Strategic Opportunities and Risks
Long-term demand development
We assume that growth in chemical production (excluding pharmaceuticals) will be slightly higher than that of the global gross domestic product over the next five years and about as strong as the five-year average prior to the coronavirus pandemic. Through our market-oriented and broad portfolio, which we will continue to strengthen in the years ahead, for example, through investments in new production capacities, research and development activities or acquisitions, we aim to achieve volume growth that slightly exceeds this market growth. Should global economic growth see unexpected, considerable deceleration, for example, because of an ongoing weak period in the emerging markets, protectionist tendencies or bottlenecks in the energy markets, the expected growth rates could prove too ambitious. Additional risks arise from geopolitical tensions and outright military conflicts, which could impact supply chains and reduce efficiency in the international allocation of resources.
Moreover, the ambitions of global climate policy and its implementation will significantly impact the structure of demand from our customer industries. This is shown by a comparison of climate policy scenarios that envisage limiting global warming to below two degrees Celsius with alternative scenarios that allow for more warming. In ambitious climate policy scenarios, the structure of demand changes due to the use of alternative energy sources and raw materials, high investment in resource-conserving technologies, and changing customer preferences. By contrast, macroeconomic growth rates typically vary little compared with scenarios with pathways with higher levels of warming.
Market opportunities in such scenarios include, for example, alternative surface coatings for wind and solar modules, feedstocks that make plastics easier to recycle, stronger demand for insulation materials for buildings, increased electromobility with changed demand for plastics, insulation materials, coolants and battery materials, and more alternative proteins in agriculture. By contrast, fossil feedstocks and the production technologies and product segments based on fossil feedstocks will become less important. This requires further decarbonization of production processes and alternative sources of raw materials in order to remain competitive.
Development of competitive and customer landscape
We expect competitors from Asia, North America and the Middle East in particular to gain increasing significance in the years ahead, especially as a result of advantageous raw materials and energy prices. Furthermore, we predict that many producers in countries rich in raw materials will expand their value chains in consumer-oriented sectors. In addition, the proliferation of large-scale digital marketplaces for chemicals could impact existing customer and supplier relationships.
We expect a continuous rise in customer demand for sustainable solutions – for example, for products with a low carbon footprint, made from recycled, circular or bio-based raw materials that are biodegradable, or for products with other measurable sustainability benefits. However, an increase in customer demand for sustainable solutions is also highly dependent on regulation. Companies with a proven track record of providing more sustainable solutions will be able to achieve higher growth and profitability as a result. The expansion of sharing economy business models could have a long-term impact on demand in individual customer industries. At the same time, higher demands on product features can also create opportunities for innovation. We are therefore addressing these topics in research and investment offers for the sustainable transformation of BASF.
To strengthen our competitiveness, we are continuously improving our production processes, streamlining our administration and simplifying processes. Our research and business focus is on highly innovative businesses and differentiation through sustainability advantages to make our customers and BASF more successful.
Regulation/policy
We expect continued regulatory and societal pressure to achieve environmentally friendly energy production, emission-free energy consumption and a climate-neutral resource and raw material base. The political approaches to address these issues will vary greatly from region to region. However, particularly in Europe, we expect measures with a continuously high level of detailed regulation, including changes to chemical and industry-related regulations that have the potential to significantly impact the competitiveness of BASF’s operations and product portfolio as well as that of our customers.
We see the risk of the current geopolitical shifts leading to the establishment of uncoordinated or divergent global legislative standards and regulatory systems, not just in relation to chemicals or the regulatory framework for digitalization, but also to climate, environmental, social and corporate governance criteria. We see risks but also opportunities in the setting of international standards for specific product categories or technologies.
We explain our strategy in meetings with political decision-makers and social stakeholders. In doing so, we also inform ourselves of the changes we must undergo and advocate for a favorable and stable regulatory framework at both a national and international level. BASF is in a position to make significant contributions toward achieving the U.N. Sustainable Development Goals, particularly regarding climate neutrality, through new technologies, innovative products and processes and its broad product portfolio.
Innovation
We expect the trend toward increased sustainability requirements in our customer industries to continue. Our aim is to leverage the resulting opportunities in a growing market with more sustainable innovations. The key areas are products with a lower or even net-zero carbon footprint, circular economy solutions, and safe and sustainable products. To be successful in these fields, we have launched specific research and investment opportunities for the sustainable transformation of BASF. Furthermore, in order to steer our innovation portfolio toward increased sustainability, we also began applying the Sustainable Solution Steering method, revised in 2023, to the evaluation of innovation projects and integrated it at an early stage of our research and development processes.
There are technical and commercial risks of failure associated with every single research and development project. We address this by maintaining a balanced and comprehensive project portfolio as well as through professional, milestone-based project management.
Further risks may arise from increasing state protectionism and the demand for localization of intellectual property in order to achieve technological independence. Through our Know-How Verbund in research and development, we ensure that critical intellectual property is generated and protected in countries with high intellectual property standards.
We expect that the digital disruption of established processes will lead to a considerable increase in efficiency and effectiveness in some fields through the use of artificial intelligence, among other things. BASF is therefore committed to taking a leading role in the digital transformation of the chemical industry. Possible applications of digital technologies and solutions are evaluated along the entire value chain and implemented throughout the company, for example, in production, logistics, research and development, business models and corporate governance.
Procurement and supply chain
Strategic risks in procurement are of great importance to BASF, as they can impact the company’s long-term competitiveness and positioning. Strategic risks include structural changes on the global markets, climate change and political developments. Supply security for raw materials, energy and services is increasingly affected by trade disputes, protectionism, sanctions and geopolitical conflicts. To counter these risks, BASF relies on close cooperation with strategic suppliers and continuous monitoring of markets and trends.
We are also seeing an expansion of the regulatory framework affecting us and our suppliers (for example, the German Supply Chain Due Diligence Act or the E.U. Corporate Sustainability Due Diligence Directive). Potential noncompliance by our suppliers may lead to a reduced supplier base.
All risks are continuously analyzed and appropriate strategies and measures developed to avert risks or minimize the impact on BASF.
Investments
We expect growth in chemical production in emerging markets to remain above the global average in the years to come. This will create opportunities that we want to exploit by expanding our local presence. In addition, regional value chains help mitigate risks from trade conflicts and barriers that pose a challenge to global markets and supply chains.
Decisions on the type, scope and location of our investment projects are made on the basis of established comprehensive assessment processes. They take into account long-term forecasts for the market, margin and cost development, and raw materials availability, as well as country, currency, sustainability and technology risks. Opportunities and risks arise from potential deviations in actual developments from our assumptions. Mitigation plans are in place where risks are substantial.
Investments in more sustainable technologies represent a long-term opportunity, even though they may not be competitive or profitable in the short term, depending on the market and the prevailing regulatory framework.
Acquisitions/divestitures/cooperations
In the future, we will continue to expand and refine our portfolio through smaller, bolt-on acquisitions that promise above-average profitable growth, are innovation-driven or offer a technological differentiation and help achieve a relevant market position, and make new, sustainable business models possible.
The evaluation of opportunities and risks plays a significant role during the assessment of acquisition targets. A detailed analysis and quantification is conducted as part of due diligence. Examples of risks include increased staff turnover, delayed realization of synergies, or the assumption of obligations that were not precisely quantifiable in advance. If our expectations in this regard are not met, risks could arise, such as a need for impairment. Opportunities could also arise, for example, from additional synergies. We are also continuing to develop our portfolio through carve-outs and divestitures. In this context, risks could arise as a result of potential warranty claims or other contractual obligations, such as long-term supply agreements.
Personnel
BASF anticipates growing challenges in attracting and retaining qualified employees in the medium and long term. This is due to demographic change, particularly in North America and Europe. In addition, the chemical industry, which is heavily dependent on fossil raw materials, is increasingly viewed critically by the public. This increases the risk for the industry that job vacancies may not be filled or may be filled only after a delay, and therefore not enough qualified talent can be attracted, recruited and retained.
We address these risks with opportunities to strengthen our employer branding and our reputation (for example, our “Change for the climate” campaign). At local level, we are taking steps to strengthen employee engagement and we are implementing offers such as succession planning, knowledge management and initiatives to improve the balance between personal and professional life and promote healthy living. This increases BASF’s appeal as an employer and retains our employees in the long term.
Climate
Ongoing climate change also poses opportunities and risks for BASF. As an energy-intensive company, climate-related risks arise particularly from regulatory changes, such as in carbon prices through emissions trading systems, taxes or energy legislation. In addition, BASF’s emissions footprint and intensity could lead to a negative perception and reduced appeal among external stakeholders such as customers, investors and skilled workers. We counter these risks with our carbon management measures and by transparently disclosing our positions on and contributions to climate protection, for example, in the form of political demands or through progress in the implementation of our climate strategy, in publicly accessible sources such as this annual report or on the BASF website, and in direct dialog with external stakeholders.
To assess the changing physical risks for our sites from climate change, climate data based on the latest scenarios of the Intergovernmental Panel on Climate Change (IPCC) were compiled for our sites in cooperation with an external partner. This enables the sites to assess the potential physical impact of climate change in the coming decades. Here, we focus on a climate protection scenario, supplemented by two scenarios with medium and high levels of global warming.1 The most common potential impact is an increase in heat and drought. The sites are supported by this information in the development of their strategies. In the current reporting year, a specific analysis of physical climate risks was also carried out at selected sites. It is planned to expand this approach to all of BASF’s key sites in the next few years.
In addition to climate-related risks, there are also opportunities. Our broad product portfolio includes, among other things, solutions for the circular economy and climate protection, such as insulation foams for buildings, materials for electromobility or bio-based products. Increased societal demands and the resulting regulations offer additional market opportunities for these products. We are working with numerous scientific and public organizations and initiatives on solutions for sustainable agriculture that meet economic, environmental and social demands over the long term.
- More information on our sustainability concept
- More information on energy and climate protection
- More information on opportunities and risks from energy policies
- More information on our positions on and contributions to climate protection
1 The assessment model was based on the IPCC climate change scenario SSP1–2.6, supplemented by SSP2–4.5 (medium global warming scenario) and SSP5–8.5 (high global warming scenario).