Supplier Management

As a global company, BASF sources raw materials, energy, precursors, technical goods and services from all over the world. These raw materials and precursors are the building blocks for our value creation and thus high-quality products for our customers. Our objective is to create competitive advantages through our professional procurement structures, to establish stable and reliable supply chains, and, at the same time, meet high ethical and environmental standards. Together with our suppliers, we want to improve sustainability in the supply chain and minimize risks.

Strategy and governance

Our procurement organization ensures a reliable supply of raw materials, energy, precursors, technical goods and services to BASF. With active supplier management, we aim to minimize purchase-related risks such as supply shortages and price fluctuations, ensure our competitiveness and seamless production processes. Alongside economic and qualitative criteria, we also take environmental, social and ethical aspects into account in the cooperation with our suppliers² in order to minimize risks in the supply chain and live up to our responsibility by establishing standards and initiatives. Our sustainability-oriented supply chain management is an integral part of our opportunity and risk management.

Procurement guidelines and targets are set centrally by the responsible Corporate Center unit Corporate Development and are binding for all employees with procurement responsibility worldwide. We use a multistage control process to ensure compliance with these requirements. Our expectations of our suppliers are laid down in the globally binding Supplier Code of Conduct (see What we expect from our suppliers).

We have defined our standards in a global requirement. We are continually refining and optimizing this requirement and our structures and processes in response to changing framework conditions, such as new obligations arising from the German Supply Chain Due Diligence Act (GSCA), which requires large companies to conduct due diligence on human rights and certain environmental standards in their supply chains since January 1, 2023 (see In Focus: Human Rights, Labor and Social Standards). In principle, this applies both to our own business operations and to direct and indirect suppliers. As part of the new statutory due diligence obligations, we have updated our purchasing conditions, adapted clauses for new contracts, revised existing contracts and proactively informed our suppliers. Our established supply chain management tools, such as our Supplier Code of Conduct or the systematic risk-oriented assessment and auditing of suppliers, remain important elements and have been updated accordingly.

Our risk-based approach aims to identify and evaluate sustainability matters in our value chains in the best possible way. We count on reliable and long-term supply relationships in order to jointly improve our sustainability performance, for example through projects or by helping to address shortcomings. We regularly review and document progress based on the risk level. Procurement employees receive regular training in sustainability-oriented supplier management and responsible procurement. In 2023, around 330 employees received such training, covering the requirements arising from the GSCA.

In our supplier relationships, we focus on the potential to reduce upstream, raw materials-related carbon emissions, thus contributing to our new raw materials-related climate protection target defined in 2023. With our Supplier CO₂ Management Program launched in 2021, we aim to increase the transparency and reduce the carbon footprint of our value chain together with our suppliers.

In line with our strategy and our values we promote and value diversity, the sense of belonging and inclusion in our value chain. We have been involved in supplier diversity programs in North and South America for many years. We seek targeted contact with underrepresented supplier groups through interest groups and work to integrate them into our supply chain. In addition, we promote the exchange of information on sustainability topics in webinars and workshops and establish partnerships to enable dialog between customers and suppliers.

• More information on suppliers

Global targets

In 2023, we acquired raw materials, goods and services for our own production worth approximately €41 billion from our more than 70,000 suppliers. Of this, around 90% were procured locally.³

We actively promote sustainability in the supply chain with our ambitious targets: By 2025, we aim to have conducted sustainability evaluations for 90% of the BASF Group’s relevant spend. In addition, we aim to have 80% of suppliers improve their sustainability performance upon reevaluation by 2025. In 2023, 89% of the relevant spend had been evaluated. Of the suppliers reevaluated in 2023, 82% had improved. Both global targets are embedded in the target agreements of employees responsible for procurement.

What we expect from our suppliers

Together with our suppliers, we want to improve sustainability in the supply chain. Consequently, we require our suppliers to comply with the applicable laws in full and to adhere to internationally recognized environmental, social and governance (ESG) standards. We also expect them to make an effort to enforce these standards with their suppliers. In addition, we require our suppliers to support and comply with our Supplier Code of Conduct – or to demonstrate and ensure their commitment to the principles specified in the Code of Conduct, for example in their own code of conduct.

Our global Supplier Code of Conduct is founded on internationally recognized guidelines, such as the principles of the United Nations’ Global Compact, the U.N. Guiding Principles on Business and Human Rights, the International Labour Organization (ILO) conventions, and the topic areas of the Responsible Care^® initiative. Topics covered by the Code of Conduct include compliance with human rights, the exclusion of child and forced labor, adherence to labor and social standards, antidiscrimination and anticorruption policies, and protecting the environment. The Code of Conduct is available in the most relevant languages for our suppliers and integrated into electronic ordering systems and purchasing conditions across the Group. We expanded our Supplier Code of Conduct to include requirements from the GSCA and informed our existing suppliers of these changes in 2023. Around 5,000 new suppliers committed to the Code of Conduct in 2023.

BASF conducts audits and assessments to ensure that suppliers comply with the applicable laws, rules and standards. We reserve the right to discontinue business relationships for nonadherence to international principles. The same applies to failure to correct violations, or for displaying patterns of noncompliance with these standards. Our Code of Conduct expressly points out that potential violations of laws, rules or standards can be reported – including anonymously – to our compliance hotlines. Each case is documented and investigated, and appropriate measures are taken as necessary.

Selection and evaluation of our suppliers

New suppliers are selected and existing suppliers are evaluated not only on the basis of economic criteria, but also ESG standards in particular. As such, selection, evaluation and auditing are important parts of our sustainable supply chain and risk management. Processes and responsibilities are defined in a global requirement. Due to the large number of suppliers, they are evaluated based on risk. Both country and industry-specific risks as well as our ability to exert influence are taken into account. Observations from our employees in procurement, concerns reported through the compliance hotline and information from internal and external databases, such as Together for Sustainability (TfS) assessments (see box below), are also used.

We are aware of problems in specific supply chains. We have suppliers with a high potential sustainability risk evaluated by third parties, either through sustainability evaluations or on-site audits. The list of suppliers to be assessed is updated every year. Sustainability evaluations and on-site audits are mainly conducted according to the TfS framework. A total of 89 raw materials supplier sites were audited on sustainability standards on our behalf in 2023. We received sustainability evaluations for 579 suppliers. We also take into account other certification systems and external audits, such as the Roundtable on Sustainable Palm Oil, when assessing our suppliers.

Audit results

We carefully analyze the results of our assessments, which are summarized in audit reports with specific plans for corrective measures, and document them in a central database. We regularly review the implementation of the measures and verify them in a follow-up audit. Over the past few years, we have identified some need for adjustment at our suppliers with respect to environmental, social and governance standards, for example in waste management, or deviations in occupational health and safety measures and standards under labor law. Follow-up audits performed in 2023 identified improvements in these areas.

In this reporting year, we recorded one case of undignified working conditions and underage labor. In March 2023, representatives of local authorities identified unacceptable working conditions on two rice farms which produced seeds for BASF in Uruguaiana, Brazil. The affected workers were temporarily employed by subcontractors of BASF contractors in the fields. Immediately after becoming aware of this, we approached the relevant authorities proactively and without delay and evaluated the processes on-site. The work was stopped immediately and the contract with one of the farms was terminated as it was not possible to work constructively on the incidents with this partner. We have also strengthened our regulations and started to introduce additional preventive measures. In particular, we have reaffirmed to our seed multipliers their obligations under applicable labor laws and compliance with human rights requirements in writing, including with regard to potential subcontractors. We have strengthened our training with a focus on respect for human rights. In addition, we plan to carry out more risk-based controls of our contractors and their subcontractors, as well as training sessions.

At the beginning of 2023, an internal audit of our joint venture operations in Korla, China, was carried out. This investigation, as well as past audits, did not reveal any evidence of human rights violations in the two joint ventures. We have obtained written confirmation from key suppliers, including our joint venture partners, that they accept our Supplier Code of Conduct. Nevertheless, reports from spring 2024 on the joint venture partner in Korla contain serious allegations that indicate activities that are not compatible with BASF’s values. Consequently, we will accelerate the process already started at the end of 2023 to divest our shares in the two joint ventures in Korla for strategic reasons, subject to negotiations and the required approvals from the relevant authorities.

As part of our due diligence, we are in regular contact with our South African platinum suppliers, including Sibanye-Stillwater.⁴ In addition, we are in regular dialog with relevant stakeholders in order to gain a comprehensive picture of the situation at a local level and address relevant issues. Sibanye-Stillwater and the other South African platinum suppliers have agreed to conduct future audits in accordance with the Initiative for Responsible Mining Assurance (IRMA) mining standard and are in the process of conducting an IRMA self-assessment. We discuss the status and results in our regular exchanges.

We maintain dialog and a regular exchange with Nornickel to continuously monitor the situation and audit results, and we are in contact with civil society groups. Nornickel continues to work on implementing management systems according to internationally recognized industry standards that allow for third-party verification of mining and responsible sourcing, such as IRMA. The current conditions continue to impact our business relationship, while auditing according to the aforementioned standards is currently not possible.

Supplier development

If supplier assessments identify deviations from standards, we require suppliers to develop and implement corrective measures within a reasonable time frame in a clearly defined follow-up process. We support them in their efforts. For example, we trained 102 employees from 88 Chinese suppliers in 2023 as part of a partnership with the East China University of Science and Technology in Shanghai, China. An important part of supplier development were also the webinars on the topic of sustainability and the implementation of corrective measures held by TfS in various languages, with a total of over 2,100 participants. In addition, the new TfS Academy online learning platform is aimed at buyers and suppliers. It covers the entire spectrum of ESG topics. There are currently over 390 courses available in 11 different languages. We review our suppliers’ progress according to a defined time frame based on the sustainability risk identified, or after five years at the latest. In the case of serious violations of the standards defined in our Supplier Code of Conduct or international principles, we reserve the right to impose commercial sanctions. These can go as far as the termination of the business relationship. In 2023, this happened in three cases.