Taxonomy-aligned Sales Revenue, Capital Expenditures and Operating Expenditures

Taxonomy-aligned sales revenue, capital expenditures and operating expenditures with a substantial contribution to climate change mitigation

The taxonomy-eligible activities under the environmental objective of climate change mitigation identified by BASF can be classified as taxonomy-aligned if they make a substantial contribution to climate change mitigation and do no significant harm to other environmental objectives and, at the same time, ensure minimum social safeguards. As in the previous year, the contribution to climate change mitigation and harm to other environmental objectives were reviewed in a three-step process. The first step involved a two-part analysis based on BASF’s internal product databases:

• The manufacture of products was analyzed with respect to the use of critical substances in accordance with Appendix C¹ of the E.U. Commission’s Delegated Regulation 2021/2139 to avoid significant harm to the environmental objective of pollution prevention or control according to the E.U. taxonomy. This also included use in the production process. The amendment to the Delegated Regulation (E.U.) 2023/2485 published by the E.U. Commission in November 2023 was also taken into account. BASF voluntarily applied the full supplement, including Annex 1, point 28, for the 2023 financial year in order to ensure a continuous conformity assessment with regard to Appendix C for years subsequent to 2024. Experts assessed and documented in each case that no other suitable alternative substances or technologies are available on the market.
• Plastics in primary form were analyzed with respect to the share of renewable raw materials in the product. They were only considered further if this share was at least 5% and thus potentially made a substantial contribution to climate change mitigation through partial or complete production from renewable raw materials. Shares allocated using mass balance approaches were not taken into account here because their acceptance under the E.U. taxonomy has not yet been definitively clarified. For this reason, BASF products based on chemically recycled raw materials were not considered further in the assessment either. Mechanical recycling did not play any role for BASF here.

In the second step, it was assessed whether the potentially taxonomy-aligned products make a substantial contribution to climate change mitigation in accordance with the activity-specific criteria. Among other things, the greenhouse gas emissions of European and non-European plants to produce soda ash, chemicals and nitric acid were compared with the average values of the most efficient plants under the E.U. emissions trading system. For the production of hydrogen, chlorine, ammonia and plastics in primary form, the comparison was against activity-specific quantitative criteria, such as the energy or emission intensity of a product. This was based on a digital solution developed by BASF to determine product-specific CO₂ emissions (see Energy and Climate Protection). For the assessment of the investment in CO₂-free hydrogen production at the Ludwigshafen, Germany, site (construction of a proton exchange membrane electrolyzer), a funding approval by the German Federal Ministry for Economic Affairs and Climate Action and a study by the German Environment Agency on greenhouse gas emissions in hydrogen production were also taken into account.

Finally, in the third step of the process, it was assessed whether the products identified cause significant harm to the other environmental objectives. This included an analysis of risks arising from climate change using climate risk and vulnerability assessments. At sites with material climate risk, the existence of adaptation solutions was additionally analyzed and evaluated. The avoidance of significant harm to water and marine resources², biodiversity and ecosystems³, and pollution prevention and control were taken as given for production plants in Europe based on comprehensive and uniform regulatory requirements and additionally ensured through data queries. The conformity of non-European plants was assessed on a case-by-case basis. This was based on joint assessments by local and central experts using the evidence of local production requirements submitted.

The criteria for the minimum social safeguards as a further pillar of taxonomy alignment in accordance with Article 18 of the E.U. Taxonomy Regulation were reviewed for all activities across the BASF Group on the four core topics of human rights (including labor rights), corruption/bribery, taxation and fair competition, independent of the step-by-step process for the “contribution to climate change mitigation” and “harm to other environmental objectives” criteria. Minimum social safeguards were ensured by a systematic, integrated and risk-based approach to safeguarding our human rights due diligence obligations (see In Focus: Human Rights, Labor and Social Standards), by global labor and social standards, and by the Supplier Code of Conduct, among other things.

Taxonomy-aligned sales revenue accounted for 1.6% of the total sales revenue defined and reported in the BASF Group’s Consolidated Financial Statements in 2023. The “manufacture of batteries” made the largest contribution (1.2%). Taxonomy-aligned capital expenditures (including acquisitions and excluding goodwill in accordance with the E.U. taxonomy) accounted for 5.2% of the total investments reported in the Consolidated Financial Statements. At 4.1%, capital expenditures (additions to property, plant and equipment) on the “manufacture of batteries” contributed significantly here (additions to property, plant and equipment). We are also investing in a plant for the production of CO₂-free hydrogen, which will be commissioned in the coming years. This already meets the criteria for taxonomy alignment in 2023 and is accordingly recognized as an investment in accordance with Annex I, section 1.1.2.2. a) of the Delegated Regulation 2021/2178. Taxonomy-aligned operating expenditures accounted for 1.8% of total operating expenditures, with the largest contribution from the economic activity “manufacture of organic basic chemicals” (0.9%).

The increase in taxonomy-aligned sales revenue, capital expenditures and operating expenditures compared to the previous year was mainly due to the statutory adjustments to Appendix C of the Delegated Regulation 2021/2139, which BASF already applied in 2023 and which resulted in a taxonomy-aligned assessment of BASF’s battery manufacturing activities. Due to the legal amendments to Appendix C, BASF is able to report the sustainable contribution for products in complex value chains in accordance with the E.U. taxonomy for the first time in 2023.

The taxonomy-aligned figure is, as before, significantly lower than the taxonomy-eligible figure due to various factors. Only a small proportion of plastics in primary form contain a share of renewable raw materials above the threshold value. Additionally, the proportion of taxonomy-aligned activities is reduced by the fact that many plants exceed the benchmarks used by the E.U. taxonomy. For example, the strict requirement to calculate emissions in accordance with European emissions trading means that the benefits of renewable energies were not taken into account, which is why the investment in the steam crackers at the site in Zhanjiang, China, and the investment in a demonstration plant for electrified steam cracker furnaces at the Ludwigshafen site in Germany (see Energy and Climate Protection) had to be classified as not taxonomy-aligned despite avoiding a considerable amount of CO₂ emissions. In addition, plants that are not subject to emissions trading and thus cannot be assessed using the specified criteria were generally classified as not taxonomy-aligned.

• For more information on sales revenue, see Note 7 to the Consolidated Financial Statements
• More information on investments, see Note 14 to the Consolidated Financial Statements