1

Corporate Sustainability Management and the Role of Stakeholder Communication in BASF

BISD Korea Inaugural Symposium September 26, 2005Dr. Lothar MeinzerDirector Sustainability Center BASF AG

2

Overview

BASF in brief

CSM at BASF

- Business Principles

- Strategy

- Management Systems

- Goals and Tools

Stakeholder Challenges

SD in Asia and Korea

3

BASF in briefFacts and Figures

BASF is the worlds leading chemical company with……customers in more than 170 countries…production sites in 41 countries …more than 81,000 employees

In 2004, BASF posted sales of Euro 37.5 billion and income before special items of approximately Euro 4.9 billionSales by segment (2004)

4

Activities in Asia Pacific

Nanjing, China(startup in 2005)

Hong Kong

Singapore

Sales* in 2004: €6,324 millionEmployees*: 9,330 as of December 31, 2004Regional highlights:

Serving customers in 15 countriesVerbund sitesin Malaysia and China2010 target: 20% of BASF Group sales and earnings from Asia Pacific

Kuantan, Malaysia

* For Asia, Pacific Area, Africa; sales by location of customer

Regional headquartersVerbund sites

Agricultural research stationResearch center

Major production site

5

BASF in briefBASF’s products

Segments Products (examples)

Chemicals Inorganic basic chemicals and specialties; electronic-grade chemicals; glues; resins; petrochemical feedstocks; plasticizers; amines; diols; polyalcohols;carboxylic acids; specialty intermediates

Plastics Styrene; styrene-based polymers and copolymers; capro-lactam and nylon; engineering plastics; polyurethane basic materials and polyurethane systems; specialty elastomers

Performance Performance chemicals for coatings, plastics & specialties Products and for detergents & formulators, textile and leather

chemicals; fuel and lubricant additives; automotive OEM and refinish coatings; industrial coatings; monomers; superabsorbents; adhesive raw materials; paper chemicals

Agricultural Herbicides, fungicides and insecticides; vitamins; carote-Products & Nutrition noids; pharmaceutical active ingredients; UV absorbers

Oil & Gas Crude oil and natural gas (exploration, production and trading)

6

BASF in briefOur products: The „Chemis-tree”

natural gas sulphurphosphaterock salt water

aircrude oil ores

raw materialsraw materials

approx. 8 000 sales productsapprox. 8 000 sales products

major base and intermediate productsapprox. 200

major base and intermediate productsapprox. 200

7

Corporate Sustainability Management

“For us, sustainable enterprise means combining economic success with environmental protection and social responsibility, thus contributing to a high quality of life for coming generations.”

CEO, Jürgen Hambrecht

CSM is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis (EU Commission)

8

Shaping the future –Strategy BASF 2015

Earna premiumon our costof capital

Helpour customers

to be moresuccessful

Ensuresustainable

development

Formthe best teamin industry

BASF –The Chemical

Company

BASF –The Chemical

Company

9

Vision, Values and Principles Codes of Conduct

10

Sustainability Management

Regional SteeringCommittees

(Asia, North-America, South America, Europe)

Regional SteeringCommittees

(Asia, North-America, South America, Europe)

Project team

Project team

Project team

Project team

Project team

Sustainability C

enterS

ustainability Center

Sustainability Council

8 division presidents

Sustainability Council

8 division presidents

11

Long-term global environmental goals

12

‘Energy-Verbund’ for High Energy Efficiency

Specific Primary Energy Demand

GJ)

/

4,00

4,50

5,00

5,50

6,00

2001

Rat

io: P

rimar

y E

nerg

y D

emS

ales

Vol

ume

of P

rodu

cts

in T

ons

(t)

•48% of global steam requirement (55 million metric tons) come from waste heat •approx. 1.8 million tons oil equivalent p.a. globally

and

in G

igaj

oule

( GJ/t7,00

6,50

2002 2003 2004

Year

13

Example: Greenhouse Gas Emission Savings through BASF- Products

mill

ion

t CO

equi

vale

nts

-125

-150

-100

-50

Emis

sion

s B

ASF

Gro

up

Savi

ngs

thro

ugh

EPS

in h

eat i

nsul

atio

n

Savi

ngs

thro

ugh

fuel

add

itive

s

Savi

ngs

thro

ugh

plas

tics

in a

utom

otiv

es

CO2 savings throughinnovative products arehigher than emissions

million t (CO2 equivalents)

BASF emissions 2003 24

Savings through BASF products -138

50

24

0-1

-122

14

Good Products = Good SustainabilityNew Technology in Automotive Coatings

• New technology “Integrated Process II” eliminates entire primer application section of coating line while retaining all of primer’s function

• Performed by a new water-based paint system

Benefits: • Shortens the coating line• Less solvents used• Reduces volatile organic compound emissions • Can be seamlessly integrated into existing plants• Delivers a finish nearly identical to that of

conventionally applied coatings• Offers cost savings

15

3 Liter House in Korea

Environmentally friendly and energy saving concept 3 companies

BASF: Technical support, Neopor® and PCM supplyDaelim Industry: ConstructionFuelcell Power: Fuel Cell supply

July 2005: funding by Ministry of Commerce, Industry and Energy as Government’s support projectAug. 2005: Neopor® won Energy winner AwardDec. 2005: completion of the first 3liter house in Korea

16

Global Standards

“Our goal is to build and operate plants in such a way that malfunctions are as unlikely as possible”

Same stringent standards worldwide through a global binding process safety guideline Compulsory five-step review system for Safety, Health and Environmental Protection when planning plantsA plant only starts up, when all protection concepts are implemented correctlyProper operation of plants controlled through our Groupwide RC Audit

17

Tools to measure Performance: Responsible Care® and Occupational Health Audits

Group-wide audits to ensure a high standard worldwideStrategic tool to manage local, regional and global efforts in safety and environmental protection.

Audits in 2004:88 environmental and safety audits carried out at 56 BASF sites38 occupational medicine and health protection audits at 38 sites

Certified by Deloitte

Assessment of risk performance

Verylow

Veryhigh

Medium

Verygood

Verylow

Medium

Safety and environmental performanceH

azar

d po

tent

ial

18

The BASF Eco-Efficiency Analysis

Strategic instrumentfor internal decisions.Economic and ecological advantages and disadvantages of products and processesare jointly consideredand compared.Entire lifecycle taken into account.Higher eco-efficiency means greater customer benefits with respect to costs and environmental burden.

Example:Production of vitamin B2

Chemicalsynthesis

Biotechnologicalprocess

1

23

Costs

Environmental burden

Low eco-efficiency

High eco-efficiency0.4

1.0

1.61.6 1.0 0.4

19

Overview

BASF in brief

CSM at BASF

- Business Principles

- Strategy

- Management Systems

- Goals and Tools

Stakeholder Challenges

SD in Asia and Korea

20

Stakeholder decide on the licenseto operate...

... as mass mediarecipients worldwide

... on the financial marketsworldwide

... as customers and consumers in global markets.

21

SD Issue Management

External view– Forum for the Future (British NGO)

Current SD-Issues1. Climate Change

2. Renewable raw materials

3. Responsible Care

4. Responsible Lobbying

5. Measuring / Reporting

6. Responsibility as Employer

7. Responsibility for the Supply Chain

8. Corporate Social Responsibility

9. Human Rights

10. HIV / Aids

11. Socially Responsible Investment

12. Economic impact / added value of investment / community investment

13. Innovation / Sustainable Products and Services

14. Millennium Development Goals / Doing business with the poor

15. Integrity / Transparency

16. Stakeholder Dialogue

17. Nanotechnology

18. Animal Testing

19. Persistent Environmental Pollutants / Public Health

22

SRI Indexes and Investment Products

BASF is listed in the leading sustainability indexes and funds: Dow Jones Sustainability Indexes (DJSI)

With the world’s leading sustainability-driven companies that implement sustainability operationally.

FTSE4Good IndexesInclude companies with good records in corporate social responsibility.

STOREBRAND SRI FundsContain companies with good environmental and social performance.

(…)

23

Customer Issues:NGOs Campaigning on Human Rights

Myanmar*:Cooperation with military regimes and forced labor

in stately joint ventures force retreat

society pressure through

NGOs

Child labor in the supply chain ProAgro

Child laborin the sneakerssupply chain

Employees disappeared(1974-78 in Argentina)

Execution of human rights activistKen Saro-Wiwa

* Formerly Burma

24

Customers Issues on Social Responsibility

Montoring of Sites Social Performance

Position statement on EHS, Labor standards and Human Rights

Supply chain monitoring on social and human rights issues

„In accordance“ statement with ownstandards

25

Supply Chain Audits

Global Code of Conduct in Raw Materials Purchasing

A

B

C

Product risk

Supplier risk1 2 3

safearea I

safearea II low risk

potentiallyhigh risk

Our suppliers:Comply with our Safety Matrix ConceptMeet safety, health and environmental protection requirements in accordance with Responsible Care® guidelinesDo not use child labor and forced labor as required by the principles of the Global CompactComply with our quality management requirements

26

Factory visit: First viewing

• Toxic Product

• Open System

• Poor Maintenance

• No Protection Equipment

No purchasing possible!

Action Plan

27

Factory visit: After Joint Action Plan

• Modernized plant

28

Reporting & Transparency

All-in-one Corporate Report

- according to GRI

- externally verified by DELOITTE Global Environment & Sustainability Services

Up-to-date sustainability website www.basf.de/sustainabilitySustainability newsletter three times a yearInvestor Relations:www.basf.de/share

http://www.basf.de/sustainability

29

Selected Sustainability Prizes Awarded to BASF in 2005

Basic certificate for „family-friendly personnel policy“ of the Hertie Foundation

Rank 5 in the Scoris DAX 30 Sustainability Rating

Rank 2 in the Oekom Sustainability Rating

Presidential Green Chemistry Award of theU.S. Environmental Protection Agency

German Environmental Reporting Award of the German Chamber of Public Accountants

30

Selected Sustainability Prizes Awarded to BASF in 2005

Member of Climate Leadership Index of the Carbon Disclosure Project

Member of FTSE4 Good Index September 2005

Best Corporate Reporting of the YearManager Magazin

Member of Dow Jones Sustainability World Index 2006

31

Overview

BASF in brief

CSM at BASF

- Business Principles

- Strategy

- Management Systems

- Goals and Tools

Stakeholder Challenges

SD in Asia and Korea

32

Sustainability networks in Asia Pacific

BASF is founding member of the Global CompactBASF is founding member of CBCSD

Goal: implement sustainable business practices in China by providing a forum for exchange and cooperation

BASF is member of ASrIA

BASF Pakistan is member of TransparencyInternational

Human rights awareness in Pakistan

China Business Council for Sustainable Development

33

Important SD activities in Asia Pacific

Commitment to the concept of Responsible Care®

Key initiatives on all sites include audits and managementsystems, industry certification, emergency response, waste treatment and trainings

Transportation & distribution safety

Implementation of BASF‘s global transportation & distribution safety guide

Training and safety checks

Partnering with service providers to enhance safe loading andtransportation of chemicals

34

Sustainable partnership projects in 2005

BASF is supporting China in the development of superior quality fuels, in order to reduce the emission of CO2

Technical and financial support for Beijing’s first independent engine-testing laboratory

Sustainable Tsunami relief in Asia3.8 million euro donation to help Tsunami victimsFocusing on long-term needs of children and housing

"Skin Health Camp" project in PakistanFree medical examination and medicines for tannery workers and their families

35

Community Advisory Panel (CAP) in Korea

Official communication channel between BASF and local community,specially about environment and safety issues Periodical meeting between BASF and CAP members who are local opinion leadersBuilding strong relationship and credibility each other March 2002: First CAP in Korean chemical industry at BASF Yeosu site June 2005: CAP at Ulsan site has started

36

Kids’ Lab in Korea

Chemical laboratory for primary school students to attract them Chemistry Our sites in Ulsan, Yeosu and Gunsan invited approx. 400 children since 2003 Benchmark for Korean chemical companies