Renewables & sustainable sourcing –a must-have or a differentiatorNIA West – May 25, 2016

1 | Who drives sustainability?

2 | Challenges in sustainable sourcing for renewables – example fish oil

3 | How certification works – example palm

4 | Key success factors for change

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BASF Human Nutrition3

Paradigm shift in business steering accelerating

Source: forest500.org

World economy moving towards holistic business

steering

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Forest who?

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Who is driving whom?

Ranking environmental policies of key power brokers on deforestation for

50 others (incl. NGOs)

150 investors50 jurisdictions250 companies

Push & pull for sustainability across the nutrition value chain

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Transparency

Social media enable transparency on air pollution & drive change, e.g. Institute for Public & Environmental Affairs

Investors & NGOs

Forest500 - analyzing forest conservation policies and reporting ratings

Retail

Walmart, Aldi, etc. define sustainability KPIs for suppliers & position “sustainability leaders”

Main drivers for sustainable sourcing

No sustainability – no business?

What is your organization's approach to including certified fish oil, including fish oil derivative ingredients, in your products?

Does your organization formally assess resource conservation, material and process efficiency, and weight or volume optimization in this product’s sales packaging?

Exemplary retailer KPIs

Source: The Sustainability Consortium, Membership Portal – May-2016; above text shortened excerpt from original

Example Vitamins & Supplements

Excerpt from DRAFT

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From drivers to action

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public opinion facts and details

human health risk indexX customer requests

environmental impact scoringlink to NGO focus topics

Country risk assessmentchild labor

biodiversity loss

lost of habitat

haze in Indonesia

forced laborEmotion Analysis

Driv

erFo

cus

Business opportunity in making the most of both

Männer vor einem Elefant

9 BASF Human Nutrition

How to eat an elephant?

Analysis the basis for differentiation

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Step 1: Analyze & define relevant sustainability challenges

Step 2: Check coverage through credible certifications

Step 3: Evaluate market dynamics incl. supply chain

Stepwise approach to a sustainable sourcing strategy

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Sharing our approach for sustainable sourcing of

fish oil for Omega-3

Step 1: Analyze & define relevant sustainability challenges

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Defining BASF criteria for Omega-3 sourcing

Environment Social Responsibility

2013 2014Hot Spot Mapping

No endangered fish from IUCN red list

No dynamiting/ poisoning No IUU practices Emissions & waste

reduction By-catch avoidance Recording/ controlling of

activities

Compliance with EHS standards

Support of internationally proclaimed human rights

No forced/ child labor

Our practical experience in fish oil sourcing

Step 2: Check coverage through credible certifications

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Certification scheme 1

Certification Scheme 2

Certification Scheme 3

Criteria 1

Criteria 2

Criteria 3

Criteria 4

Criteria 5

Credibility +

1. We constantly ensure a profound understanding of the supply chain and sustainability requirements

2. We assess suppliers continuously

3. We foster dialogue and cooperation

If core criteria are not met, we take immediate actions

Clear principles ensure sustainable sourcing

Our practical experience in fish oil sourcing

Third party validation of BASF approach2014 2015Assess certification schemes

Step 3: Evaluate market dynamics incl. supply chain

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Fishery Fishmeal & fishoil

Retailer/ consumerMarketer Omega-3

refineryCapsulation/packaging

In dialogue with Member of

Board member of

Reality check & dynamics

Peer dialogue & joint forces

Consumer insights & dynamics

Our practical experience in fish oil sourcing

Fish oil

Sustainability maturity of supply chain

Sustainable sourcing strategy depends on maturity in the supply chain

Need for individualized approach

Sustainable sourcing strategy depends on maturity in the supply chain

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Fish oilPalm oil Coconut oil

Sustainability maturity of supply chain

Need for individualized approach

Renewable raw materials not necessarily sustainable

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Half of world’s tropical forests have been cleared or degraded (FAO)

Tropical forest stores high amounts of carbon 15% of global GHG emission caused through deforestation (WWF)

80% of the worlds documented species found in tropical rainforest (WWF)

Oil palm plantations can contribute significantly to deforestation, loss of biodiversity and climate change from the loss of peatland

Why is Palm important? Most efficient edible oil Oustanding performance characteristics Palm was the 1st industrial agricultural crop that

has addressed sustainability

How to drive sustainable palm? Roundtable on Sustainable Palm OiI (RSPO) is a

strong global multistakeholder forum founded in 2004

BASF joined the RSPO in 2004

By sourcing palm from certified plantations one can counteract

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2-0010-04-100-00

Source: The Sustainability Consortium, Membership Portal – May-2016; above text shortened excerpt from original

BASF reviewed own policy – as pressure increased

19 BASF Human Nutrition

Nutrition value chain

Players and interests in the palm arena

Suppliers and Supply Chain

NGOs

Customers(Retailer, FMCG)

Pressure to take ownership Expect soon a “no deforestation“ commitment Asking BASF for public visibility

“No deforestation” commitments

Traceability commitments Limited physical market

transformation into RSPO

Supply chain complexity Availability of RSPO

Material

NGOs seek commitments beyond RSPO standards

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New – beyond RSPOBASF expands its commitment to palm- and palm kernel oil fractions, primary palm- and palm kernel oleo chemical derivatives and edible oil esters by 2025

Establishing upstream traceability of palm and palm kernel oil until 2020 and for the derivatives until 2025

Introducing a forest and peat conservation palm sourcing policy

Targeting smallholderinclusion & projects

Forum to exchange & continuous reporting

Continue Current BASF’s goal is to only source RSPO certified sustainable palm and palm kernel oil.Supporting physicaltransformation of the market

New

Prod

uct l

evel

Cor

pora

te le

vel

Example BASF’s new palm commitment

No claim without certification of every value chain step

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Retail

Marketer

Producer

Raw material

Certified plantation practice

Chain of custody

Chain of custody

Chain of custody

Chain of custody

Origin

A truly joint journey - everyone needs to contribute

Required RSPO supply chain certification

No certification unless all criteria are met

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Checklist for one business entity

How you can check?What?

1 Company is RSPO member www.rspo.org/members/all

2 Manufacturing facility is RSPO certified www.rspo.org/members/47/BASF-SE

3 Manufacturing facility uses enough RSPO certified raw material

Cannot be checked by outsider

4 Sales material is RSPO Mass Balance certified

RSPO Mass Balance printed on delivery papers

Typical questions we get asked and ask

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What is your time-bound plan to offer certified products?

What are your Corporate commitments beyond RSPO?

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No way around a diligent search

Hard to make everyone happy – define what you are standing for

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Suppliers and Supply Chain

NGOs

Customers(Retailer, FMCG)

Nutrition value chain

From single beliefs to real entrepreneurial spirit

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Sense of urgency & business rationale

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Urgency: create a belief that “change is needed” – a business opportunity

Small working packages enable fast progress

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Tangible actions: make it concrete and operational – small work packages

Urgency: create a belief that “change is needed” – a business opportunity

Internal discussions are your training camp

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Inclusion: involve different roles (internal & external)

Urgency: create a belief that “change is needed” – a business opportunity

Tangible actions: make it concrete & operational – small work packages

Communicate what you stand for

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Commit: go public

Keep going !

Inclusion: involve different roles (internal & external)

Urgency: create a belief that “change is needed” – a business opportunity

Tangible actions: make it concrete & operational – small work packages

Risk management

Fulfilling needs

Trend setting

Gain value through cutting edge solutions

Reputational risk -loosing credibility

Increase credibility through tangible proof points

Core value driverValue for business

What is your target area?

Strategy to fit company culture and market environment

31 Source: BASF own concept

Model for sustainability as value driver

BASF Human Nutrition

Sustainable Sourcing -

What it is all about

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The currency is trust in you – your company – your supply chain

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Our findings

Consumers seek orientation, confused about labels

Brands provide orientation

Companies held accountable for value chains

Combining capabilities to drive sustainability & differentiation

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We could contribute Hands-on experience in

sustainable sourcing of renewables

RSPO certification expertise

Scientific sustainability know-how

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