Opportunities and Risks

The goal of BASF’s risk management is to identify and evaluate opportunities and risks as early as possible and to take appropriate measures in order to seize opportunities and limit risks. The aim is to avoid risks that pose a threat to BASF’s continued existence and to make improved managerial decisions to create value. We define opportunities as potential successes that exceed our defined goals. We understand risk to be any event that can negatively impact the achievement of our short-term operational or long-term strategic goals.

In order to effectively measure and manage identified opportunities and risks, we quantify these where appropriate in terms of probability and economic impact in the event they occur. Where possible, we use statistical methods to aggregate opportunities and risks into risk factors. In addition, we use a qualitative evaluation scale for opportunities and risks if quantification is not possible. This enables us to not only evaluate economic impact but sustainability-related aspects as well. In this way, we achieve an overall view of opportunities and risks allowing us to aggregate risks at Group level and take effective risk management measures.

Overall assessment

For 2022, we expect the overall economic recovery to continue and the coronavirus pandemic to weaken as the population becomes increasingly immunized. General economic uncertainty will nevertheless remain high. The course of the pandemic is difficult to predict; in particular, mutations of the coronavirus may lead to further waves of infection. This can result in production stoppages and supply chain disruptions in our customer industries, with our suppliers and in our own production plants. Moreover, restricted economic activity resulting from further lockdowns can have a significant negative impact on aggregate demand. In addition, an ongoing low supply of energy and raw materials and the resulting high prices could cause inflation rates to rise further. This could dampen the production of energy-intensive products and consumer demand beyond our assumed level of slowed growth.

An escalation of geopolitical conflicts as well as the ongoing trade conflicts between the United States and China and the associated slowdown of the economy also pose significant risks.

Opportunities will arise from stronger demand growth, in particular from a greater reduction in pandemic-related risks than assumed by our forecasts. Rapidly increasing global vaccination rates and the approval of effective antiviral drugs against COVID-19 could be contributing factors.

In addition to the uncertainties surrounding market growth and the development of key customer industries, material opportunities and risks for our earnings arise from margin volatility.

According to our assessment, there continue to be no significant individual risks that pose a threat to the continued existence of the BASF Group. The same applies to the sum of individual risks, even in the case of a global economic crisis like the coronavirus crisis.

Ultimately, however, residual risks (net risks) remain in all entrepreneurial activities that cannot be ruled out, even by comprehensive risk management.

As a non-integral shareholding, income from Wintershall Dea is reported in net income from shareholdings. The opportunities and risks resulting from the shareholding in Wintershall Dea are therefore not included in the outlook for the EBIT of the BASF Group. Opportunities and risks that have an impact on net income from shareholdings and cash flow from the shares in Wintershall Dea are monitored and tracked through BASF’s involvement in the relevant governing bodies.