Supplier Management

BASF sources many raw materials, precursors, technical goods and services. Our suppliers are an important part of our value chain. Our objective is to create competitive advantages through our professional procurement structures, to establish stable and reliable supply chains, and at the same time, meet high ethical and environmental standards. Together with our suppliers, we want to improve sustainability in the supply chain and minimize risks.

Strategy and governance

Our procurement organization ensures a reliable supply of raw materials, energy, precursors, technical goods and services to BASF. Alongside economic and qualitative criteria, we also take environmental, social and ethical aspects into account in cooperating with our suppliers.²

Our sustainability-oriented supply chain management is an integral part of our risk management. We have defined our standards in a global guideline. We are continually refining and optimizing this guideline and our structures and processes in response to changing conditions, such as the new obligations arising from the German Supply Chain Due Diligence Act (SCA), which requires large companies to conduct due diligence on human rights and certain environmental standards in their supply chains from January 1, 2023. In principle, this applies both to our own business operations and to direct and indirect suppliers. Based on a gap analysis of the new statutory due diligence obligations, we have further strengthened existing structures and processes and summarized our human rights positions in a policy statement. The head of the legal and compliance organization was appointed Chief Human Rights Officer in 2022 and is responsible in this capacity for overseeing the supply chain risk management system. Our established supply chain management tools, such as our Supplier Code of Conduct or the systematic risk-oriented assessment and auditing of suppliers, remain important elements and have been updated accordingly.

Procurement guidelines and targets are set centrally by the responsible Corporate Center unit and are binding for all employees with procurement responsibility worldwide. We use a multi-stage control process to ensure compliance with these requirements.

Our risk-based approach aims to identify and evaluate sustainability matters in our value chains as best possible to improve sustainability performance together with our suppliers. We regularly review and document progress based on the risk level. Procurement employees receive regular training in sustainability-oriented supplier management and responsible procurement. In 2022, around 1,400 employees received such training, covering the requirements arising from the SCA.

We depend on reliable and long-term supply relationships. Our expectations of our suppliers are laid down in the global Supplier Code of Conduct. We support suppliers in improving their sus­tainability performance, for example, through joint projects or by helping them to address shortcomings. Another example is our Supplier CO₂ Management Program launched in 2021, with which we aim to increase the transparency of upstream greenhouse gas emissions (Scope 3) and reduce the carbon footprint of our value chain together with our suppliers.

• More information on suppliers

Global targets

We actively promote sustainability in the supply chain with our ambitious targets: By 2025, we aim to have conducted sustainability evaluations for 90% of the BASF Group’s relevant spend. In addition, we aim to have 80% of suppliers improve their sustainability performance upon re-evaluation by 2025. In 2022, 85% of the relevant spend had been evaluated. Of the suppliers re-evaluated in 2022, 76% had improved. Both global targets are embedded in the target agreements of persons responsible for procurement.

Global procurement

Our more than 70,000 suppliers make an important contribution to our value creation. They supply us with raw materials, energy, precursors, investment goods and consumables, perform a range of services and are innovation partners. We acquired raw materials, goods and services for our own production worth approximately €54 billion in 2022. Of this, around 90% was procured locally.¹ There were no substantial changes to our supplier structure.

What we expect from our suppliers

Together with our suppliers, we want to improve sustainability in the supply chain. Consequently, we require our suppliers to comply with the applicable laws in full and to adhere to internationally recognized environmental, social and governance (ESG) standards. We also expect our suppliers to make an effort to enforce these standards at their suppliers. In addition, we ask our suppliers to support and comply with our Supplier Code of Conduct – or to demonstrate and ensure their commitment to the principles specified in the Code of Conduct, for example in their own code of conduct.

Our global Supplier Code of Conduct is founded on internationally recognized guidelines, such as the principles of the United Nations’ Global Compact, the U.N. Guiding Principles on Business and Human Rights, the International Labor Organization (ILO) conventions, and the topic areas of the Responsible Care initiative. Topics covered by the Code of Conduct include compliance with human rights, the exclusion of child and forced labor, safeguarding labor and social standards, antidiscrimination and anticorruption policies, and protecting the environment. The Code of Conduct is available in the most relevant languages for our suppliers and integrated into electronic ordering systems and purchasing conditions across the Group. In 2022, we expanded our Supplier Code of Conduct to include requirements from the German Supply Chain Due Diligence Act. Around 5,400 new suppliers committed to the Code of Conduct in 2022.

BASF conducts audits and assessments to ensure that suppliers comply with the applicable laws, rules and standards. BASF reserves the right to discontinue business relationships for non-adherence to international principles. The same applies to failure to correct violations, or for displaying patterns of non-compliance with these standards. Our Code of Conduct expressly points out that potential violations of laws, rules or standards can be reported – including anonymously – to our compliance hotlines. Each case is documented and investigated, and appropriate measures are taken as necessary.

Selection and evaluation of our suppliers

New suppliers are selected and existing suppliers are evaluated not only on the basis of economic criteria, but also ESG standards. As such, selection, evaluation and auditing is an important part of our sustainable supply chain and risk management. Processes and responsibilities are defined in a global guideline. Due to the large number of suppliers, they are evaluated based on risk. We take into account both country and industry-specific risks and the materiality of the supply relationship. We also use observations from our employees in procurement and information from internal and external databases, such as Together for Sustainability (TfS) assessments (see box).

We have suppliers with a high potential sustainability risk evaluated by third parties, either through sustainability evaluations or on-site audits. The list of suppliers to be assessed is updated every year. Sustainability evaluations and on-site audits are mainly conducted according to the TfS framework. A total of 79 raw materials supplier sites were audited on sustainability standards on our behalf in 2022. We received sustainability evaluations for 963 suppliers. We also take into account other certification systems and external audits, such as the Roundtable on Sustainable Palm Oil, when assessing our suppliers. Depending on business requirements, we additionally conduct our own Responsible Care audits at selected suppliers.

Audit results

We carefully analyze the results of our assessments and document them in a central database. Over the past few years, we have identified some need for adjustment at our suppliers with respect to environmental, social and governance standards, for example in waste management, or deviations in occupational health and safety measures and standards under labor law. Follow-up audits performed in 2022 identified improvements in these areas. Again in 2022, none of our audits identified any instances of forced labor, child labor or dangerous work and overtime performed by persons under 18.

We maintained close dialog with our South African platinum supplier Sibanye-Stillwater² in 2022 on the results of the audit from 2020, the implementation of the resulting action plan, and other relevant topics. This includes working with stakeholders to take a unified approach to local community development. All the needs for adjustment identified in the 2020 audit had been addressed by the end of 2022. BASF and Sibanye-Stillwater have agreed that future audits will follow the Initiative for Responsible Mining Assurance (IRMA) mining standard. Sustainability topics are discussed on a quarterly basis. Sibanye-Stillwater is a member and supporter of the International Platinum Group Metals Association (IPA) sustainability initiative that was co-founded by BASF. Measures include conducting comprehensive sustainability audits and sharing factors for success. The regular dialog with stakeholders continued in 2022. In addition, Sibanye-Stillwater has directly involved relevant stakeholders in Germany and South Africa in its own stakeholder dialog.

In 2022, the war of aggression in Ukraine also impacted the business relationship with our Russian raw materials supplier Nornickel. This could not be continued to the extent planned. We nevertheless maintain regular dialog with Nornickel, are monitoring the situation and events from a sustainability perspective, and are in contact with civil society groups. Topics addressed include the findings from the mining-specific TfS audits. TfS audits were carried out at Nornickel’s site in Polar, Russia, in the fourth quarter of 2021. The results of these audits were discussed with Nornickel and follow-up measures were evaluated. Nornickel continues to seek membership in internationally recognized industry initiatives that provide third-party verification of mining and responsible procurement standards, such as IRMA or the International Council on Mining and Metals (ICMM). However, this is only possible to a limited extent in the current environment.

Supplier development

If supplier assessments identify deviations from standards, we ask suppliers to develop and implement corrective measures within a reasonable time frame in a clearly defined follow-up process. We support them in their efforts. In South America, for example, over 300 employees of suppliers participated in a webinar on compliance and human rights in the supply chain. Together with Mercedes-Benz, we also organized a workshop in the region focusing on gender equality, which was attended by 22 logistics service providers. An important part of supplier development in 2022 was also the sustainability webinars held by TfS together with EcoVadis in various languages, with a total of over 1,900 participants. In addition, the new TfS Academy online learning platform is aimed at buyers and suppliers. It covers the entire spectrum of ESG topics. There are currently over 335 courses available in 10 different languages.

We review our suppliers’ progress according to a defined time frame based on the sustainability risk identified, or after five years at the latest. In the case of serious violations of the standards defined in our Supplier Code of Conduct or international principles, we reserve the right to impose commercial sanctions. These can go as far as termination of the business relationship. In 2022, this happened in one case.