Sourcing Responsibly

December 19, 2016

Dr. Thomas Droege, Vice President of procurement at BASF, talks in an interview about the Lonmin case and the challenges that come with sourcing on a global level and across diverse industries.

Dr. Thomas Droege, Vice President Procurement BASF.

BASF as a global company is sourcing raw materials from all over the world. How does that affect our commitment to sustainable sourcing?

Dr. Thomas Droege: Making sure that every supplier we work with shares our values and sustainability standards can be quite challenging. This is especially true when doing business in emerging countries or in complex markets, value chains or industries. We are responsible for selecting the suppliers we do business with and ensuring that they are compliant with our Supplier Code of Conduct and our policies related to human rights, labor and social standards as well as environmental protection. That applies worldwide.

From time to time, events occur that can call a particular supplier’s sustainability commitments into question. How do you manage this?

We have experienced such cases. As one example, Lonmin is a South African mining company and long-time supplier of precious metals to BASF. The metals we purchase from Lonmin – platinum, palladium and rhodium – are used in the production of BASF’s mobile emissions catalysts, which allow automakers to meet global clean air regulations. In 2012, a labor strike involving Lonmin mineworkers escalated and led to violent confrontations with armed South African police forces. More than 40 people were killed in these conflicts in Marikana, South Africa. A government report, issued in 2015, assigned clear responsibility for the violence to the police forces and striking mineworkers. However, Lonmin was also criticized for not using its best efforts to prevent the tragedy.

There were also claims that BASF, as a customer of Lonmin was responsible to pay reparations for the widows from Marikana for example at the Annual Meeting 2016. To what extent is BASF responsible?

BASF did not cause or contribute to the events that took part in Marikana in 2012, and therefore has no responsibility to make reparations. We were, however, pleased that the South African government recently announced that it is prepared to make such reparations to the families of the Marikana victims. For BASF’s part, our responsibility is to ensure that those suppliers we work with are fully compliant with our policies based on agreed upon international standards, which we are committed to meeting.

Why did BASF not end its relationship with Lonmin?

Of course we were shocked by the tragic events that took place. However, abandoning long-term suppliers without working to fully understand the facts does not match our understanding of sourcing responsibility, and in this case would not have helped the impacted communities. Rather we conducted a diligent review of Lonmin’s working conditions to assess their sustainability performance and gaps, and then worked with them to close those gaps.

What concrete steps did BASF take?

While the investigation was ongoing, we continued to engage with Lonmin’s operational, commercial and leadership teams to understand the actions taken to ensure compliance with our requirements. Once the government report was issued, we also commissioned a third-party sustainability audit of Lonmin’s operations. While the audit found some safety and environment gaps, which are currently being closed with our support, there were no findings at that point that would prevent a continued supplier relationship. During several visits to South Africa in 2016, we also engaged with a number of relevant stakeholders there. This was very helpful in understanding the complexities of the region, and preparing a follow-up audit of Lonmin which will take place in January 2017 to assess their progress.

BASF is not the only company buying precious metals in South Africa. How do you engage other stakeholders to find solutions to these types of challenges?

It is crucial to understand the broader socio-economic challenges that exist in the South African platinum belt. Addressing these challenges can only be done at a much broader level as they cannot be solved by any one company alone. To support this approach, in May 2016 BASF facilitated a multi-stakeholder workshop in Johannesburg as a starting point for dialogue and collaboration among key mining industry players, including regional operators and NGOs.

In early December 2016, BASF facilitated a Business Stakeholder Dialogue in Johannesburg which involved many stakeholders in the platinum value chain. This included almost all regional platinum mine operators, several platinum users including automotive OEMs and fabricators, as well as mining and human rights experts. The dialogue took place in a very constructive atmosphere and resulted in an agreement among the mine operators to join forces to identify a common path forward. As a result of this agreement, we would expect the mine operators to jointly develop a longer term strategy on how they will further develop the platinum belt in the future. We would expect these activities to look beyond just mining operations to also consider concrete project-based cooperation opportunities to improve the living conditions in the platinum belt over time.

The fact that this workshop led to a committed industry alignment among the major mine operators is, in our view, a major accomplishment. In the months ahead BASF will continue to monitor the status and progress of the commitments made.