Supplier Management

BASF sources a wide range of raw materials, precursors, technical goods and services. Our suppliers are an important part of our value chain. Our objective is to secure competitive advantages through our professional procurement structures, to establish stable and reliable supply chains, and at the same time, meet high ethical and environmental standards. Together with our suppliers, we want to improve sustainability in the supply chain and minimize risks.

Strategy

Our partnerships with suppliers are based on mutual value creation, as well as a reliable supply of raw materials, precursors, technical goods and services at competitive prices.² In doing so, we want to generate long-term benefits for both sides. Our sustainability-oriented supply chain management is an integral part of our risk management. We have defined our standards and processes in a global guideline. We are continually refining and optimizing this to respond to changes in the regulatory environment and new requirements resulting, for example, from new laws and initiatives at national and international level. Procurement management systems such as guidelines and targets are set centrally and are binding for all employees with procurement responsibility worldwide.

Our risk-based approach aims to identify and evaluate sustainability matters 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 2021, 250 BASF employees received such training.

Our expectations of our suppliers are laid down in the global Supplier Code of Conduct. This creates clarity around the standards to be met. We count on reliable supplier relationships and support our suppliers in implementing our requirements. In 2021, we also launched the Supplier CO₂ Management Program. With this program, we want to systematically gather data on upstream Scope 3 emissions to identify medium-term measures for optimization. We make our suppliers’ contribution to sustainable development transparent for us and for our stakeholders.

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Global targets

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 aim to have 80% of suppliers improve their sustainability performance upon re-evaluation by 2025. In 2021, 85% of the relevant spend had been evaluated. Of the suppliers re-evaluated in 2021, 74% had improved. Both global targets are embedded in the target agreements of persons responsible for procurement.

Worldwide procurement

Our more than 70,000 suppliers make an important contribution to our value creation. 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.

We acquired raw materials, goods and services for our own production worth approximately €43.5 billion in 2021. 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 (ESG) standards. We also expect our suppliers to make an effort to enforce 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 global 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, antidiscrimination and anticorruption policies, and protecting the environment. The Code of Conduct is available in the most relevant languages for our suppliers and integrated into electronic ordering systems and purchasing conditions across the Group. We revised our Supplier Code of Conduct in 2021 and added our expectations around the procurement of conflict minerals (tin, tantalum, tungsten, their ores and gold). Around 5,900 new suppliers committed to the Code of Conduct in 2021.

BASF conducts audits and assessments to ensure that suppliers comply with the applicable laws, rules and standards. BASF reserves the right to discontinue business relationships for non-adherence to international principles. The same applies to failure to correct violations, or for displaying patterns of non-compliance with these standards. Our Code of Conduct expressly points out that potential violations of laws, rules or standards can be reported – including anonymously – to our compliance hotlines. Each case is documented and investigated, and appropriate measures are taken as necessary.

Good to know

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 audits and evaluations 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 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.

A new program on Scope 3 emissions was launched in 2021. The aim is to develop a methodology for the chemical industry to calculate upstream greenhouse gas emissions in particular. TfS members can use this data to implement and manage emissions reduction programs.

At the end of 2021, TfS had 34 members with a combined procurement spend of around €267 billion. A total of 284 audits and 5,817 online assessments were performed. As a TfS member, BASF itself is assessed and in 2021 was ranked among the top 1% companies worldwide in the sustainable procurement category.

• More information on Together for Sustainability

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 ESG standards. As such, selection, evaluation and auditing is an important part of our sustainable supply chain management. Processes and responsibilities are defined in a global guideline. Due to the large number of suppliers, they are evaluated based on risk. We take into account the materiality of the supply relationship and country and industry-specific risks. We also use observations from our employees in procurement and information from internal and external databases, such as 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 86 raw material supplier sites were audited on sustainability standards on our behalf in 2021. We received sustainability evaluations for 701 suppliers. We also take into account other certification systems and external audits, such as from the Roundtable on Sustainable Palm Oil, when assessing our suppliers. Depending on business requirements, we additionally conduct our own Responsible Care audits at selected suppliers.

Audit results

We carefully analyze the results of our assessments and document them in a central database. The on-site 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 2021 identified improvements, for example, a reduction in health and safety risks following the implementation of appropriate measures and compliance with labor law requirements. In 2021, none of our audits identified any instances of child labor or dangerous work and overtime performed by persons under 18.

We maintained close dialog with our South African platinum supplier Sibanye-Stillwater⁴ in 2021 on the results of the audit from 2020, the implementation of the resulting action plan, and other relevant topics. This includes working with all stakeholders, including local authorities, to take a unified approach to community development. Almost all the needs for adjustment identified by the audit had been implemented by the end of 2021. BASF and Sibanye-Stillwater continue to discuss the progress made four times a year and also use this as a platform for dialog on other sustainability topics. 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 and sharing factors for success. BASF continued its regular dialog with local stakeholder groups in 2021. It also facilitated direct dialog between Sibanye-Stillwater and nongovernmental organizations active in this area.

We discuss sustainability matters with our supplier Nornickel and other aspects relevant to our cooperation on a monthly basis. These include current events and the findings from the mining-specific TfS audits. In 2021, TfS audits were carried out at Nornickel’s site in Polar, Russia. Nornickel seeks to join various industry initiatives that provide third-party verification of mining and responsible procurement standards, such as the International Council on Mining and Metals (ICMM) or the Initiative for Responsible Mining Assurance (IRMA). In addition, topics relevant to stakeholders were discussed in meetings with interest groups. The dialogs continue in various forms.

Supplier development

We use TfS evaluations to pursue a risk-based approach with clearly defined, BASF-specific follow-up processes. If we identify deviations from standards, we ask suppliers to develop and implement corrective measures within a reasonable time frame. We support them in their efforts, for example by training employees from 31 suppliers in China on ESG topics in 2021 as part of a partnership with the East China University of Science and Technology. In South America, around 190 suppliers took part in a diversity talk on gender equality in the supply chain, and around 340 suppliers attended a webinar on ethical principles, legislation and human rights in the supply chain.

As part of TfS, training was also developed for suppliers undergoing a sustainability evaluation for the first time and for suppliers that already have a sustainability rating but have potential for improvement in ESG performance. In 2021, more than 1,800 participants attended online TfS training on this topic in different languages. TfS is also developing a global learning platform for buyers and suppliers, which will provide various (online) training opportunities on specific sustainability topics. It is scheduled for launch in 2022.

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 2021, this happened in three cases.