BASF Report 2021 Management’s Report – Opportunities and Risks 155 Regulation/policy partners, developed a special type of ship designed for extreme Acquisitions, divestitures and cooperations Risks for us can arise from intensified geopolitical tensions, new low-water situations. These measures are already making longer We constantly monitor the market in order to identify possible acqui- trade sanctions, stricter emissions limits for plants, and energy and periods of low water on the Rhine River more manageable. sition targets and develop our portfolio appropriately. In addition, we climate laws. In addition, changes in chemical regulations can affect collaborate with customers and partners to jointly develop new, both the BASF Group’s product portfolio and that of our customers, Investments and production competitive products and applications. for example, on the use or registration of agrochemicals. We try to prevent unscheduled plant shutdowns by adhering to high technical standards and by continuously improving our plants. We Opportunities and risks arise in connection with acquisitions and Political measures could also give rise to opportunities. For example, reduce the effects of an unscheduled shutdown on the supply of divestitures from the conclusion of a transaction, or it being com- we view measures around the world to increase energy effi- intermediate and end products through diversification within our pleted earlier or later than expected. They relate to the regular ciency and reduce greenhouse gas emissions as an opportunity for global production Verbund. earnings contributions gained or lost as well as the realization of increased demand for our products, such as our insulation foams gains or losses from divestitures if these deviate from our planning for buildings, catalysts, battery materials for electromobility, or our In the event of a production outage – caused by an accident, for assumptions. solutions for wind turbines. Our broad product portfolio enables us example – our global, regional or local emergency response plans For more information on opportunities and risks from agreed transactions, see page 41 to, in some cases, offer alternatives if new chemicals have to be and crisis management structures are engaged, depending on the developed as a result of restrictions in connection with the REACH impact scope. Every region has crisis management teams on a local Personnel chemicals regulation or new standards in our customers’ industries. and regional level. They not only coordinate the necessary emer- Due to BASF’s worldwide compensation principles, the develop- gency response measures, they also initiate immediate measures ment of personnel expenses is partly dependent on the amount of Procurement and supply chain for damage control and resumption of normal operations as quickly variable compensation, which is linked to the company’s success, We minimize procurement risks through our broad portfolio, global as possible. among other factors. The correlation between variable compen- purchasing activities and the purchase of raw materials on spot sation and the success of the company has the effect of minimizing markets. If possible, we avoid procuring raw materials from a single Crisis management also includes dealing with extreme weather risk. Another factor is the development of interest rates for discount- supplier. When this cannot be avoided, we try to foster competition conditions such as hurricanes (for example, at the sites on the Gulf ing pension obligations. Furthermore, changes to the legal environ- or we knowingly enter into this relationship and assess the conse- of Mexico in Freeport, Texas, and Geismar, Louisiana) or signifi- ment of a particular country can have an impact on the development quences of potential nondelivery. We continuously monitor the cantly elevated water temperatures in rivers due to extended heat of personnel expenses for the BASF Group. For countries in which credit risk of important business partners. waves, which limit the available cooling capacity (for example, at the BASF is active, relevant developments are therefore constantly Ludwigshafen site in Germany). Appropriate precautions are taken monitored in order to recognize risks at an early stage and enable Around the world, the frequency and intensity of extreme weather at the sites in the case of a potential change in risk in connection BASF to carry out suitable measures. conditions (such as high/low water levels on rivers, heat/cold waves with climate change. For example, over the past few years, the For more information on our compensation system, see page 102 and hurricanes) are increasing as a result of climate change. We Verbund site in Ludwigshafen, Germany, has implemented several For more information on risks from pension obligations, see page 157 address the risk of supply interruptions on the procurement and measures to increase cooling capacity, including expanding and sales side caused by extreme weather conditions by switching to optimizing the central recooling plants and optimizing cooling water Information technology risks alternative logistics carriers and the possibility of falling back on flows. These are capable of preventing production outages due to BASF employs on a large number of IT systems. We use tech- unaffected sites within our global Verbund. extreme heatwaves. nologies such as big data and the Internet of Things to develop new business models, corporate concepts and strategies and to respond We implemented a package of climate resilience measures for our Short-term risks from investments can result from, for example, appropriately to changing customer behavior. IT system downtime, Verbund site in Ludwigshafen, Germany, to address low water levels technical malfunctions or schedule and budget overruns. We confidentiality breaches and the manipulation of data stored on the Rhine River: We developed an early warning system for low counter these risks with highly experienced project management in critical IT systems and applications can all have a direct impact water, created multimodal transportation concepts, chartered more and controlling. on production and logistics processes. The threat environment ships that can navigate low water levels and, in cooperation with has changed in recent years, as attackers have become better