CSR in BASF‘s Supply Chain:The Case of China

Dr. Lother MeinzerDirector Sustainability CenterBASF AktiengesellschaftConference: How to manage ethical risk in ChinaApril 27th 2005

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BASF in a Nutshell

The world’s leading chemical company

Production sites in 39 countries

37,5 billion € sales in 2004

81,955 employees worldwide

Sustainable Development as business maxime

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Chemicals Inorganic 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 Raw materials for detergents, textile and leather chemicals; Products pigments; printing inks; fuel and lubricant additives;

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

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

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

BASF’s products

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AutomotiveEnergyAgriculture

> 15%

BASF’s sales by customer industry

Percentage of sales in 2003 from ongoing business including Oil & Gas

CarpetsCosmeticsDetergents and cleaning agents

Construction

< 5%

5 – 10%

Other industries: approximately 12% in total

Electrical/electronicsFurnitureHealthLeather

PackagingPaperPrintingTextiles

10 – 15%

Chemical (not for consumer goods)

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Global presence

Major production siteVerbund site

Nanjing(Start-up in 2005)

Kuantan

Geismar

Freeport

LudwigshafenAntwerp

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Growth Strategy for Asia

YeosuNanjing

Singapore

Shanghai

Kuantan

Chemical sites

Verbund sites

Position:Early positioning in high-growth markets enables profitable growthChemical markets in Asia Pacific expected to grow by 3.5–4% per year up to 2015Strong presence in China

Ambitious Targets:Strengthen our position as one of the top 5 suppliers in strategically relevant marketsGenerate 20% of group sales and earningsBuild a local manufacturing base that will secure 70% of regional sales by 2010

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BASF in China

YeosuNanjing

Singapore

Shanghai

Kuantan

Chemical sites

Verbund sites

China is BASF’s key market in Asia12 production plants with 4.000 employees10 subsidiaries and 9 joint venturesfocus on Eastern China: Shanghai, Nanjing, Guangzhou, Jilin and Shenyang5,6 billion Euro invested in Asia until 2005turnover in Asia/Pacific region counts up to 14 % of overall turnover

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Activating Growth Platform in ChinaNanjing start-up in 1st HY 2005

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Values and Principles

Our Values are binding for all employees.

Sustainable Profitable Performance

Innovation for the Success of Our Customers

Safety, Health, Environmental Responsibility

Personal and Professional Competence

Mutual Respect and Open Dialogue

Integrity

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Code of Conduct China

Industrial and Plant safety, protection of health and environmental conservationFair Trade and Competition LawDealing with business partners and representatives of government bodiesHandling company property and the property of our business partnersInsider knowledge and company powers: No exploitation for personal purposesTrue and fair financial reportingForeign Exchange ControlImport and export control regulationsMoney launderingSmugglingEmployee relation

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Supply Chain: From Raw Material to Customer

Supplier:

Raw Material

Technical Goods

Service

Logistic partner:

Tank Trucks

Rail

Bark

Customer

Purchase Produce Transport Sell

Contractor:

Repair Work

Transportation

Installation

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Safety Matrix: Assessment of Suppliers

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

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

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Supplier Risk

As a result of stringent regulations and state verification measures, suppliers from OECD countries are initially allocated a low supplier risk (risk class 1). Suppliers from non-OECD countries are normally initially allocated to risk class 3, reflecting potentially the highest risk. Suppliers allocated to risk class 1 may, however, be downgraded to class 2or 3 if there are reasons to suspect a higher risk or if the risk is increased by specific circumstances. Conversely, responsible suppliers maybe upgraded to a class indication a lower risk.

Category 3: non-OECD countries

Category 1: OECD countries

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Product Risk: International standard classification

Category C

Category B

explosive very toxic toxic corrosive extremelyflammable

irritant oxidizing environmentallyharmful

harmful tohealth

highlyflammable

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C3: Decision Process

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Factory visit: First viewing

Evaluation of:

Production: Status of plant and buildings, cleanlinessand hygiene,employmentprotection...Environmental protection: effluenttreatment, emissions to

environment, wastemanagement...Qualitymanagement: lab equipment, controlof processes,

documentation....Qualityof management: knowledgeof provisions, safetytrainings, ...Logistics: stock-keeping, acquisitionof rawmaterials, water and

energy...

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• Toxic Product

• Open System

• Poor Maintenance

Factory Visit: First Viewing

No purchasing possible!

Action Plan

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• Open System

• Personal Protection Equipment

• Defective Plant

Factory Visit: First Viewing

No purchasing possible!

Action Plan

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• Open System

• Toxic Product

Factory Visit: First Viewing

No purchasing possible!

Action Plan

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• Personal Protection Equipment

• Modernized plant

Factory visit: After Joint Action Plan

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• Modernized plant

Factory visit: After Joint Action Plan

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Supply Chain: From Raw Material to Customer

Supplier:

Raw Material

Technical Goods

Service

Logistic partner:

Tank Trucks

Rail

Bark

Customer

Purchase Process Transport Sell

Contractor:

Repair Work

Transportation

Installation

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Assessment Principles of Construction Site Safety Performance (Nanjing)

Each construction area and contractor were individually assessed in the criteria agreed between General Contractor and BASF

There were also two overall assessments:- across all construction areas- average rating of the contractors

Ratings ranges from 1: very good to 5: very weak

1 - Very good 2 – Good 3 – Medium 4 – Weak 5 – Very weak

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Criteria for Assessment

PPE: Working with gloves, safety helmet, shoes and glasses; face shield; safety harness tied-offHousekeeping: Access to work area, laydown area, gas bottle managementExcavation: Barricade, signs, overload, holes coverageWorking at height: Scaffolding, lifeline and supports Electrical safety: Signage and access to switch box, cable safetyRigging: Pilling, cross working, protection nets, barricade, supervision; Crane inspection, permitConfined space/Hot work: Permit systemAdministration: Records and topics of safety talks, signatures, JHA, Emergency response, closing dateHealth: First Aid records, facilitiesEnvironment: Pollution and waste control, drainage, noise

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Example of EHS Assessment

Overall: 1.5 (previous: 1.9) Improvement vs last audit

Deterioration vs last audit

Criteria5 4 3 2 1

PPE 2.0 1.0Housekeeping 1.5Excavation 1.5Working at height 2.0 1.0Electrical safety 3.0 1.5Rigging 2.0Confined space/Hot work 1.5Administration 2.0Health 1.5Environment 1.0

Overall Assessment 1.9 1.5

Rating

1-very good 2-good 3-acceptable 4-poor 5-very poor

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Supply Chain: From Raw Material to Customer

Supplier:

Raw Material

Technical Goods

Service

Logistic partner:

Tank Trucks

Rail

Bark

Customer

Purchase Process Transport Sell

Contractor:

Repair Work

Transportation

Installation

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Distribution safety - Global goals

By 2012, we want to reduce transportation accidents by 70 percent compared with the value for 2003.

Group-wide „Transportation and Distribution Safety Guidelines“ that gobeyond legal requirements

Global network of distribution safety officers. They ensure that national and international procedures are observed for all shipments

Online Training Tools for employees and logistic partners

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Transportation and Distribution Safety in China

Global high standards also apply to China.

Groupwide „Transportation and Distribution Safety Guidelines“ were translated into Chinese and implemented Regional und local TDS advisers trained and qualifiedOnline training tool for staff and contractors developedAccident reporting tool implementedFirst audits along the lines of SQAS with transport companies performed

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Transportation and Distribution Safety in China

Global high standards also apply to China.

Assessment tool for road safety implemented, first audits performed„Safety Concept China“ for domestic transports by sea/inland waterwayInstallation of 24 hrs Emergency contacts

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Why we act

Reputation and „license-to-operate“

Chemical Industry: Responsible Care Initiative

Risk management

Competitive advantage