Supplier Management

Strategy

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.

Our sustainability-oriented supply chain management helps to manage risks. We have defined our standards and processes in global guidelines and are constantly refining and optimizing these. Our risk-based approach aims to identify and evaluate sustainability risks in our value chains as best possible to improve sustainability together with our suppliers. We regularly review and document progress based on the risk level. Employees with procurement responsibility receive ongoing training in sustainability-oriented supplier management and responsible procurement. In 2020, 462 BASF employees received such training.

Our expectations of our suppliers are laid down in the global Supplier Code of Conduct. This clarifies for our suppliers the standards to be met and supports them in carrying out our requirements. We count on reliable supply relationships and want to make our suppliers’ contribution to sustainable development visible to us.

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. In addition, we are working toward having 80% of suppliers improve their sustainability performance upon re-evaluation by 2025. In 2020, 80% of the relevant spend had been evaluated. Of the suppliers re-evaluated in 2020, 68% had improved. The global targets are embedded in the target agreements of persons responsible for procurement.

Worldwide procurement

Our more than 70,000 Tier 1 suppliers play an important 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, precursors, investment goods and consumables, perform a range of services and are innovation partners. Procurement management systems such as guidelines and targets are set centrally and are binding for all employees with procurement responsibility worldwide.

We acquired raw materials, goods and services for our own production worth approximately €31.5 billion in 2020. Of this, around 90% was procured locally.³ There were no substantial changes to our supplier structure.

What we expect from our suppliers

Together with our suppliers, we want to improve sustainability in the supply chain. Consequently, we expect our suppliers to comply with the applicable laws in full and to adhere to internationally recognized environmental, social and corporate governance standards. We also expect our suppliers to make an effort to implement these standards at their suppliers. In addition, we ask our suppliers to acknowledge, support and abide by our Supplier Code of Conduct – or to demonstrate and ensure their commitment to the principles specified in the Code of Conduct, for example in their own code of conduct. 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. Topics covered by the Code of Conduct include compliance with human rights, the exclusion of child and forced labor, safeguarding labor and social standards, and antidiscrimination and anticorruption policies in addition to protecting the environment. The Code of Conduct is available in the most relevant languages for our suppliers and is integrated into electronic ordering systems and purchasing conditions across the Group. In 2020, 4,918 new suppliers committed to our Code of Conduct.

BASF reserves the right to conduct audits or evaluations to ensure that suppliers comply with the applicable laws, rules and standards. In addition, BASF reserves the right to discontinue business relationships for non-adherence to international principles, failure to correct violations, or for displaying patterns of non-compliance with these standards. Potential violations of laws, rules or standards can be reported – including anonymously – to one of our more than 50 externally operated hotlines worldwide. Each case is documented and investigated, and appropriate measures are taken as necessary.

Selection and evaluation of our suppliers

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. As such, the selection, evaluation and auditing of suppliers is an important part of our sustainable supply chain management. Approaches and responsibilities are set out in a global guideline. Due to the size and scale of our supplier portfolio, our suppliers are evaluated based on risk, including materiality and country and industry-specific risks. We also use observations from our employees in procurement and information from internal and external databases, such as Together for Sustainability (TfS) assessments.

We have suppliers with a high potential sustainability risk evaluated by third parties, either through sustainability evaluations or on-site audits. The list of suppliers to be assessed is updated every year. Sustainability evaluations and on-site audits are mainly conducted according to the TfS framework. A total of 50 raw material supplier sites were audited on sustainability standards on our behalf in 2020. We received sustainability evaluations for 628 suppliers. We also take into account other certification systems and external audits, such as from the Roundtable on Sustainable Palm Oil, when evaluating our suppliers’ sustainability performance. Depending on business requirements, we additionally conduct our own Responsible Care audits at selected suppliers.

Together for Sustainability (TfS)

BASF is a founding member of Together for Sustainability (TfS). The initiative was established in 2011 to improve sustainability in the supply chain. The focus is on standardizing and simplifying supplier evaluations and audits globally. This increases transparency and creates synergies. Suppliers only have to complete an assessment process once. The results are then made available to all TfS members in a database and are mutually recognized – saving time and money for both parties. Suppliers are evaluated by independent experts either in on-site audits or online assessments. The latter are conducted by EcoVadis, a ratings agency specialized in sustainability analyses.

At the end of 2020, TfS had 29 members with a combined procurement spend of around €227 billion. A total of 258 audits and 4,675 online assessments were performed. As a TfS member, BASF itself is assessed and was one of the best-rated companies in 2020. With 80 points in sustainable procurement, BASF is among the top 1% in this category worldwide.

More information on Together for Sustainability

Audit results

We carefully analyze the results of sustainability evaluations and on-site audits and document these in a central database. The supplier audits conducted over the past few years have identified some need for adjustment with respect to environmental, social and corporate governance standards, for example in waste management or deviations in occupational health and safety measures and standards under labor law. Follow-up audits in 2020 identified improvements, for example the correct storage of hazardous substances, proper disposal of waste, the implementation of occupational and process safety measures, the correct implementation of emergency plans, and compliance with labor law requirements. In 2020, none of our audits identified any instances of child labor or dangerous work and overtime performed by persons under 18.

In January 2020, a full mining-specific re-audit was performed at our platinum supplier Sibanye-Stillwater in Marikana, South Africa,⁴ in accordance with TfS standards to re-evaluate the situation following the previous audits in 2015 and 2017. This identified fundamentally solid management systems at Sibanye-Stillwater in line with good industry practice and international standards, especially in the area of health and safety. The audit also recognized the significant efforts by Sibanye-Stillwater since the acquisition of Lonmin in 2019 in the area of social engagement, as well as the establishment of an inclusive stakeholder engagement forum. These include maintaining the cooperation between Sibanye-Stillwater and the authorities to improve local living conditions. In addition, the audit team recommended that the implementation and management of the social engagement strategy continue to be systematically monitored.

Need for action was identified in areas such as health and safety and the environment, for example in storing corrosive substances, firefighting capabilities and compliance with soil and water emission limits. All of the deviations identified by the audit were included in an action plan. BASF and Sibanye-Stillwater discuss the progress made on its implementation four times a year. The improvements were documented by the end of 2020 as planned. Sibanye-Stillwater is a member and supporter of the International Platinum Group Metals Association (IPA) sustainability initiative that was co-founded by BASF. The initiative’s 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 2020.

We are also in regular contact with our supplier Nornickel on sustainability matters and other aspects relevant to our cooperation. These include current events and the findings from the mining-specific TfS audits conducted in 2017 at Nornickel’s sites in Polar and Kola (both in Russia) and in Harjavalta, Finland. The audits identified some need for adjustment in the areas of waste, wastewater, emissions and land rehabilitation to mitigate environmental and production risks. A number of points have since been implemented, while others are still outstanding and are included in site-specific action plans. In addition, Nornickel has committed to becoming certified according to the standards of the International Council on Mining and Metals (ICMM) and the Initiative for Responsible Mining Assurance (IRMA). This involves comprehensive audits, which are planned for 2021.

Supplier development

Using TfS evaluations, we pursue a risk-oriented approach with clearly defined, BASF-specific follow-up processes. If we identify deviations from our standards, we ask our suppliers to develop and implement corrective measures within a reasonable time frame. We support them in their efforts, for example by providing training on environmental, social and corporate governance topics. We trained employees from 43 Chinese suppliers in 2020 as part of a partnership with the East China University of Science and Technology in Shanghai, China.

As part of TfS, training was developed for suppliers that already have a sustainability rating but have potential for improvement in environmental, social and corporate governance. In 2020, more than 1,000 participants attended TfS training on this topic in China and Brazil. The TfS Supplier Academy is also developing training opportunities for our suppliers around the world. These will be implemented in 2021.

We review our suppliers’ progress according to a defined timeframe based on the sustainability risk identified, or after five years at the latest. In the case of ongoing, serious violations of the standards defined in our Supplier Code of Conduct or international principles, we reserve the right to impose commercial sanctions. These can go as far as termination of the business relationship. In 2020, this was decided in four cases.