Corporate social responsibility at BASF

Creating Value for Shareholders and Society

Project Report , 2011 , 10 Pages , Grade: 1,0

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The most recent publication by Porter and Kramer (2011) reaffirms this theory and expands it from merely environmental concerns to overall societal concerns, in addressing economic growth in the framework of the creation of shared value. Beyond the emphasis on the elimination of inefficiencies in production processes as described in Green and Competitive, Porter and Kramer assess that shared value is created by reconceiving products and markets, redefining productivity in the value
chain, and building supportive industry clusters at the company’s locations.
In the following section we will scrutinize the efforts undertaken by the chemical giant BASF with regard to its Corporate Social Responsibility strategy, relevant policies and initiatives implemented.

INTRODUCTION

The global chemical industry converts raw materials such as oil, natural gas, metals, air, water, and minerals into more valuable products for use in industrial and consumer markets. Despite a major setback due the global financial crisis and the subsequent economic slow­down in 2008 and 2009, the industry grew to an impressive $3tn (trillion) in size with an expected global CAGR of 4.6% for the period 2010-2012. The major players in the industry are BASF, DSM, Dow Chemicals, Evonik Chemicals, SABIC, Lonza, Lanxess, Sigma-Aldrich, Mitsubishi Chemical Holdings, and Sumitomo Chemicals, whereof major growth has been driven by the Latin American and Asia-Pacific regions.¹

Historically, the industry has been perceived as problematic with regard to the externalities imposed on society and the environment, due to a generally energy intensive mode of production, substantial waste generation and the need for safe disposal of toxic waste. One might argue that the ecology-economy trade-offs are particularly steep in this industry and according to the Walley and Whitehead (1994) the industry's concern for environmental issues up to the end of the 1990s was driven by shareholder value, rather than compliance, emissions, or costs, as the critical unifying metric². The contribution by Walley and Whitehead promotes a stalwart economic realism that leaves little space for win-win scenarios in which economic growth can be consolidated with the effects of more rigorous environmental legislative efforts. In contrast, Porter and Van de Linde (1996)³ have developed a more positive outlook for growth opportunities and the adaptation of production processes. Their main argument revolves around the assumption that the traditional comparative advantage of nations becomes obsolete due to globalisation and that competitive advantage in the industry is mainly gained through innovation in products and production, in particular through technology and the most productive use of resources. In this respect, Porter and Linde can certainly be considered as strong advocates of the Business Case for CSR, asserting that this new paradigm has brought environmental improvement and competitiveness together. The most recent publication by Porter and Kramer (2011) reaffirms this theory and expands it from merely environmental concerns to overall societal concerns, in addressing economic growth in the framework of the creation of shared value.⁴ Beyond the emphasis on the elimination of inefficiencies in production processes as described in Green and Competitive, Porter and Kramer assess that shared value is created by reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters at the company's locations.

A brief review of good practices exemplifies the potential that can be unleashed by initiatives that aim at creating shared value:

- Dow captures a portion of the waste stream for reuse as a raw material in other parts of the plant. A $250,000 initial investment materialized in annual savings of $2.4 million.
- 3M found that innovations can improve process consistency, reduce downtime, and lower costs substantially.
- Johnson & Johnson has saved $250 million on health care costs by investing in employee wellness programs.
- Wal-Mart lowered carbon emissions and saved $200 million in costs by reducing packaging and cutting 100 million miles from the delivery routes of its trucks.
- Sales of GE's Ecomagination products reached $18 billion in 2009 and are expected to grow at twice the rate of total company revenues.

In the following section we will scrutinize the efforts undertaken by the chemical giant BASF with regard to its Corporate Social Responsibility strategy, relevant policies and initiatives implemented.

BASF - THE CHEMICAL COMPANY

With its ambition to fully integrate CSR in its business model, BASF SE has emerged as a game-changer with respect to Corporate Social Responsibility in the chemical industry. The company is the world's leading supplier of chemical intermediates, including six key areas namely: chemicals, plastics, functional solutions, performance products, agricultural solutions, and crude oil & natural gas in its current portfolio.⁵ The company employs a workforce of approximately 109,000 employees in 6 Verbund sites and 385 production sites in 80 countries. In 2009, BASF posted sales of €50.69 billion and income from operations of €4.9 billion. The European and North American market generate the major revenue share, whereof BASF expects strong growth from emerging markets, particularly China and India. Currently, the company is listed on the Frankfurt Stock Exchange, London Stock Exchange, and Zurich Stock Exchange and in the Dow Jones Sustainability World Index (DJSI World).

BASF'S CORPORATE SOCIAL RESPOSIBILITY STRATEGY

'CSR is an integral part of our understanding of business and is increasingly being integrated into business processes', from the BASF Annual Report 2009.

In its annual report BASF clearly acknowledges that CSR influences its business activities on three levels, namely risk minimization, business enhancement and business generation. Further, the company aims at transforming ecological, social and economic concerns into specific entrepreneurial action producing benefits for the company and for society (see figure 1).

The annual report comprehensively combines BASF's economic, environmental and social performance and indicates the company's inclination work towards triple bottom line improvements. The report is characterized by the implementation of the ten principles of the United Nations' Global Compact, while sustainability reporting follows the international guidelines of the Global Reporting Initiative (GRI). The company has made it a priority to work with sustainability experts in order to optimize its performance, and to communicate its CSR initiatives in a normative framework. This approach was recognized with the highest application level (A+) of the GRI, and excellent rankings in key sustainability indexes. Matten & Moon explain the adoption of an explicit CSR language by European companies through a general tendency favouring the 'American way' of communicating CSR, due to increased exposure to global capital markets, and by rationalizing that the legacy of the implicit CSR, still characterised by national legislative initiatives, is in change due to EU initiatives encouraging explicit CSR.⁶

BASF identified the following six core values as essential to its business model; sustainable profitable performance; innovation for the success of customers; environmental protection, health and safety; personal and professional competence; mutual respect and open dialogue; and integrity.

'BASF creates a competitive advantage for itself and its customers through the production of sustainable products and services.' This concise statement, as much as the above stated values encompass both the inside-out and outside-in linkages defined by Porter and Kramer (2006), while underlining that profitability in the long term, operational excellence, innovation, responsible conduct are the main strategic drivers.⁷

CSR IMPLEMENTATION AT BASF

The success of a good CSR strategy is mainly defined by its implementation. The implementation of the CSR strategy has to propose measures and processes that address multiple social and environmental issues that arise from the relationships between the company and society. As continuously emphasized by CSR scholars and experts, this requires the business to firstly understand the environment it operates in, identify key stakeholders, as much as the most important issues arising out of those relationships. For this reason BASF is in permanent dialogue with employee representatives, international organizations and the communities of its production sites.

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¹ Business Insights (2010), Global Growth Strategies for Chemical Companies, Business Insights Ltd.

² Walley and Whitehead (1994), It's Not Easy Being Green, Harvard Business Review May-June 1994

³ Porter & Linde (1996), Green and Competitive, Harvard Business Review September-October 1995

⁴ Porter & Kramer (2011), Creating Shared Value, Harvard Business Review January–February 2011

⁵ Business Insights (2010), Global Growth Strategies for Chemical Companies, Business Insights Ltd.

⁶ Matten, Moon (2008), “Implicit” and “Explicit” CSR: A conceptual framework for a comparative understanding of corporate social responsibility. Academy of Management Review. Vol. 33. No. 2

⁷ Porter & Kramer (2006), Strategy and Society, Harvard Business Review December 2006

• College: Copenhagen Business School
• Course: Corporate Social Responsibility
• Grade: 1,0
• Authors: Leonard Coen (Author), Jean-Luc Frast (Author)
• Publication Year: 2011
• Pages: 10
• Catalog Number: V179610
• ISBN (eBook): 9783656019909
• ISBN (Book): 9783656020240
• Language: English
• Tags: CSR, BASF, Corporate Social Responsibility, Soziale Verantwortung, Chemieindustrie, Shared Value, Wirtschaft und Ethik, CSR Strategy