BASF Report 2021 Management’s Report – Opportunities and Risks 156 organized, use more sophisticated technology, and have far more particularly based on estimates as to the probability of occurrence The chief aim is the management of counterparty, transfer and resources available. If data are lost or manipulated, this can, for and the range of possible claims. These estimates are the result of currency risks for the BASF Group. example, negatively affect plant availability, delivery quality or the close cooperation between the relevant operating and service units accuracy of our financial reporting. Unauthorized access to sensitive together with Corporate Finance and Corporate Legal. If sufficient Exchange rate volatility data, such as personnel records or customer data, competition- probability of occurrence is identified, a provision is recognized Our competitiveness on global markets is influenced by fluctuations related information or research results, can result in legal conse- accordingly for each proceeding. Should a provision be unneces- in exchange rates. For BASF’s sales, opportunities and risks arise in quences or jeopardize our competitive position. This would also be sary, general risk management continues to assess whether these particular when the U.S. dollar exchange rate fluctuates. A full-year accompanied by the associated loss of reputation. litigations nevertheless represent a risk for the BASF Group’s EBIT. appreciation of the U.S. dollar against the euro by $0.01, which could result from a macroeconomic slowdown, would increase the To minimize such risks, BASF uses globally uniform processes and We use our internal control system to limit risks from potential BASF Group’s EBIT by around €30 million, assuming other condi- systems to ensure IT availability and IT security. These include stable infringements of rights or laws. For example, we try to avoid patent exchange tions remain the same. On the production side, we counter and redundantly designed IT systems, backup processes, virus and and licensing disputes whenever possible through extensive clear- rate risks by producing in the respective currency zones. access protection, encryption systems as well as integrated, Group- ance research. As part of our Group-wide Compliance Program, our wide standardized IT infrastructure and applications. The systems employees receive regular training. Financial currency risks result from the translation of receivables, used for information security are constantly tested, continuously liabilities and other monetary items in accordance with IAS 21 at the updated, and expanded if necessary. In addition, our employees Tax closing rate into the functional currency of the respective Group receive regular training on information and data protection. IT-related The recognized tax-related opportunities and risks only concern company. In addition, we incorporate planned purchase and sales risk management is conducted using Group-wide regulations for taxes that impact the BASF Group’s EBIT in the short term. These transactions in foreign currencies into our financial foreign currency organization and application, as well as an internal control system arise when BASF has taken a position that differs from the opinion risk management. These risks are hedged using derivative instru- based on these regulations. of a competent administrative authority. If a tax payment has already ments, if necessary. been made and could be reclaimed, this is presented as an oppor- The Cyber Defense Center was established in 2015 and is continu- tunity. If, on the other hand, a potential payment is outstanding in Interest rate risks ously being expanded in line with the growth in current accordance with the administrative opinion, this is a risk. We Interest rate risks result from potential changes in prevailing market requirements. BASF is also a member of Cyber Security Sharing primarily evaluate opportunities and risks with regard to their proba- interest rates. These can cause a change in the fair value of fixed- and Analytics e.V. (CSSA) and a founding member of the Ger- bility of occurrence and, if necessary, set up a provision for the rele- rate instruments and fluctuations in the interest payments for man Cybersecurity Organization (DCSO) together with Allianz SE, vant risk. If a provision is not necessary, this is taken into account in variable- rate financial instruments, which would positively or nega- Bayer AG and Volkswagen AG. BASF has also established an determining EBIT-relevant risks of the BASF Group. tively affect earnings. To hedge these risks, interest rate swaps information security management system and is internationally and combined interest rate and currency derivatives are used in certified according to IDIN EN ISO/IEC 27001:2017. individual cases. Financial opportunities and risks Legal disputes and proceedings In addition to market interest rates, BASF’s financing costs are We constantly monitor current and potential legal disputes and Detailed guidelines and procedures exist for dealing with financial determined by the credit risk premiums to be paid. These are proceedings, and regularly report on these to the Board of Executive risks. Among other things, they provide for the segregation of finan- mainly influenced by our credit rating and the market conditions at Directors and Supervisory Board. In order to assess the risks from cial instrument trading and back office functions. the time of issue. In the short to medium term, BASF is largely pro- current legal disputes and proceedings and any potential need to tected from the possible effects on its interest result thanks to the recognize provisions, we prepare our own analyses and assess- As a part of risk management, activities in countries with transfer balanced maturity profile of its financial indebtedness. ments of the circumstances and claims considered. In addition, in restrictions are continuously monitored. This includes, for example, individual cases, we consider the results of comparable proceedings regular analysis of the macroeconomic and legal environment, and, if needed, independent legal opinions. Risk assessment is shareholders’ equity and the business models of the operating units.