The Rhine River is one of Europe’s great waterways, tumbling out of headwaters in the Swiss Alps to snake its way northward through Germany and branch, some thousand kilometres later, through a delta in the Dutch lowlands into the North Sea. With Romantic castles, rolling vineyards and medieval cities studding its shores, the Rhine is a celebrated symbol of German culture.
But in the blistering summer of 2018, there was nothing celebratory about the Rhine. As Germany faced the hottest and driest weather since measurement began in 1881, the Rhine’s riverbed was reduced to a desiccated landscape of mudflats and dead fish. German industry, which uses the Rhine as a transportation lifeline, also suffered. The shrivelled Rhine of 2018 became a harbinger of the devastating impact that climate change will have on the backbone of the German economy.
Chemical giant BASF, whose headquarters and integrated chemical complex – the largest in the world – sit on the shores of the Rhine in Ludwigshafen, was hit particularly hard. Historically, some 40% of the raw materials entering the site do so by freight ships. In the summer of 2018, these were scraping bottom; cargo traffic was reduced to a trickle, and ships could be only partially laden. The river’s water was too warm to effectively cool BASF’s reactors. In total, production and delivery shortfalls caused by the 2018 heat wave cost BASF some €250 million (US$280 million), while its profits in the last quarter of the year were down nearly 60%.
Low water levels continue to plague BASF – and all the other major German chemical players that are concentrated along the Rhine. As they shift to shallower barges that carry only a fraction of the freight and less efficient rail and truck transport, they see their costs rise and their deliveries slow.
You’d expect a company so directly affected by climate change to be jumping on the decarbonization bandwagon. On the face of it, it is. To its iconic tagline, “We create chemistry,” BASF now adds “for a sustainable future.” But behind the scenes, Germany’s chemical industry – and BASF in particular – is proving to be exceptionally obstructive.
The British think tank InfluenceMap, which tracks corporate lobbying activity on climate policy, recently ranked BASF the third most “negative and influential” corporation in the world, following American oil giants Chevron and ExxonMobil in the first and second spots.
BASF resists the characterization, pointing to its track record – since 1990, the company has reduced its greenhouse gas emissions by 50% – and its objective to achieve net-zero by 2050 (five years later than the German national target of 2045). It has publicly endorsed the Paris Agreement on climate change as well as the EU’s target of being net-zero by 2050. And its product carbon footprint program, launched in 2020, allows customers to calculate the emissions generated “from cradle to gate” – through extraction, manufacturing and production – for all BASF products.
There is no question that the company is making moves in the right direction. In 2021, BASF purchased a major share of the world’s largest wind farm – Hollandse Kust Zuid – which is currently under construction in the North Sea, some 50 kilometres off the Dutch coast. The green electricity generated there will help power BASF’s European production sites, including Ludwigshafen.
Furthermore, the €10-billion engineering plastics plant BASF is now building in Zhanjiang, China, is slated to run entirely on renewable energy; the company is billing the facility – its third-largest globally – as a “role model of sustainable production both in China and around the world.”
But InfluenceMap looks beyond mainstream indicators to more subtle metrics: not only what companies present publicly in their annual reports, social media and public relations, but also the kind of research they sponsor, how they engage with regulators and elected officials and, importantly, the “indirect” lobbying they do through the industry associations they belong to. Taken together, InfluenceMap refers to this activity as a company’s “carbon policy footprint,” a kind of Scope 4 emissions.
Their analysis shows how common it is for a company’s outward claims to be at odds with its inner convictions. Eighty percent of the 25 companies deemed by InfluenceMap to have the most negative policy footprints look good on paper; like BASF, they have made net-zero commitments, and many, including BASF, scored A- or higher on Carbon Disclosure Project’s 2021 climate change disclosure scores, widely considered the gold standard of environmental reporting.
In exposing the gap between words and actions, InfluenceMap is not just looking to name and shame. The hope is that greater transparency will ultimately lead to a closer alignment between industry on the one hand and science-based policy benchmarks, like those articulated by the Intergovernmental Panel on Climate Change, on the other. And for the most part, that’s what’s happening.
According to Will Aitchison, EU strategy manager for InfluenceMap, some sectors of the German economy – even its automotive industry – have started to genuinely reconcile themselves with Paris targets and support legislation in that direction. But the chemical industry is a standout, and for good reason. The largest industrial consumer of energy of all sectors, in Germany it has relied on an ample supply of cheap Russian gas. BASF’s facility in Ludwigshafen represents 4% of Germany’s total gas consumption: roughly as much energy as a city of one million people. Half of that gas is used as feedstock – a raw material – in the production of chemicals. The other half is used to generate electricity.
“The chemical sector is anchored in fossil fuels,” says Aitchison. “And its lobbying reflects that.”
The industry has a lot to lose from a rapid transition away from fossil fuels, and BASF more than most, thanks to its 67% stake in Wintershall Dea, the oil and gas producer that it co-owns with the Russian company LetterOne. Wintershall Dea is one of the five co-funders of Gazprom’s Nord Stream 2 pipeline – whose certification Germany halted following the Russian invasion of Ukraine – and remains invested in several Russian gas fields, producers and network operators.
It’s no wonder that BASF is the most “engaged of European chemical companies” in its climate lobbying, according to Aitchison. And BASF, the largest chemical company in the world, with €78.6 billion in sales in 2021 and 110,000 employees worldwide, has a lot of weight to throw around.
Taking a run at climate regulations
So how does it do that? For one, it quibbles with climate-related regulations. Take, for instance, Europe’s proposed carbon border adjustment mechanism. The measure, a central plank of the European Green Deal, will impose tariffs on carbon-intensive imports into the European Union as a way of preventing “carbon leakage” – the relocation of production to less climate-ambitious jurisdictions – while also encouraging non-EU countries to introduce carbon pricing.
Looking at its own product palette, BASF sees primarily the downsides to the mechanism. It uses its roughly €3.5-million annual lobbying budget in Brussels to repeatedly ask the European Commission to exempt ammonia, nitric acid and the products along its value chain: essential components of the polyamide, polyurethanes and amines that BASF feeds to the textile, automotive, agriculture and pharmaceutical industries. Fearing its own products will no longer be cost-competitive on global markets, BASF reminds the European Commission that its commitment is not only to climate neutrality but also to economic growth.
Likewise, BASF opposes the legislation of energy savings targets, arguing instead for greater energy efficiency and a transition to renewables. The position is reinforced by the Federation of German Industries (Bundesverband der Deutschen Industrie, or BDI), the umbrella organization that represents some 100,000 companies – including BASF – and acts as the loudest mouthpiece for German industry. It advocates for energy reduction regulations only as a “last resort” and calls the EU’s proposed 1.5% energy savings target “unrealistic.”
Hiding behind industry groups
Companies frequently “get their industry associations to do the dirty work,” as InfluenceMap spokesperson Simon Cullen puts it. While most customers will recognize the name BASF, fewer will be following the BDI, or Cefic (the European Chemical Industry Council) or VCI (Verband der Chemischen Industrie) – all groups BASF belongs to and in which its executives play leading roles.
The relative anonymity of industry associations makes it much easier for them to push for policies that reflect their own vested interests. BDI, for instance, opposes the 2035 zero-emissions vehicle standard proposed by the European Commission and is lobbying the German federal government, in light of Russian gas shortages, to extend the use of coal and to facilitate a transition from gas back to oil.
Likewise, VCI is pushing for the EU to water down its taxonomy of sustainable finance to include economic activity involving gas. Currently, only 11% of BASF’s revenue is considered eligible for consideration under the EU Taxonomy. VCI and Cefic are both advocating against key elements of the proposed carbon border adjustment mechanism and in favour of a continuation of emissions allowances, which effectively forgive emissions for some producers.
This is the line that BASF walks: endorsing climate policy, unless or until it affects its own economic performance. “We are convinced that climate neutrality and sustainable resource use are not possible without a competitive chemical industry,” writes BASF spokesman Philipp Rosskopf in an email.
The implication is clear: BASF will be part of the solution, providing that its bottom line doesn’t suffer.
Investor pushback
Investors are paying attention. Since the asset management division of French banking group BNP Paribas began looking more closely at climate-related lobbying in 2018, it has seen “a rapid uptick in engagement on this issue by institutional investors,” according to spokesperson Claire Schiff. Together with a group of investor networks and other asset managers, BNP Paribas has established a global standard of responsible climate lobbying: a compendium of 14 indicators that can be used to assess how consistent a company’s advocacy work is with Paris targets.
“If there is misalignment, we expect corrective actions to be taken,” says Charlotta Sydstrand, spokesperson for Swedish public pension fund AP7, one of the instigators of the global standard. In 2018, AP7 asked BASF to review its own climate lobbying and publish a list of its memberships in industry associations. It obliged. The disclosure that BASF provided was given a failing grade by InfluenceMap. But the process at least created greater transparency and the beginnings of what people in the field refer to as “engagement” – the gentle tug of war between the forces of corporate self-interest and global responsibility.
A close look at BASF’s books suggests that these two objectives may not be so far apart after all. BASF distinguishes between what it calls accelerator sales – from products that are biodegradable, energy-saving or emissions-reducing, that make a “substantial sustainable contribution” – and the rest of its revenue. By BASF’s own calculations, revenues from its accelerator sales have grown at 69% over the last three years, as compared to 18% for the rest of its portfolio. And accelerator sales, currently 31% of the total, constitute an ever-growing share of BASF’s business.
The tide also seems to be turning at fellow chemical giant Bayer, which in the last year has endorsed the climate provisions in the U.S. Inflation Reduction Act and is pushing Germany to accelerate its expansion of renewables, rather than reboot fossil fuels, in the wake of Russian gas shortages.
With this kind of momentum, BASF shouldn’t feel the need to practise double-talk much longer. And the sooner it stops, the better.
The chemical sector is anchored in fossil fuels. And its lobbying reflects that.
-Will Aitchison, EU strategy manager for InfluenceMap
“If what you are saying to your investors does not line up with how you lobby, you have a big problem,” says Peter Damgaard Jensen, who for 19 years was CEO of one of Denmark’s largest pension funds and has served as chair of the Institutional Investors Group on Climate Change (IIGCC), a European body whose members – mainly pension funds and asset managers – collectively manage more than €51 trillion in assets.
Damgaard Jensen has listened to many companies distance themselves from their industry associations or claim that they have no choice but to go along. He has no time for such excuses. Membership in associations is rarely mandatory, and companies like BASF have considerable sway over the ones to which they belong. It behooves them to lead, not to follow. And investor coalitions like the IIGCC are only getting more assertive.
“They won’t change us,” Damgaard Jensen says. “It’s us that will change them.”
It won’t happen overnight. Damgaard Jensen calls the process a “long dialogue” in which European companies tend to be moving faster than American ones, with BASF a notable exception. He acknowledges that the transition away from fossil fuels poses a particular challenge for the chemical industry; demand for its products continues to grow, while its most critical input is under threat.
But companies won’t meet the challenge by dodging it, or lobbying themselves into a corner, surrounded by their own stranded assets. They must exercise model corporate behaviour: basing today’s decisions on where they see themselves 20 years down the road and talking to everyone – government, shareholders and their peers – out of one and the same side of their mouths.
