BASF Report 2021 Management’s Report – Opportunities and Risks 151 Opportunities and Risks GRI 102, 201 The goal of BASF’s risk management is to identify and evaluate opportunities and risks as early as possible and to take appropriate measures in order to seize opportunities and limit risks. The aim is to avoid risks that pose a threat to BASF’s continued existence and to make improved managerial decisions to create value. We define opportunities as potential successes that exceed our defined goals. We understand risk to be any event that can negatively impact the achievement of our short-term operational or long-term strategic goals. At a glance Overall assessment According to our assessment, there continue to be no significant individual risks that pose a threat to the continued existence of the ▪ Integrated process for opportunity and risk identification, For 2022, we expect the overall economic recovery to continue and BASF Group. The same applies to the sum of individual risks, even assessment and reporting the coronavirus pandemic to weaken as the population becomes in the case of a global economic crisis like the coronavirus crisis. ▪ Decentralized management of specific opportunities and risks: increasingly immunized. General economic uncertainty will never- aggregate reporting at Group level thel ess remain high. The course of the pandemic is difficult to Ultimately, however, residual risks (net risks) remain in all entrepre- ▪ Material opportunities and risks for 2022 arise from overall predict; in particular, mutations of the coronavirus may lead to neurial activities that cannot be ruled out, even by comprehensive economic developments and margin volatility further waves of infection. This can result in production stoppages risk management. and supply chain disruptions in our customer industries, with our suppliers and in our own production plants. Moreover, restricted As a non-integral shareholding, income from Wintershall Dea is In order to effectively measure and manage identified opportunities economic activity resulting from further lockdowns can have a sig- reported in net income from shareholdings. The opportunities and and risks, we quantify these where appropriate in terms of proba- nificant negative impact on aggregate demand. In addition, an risks resulting from the shareholding in Wintershall Dea are therefore bility and economic impact in the event they occur. Where possible, ongoing low supply of energy and raw materials and the resulting not included in the outlook for the EBIT of the BASF Group. Oppor- we use statistical methods to aggregate opportunities and risks into high prices could cause inflation rates to rise further. This could tunities and risks that have an impact on net income from share- risk factors. In addition, we use a qualitative evaluation scale for dampen the production of energy-intensive products and consumer holdings and cash flow from the shares in Wintershall Dea are opportunities and risks if quantification is not possible. This enables demand beyond our assumed level of slowed growth. monitored and tracked through BASF’s involvement in the relevant us to not only evaluate economic impact but sustainability-related govern ing bodies. aspects as well. In this way, we achieve an overall view of opportu- An escalation of geopolitical conflicts as well as the ongoing trade nities and risks allowing us to aggregate risks at Group level and conflicts between the United States and China and the associated take effective risk management measures. slowdown of the economy also pose significant risks. Opportunities will arise from stronger demand growth, in particular from a greater reduction in pandemic-related risks than assumed by our forecasts. Rapidly increasing global vaccination rates and the approval of effective antiviral drugs against COVID-19 could be contributing factors. In addition to the uncertainties surrounding market growth and the development of key customer industries, material opportunities and risks for our earnings arise from margin volatility.