BASF Report 2021 Management’s Report – Opportunities and Risks 158 We expect a continuous rise in customer demand for sustainable We counter these risks as part of our corporate strategy. We explain We expect that the digital disruption of established processes will solutions, for example, products with a low carbon footprint, made our strategy in meetings with political decision-makers and social lead to a sharp increase in efficiency and effectiveness in some from recycled, circular, or bio-based raw materials that are bio- stakeholders. In doing so, we also inform ourselves of the changes fields. BASF is therefore committed to taking a leading role in the degradable, or products with other measurable sustainability we must undergo and advocate for a favorable and stable regu- digital transformation of the chemical industry. Possible applications benefits. We are therefore addressing these topics in research and latory framework at both the national and international level. We of digital technologies and solutions are evaluated along the entire investment programs for the sustainable transformation of BASF. consider BASF to be in a strong position to contribute solutions value chain and implemented throughout the company, for exam- Companies with a proven track record of providing more sustainable toward achieving U.N. development goals, particularly regarding ple, in production, logistics, research and development, business solutions will be able to achieve higher growth and profitability as a climate neutrality, through new technologies, innovative products models and corporate governance. result. The expansion of sharing economy business models could and processes and our broad product portfolio. For more information on innovation, see page 49 onward have a long-term impact on demand in individual customer indus- tries. At the same time, higher demands on product features can Innovation Procurement, supply chain and infrastructure also create opportunities for innovation. We expect the trend toward increased sustainability requirements in Supply security for raw materials, energy and services is increas- our customer industries to continue. Our aim is to leverage the ingly affected by trade disputes, protectionism and geopolitical To maintain our competitiveness, we are continuously improving our resulting opportunities in a growing market with even more sustain- conflict. In addition, supply chains are increasingly threatened by production processes, streamlining our administration and simplify- able innovations. The key areas are products with a lower or even disruptions such as suppliers’ production bottlenecks, interrupted ing workflows and processes as part of our excellence programs. net zero carbon footprint, circular economy solutions, and safe and logistics chains, extreme weather events, and longer-lasting Our research and business focus is on highly innovative businesses sustainable products. To be successful in these fields, we have effects from the coronavirus pandemic. Climate change and extreme and differentiation through sustainability advantages to make our launched specific research and investment programs for the weather events are impacting the availability of renewable customers and BASF more successful. sustainable transformation of BASF. Furthermore, we began apply- resources. For more information on the Excellence Program, see page 21 ing the Sustainable Solution Steering method to the evaluation of innovation projects and integrated it at an early stage of our research These risks, as well as the introduction of new environmental regu- Regulation/policy and development processes. In this way, we are steering our inno- lations (for example, carbon fees), can have an impact on purchas- We expect to achieve continued regulatory and societal pressure, vation portfolio toward increased sustainability, which leads to ing prices. Transportation costs are significantly affected by capacity climate-neutral energy production, climate-neutral energy consump- higher profitability while reducing reputational and financial risks as constraints (for example, a lack of truck drivers, traffic jams due to tion, and a climate-neutral resource and raw material base. The well. inadequate logistics infrastructure). political approaches to address these issues will vary greatly from region to region. However, based on Europe in particular, we expect There are technical and commercial risks of failure associated We are seeing an ongoing expansion of the regulatory framework measures with a high level of regulation and detail that will have with every single research and development project. We also affecting us and our suppliers. Potential non-compliance by our the potential to significantly impact the competitiveness of BASF’s address this by maintaining a balanced and comprehensive project suppliers may lead to a reduced supplier base. Moreover, the avail- opera tions and product portfolio. portfolio as well as through professional, milestone-based project ability of renewable energies depends largely on favorable prices management. and framework conditions. Furthermore, we see the risk of the current geopolitical shift in bal- ance of power leading to the establishment of uncoordinated or Further risks may arise from increasing state protectionism and the These risks are continuously analyzed and appropriate strategies divergent global legislative standards and regulatory systems, not demand for localization of intellectual property in order to achieve and measures developed to minimize the impact on BASF. just in relation to chemicals, but also to environmental, social and technological independence. Through our Know-how Verbund in corporate governance criteria and the regulatory framework for research and development, we ensure that critical intellectual prop- To assess the changing risks for our sites from climate change, digitalization. erty is generated and protected in countries with high intellectual- climate data based on the latest scenarios of the Intergovernmental property standards. Panel on Climate Change (IPCC) were compiled for our sites in cooperation with an external partner. This enables the sites to