A Associated companies Associated companies are entities in which significant influence can be exercised over their operating and financial policies and which are not subsidiaries, joint ventures or joint operations. In general, this applies to companies in which BASF has an investment of between 20% and 50%. B Barrel of oil equivalent (BOE) A barrel of oil equivalent (BOE) is an international unit of measurement for comparing the energy content of different fuels. It is equal to one barrel of crude oil, or 6,000 cubic feet (169 cubic meters) of natural gas. Biotechnology Biotechnology includes all processes and products that make use of living organisms, such as bacteria and yeasts, or their cellular constituents. Breakthrough innovations Breakthrough innovations are radically new products, applications, processes, services or business models that have a significant potential competitive advantage and a disruptive effect on the market. They can also be achieved by combining individual innovations and existing technologies to create a new, complex system. Breakthrough innovations open up new high-tech fields, markets or industries, generating value added and benefits for society. C Capital expenditures (capex) We define capex as additions to property, plant and equipment excluding additions from acquisitions, IT investments, capitalized exploration, restoration obligations and right-of-use assets arising from leases. CDP The international nonprofit organization CDP (formerly the Carbon Disclosure Project) analyzes environmental data of companies. The CDP’s indexes serve as assessment tools for investors. CO2 equivalents CO2 equivalents are units for measuring the impact of greenhouse gas emissions on the greenhouse effect. A factor known as the global warming potential (GWP) shows the impact of the individual gases compared with CO2 as the reference value. Commercial paper program The commercial paper program is a framework agreement between BASF and banks regarding the issuing of debt obligations on the financial market (commercial paper). The commercial paper is issued under a rolling program for which the terms can be determined individually. This requires a good rating. Competency Model BASF’s Competency Model is derived from our corporate strategy and our values, and translates these into specific day-to-day behavioral standards. It is applicable worldwide, creating a common framework for the conduct of all BASF employees and leaders to enable us to reach our shared goals. The eight competencies are: Drive Innovation, Collaborate for Achievement, Embrace Diversity, Communicate Effectively, Drive Sustainable Solutions, Develop Self and Others, Act with Entrepreneurial Drive, Demonstrate Customer Focus. Compliance Compliance is an important element of corporate governance. It refers to the company’s behavior in accordance with laws, guidelines and voluntary codices. D Dodd-Frank Act The Dodd-Frank Act issued in 2010 comprises accounting and disclosure obligations for publicly listed U.S. companies regarding the use of certain raw materials that come from the Democratic Republic of the Congo or its bordering countries. The companies must prove that the materials they use do not come from mines in these conflict areas. The definition of conflict minerals as per the Dodd-Frank Act includes the following materials and their derivatives: Columbitetantalite (coltan), cassiterite, wolframite and gold. E EBIT Earnings before interest and taxes (EBIT): At BASF, EBIT corresponds to income from operations. EBIT after cost of capital EBIT after cost of capital is calculated by deducting the cost of capital from the EBIT of the segments. The cost of capital thereby reflects the shareholders’ expectations regarding return (in the form of dividends or share price increases) and interest payable to creditors. If the EBIT after cost of capital has a positive value, we have earned a premium on our cost of capital. EBITDA Earnings before interest, taxes, depreciation and amortization (EBITDA): At BASF, EBITDA corresponds to income from operations before depreciation and amortization (impairments and reversals of impairments). EBITDA margin The EBITDA margin is the margin that we earn on sales from our operating activities before depreciation and amortization as a percentage of EBITDA. It is calculated as income from operations before depreciation, amortization and valuation allowances as a percentage of sales. Eco-Efficiency Analysis The Eco-Efficiency Analysis is a method developed by BASF for assessing the economic and environmental aspects of products and processes. The aim is to compare products with regard to profitability and environmental compatibility. Emerging markets We define the emerging markets as Greater China, the ASEAN countries (Brunei, Indonesia, Malaysia, Myanmar, Cambodia, Laos, the Philippines, Singapore, Thailand, Vietnam), India, Pakistan and Bangladesh; Central and South America; eastern Europe; the Middle East, Turkey and Africa. Enhanced Oil Recovery (EOR) Enhanced oil recovery (EOR) methods, also called tertiary recovery or tertiary production methods, are used to increase the recovery factor from oil reservoirs. Different technologies are employed depending on reservoir conditions; a distinction is generally made between thermal and chemical EOR and miscible gas flooding, which makes use of gases such as carbon dioxide. Equity method The equity method is used to account for shareholdings in joint ventures and associated companies. Based on the acquisition costs of the shareholding as of the acquisition date, the carrying amount is continuously adjusted to the changes in equity of the company in which the share is held. European Water Stewardship (EWS) Standard The European Water Stewardship (EWS) Standard enables businesses and agriculture to assess the sustainability of their water management practices. The criteria are water abstraction volumes, water quality, conservation of biodiversity and water governance. The Europe-wide standard came into force at the end of 2011 and was developed by nongovernmental organizations, governments and businesses under the direction of the independent organization European Water Partnership (EWP). Exploration Exploration refers to the search for mineral resources, such as crude oil or natural gas, in the Earth’s crust. The exploration process involves using suitable geophysical methods to find structures that may contain oil and gas, then proving a possible discovery by means of exploratory drilling. F Field development Field development is the term for the installation of production facilities and the drilling of production wells for the commercial exploitation of oil and natural gas deposits. Formulation Formulation describes the combination of one or more active substances with excipients like emulsifiers, stabilizers and other inactive components in order to improve the applicability and effectiveness of various products, such as cosmetics, pharmaceuticals, agricultural chemicals, paints and coatings. Free cash flow Free cash flow is cash provided by operating activities less payments made for property, plant and equipment and intangible assets. G Global Compact In the United Nations Global Compact network, nongovernmental organizations, companies, international business and employee representatives, scientists and politicians work on aligning global business with the principles of sustainable development. Global Product Strategy (GPS) The Global Product Strategy aims to establish global product stewardship standards and practices for companies. The program, initiated by the International Council of Chemical Associations, strives to ensure the safe handling of chemicals by reducing existing differences in risk assessment. Global Reporting Initiative (GRI) The Global Reporting Initiative is a multistakeholder organization. It was established in 1997 with the aim of developing a guideline for companies’ and organizations’ voluntary reporting on their economic, environmental and social activities. The GRI Guidelines became global GRI Standards in 2016. Greenhouse Gas Protocol (GHG Protocol) The Greenhouse Gas Protocol, used by many companies in different sectors as well as nongovernmental organizations and governments, is a globally recognized standard to quantify and manage greenhouse gas emissions. The reporting standards and recommendations for implementing projects to reduce emissions are jointly developed by companies, nongovernmental organizations and governments under the guidance of the World Resources Institute and the World Business Council for Sustainable Development. H Health Performance Index (HPI) The Health Performance Index is an indicator developed by BASF to provide more detailed insight into our approach to health management. It comprises five components: confirmed occupational diseases, medical emergency drills, first aid, preventive medicine and health promotion. I IAS IAS stands for International Accounting Standards (see also IFRS). IFRS The International Financial Reporting Standards (until 2001: International Accounting Standards, IAS) are developed and published by the International Accounting Standards Board, headquartered in London, England. The “IAS Regulation” made the application of IFRSs mandatory for listed companies headquartered in the European Union starting in 2005. ILO Core Labor Standards The ILO Core Labor Standards are set out in a declaration of the International Labor Organization (ILO), comprising eight conventions that set minimum requirements for decent working conditions. ISO 14001 ISO 14001 is an international standard developed by the International Organization for Standardization (ISO) that determines the general requirements for an environmental management system for voluntary certification. ISO 19011 ISO 19011 is an international standard developed by the International Organization for Standardization (ISO) that also serves as a guide for auditing management systems, for example for occupational health and safety, energy, quality and environmental management. ISO 50001 ISO 50001 is an international standard developed by the International Organization for Standardization (ISO) that determines the general requirements for an energy management system for voluntary certification. ISO 9001 ISO 9001 is an international standard developed by the International Organization for Standardization (ISO) that determines minimum requirements for a quality management system for voluntary certification. J Joint Arrangement A joint arrangement refers to joint ventures and joint operations, and describes a jointly controlled arrangement of two or more parties. This arrangement exists if decisions about relevant activities require the unanimous consent of all parties sharing control. Joint Operation A joint operation is a joint arrangement in which the parties that share control have direct rights to the assets and liabilities relating to the arrangement. For joint operations, the proportional share of assets, liabilities, income and expenses are reported in the BASF Group Consolidated Financial Statements. Joint Venture A joint venture is a joint arrangement in which the parties that have joint control of a legally independent entity have rights to the net assets of that arrangement. Joint ventures are accounted for using the equity method in the BASF Group Consolidated Financial Statements. L Long-term incentive program (LTI) The long-term incentive program is a share price-based compensation program primarily for senior executives of the BASF Group and members of the Board of Executive Directors. The program aims to tie a portion of the participants’ annual variable compensation to the long-term, absolute and relative performance of BASF shares by making an individual investment in the company’s stock. M Materiality analysis/material aspects BASF uses the materiality analysis to determine the significance of sustainability topics based on internal analyses and the expectations of external stakeholders. MDI MDI stands for diphenylmethane diisocyanate and is one of the most important raw materials for the production of polyurethane. This plastic is used for applications ranging from the soles of hightech running shoes and shock absorbers for vehicle engines to insulation for refrigerators and buildings. Million British thermal unit (mmBtu) The British thermal unit (Btu) is a unit of energy observed in the Anglo- American measuring system. It is used for indicating values such as the energy content of gas. One mmBtu (million British thermal units) is equal to approximately 1,003 cubic feet of gas or 28 cubic meters of gas. Monitoring system Monitoring systems and tools serve to measure and ensure the adherence to standards. One area that is monitored is our voluntary commitments, such as the adherence to human rights and internationally recognized labor standards. MSCI World Chemicals Index The MSCI World Chemicals Index is a stock index that includes the world’s biggest chemical companies. It measures the performance of the companies in the index in their respective national currencies, thus considerably reducing currency effects. N Nanomaterials The International Organization for Standardization defines nanomaterials as materials with one or more external dimensions on a nanoscale or with internal structure or surface structure on a nanoscale. For regulatory purposes, there are additional definitions for nanomaterials worldwide. Naphtha Naphtha is petroleum that is produced during oil refining. Heavy naphtha is the starting point for gasoline production. Light naphtha is the most important feedstock for steam crackers. NMVOC (Nonmethane Volatile Organic Compounds) VOCs (volatile organic compounds) are organic substances that are present in the air as gas at low temperatures. These include some hydrocarbons, alcohols, aldehydes and organic acids. NMVOCs are VOCs from which methane is excluded. O OHSAS 18001 The Occupational Health and Safety Assessment Series (OHSAS) includes the standard OHSAS 18001, which contains a framework for an occupational safety management system. This system can be integrated into an existing quality and environmental protection management system and certified accordingly. P Peak sales potential The peak sales potential of the Agricultural Solutions pipeline describes the total peak sales generated for individual products in the research and development pipeline. Peak sales are the highest sales value to be expected from one year. The pipeline comprises innovative products that have been on the market since 2018 or will be launched on the market by 2028. Process safety incidents (PSI) Process safety incidents (PSI) is a worldwide harmonized industry metric used to report events involving the release of a substance or energy where this exceeds defined thresholds. BASF has used the criteria and reporting thresholds developed by the International Council of Chemical Associations (ICCA) since 2018. Propylene oxide (PO) Propylene oxide (PO), a very reactive compound, is generated by the oxidation of propylene and is used as basic chemical for further processing in the chemical industry. R REACH REACH is a European Union regulatory framework for the registration, evaluation, authorization and restriction of chemicals, and was implemented gradually by 2018. Companies are obligated to collect data on the properties and uses of produced and imported substances and to assess any risks. Renewable resources The term renewable resources refers to components from biomass used for industrial purposes that originate from different sources, for example, plants and microorganisms. Among other applications, renewable resources are used as feedstock for manufacturing numerous products. Responsible Care® Responsible Care® refers to a worldwide initiative by the chemical industry to continuously improve its performance in the areas of environmental protection, health and safety. Retention Profits generated can be used in two ways: distribution to shareholders or retention within the company. Return on assets Return on assets describes the return we make on the average assets employed during the year and reflects this return independent of the capital structure. It is calculated as income before taxes and noncontrolling interests plus interest expenses as a percentage of average assets. ROCE Return on capital employed (ROCE) is a measure of the profitability of our operations. This is calculated as the EBIT generated by the segments as a percentage of the average cost of capital basis. The average cost of capital basis corresponds to the operating assets of the segments plus the customer and supplier financing not included there and is calculated using the month-end figures. S SEEbalance® SEEbalance® is the SocioEcoEfficiency analysis developed by BASF. It can be used to evaluate and compare the environmental impact, costs and social aspects of products and manufacturing processes. SEEbalance® makes sustainable development measurable and manageable for companies by combining the three dimensions of sustainability – economy, environment and society – in an integrated product assessment tool. Special items Special items arise from the integration of acquired businesses, restructuring measures, impairments, gains or losses resulting from divestitures and sales of shareholdings, and other expenses and income that arise outside of ordinary business activities. Spot market (cash market) A spot market is a market where an agreed-upon deal, including delivery, acceptance and payment, occurs immediately, as opposed to forward contracts, where the delivery, acceptance and payment occurs at a point in time after the conclusion of the deal. Steam cracker A steam cracker is a plant in which steam is used to “crack” naphtha (petroleum) or natural gas. The resulting petrochemicals are the raw materials used to produce most of BASF’s products. Sustainable Solution Steering We use Sustainable Solution Steering to review and guide our portfolio in terms of sustainability. The four categories – Accelerators, Performers, Transitioners and Challenged – indicate how our products and solutions already comply with sustainability requirements and how we can increase their contribution. T TDI TDI stands for toluene diisocyanate and is a raw material for the production of polyurethane. It is used primarily in the automotive industry (for example, in seat cushions and interiors) and the furniture industry (for example, for flexible foams for mattresses or cushioning, or in wood coating). Tier 1 suppliers “Tier” is used in combination with a number (Tier 1, Tier 2, etc.) and indicates a supplier’s position in the supply chain. Tier 1 suppliers are suppliers that deliver directly to producing companies. Suppliers usually work together with other suppliers, which are categorized as Tier 2, Tier 3, etc. based on their role in the value chain. Traits Traits are commercial plant characteristics, such as an inherent resistance to certain herbicides or an inherent defense against certain insects. TUIS TUIS is a German transport accident information and emergency response system jointly operated by around 130 company fire departments within the chemical industry and specialists. The member companies can be reached by the public authorities at any time and provide assistance over the telephone, expert on-site advice or special technical equipment. V Value chain A value chain describes the successive steps in a production process: from raw materials through various intermediate steps, such as transportation and production, to the finished product. Verbund In the BASF Verbund, production facilities and technologies are intelligently networked, with high-output chemical processes that use energy and resources efficiently. The by-products of one plant serve as feedstock elsewhere, creating efficient value chains – from basic chemicals to high value-added solutions such as coatings or crop protection products. Our Verbund concept – realized in production, technologies, the market and digitalization – enables innovative solutions for a sustainable future. W Water stress areas We previously defined water stress areas as areas in which water represents a scarce resource, and where people use 60% or more of the water available. The most important factors leading to water scarcity are: low precipitation, high temperatures, low air humidity, unfavorable soil properties and high water abstraction rates. From 2019 onward, we will expand our definition of water stress areas and report on regions in which 40% or more of available water is used by industry, household and agriculture.