The Board of Executive Directors’ and the Supervisory Board’s Handling of Sustainability Topics

ESRS 2 GOV-1 ESRS 2 GOV-2

Organization and responsibilities for monitoring sustainability-related impacts, risks and opportunities

Sustainability aspects are systematically incorporated within the strategy, operations and assessment, steering and compensation systems of BASF.

Sustainability-related opportunities and risks are systematically recorded as part of opportunity and risk management. Sustainability-related impacts are analyzed and evaluated by the Corporate Sustainability unit. Decisions regarding investments, acquisitions and divestitures take into account comprehensive assessments of sustainability impacts. Sustainability topics and the related risk management as well as the internal control system are the responsibility of the entire Board of Executive Directors. It defines the basic requirements and processes as well as the organization of the risk management system. The Board of Executive Directors also determines the processes for approving investments, acquisitions and divestitures. In this regard, it is also supported by the units of the Corporate Center and the Risk Committee, which reviews the Group-wide risk profile and any necessary adjustments to measures at least twice a year.

The supervisory and advisory activities of the entire Supervisory Board also include the Board of Executive Directors’ consideration of sustainability topics with regard to corporate management and strategy development, including the impacts of the company’s activities. Supervision of the risk management system and the internal control system, the internal auditing system, the appropriateness and effectiveness of the compliance management system, and compliance with statutory provisions and internal health, safety and environmental regulations falls within the responsibility of the Audit Committee. The Audit Committee also deals with follow-up assessments of key acquisition and investment projects. The Audit Committee also monitors sustainability reporting and its auditing as part of its supervision of accounting and auditing. For additional information on organization and responsibilities in connection with the management of opportunities and risks, see Opportunities and Risks.

As part of the development of the new corporate strategy, which was communicated both internally and externally in September 2024, the Board of Executive Directors identified the transformation toward a more sustainable portfolio as a strategic lever to enable the green transformation of BASF’s customers as their preferred chemical company. The Strategy Committee of the Supervisory Board was involved in developing the new strategy and in the decision-making process; furthermore, the Supervisory Board as a whole was regularly informed of the current status.

Together with specialists from operating divisions and service units, the Corporate Center is responsible for integrating sustainability into decision-making processes and for steering and reporting processes regarding sustainability topics. The Corporate Strategy & Sustainability unit is also responsible for the global steering of climate-related matters. Group-wide risk and opportunity management is the responsibility of the Corporate Center unit Corporate Finance, which reports to the Chief Financial Officer. The Corporate Strategy & Sustainability unit reports to the Chairman of the Board of Executive Directors.

Sustainability topics are discussed regularly and managed collectively by the Board of Executive Directors. When making its decisions, the Board of Executive Directors considers the results and recommendations from sustainability evaluations of business processes. It makes decisions with strategic relevance for the Group and monitors the implementation of strategic plans and their target achievement. The Supervisory Board is regularly briefed on the development of individual sustainability topics, on sustainability targets and the status of target achievement, by the Board of Executive Directors.

The Chief Human Rights Officer is responsible for further embedding human rights aspects in decision-making processes. He reports directly to the Chairman of the Board of Executive Directors.

The systematic evaluation of sustainability criteria, including the impacts of climate change, is an integral part of decisions on investments, acquisitions and divestitures in property, plant and equipment and financial assets. In this way, not only are economic dimensions assessed, but also the potential impacts on areas such as the environment, human rights or the local community, with the assessment taking both the potential impacts of company activities and the impacts on the company into account.

If potential negative impacts are identified, for example, in planned investments, these are presented transparently in the internal decision-making process together with possible mitigation measures. In the business year under review, the Board of Executive Directors therefore again took appropriate account of compromises developed in connection with the impacts, risks and opportunities of significant transactions and the risk management process, and discussed these compromises with the Supervisory Board.

Pursuant to the Statutes of the company and the Rules of Procedure of the Supervisory Board, investment, acquisition and divestiture decisions of the Board of Executive Directors and the commencement of new business areas as well as the discontinuation of existing ones require the consent of the Supervisory Board insofar as they are of material significance for the Group as a whole. The Supervisory Board is thus always involved comprehensively and at an early stage in the aforementioned evaluation of sustainability criteria in connection with strategic decisions of the Board of Executive Directors.

In order to implement the climate protection targets and the measures contributing to them, appropriate organizational structures have been put into place: The Corporate Center unit Corporate Environmental Protection, Health, Safety & Quality, which reports to a member of the Board of Executive Directors, develops Group-wide requirements and guidelines for collecting emissions and energy data and for energy management. It conducts regular audits to monitor the implementation of and compliance with internal and legal requirements by the BASF sites and Group companies. The Corporate Center unit Corporate Strategy & Sustainability develops the BASF Group’s climate targets and emission reduction levers for achieving them. The Net Zero Accelerator unit played a key role in driving the achievement of our climate protection targets forward in the business year under review by accelerating and implementing projects related to low-emission production technologies, circular economy and renewable energy.¹ The Global Procurement unit, together with Corporate Strategy & Sustainability, is responsible for purchasing processes and procurement requirements with regard to our raw materials-related targets. Global Procurement reports to the Chief Financial Officer; Corporate Strategy & Sustainability and Net Zero Accelerator report to the Chairman of the Board of Executive Directors. Once a year, the Board of Executive Directors reports in detail to the Supervisory Board on the sustainability targets and the status of target achievement. Group-wide Scope 1 and Scope 2 emissions have also been anchored in the BASF Group’s steering and compensation systems as the most important nonfinancial key performance indicators since 2020 (see also Compensation of the Board of Executive Directors and the Supervisory Board).

Information of the Board of Executive Directors and the Supervisory Board on sustainability topics

The Board of Executive Directors and the Supervisory Board are regularly briefed on sustainability aspects. In the business year under review, these also included the process of the double materiality assessment and its findings. The Audit Committee was also provided with details of significant impacts, risks and opportunities. Corporate Finance provides information twice a year on the aggregated opportunity/risk exposure of the BASF Group. A direct reporting obligation applies for new individual risks with an impact of €10 million or more on earnings, as well as for risks with significant impacts on the sustainability targets and reputation of BASF. The Supervisory Board’s Audit Committee is informed annually about short-term operational opportunities and risks as well as the risk management system and its further development, and reports on these matters to the entire Supervisory Board. The Corporate Development unit addresses strategic opportunities and risks annually to the Board of Executive Directors and Supervisory Board. Furthermore, the Board of Executive Directors reports to the Supervisory Board once a year on the implementation status of the sustainability targets and the effectiveness of the strategies, measures and parameters decided upon.

Risk-specific monitoring and control systems, some of which are decentralized, have been set up for each area identified in the risk portfolio. The results of the monitoring processes are incorporated into regular risk reporting to the Risk Committee and the Board of Executive Directors.

The Corporate Audit unit is responsible for regularly auditing the effectiveness and appropriateness of the risk management system, internal control system and the compliance management system. It reports on these matters twice a year to the Audit Committee. The Audit Committee addresses the effectiveness and appropriateness of these systems as part of its monitoring activities.

In order to implement due diligence, the Board of Executive Directors and the Supervisory Board receive regular reports. The Corporate Center unit Corporate Environmental Protection, Health, Safety & Quality reports to the Board of Executive Directors at the beginning of each business year on the Responsible Care audits conducted in the previous year, as well as on the audit planning for the current year. In meeting its due diligence obligation, the Board of Executive Directors also approved and implemented a revised risk matrix in 2024 as part of its Process Safety Excellence Senior Project, the aim being to improve process safety. Once a year, the Chief Financial Officer reports to the Supervisory Board’s Audit Committee on the EHS audits conducted in the previous business year, as well as on the audit planning for the current year.

The Board of Executive Directors and Supervisory Board dealt with the following significant impacts, risks and opportunities of BASF during the reporting period:

For more details on information processes, see Opportunities and Risks.

Competence of the Board of Executive Directors and Supervisory Board in monitoring sustainability aspects

Sustainable and responsible activities are firmly enshrined in BASF’s corporate purpose, strategy, objectives and business operations. For instance, BASF’s innovations, products and technologies help to use natural resources more efficiently, meet the demand for food, enable climate-smart mobility, reduce emissions and waste, or increase the efficiency of renewable energy. At the same time, BASF causes CO₂ emissions, uses water and sources raw materials from suppliers, which may involve a potential risk of violating environmental, labor or social standards. Sustainability thus represents a material topic that cuts across operating divisions and segments – and is dealt with by each member of the Board of Executive Directors within their respective area of divisional responsibility. Therefore, sustainability-related expertise is broadly anchored within the Board of Executive Directors.

In particular, the Board of Executive Directors possesses in-depth knowledge on the material topics of climate protection and energy, and circular economy and resource use. Dr. Markus Kamieth, Dr. Michael Heinz, Dr. Stephan Kothrade and Dr. Katja Scharpwinkel were directly involved in the Net Zero Accelerator Senior Project, which focused on the provision of renewable energy, avoiding and managing CO₂ and safeguarding access to renewable raw materials. On account of his former position as a member of the Executive Board of Wintershall Holding GmbH and his current role on the Board of Harbour Energy plc, Dr. Dirk Elvermann possesses in-depth expertise in the energy sector. As Chief Financial Officer, he also deals intensively with sustainability reporting in accordance with CSRD requirements and is familiar with sustainable finance. On account of his many years of experience as the Site Director of the Nanjing Verbund site, Dr. Stephan Kothrade is familiar with climate-related topics at Verbund sites, as well as with the material sustainability topics of air and water pollution. Based on his career in the Catalysts division, Anup Kothari also holds expertise in air pollution in addition to battery recycling and the responsible sourcing of raw materials. Thanks to Dr. Markus Kamieth and Industrial Relations Director Dr. Katja Scharpwinkel, the Board of Executive Directors has broad knowledge of health and safety at its disposal, both in relation to the company’s own workforce and the workforce in the value chain. By virtue of their many years of leadership experience within BASF, all members of the Board of Executive Directors are fully conversant with corporate governance, culture and policy, and in particular with the Code of Conduct.

The Supervisory Board as a whole possesses a broad spectrum of sustainability-related expertise, which also, and in particular, encompasses the material sustainability topics for BASF identified as part of the double materiality assessment. By dint of their decades of management experience, Dr. Kurt Bock and Prof. Dr. Stefan Asenkerschbaumer have in-depth knowledge of corporate governance and corporate policy. Thanks to his research activities in the field of organic chemistry, Prof. Dr. Thomas Carell is fully versed in the topic of substances of concern and substances of very high concern. Due to his former role in the chemical industry, Liming Chen possesses expertise in the areas of air and water pollution. On account of her position as chief financial officer of a publicly listed international company based in the EU, the Chairwoman of the Audit Committee, Alessandra Genco, is fully conversant with sustainability reporting and regularly deals with the new CSRD requirements as part of her duties. She also boasts expertise in the circular economy and recycling processes. In terms of the monitoring of sustainability aspects, Tamara Weinert contributes relevant expertise from her former management positions in the energy sector, which is important for BASF, and her operational and strategic management experience in the areas of water withdrawals and consumption, water discharges and circular solutions. As part of their respective activities, all shareholder representatives on the Supervisory Board regularly deal with climate protection matters. Sinischa Horvat, Natalie Mühlenfeld and Michael Vassiliadis possess broad expertise in the field of health and safety, both in relation to the company’s own workforce and the workforce in the value chain. As part of their trade union and works council activities, all employee representatives on the Supervisory Board have been dealing intensively with the topic of adequate wages for many years. In-depth expertise on the topic of training and skills development is available among both the shareholder representatives and employee representatives.

In addition, all members of the Supervisory Board attended an information event held by the company in 2024 concerning the reporting requirements pursuant to the CSRD and the process and results of the double materiality assessment conducted at BASF. At this event, the identified material sustainability topics for BASF were explained in detail. Further internal and external training events on sustainability topics are planned for 2025. Where necessary, the members of the Supervisory Board also have the option of consulting external experts on specific topics.