. The initiative aims to improve the long-term situation in South Africa’s platinum mining belt and tackle challenges together.