BASF Report 2021 To Our Shareholders – Letter from the Chairman of the Board of Executive Directors 9 courage to think in new directions. It will involve converting the big steam CO -free chemical production is the future. And BASF wants to be among the 2 crackers from heating based on fossil fuels to electrical heating. In these plants, first there. It all starts with transparency, which is why we provide our custom ers at the beginning of the value chains, steam is used to split naphtha into basic with Product Carbon Footprints (PCF) – the carbon footprint associated with chemicals at about 850 degrees Celsius. Other production per kilogram of sales product – for each of our 45,000 sales products. examples include the CO -free production of hydro- Furthermore, we help our customers develop strategies to reduce their carbon » 2 With our innovation power, gen by water electrolysis and methane pyrolysis, and footprint, to use resources more efficiently, and to manufacture products in a using waste heat recovered with heat pumps instead more environmentally friendly way. We expect that demand for such emission-free crea tivity and entre pre­ of con ven tional steam generation in gas-fired power or emission-reduced products will exceed supply in the medium term, and that neurial courage, we look plants. We will invest roughly €4 billion to reach our their market value will more than compensate for the higher production costs. It 2030 emission reduction targets. therefore also makes good economic sense to take a leading role here. That is to the future with why we want to be among the first to provide as many products as possible from optimism. We are also redefining raw material cycles through our portfolio with a reduced carbon footprint in large volumes by the end of the recycling. Good examples of this are the chemical decade. This differentiates us, increases our competitiveness and enables growth recycling process in which a new raw material, above market. pyrolysis oil, is obtained from plastic waste; the recycling of mattresses, which are broken down into polyurethane precursors; and the use of bio-based raw Profitable growth lays the foundation for a success- materials. There is a great feeling of excitement in the BASF team! With our inno- ful transformation. This is why we continue to focus » vation power, creativity and entrepr eneurial courage, we look to the future with our portfolio and business activities on organic CO ­free chemical optimism. growth. And the reverse is also true: The transforma - 2 tion is the foundation for a wide range of growth production is the future. Electricity from renewable sources in great quantities and at favorable prices opportunities! Neither future prosperity nor climate And BASF wants to be would enable us to achieve a climate-neutral future. This is made possible by the neutrality is possible without a competitive chemical electrification of entire value chains. To achieve this, we need to massively expand industry and innovative chemical products. Extensive among the first there . renewable energies worldwide. Currently, this is not happening fast enough. That regulations driven by policymakers and society do is why we are leading the way and securing access to green power. We already present a tremendous challenge to industry in general announced several projects in 2021 as part of the implementation of our and particularly to the chemical industry. At the same time, however, they lead to Make & Buy strategy: We have secured a half share in a 1.5 gigawatt offshore new business opportunities. The dynamic development from the combustion wind park from Vattenfall in the North Sea off the coast of the Netherlands. It engine to electromobility is a good example of this. As a leading chemical supplier should be connected to the grid in 2023. It will be the world’s biggest offshore to the automotive industry and producer of innovative cathode active materials wind farm – and all this without any public subsidies. We are taking a different for electric vehicle batteries, we are able to profit from this development. Growth approach with Ørsted and Engie: We have concluded attractive electricity supply and climate protection go hand in hand: Our materials not only support the contracts with both energy companies for a term of 25 years. In other regions dynamic growth of this market, but their low carbon footprint also paves the way as well, for example, in the United States and China, we are securing access to for climate-neutral mobility. green power. In this way, we are planning proactively and laying the foundation to ensure a long-term supply of electricity from renewable resources.