Strategic Opportunities and Risks

Long-term demand development

We assume that growth in chemical production (excluding pharmaceuticals) will be slightly higher than that of global gross domestic product in the coming years. With our market-oriented and broad portfolio, which we will continue to strengthen in the years ahead, through investments in new production capacities, through our research and development activities and through targeted acquisitions, particularly in the core businesses, we want to participate in this market growth. Should global economic growth see unexpected, considerable deceleration, for example, because of an ongoing weak period in individual 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 ambitious climate policy 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, as well as a corresponding willingness to pay on the part of customer industries, in order to remain competitive (for more information on the corporate strategy, see Our Strategy).

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 specialty chemicals and consumer chemicals. In addition, the proliferation of large-scale digital marketplaces for chemicals could impact existing customer and supplier relationships.

We expect a rise in customer demand for more sustainable solutions – for example, for products with a lower 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 that leads to a growing willingness to pay for low-emission solutions. Companies with a proven track record of providing more sustainable solutions will then be able to achieve stronger growth and higher profitability. We are therefore addressing these topics in research and investment programs for the sustainable transformation of BASF.

To strengthen our competitiveness, we are continuously improving our production processes, streamlining our structures, simplifying procedures and optimizing our business portfolio. In this regard, our focus is on attractive businesses and differentiation through sustainability advantages, among other things, 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, a climate-neutral resource and raw material base, and far-reaching environmental targets. This also includes regulations in respect of environmental protection, water and biodiversity, which are addressed in detail in the chapters E2 Pollution Prevention, E3 Water, and E4 Biodiversity and Ecosystems in this report. 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 and complex 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 those of our customers. Another overarching risk is that political decision-makers, particularly in the EU, may not act quickly and decisively enough to create the necessary framework conditions for a successful location for industry.

We see the risk of the current geopolitical shifts potentially 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 a 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 programs for the sustainable transformation of BASF. Furthermore, in order to steer our innovation portfolio toward increased sustainability, we also began applying our TripleS method to the evaluation of innovation projects and have integrated it into 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 demands for localization of intellectual property in order to achieve technological independence. Through our global Know-How Verbund in research and development, we ensure that 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 (for more information, see Innovation).

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 comprehensive risk assessment, a diversified supplier base, close cooperation with various strategic suppliers and continuous analysis 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, the EU Corporate Sustainability Due Diligence Directive and the EU Regulation on Deforestation-Free Products). 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 their impact on BASF (for more information see S2 Workers in the Value Chain).

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 focusing our investments more closely on growth markets and 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, switching our production to renewable energy sources and harnessing potential energy savings represent a long-term opportunity, even though they may not yet be profitable in the short term, depending on the market and the prevailing regulatory framework (for more on our investment projects, see Capital expenditures). The transformation of our company toward low-emission chemistry is presented in detail in the E1 Climate Change chapter.

Acquisitions/divestitures

We want to expand and refine our portfolio through value-adding acquisitions, especially in our core businesses. We will expand our regional presence in growth markets in a targeted manner and support our green transformation through sustainable business models.

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. 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 (for more information, see Material Investments and Portfolio Measures).

Personnel

BASF anticipates growing challenges in attracting and retaining qualified employees and leaders in the medium and long term. In combination with evolving competence profiles and demographic change, this may result in losing skills and knowledge within our own workforce or not being able to develop them either sufficiently or at all. The macroeconomic situation, combined with structural adjustments at BASF, may unsettle employees and pose challenges in terms of employee retention and engagement. We are taking measures to attract qualified personnel and to maintain and improve the skills and knowledge required by our employees, and regularly assess employee engagement by means of our employee survey (for more information, see S1 Own Workforce).

Climate

As BASF is an energy-intensive company, climate-related risks arise in a physical sense and from regulatory changes, such as in CO₂ 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 climate protection and 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 political decision-makers and external stakeholders (for more information, see Regulation/policy).

To assess the changing physical risks for our sites from climate change, BASF compiles climate data based on the latest scenarios of the Intergovernmental Panel on Climate Change (IPCC) in cooperation with an external partner. This comprehensive analysis enables sites to assess their potential physical impact from climate change in the coming decades, with the focus on a scenario representing a significant degree of global warming in addition to a climate protection scenario. The analysis centers on the current situation and long-term projections (30 years), whereas the midterm analysis is only used as a supplementary source of information where potential long-term materiality is identified.

Based on these analyses, we anticipate that most sites will be particularly affected by increasing heat and drought, whereas some may be faced with heavy precipitation and a few could also be exposed to risks in connection with flooding, hail, water stress and forest fires. The information gained from this analysis helps our sites to prepare their strategies, which include maintaining wide-ranging insurance coverage to mitigate the majority of risks and instituting a variety of adaptation measures. These include process optimization, investing in assets and infrastructure, and monitoring and updating occupational healthcare measures to minimize risks in the short, medium and long term.

In 2024, a specific analysis of physical climate risks was carried out at selected sites. It is planned to roll out this assessment approach to all key BASF sites in the coming years and, on this basis, bolstering our resilience to climate-related challenges (for more information, see E1 Climate Change).

Alongside climate-related risks, opportunities also arise for our sustainable products for climate protection. Our broad product portfolio includes, among other things, solutions for the circular economy and climate protection, such as insulation materials for buildings, materials for electromobility and 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 (for more information, see General Disclosures).

• More information on our positions on and contributions to climate protection