Double Materiality Assessment

ESRS 2 SBM-3, ESRS 2 IRO-1

Material impacts, risks and opportunities and their interaction with strategy and business model

Process

We carried out a double materiality assessment in accordance with the ESRSs for the first time in 2024. The assessment was performed on the basis of previous double materiality assessments, but with an increased level of granularity and more extensive documentation. The materiality assessment identifies the sustainability matters that are material for our company based on potential and actual material impacts, risks and opportunities. We plan to update this assessment on an annual basis.

The materiality assessment was performed in three steps:

First, we compiled a list of potential sustainability matters that might impact our own business and the associated customer industries, or that could be relevant to our stakeholder groups. Where applicable, we paid particularly close attention to areas of business or value chains that are subject to risk. Our assessment was carried out at BASF Group level along our value chain. Stakeholder interests were considered based on both direct and indirect inputs. Direct input was obtained, for example, from our Advisory Councils, from the BASF Civil Society Forum and via discussions in multistakeholder networks. Indirect input consisted of big data analyses of the interests of customers and capital markets, for example.

Based on the compiled sustainability matters, we worked with in-house experts and selected stakeholders in our Nature Advisory Council and our Human Rights Advisory Council to identify and validate the risks and opportunities associated with the company’s impacts and dependencies. We focused on activities, sites and steps in the value creation process that have an elevated potential for negative impacts and risks. To identify sustainability-related opportunities and risks, we drew on findings from BASF’s Group-wide opportunity and risk management, among other sources. Material sustainability matters have been systematically integrated into this process for many years. Furthermore, our impacts and dependencies were reviewed by subject matter experts to identify additional potential risks and opportunities.

Opportunities and risks were assessed in terms of their financial magnitude and likelihood of occurrence. In-house subject matter experts used predefined criteria to score opportunities and risks based on existing risk management methods and assessment criteria. Our objective here is to ensure that a uniform methodology is applied when assessing both financial risks and sustainability-related risks. We look at our financial risks and our sustainability-related risks and prioritize them based on their severity and likelihood of occurrence. In the identification and review process, we work closely with our opportunity and risk management organization. The findings from the materiality assessment will serve as the basis for documenting opportunities and risks going forward, thus validating them at the same time. New risks and opportunities will be incorporated into the materiality assessment via their inclusion in the opportunity and risk management process.

ESRS 2 IRO-2

In the last step, we scored impacts, risks and opportunities on the basis of predetermined criteria on a 5-point scale and classified them as material whenever they exceeded defined thresholds. A uniform assessment framework was used to review impacts in terms of their severity, scale and scope. In the case of negative impacts, we additionally assessed the extent to which an impact was irremediable. In addition, we estimated the likelihood of occurrence for potential impacts. To identify material impacts, we established a uniform threshold based on the sum of the factors assessed. This threshold was assigned a higher weighting to negative impacts.

In a subsequent iterative process, our assessment was reviewed by interdisciplinary experts as well as the experts responsible for corporate opportunity and risk reporting. This process ensured that the assessment logic used in the materiality assessment was applied in a consistent manner throughout the BASF Group and across all specialist units. Finally, the Board of Executive Directors, the Supervisory Board, BASF’s Joint Works Council and the BASF Works Council Europe were informed about the process and the outcome of the materiality assessment.

After identifying the material impacts, risks and opportunities, each was assigned to a specific topic, subtopic or sub-subtopic according to the list of sustainability matters in ESRS 1 AR 16 with the aim of determining materiality across all topics. The responsible subject matter experts subsequently allocated all applicable Disclosure Requirements and qualitative as well as quantitative data points to the material sustainability matters. In the following step, the subject matter experts worked with experts for the overarching materiality process to assess the “materiality of information” at the disclosure requirement and data point level using the European Financial Reporting Advisory Group (EFRAG) criteria of “decision-usefulness” and “stakeholder relevance” according to ESRS 1 Appendix E. This aims to increase the informational value of our reporting at the data point level with a view to the purpose of the regulatory policy, which is to promote financing of the transition toward sustainable development.

Results

ESRS 2 SBM-3, ESRS IRO 1

The previous double materiality assessments were designed to meet all legal requirements in place at the time. The new ESRS requirements, in combination with the implementation guidance published, required a more in-depth analysis of subtopics and sub-subtopics for the 2024 business year. Moreover, an additional level of granularity was created by working with potential and actual impacts, risks and opportunities. Due to the methodological differences, our previous assessments are only comparable with the assessment of double materiality performed in 2024 at the highest level of abstraction, the topic level. This comparison shows a high degree of correlation between earlier assessments and the results reported for the 2024 business year
(see BASF Report 2023, Our Key Sustainability Topics). No entity-specific topics beyond the ones defined in the ESRSs were identified in the assessment for 2024.

As a manufacturing company, the main impacts of our business relate to climate change (mainly due to our energy requirements), other environmental matters (emissions to air, water and biodiversity) and our company’s workforce. The opportunities and risks identified have financial effects that affect the presentation of our financial position, financial performance and cash flow as disclosed pursuant to our accounting policies. In 2024, financial effects arose in connection with a risk identified in the S3 Affected Communities standard. The risk describes the negative financial effects that may arise, for example, as a result of legal proceedings. For more information, see Note 23 to the Consolidated Financial Statements.

Our double materiality assessment found that ESRS S4 Consumers and End Users was not material, hence we do not report on it. This evaluation is based on the fact that as a B2B company, we market only a very small portion of our products directly to consumers and end users. We report on material aspects of product safety that impact our customers and end users in the chapter E2 Pollution Prevention.

Strategies to manage impacts, risks and opportunities

In developing our business strategies, we also consider the resilience of our business models with regard to economic, ecological and social aspects, as well as their impacts, risks and opportunities. As part of our opportunity and risk management system, strategic risks connected with material economic, ecological and social matters are evaluated (for additional information, see Opportunities and Risks). The strategies of our business units are updated on a regular basis. This is done either individually for the business unit or as part of the overall division strategy. When updating the strategies, we consult with experts from the business units or the operating divisions as well as with the Corporate Center’s Corporate Strategy & Sustainability unit. In 2024, we piloted a method to address material topics in the strategies of the business units over the next ten years. Depending on the extent of the strategy revision, resilience reviews, regulatory aspects and stakeholder expectations can be included to estimate future market developments. Upstream and downstream value chains can also be considered in the analysis. In addition, we use our TripleS methodology (Sustainable Solution Steering) to review the resilience of our product portfolio with regard to environmental and social aspects.

We provide more information on the results of our resilience assessment with respect to these two topics in the chapters E1 Climate Change and E4 Biodiversity and Ecosystems. We also report on the disclosure requirement ESRS 2 IRO-1 in accordance with the ESRSs requirements in the chapters E2 Pollution Prevention, E3 Water, E5 Resource Use and Circular Economy as well as G1 Business Conduct.

The following tables list the material impacts, risks and opportunities associated with our business. Additional information of the impacts, risks and opportunities associated with each of the ESRS topical standards is provided in the relevant chapter of this Sustainability Statement.