Supplier Management

Strategy

• Sustainability-oriented supply chain management
• New goals 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.¹ We work together in an open and transparent way to generate long-term benefits for both sides. In doing so, we create value added that goes above and beyond procurement alone. For example, we develop 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.

Due to the size and scale of our supplier portfolio, our suppliers are evaluated based on risk, including both country and industry-specific risks. We actively promote sustainability in the supply chain and have set ourselves ambitious targets for this: 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. In 2019, 81% of the relevant spend had been evaluated. Of the suppliers re-evaluated in 2019, 52% had improved. The global targets are embedded in the personal goals of persons responsible for procurement.

Worldwide procurement

Our more than 75,000 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 raw materials, chemicals, investment goods and consumables, perform a range of services and are innovation partners. We acquired raw materials, goods and services for our own production worth approximately €34.5 billion in 2019. There were no substantial changes to our supplier structure.

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.

A registration portal incorporating our Supplier Code of Conduct was introduced in 2019 for all suppliers of technical goods, services and investment goods. In 2019, 1,596 new suppliers committed to our values via the portal. We specifically ask new raw materials suppliers to commit to the values of our Supplier Code of Conduct. Companies that do not accept our values are not taken on as new suppliers.

Training and partnerships

In Brazil, we trained employees from 81 suppliers on topics such as how the United Nations’ Sustainable Development Goals (SDGs) can be implemented. We trained employees from 49 suppliers in 2019 as part of a local partnership with the East China University of Science and Technology in Shanghai.

BASF is one of 11 founding members of the econchain – German Business Initiative for Sustainable Value Chains initiative coordinated by the German sustainability network econsense. As part of this initiative, we help suppliers to improve their sustainability performance through training. Following successful pilot supplier training, which we started in 2018 in China and Mexico and completed in 2019, the concept was enhanced and refined to roll out the training further in 2020.

In addition, we instructed 229 BASF employees with procurement responsibility on sustainability-oriented supplier management and responsible procurement. This strengthens employee awareness to identify and minimize potential risks in the supply chain.

Evaluating our suppliers

• Together for Sustainability initiative aims to harmonize and standardize supplier assessments and audits
• Risk-based approach with clearly defined internal follow-up processes

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 4,197 sustainability assessments – including both initial and follow-up assessments – and 309 audits in 2019. TfS has developed training for suppliers that already have a sustainability rating but have potential for improvement in environmental, social and corporate governance. In 2019, more than 200 participants attended training on this topic in China.

Using TfS evaluations, we pursue a risk-oriented approach with clearly defined, BASF-specific follow-up processes. A total of 81 raw material supplier sites were audited on sustainability standards on our behalf in 2019. We also received sustainability assessments for 537 suppliers from an external service provider. If we identify potential for improvement, we support suppliers in developing measures to fulfill our standards, such as providing training on environmental, social and corporate governance topics. We conduct another review according to a defined timeframe based on the sustainability risk measured. BASF reserves the right to discontinue any business relationship for non-adherence to international principles, failure to correct violations, or for displaying patterns of non-compliance with these standards. This did not occur in any case in 2019. We use this approach to evaluate suppliers with a potential 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, deviations in occupational safety measures and standards under labor law. Follow-up assessments in 2019 found, for example, that hazardous materials were stored correctly, wastewater was treated properly, there were sufficient emergency exits and trained emergency teams, and that labor laws were complied with. In 2019, none of our audits identified any instances of child labor or dangerous work and overtime performed by persons under 18. Further audits will be conducted at two suppliers due to lack of documentation.

BASF reviewed and assessed the issues raised at the platinum supplier Lonmin Plc,³ London, United Kingdom, in connection with the events in Marikana, South Africa. Lonmin was acquired by Sibanye-Stillwater on June 10, 2019. BASF initiated a dialog with Sibanye-Stillwater at an early stage on the results of the two audits of Lonmin in 2015 and 2017 and the measures arising from these. In January 2020, a full mining-specific re-audit was performed in accordance with the standards of the chemical industry’s “Together for Sustainability” (TfS) initiative to re-evaluate the situation and identify current need for action. Sibanye-Stillwater is a member and supporter of the International Platinum Group Metals Association (IPA) sustainability initiative that was co-founded by BASF. Under this initiative, the most important platinum mines and fabricators in South Africa and their customers – like BASF – are working to improve local living and working conditions. Measures include conducting comprehensive sustainability audits in the South African platinum group metals sector and exchanging factors for success. BASF continued its regular dialog with local stakeholder groups in 2019.