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.

Where appropriate, we measure and manage opportunities and risks 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 to assess both business and sustainability aspects that cannot be quantified. 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 2023, we expect global economic growth to weaken as a result of high energy prices and inflation rates, rising interest rates and the phasing out of catch-up effects from the coronavirus pandemic. General economic uncertainty will remain exceptionally high.

A further escalation of geopolitical conflicts, for example in China, could lead to disruptions in global supply chains and greater restrictions on the supply of energy, industrial raw materials and intermediates. The war in Ukraine poses significant risks for market development in Europe.

Weaker growth in China as a result of ongoing pandemic-related disruptions may give rise to risks for supply chains as well as the development of global demand.

In addition, there is considerable uncertainty surrounding con­sumers’ reaction to the sharp rise in energy prices, inflation and the resulting loss of purchasing power. Opportunities will arise in par­ticular from stronger growth in demand resulting from an improved overall economic environment.

Due to the exceptionally volatile markets, especially in Europe, the risks arising from European gas price developments and the availability of natural gas cannot currently be reliably estimated. The assump­tions in our planning for 2023 are based on European gas prices that significantly exceed the 2019–2021 average. The overall assessment therefore does not include any additional opportunities or risks that could arise from the volatility of European gas prices.

The gas price brake in Germany and measures taken by other E.U. countries mean that these risks are partially mitigated by the state.

Furthermore, BASF will take internal measures, such as adjustments to production processes, if energy prices remain high. We are also responding to structurally higher energy costs with cost reduction measures.

We are continually monitoring the further development of natural gas prices. In the event of regulatory changes or changes in the market environment, we will adjust the overall assessment of opportunities and risks accordingly.

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.

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 AG 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.

• For more information on the non-integral, equity-accounted shareholding in Wintershall Dea, see Note 10 to the Consolidated Financial Statements