Bayer's Response to the 2014 Water Disclosure Request. Leverkusen June 2014

Transcription

1 Bayer's Response to the 2014 Water Disclosure Request Leverkusen June 2014

2 CDP CDP 2014 Water 2014 Information Request Bayer AG Module: Introduction Page: W0. Introduction W0.1 Introduction Please give a general description and introduction to your organization. Bayer is a world-class innovation company with core competencies in the fields of health care, agriculture and high-tech materials. We intend our successes in science to improve people s lives and help address today s biggest challenges the global population growth, an aging society and the efficient and, wherever possible, sustainable - use of natural resources. Throughout the world we are helping to prevent, alleviate or cure diseases and improve diagnostic techniques. With our products for agriculture we are also ensuring that farmers can deliver a sufficient supply of high-quality food, feed and plant-based raw materials. And with our high-tech polymer materials we are making significant contributions to factors such as energy and resource efficiency in the areas of mobility, construction and home living. We have spent more than 150 years laying the foundations for achieving these goals and are the only global company to combine expertise in human, animal and plant health and high-tech polymer materials. Our focus on innovation is the key to maintaining or gaining leadership positions in all of our markets. This means generating value for our customers, stockholders and employees. In addition, we consider the interests of other stakeholders in society. We work sustainably and face up to our social and ethical responsibilities as a corporate citizen. Our Bayer values that we combine under the term LIFE Leadership, Integrity, Flexibility and Efficiency serve as a guideline for the implementation of our mission Bayer: Science For A Better Life. The CDP Water Disclosure Report (in the following called WDP Report) encompasses all Bayer subgroups: Bayer MaterialScience (BMS), Bayer CropScience (BCS), Bayer HealthCare (BHC) as well as our service companies: Bayer Business Services (BBS), Bayer Technology Services (BTS) and the German site service company CURRENTA (CUR). They are, however, affected by water-related issues in a different manner as will be outlined in the different sections of the report. Forward-looking statements: This document contains forward-looking statements based on current assumptions and forecasts made by Bayer Group or sub and service group management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Bayer s public reports, which are available on the Bayer website at The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.

3 W0.2 Reporting Year Please state the start and end date of the year for which you are reporting data. Period for which data is reported Tue 01 Jan Tue 31 Dec 2013 W0.3 Reporting Boundary Please indicate the category that describes the reporting boundary for companies, entities, or groups for which water-related s are reported. Companies, entities or groups over which financial control is exercised W0.4 Exclusions Are there any geographies, facilities or types of water inputs/outputs within this boundary which are not included in your disclosure? No Further Information Bayer collects water related data in the Bayer Site Information System "BaySIS". In BaySIS, all production sites and non-production sites that are considered environmentally relevant report water-related key performance indicators on a regular basis. These sites represent approximately 99% of Bayer s total water use. Administrative sites are not included in our reporting, unless they are near by a production site. Due to their minor water consumption they are not relevant for Bayer s overall water management.

4 Module: Current State Page: W1. Context W1.1 Please rate the importance (current and future) of water quality and water quantity to the success of your organization Water quality and quantity Importance rating Please explain Direct use: sufficient amounts of good quality freshwater available for use across your own operations Direct use: sufficient amounts of recycled, brackish and/or produced water available for use across your own operations Indirect use: sufficient amounts of good quality freshwater available for use across your value chain Indirect use: sufficient amounts of recycled, brackish and/or produced water available for use across your value chain Vital for operations Neutral Important Not very important The continuous availability of clean water in sufficient quantities is essential for our operations, since water is used for cooling purposes and in the production process. For instance, if the water has a high concentration of salts, it will not be appropriate for cooling purposes due to its corrosive characteristics to pipes. We safeguard our water supply under the premises that industrial water usage does not lead to local problems such as shortage of water for the local population. In our production activities, we endeavor to use water several times and to recycle it. Water is already recycled and reused at 36 sites, e.g. in closed cooling cycles, or through the reuse of treated wastewater or steam condensate recovery as process water. A total of around 11 million m³ of water was reused in Availability of good quality freshwater along the value chain is an important and limiting factor for our product use and for the business. In some cases, this determines the provision of raw materials or products by the suppliers or tollers. Usually freshwater from other sources such as surface or municipal water is used along the value chain (e.g. for irrigation in agriculture, in the case of Bayer Cropscience). W1.2 Have you evaluated how water quality and water quantity affects /could affect the success (viability, constraints) of your organization's growth? Yes, evaluated over the next 10 years

5 W1.2a Please explain how your organization evaluated the effects of water quality and water quantity on the success (viability, constraints) of your organization's growth? Bayer continuously identifies and monitors water-related risks and opportunities which could affect the organization s growth. On a company-wide level, Bayer monitors potential risks that could jeopardize a sustained increase in its corporate value with its risk management data base BayRISK. Furthermore, HSEQ (Health, Safety, Environment and Quality) and Sustainability Managers monitor relevant changes, opportunities and risks and report them to the Environment & Sustainability Department or within the SD (Sustainable Development)/HSEQ Committees. Upcoming opportunities for water related to Bayer products and services are also identified by Industrial Marketing managers, which continuously monitor market developments, and are reported to the R&D departments. The identified opportunities and risks are updated at regular conferences and incorporated into the subgroups strategic and operational planning Specific water-related aspects affecting our business are also analysed in the different subgroups. In the case of Bayer HealthCare, we analysed possible regulatory and reputational consequences of the occurrence of pharmaceutical residues in environmental waters for our product portfolio within our Enterprise Risk Management system. By Bayer Cropscience, the modelling of water availability and water quality in the use of our products plays an important role for the risk assessment of crop protection products in the environment. The availability of water for field irrigation is constantly optimized (e.g. droplet irrigation) as well as the usability of our products, to guarantee a sustainable business in accordance with our business growth. Moreover, the partnership of Bayer MaterialSciences with Kemira is a good example of initative to exploit water-related opportunities that arise for Bayer materials: hydrochloric acid, a by-product in BMS s isocyanate production, can be used for the production of flocculants, which are used in water and wastewater treatment. Besides, the implication of water supply in production is evaluated event driven on operations continuity per production site. Bayer also covers water use, risks and management aspects through the suppliers sustainability performance monitoring. W1.3 Has your organization experienced any detrimental s related to water in the reporting period? Yes W1.3a Please describe the detrimental s experienced by your organization related to water in the reporting period

6 Country River basin Impact indicator Impact Description of Overall financial Response Description of response Belgium India Scheldt Narmada Regulatory- Regulatory uncertainty Physical- Pollution of water supply Higher operating costs Brand damage Because of the uncertainty that still exists with the results of the BREF (Best Available Techniques Reference Document) Common wastewater and waste gas treatment, and because the conclusions of the BREF will be taken over in the permits (as a result of Industrial Emissions Directive), there is a possibility of fines or penalties and the wastewater treatment plant will be adapted. Our sites in India are exposed to water-related s and challenges such as: -Drinking & Agricultural water shortage -Limited availability of irrigation - Contaminated Waters -High fluoride content in some pockets -Pesticide residues in water Investment in the enlargement of the wastewater plant together with other partners on the site. Investment costs for Bayer: EUR 3 Million. Water shortages in India could potentially affect our hybrid seed production and may lead to negative long term s on agricultural growth. To date natural disasters have not caused major damage to our production plants or resulted in a significant loss of production. Besides, there is a potential negative on Bayer s reputation. As part of the new Bayer Business Targets, next year we will start monitoring the financial of water issues in our sites. Infrastructure investment Other: Engagement with stakeholders Investment in the enlargement of the wastewater plant together with other partners on the site. -Promotion of drip Irrigation. - Engineering controls being introduced until 2015 to improve wastewater emissions to the shared government water treatment facilities in Vapi. -Comprehensive monitoring systems are in place at these sites to ensure appropriate reaction times and risk management responses. - Bayer is also actively engaged in a continuous dialogue with stakeholders including employees, customers, suppliers, investors, neighbours, NGOs, politicians and the general public.

7 Module: Risk Assessment Page: W2. Procedures and Requirements W2.1 Please select the option that best describes your procedures with regard to assessing water risks and provide an explanation as to why this option is suitable for your organization Water is integrated into a comprehensive, company-wide risk assessment process incorporating both direct operations and supply chain W2.1a You may provide additional information about your approach to assessing water risks here On the one hand, all risks that could jeopardize a sustained increase in the company s value are evaluated and recorded in our risk management database BayRISK, which covers water-related risks that have the potential to affect Bayer at facility level (e.g. through floods or water shortages), regional level (e.g. state or federal legislation), or global scale (e.g. reputational risks). Besides, relevant risks are monitored through our HSEQ and sustainability managers and internal and external audits. On the other hand, Bayer covers water-related risks through the suppliers sustainability performance monitoring, done through on-site audits by external independent audit partners as well as online assessments carried out by a leading web-based platform for sustainability monitoring (EcoVadis). With our new water-target, part of the Bayer Business Targets, we take a further step forward and aim to establish a water management system at all sites in waterscarce areas by the end of W2.2 Please state how frequently you undertake water risk assessments, what geographical scale and how far into the future you consider

8 Frequency Geographic scale Timeframe Bayer monitors potential risks with its risk management data base BayRISK, which is reviewed three times a year. Besides, legislative changes and academic research are monitored worldwide by Bayer`s HSEQ and Sustainability Managers. They report potential risks and opportunities to the Environment & Sustainability department and the Sustainable Development (SD) Committee, which meets three times a year to review all SD-related issues and reports to the Board of Management after each meeting. Environmental risks are identified and reviewed annually as part as the HSEQ management system and audits. Water withdrawals and use are measured at site level and monitored biannually in our central Bayer Site Information System BaySIS. Additionally, the Bayer Emergency Response System BayERS, as a mandatory element of the integrated HSEQ management system at Bayer production sites, ensures appropriate crisis management in the event of unusual occurrences. In 2013 Bayer has set new Business Targets, including the target of establishing a water management system at all sites in water-scarce areas by From now on we will annually analyse relevant waterrelated aspects for the sites identified through an online questionnaire and telephone interviews. We verify our suppliers adherence to the Code of Conduct by way of annual supplier assessments and audits. In 2013 we carried out webbased supplier assessments using the EcoVadis platform as well as audits performed together with an independent external auditor. We also received additional results from audits and assessments of our suppliers within the Pharmaceutical Supply Chain Initiative and Together for Sustainability. Region Facility Facility Region Bayer observes risks driven by changes in physical climate parameters for all sites worldwide considering the past 50 and the next 10 years. There is a direct correlation between these physical climate parameters and water risks, e.g. in the case of seasonal fluctuations (which could lead to water shortage) or natural disasters (such as hurricanes and floods). For other water aspects the timeframe considered depends on frequency and relevance of the changes affecting the water-related risks. As part of the HSEQ management system, Bayer production sites are reviewed regularly through internal audits (depending on subgroups' requirements even annually). As part of the tracking process for the new target, the most relevant water-related aspects, such as policies, goals, risks and initiatives will be reviewed annually. The target year is 2017 and after that a follow up process will be set up. As part of the new Bayer Business Targets, we aim to evaluate all strategic suppliers by 2017 and all potential high-risk suppliers with significant Bayer spend by 2020, and develop and establish a new sustainability standard for our supply base by 2020.

9 W2.3 Please state the methods used to assess water risks Method Internal company knowledge WBCSD Global Water Tool WRI water stress definition W2.4 Which of the following contextual issues are always factored into your organization's water risk assessments? Issues Choose option Please explain Current water availability and quality parameters at a local level Current water regulatory frameworks and tariffs at a local level Current stakeholder conflicts concerning water resources at a local level Relevant, included Relevant, included Not relevant, included Water withdrawals and use (including quality parameters) are measured at site level and monitored regularly in our central Bayer Site Information System BaySIS. BaySIS allows analyses across several dimensions, e.g. water use, withdrawals and discharges by geography or subgroups/sites. Additionally, we have identified the sites in water-scarce regions applying the water stress measurement method of the World Resources Institute (WRI), included in the WBCSD Global Water Tool. The regulatory framework and changes in regulation are taken into account in our risks management database BayRISK, as well as in the analysis made by our HSEQ and sustainability managers. At a local level, these aspects are also factored in our internal assessments at the production sites and included in the environmental audits. Stakeholder conflicts are identified, prevented and mitigated through our stakeholder engagement process. Conflicts related to new investment projects are usually factored in the Stakeholder Check. In this process, we evaluate different sustainability aspects including water-related issues. In the last year no relevant stakeholder conflicts concerning water resources at local level have been identified.

10 Issues Choose option Please explain Current implications of water on your key commodities/raw materials Current status of ecosystems and habitats at a local level Estimates of future changes in water availability at a local level Estimates of future potential regulatory changes at a local level Estimates of future potential stakeholder conflicts at a local level Estimates of future implications of water on your key commodities/raw materials Estimates of future potential changes in the status of ecosystems and habitats at a local level Scenario analysis of availability of sufficient quantity and quality of water relevant for your operations at a local level Scenario analysis of regulatory and/or tariff changes at a local level Not relevant, included Relevant, included Relevant, included Relevant, included Not relevant, included Not relevant, included Not relevant, included Relevant, included Relevant, included Water quantity and quality currently meet our current demands without materially ing the environment. However, we are conscious of the importance of water for our business and, with a preventive approach, we analyse in detail the most relevant water-related aspects for the sites located in water scarcity areas. As well, to the extent possible, we diversify our supplier s portfolio in order to mitigate possible risks (e.g. water related risks such as decrease in water availability). The assessment of ecosystems and habitats is one of the key tasks for the environmental managers on the sites. Bayer additionally performs ecological assessment to all investment projects over a certain threshold to assure that critical points are assessed even if they are not covered by the local regulation. In 2015, ca. 5% of Bayer s global water consumption will take place in areas qualified as water-scarce, according to the methodology of the WBCSD tool. Limited availability of water could negatively affect our business (e.g. affecting agricultural growth). We have set the target of establishing a water management system at all sites in water-scarce areas by the end of 2017 and other specific targets at local level for the reduction of water use and the improvement of water quality. Bayer participates in forums and technical groups to follow water-related tendencies. We continuously monitor the regulatory framework and changes in the regulation at a local level. As water-scarcity increases in the regions where Bayer operates, it is probable that local legislation will adapt and will reflect the growing needs for strong water management. We collaborate with different stakeholders at local level to contribute to the appropriate water management in those regions. Future potential stakeholder conflicts are identified, prevented and mitigated through our stakeholder engagement process. Water quantity and quality currently meet our current demands without materially ing the environment. However, we are conscious of the importance of water for our business and, with a preventive approach, we analyse in detail the most relevant water-related aspects for the sites located in water scarcity areas. As well, to the extent possible, we diversify our supplier s portfolio in order to mitigate possible risks (e.g. water related risks such as decrease in water availability). The assessment of ecosystems and habitats is one of the key tasks for the environmental managers on the sites. Bayer additionally performs ecological assessment to all investment projects over a certain threshold to assure that critical points are assessed even if they are not covered by the local regulation. In 2015, ca. 5% of Bayer s global water consumption will take place in areas qualified as water-scarce, according to the methodology of the WBCSD tool. Limited availability of water could negatively affect our business (e.g. affecting agricultural growth). We have set the target of establishing a water management system at all sites in water-scarce areas by the end of 2017 and other specific targets at local level for the reduction of water use and the improvement of water quality. Bayer participates in forums and technical groups to follow water-related tendencies. We continuously monitors the regulatory framework and changes in the regulation at a local level. As water-scarcity

11 Issues Choose option Please explain Scenario analysis of stakeholder conflicts concerning water resources at a local level Scenario analysis of implications of water on your key commodities/raw materials Scenario analysis of potential changes in the status of ecosystems and habitats at a local level Other Not relevant, included Not relevant, included Relevant, included increases in the regions where Bayer operates, it is probable that local legislation will adapt and will reflect the growing needs for strong water management. We collaborate with different stakeholders at local level to contribute to the appropriate water management in those regions. Current and future potential stakeholder conflicts are identified, prevented and mitigated through our stakeholder engagement process. We consider that stakeholder conflicts concerning water resources will not have a significant on our right to access the water resources. Nevertheless, we engage with local stakeholders to mitigate this potential risk. We consider the risk of negative implications of water on our key commodities/raw materials as not very relevant for our operations, since water quantity and quality currently meet our demands and the probability of significant negative repercussions is identified as not very high. Nevertheless, we develop initiatives to increase water efficiency and enhance supplier engagement. Scenario analysis of potential changes in the status of ecosystems is part of our ecological assessments. W2.4a Which of the following stakeholders are always factored into your organization's water risk assessments? Stakeholder Choose option Please explain Customers Employees Investors Relevant, included Relevant, included Relevant, included We evaluate possible regulatory and reputational consequences of the occurrence of pharmaceutical and chemical residues in the water for our product portfolio. Besides, customers are one of the groups of stakeholders included in our regulatory and internal assessments. Bayer uses water mainly for cooling purposes and in the production process. Employees water consumption is therefore not material. Nevertheless, employees are one of the groups of stakeholders included in our regulatory and internal assessments. Investors are one of the groups of stakeholders included in our regulatory and internal monitoring and assessments.

12 Stakeholder Choose option Please explain Local communities NGOs Other water users at a local level Regulators at a local level Statutory special interest groups at a local level Suppliers Water utilities/suppliers at a local level Other Relevant, included Not relevant, explanation provided Not relevant, explanation provided Relevant, included Relevant, included Relevant, included Relevant, included Local communities are one of the groups of stakeholders included in our regulatory and internal assessment. Besides, as part of our stakeholder engagement process, local communities are taken into account in the Stakeholder Check, a tool for identifying and evaluating stakeholders in connection with new investment projects. In general terms, we do not consider NGOs as relevant stakeholders to be factored in our water risks assessments. However, NGOs are taken into account in the Stakeholder Check, a tool for identifying and evaluating stakeholders in connection with new investment projects. In general terms, we do not consider other water users at local level as relevant stakeholders to be factored in our water risks assessments. Nevertheless, we continuously conduct comprehensive benchmarking and best practice analyses including other companies and competitors to identify risks and opportunities at a global and a local level. The regulatory framework and changes in regulation are taken into account in our risks management database BayRISK, as well as in the analysis made by our HSEQ and sustainability managers. At a local level, these aspects are also factored in our internal assessments at the production sites and included in the environmental audits. Statutory special interest groups at a local level are one of the groups of stakeholders included in our regulatory and internal assessments. For example, in the United States Bayer participates on the Texas Water Development Board (TWDB), which aims to plan and secure Texas s future water needs. We cover water use, risks and management aspects through our suppliers sustainability performance monitoring. This monitoring is done through on-site audits by external independent audit partners as well as online assessments carried out by a leading web-based platform for sustainability monitoring (EcoVadis). At a local level, selected water suppliers are factored into water related questions in the subgroups risk assessments. W2.5 Do you require your key suppliers to report on their water use, risks and management? Yes

13 W2.5a Please provide the proportion of key suppliers you require to report on their water use, risks and management and the proportion of your procurement spend this represents Proportion of key suppliers % Total procurement spend % Rationale for this coverage The Bayer Group has significant spend in regions which might be ed by sustainability risk. We therefore evaluated 33% of our strategic & key suppliers (accounting for 17% of total spend) through sustainability assessments or on-site audits. In these evaluations suppliers were asked to report on various sustainability aspects incl. water. In general, as part of our sustainability targets published in our annual report 2013, we aim at evaluating 100% of our strategic & key suppliers by Further Information We cover water use, risks and management aspects through our suppliers sustainability performance monitoring. This monitoring is done through on-site audits by external independent audit partners as well as online assessments carried out by a leading web-based platform for sustainability monitoring (EcoVadis). As part of the EcoVadis questionnaire suppliers are asked e.g. about formal policies on water, specific mechanisms to ensure effective implementation of the suppliers water policy or water consumption p.a. During our on-site sustainability audits we also check the suppliers water management (e.g. wastewater handling, water consumption, etc.). Suppliers are selected for the evaluations based on their sustainability risk, but also on their business and strategic fit. This includes strategic and key suppliers, which are in focus of our new sustainability targets published in the Annual Report By 2017, we aim at evaluating 100% of our strategic and key suppliers. Attachments /Shared Documents/Attachments/Water2014/W2.ProceduresandRequirements/Supplier Code of Conduct_english.pdf

14 Module: Implications Page: W3. Water Risks W3.1 Is your organization exposed to water risks, either current and/or future, that could generate a substantive change in your business, operations, revenue or expenditure? Yes, direct operations and supply chain W3.2 Please provide details as to how your organization defines substantive change in your business, operations, revenue or expenditure from water risk Bayer is exposed to water risks which could potentially generate a substantive change to our business. That could be physical, regulatory or reputational risks. Risks are evaluated using estimates of the likelihood that they will materialize, the potential and/or their relevance for our external stakeholders. Risks are defined as events and possible developments within or outside of the company that could jeopardize a sustained increase in corporate value. For risks that can be evaluated financially, the potential is determined from low (<EUR 500 million), medium (EUR million) to high (> EUR 1250 million). Likelihood of occurrence is assessed based on a ten-year period ranging from unlikely (<10%), possible (10-70%) to very likely (>70%). For non-financial risks that cannot be evaluated financially, stakeholder relevance is used as a key measure ranging from low to moderate and high. Risks are recorded and monitored at an early stage in our database BayRISK, which is reviewed 3 times a year, which includes risks deriving from seasonal fluctuations or natural disasters, e. g. hurricanes or floods. To date, natural disasters have not caused major damage to our operations. To protect against financial losses due to natural disasters, Bayer spends ca. EUR 10 million per year on insurance coverage. Risk exposure is closely monitored. So far, there has not been any increase in water-related risks and there is no increase expected in the foreseeable future. Therefore, the current insurance coverage based on international insurance standards is sufficient to protect Bayer economically from physical risks and there are no substantive costs expected to arise from an increase in these risks, e.g. due to floods. To analyze potential risks from water scarcity, Bayer uses the WBCSD Water Tool. Our country HSEQ and sustainability managers also report (e.g. via the Bayer Emergency Response System) and discuss risks. Bayer also addresses responsible water management in its Supplier Code of Conduct and in supplier assessments. To increase our knowledge for water scarcity and quality we aim to establish a water management system at all sites in water-scarce areas by end of We will report on the progress in the coming years.

15 W3.2a Please complete the table below providing information as to the number of facilities in your direct operations exposed to water risks that could generate a substantive change in your business, operations, revenue or expenditure. Please also provide either the proportion of cost of goods sold, global revenue or global production capacity that could be affected across your entire organization at the river basin level Country River basin Number of facilities within the river basin exposed to water risk Reporting metric Proportion of chosen metric that could be affected within the river basin Other: globally, not on countrylevel 8 Other: Due to confidentiality we cannot disclose any of the suggested reporting metrics. Thus, we propose the following metric: % of Bayer environmentally relevant sites which are large water user (>0.1%) and are located in a water-scarce region (scarcity and extreme scarcity) W3.2b Please list the inherent water risks that could generate a substantive change in your business, operations, revenue or expenditure, the potential to your direct operations and the strategies to mitigate them Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs Other: The risk driver reported in this row applies to different Bayer sites in Europe. Listing this risk for each river Regulatory- Changed product standards Constrain t to future growth Increasing requirements for the use of crop protection, pharmaceutica l or chemical products under 4-6 years Probable Lowmedium Other: Stakeholder engagement Unknown Bayer continuousl y engages in actions to analyse the of its products and active

16 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs basin separately would result in a vast amount of redundant information. To ensure the readability of the report for all interested stakeholders we have decided to group the information for Europe here. existing and up-coming EU Directives may lead to restrictions in some uses and an increasing need for measures to reduce the concentration of respective active ingredients mainly in surface water. This might individual Bayer products. Those topics can create negative sentiments, e.g. triggered by NGOs. So far, on our portfolio was limited and we are carefully monitoring the media. ingredients on the environmen t and improve the scientific basis in this respect: e.g. wastewater standards in own production facilities, risk assessment s as a standard procedure for new products, research cooperation projects, engagemen t with stakeholder s in association s. Belgium Scheldt Regulatory- Higher Because of the Current-up Probable Medium- Infrastructure Medium- Investment

17 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs Spain Ebro Regulatory uncertainty Physical- Drought operating costs Constrain t to future growth uncertainty that still exists with the results of the BREF (Best Available Techniques Reference Document) Common wastewater and waste gas treatment, and because the conclusions of the BREF will be taken over in the permits (as a result of Industrial Emissions Directive), there is a possibility of fines or penalties and the wastewater treatment plant will be adapted. According to WRI analysis Tarragona is located in a region with extreme water to 1 year high investment high in the enlargemen t of the waste water plant together with other partners on the site will cause infrastructur e cost and an increased capital expenditure. 4-6 years Unlikely Establish site-specific targets Lowmedium Lowmedium Implement actions in order to reduce the freshwater consumptio

18 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs Spain Ebro Regulatory- Higher water Higher operating scarcity. Temporary water shortages could be experienced especially during the summer time due to increased tourism. Besides that, declining water quality could also create water supply problems. We are currently not affected by these risks as protective measures have been taken. Nevertheless, we are aware of the fact that those problems could lead to potential restrictions on water use. In addition, water prices 1-3 years Probable Medium Establish site-specific Lowmedium n (e.g. through the reutilization of rainwater and reutilization of treated wastewater from municipal wastewater treatment plants). Implement actions in

19 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs United States of America Trinity(Texas) prices costs could also increase in Spain. In 2000, a water tax was established in Catalonia, Spain. The tax is calculated based on the Declaration on Use and Pollution of Water that the companies have to submit to the Authorities periodically. Since 2006 a small reduction factor of the water tax can be applied based on a declaration on efficiency in the use of water. Physical- Flooding Supply chain disruption Flooding from hurricanes/ tropical storms will always be a major concern. These events Current-up to 1 year Probable Medium targets Comply with local legal requirements or company own internal standards, whichever is Medium order to reduce the freshwater consumptio n (e.g. through the reutilization of rainwater and reutilization of treated wastewater from municipal wastewater treatment plants). As part of the Bayer Emergency Response System (BayERS), Bayer

20 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs could affect also our supply chain. more stringent Baytown has emergency action plans for hurricanes/ tropical storms. These plans include a fully staffed emergency operations center, hurricane ride out teams, after hurricane start up teams, and Pittsburgh emergency operations help. Bayer works with the Department of Homeland Security to coordinate raw materials usage after a hurricane. Bayer also

21 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs United States of America Trinity(Texas) Physical- Projected water scarcity Constrain t to future growth All North American sites that are located in regions with potential water stress or scarcity in the next two decades or sites that are heavy water users were evaluated in detail to identify water reduction potentials. During drought conditions the water supplier in Baytown has the right to restrict our water intake. This would >6 years Probable Mediumhigh Infrastructure investment Medium provides hurricane relief supplies for employees which helps the employee get back to work faster. Based on the water sourcing study Bayer has plans to implement alterative water sources. As a next step a implementa tion plan will be developed.

22 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs Brazil Other: GHAASBasin34 57 Physical- Declining water quality Higher operating costs only occur under the most extreme water restriction scenarios. Belford Roxo sites are experiencing temporary water supply problems due to high pollution of Sarapui River from sanitary wastewater, emitted by nearby suburb. However, we are witnessing a positive trend in water quality as a result of a new public wastewater treatment plant, which reduces the amount of sanitary wastewater in the river. Sarapuí river water quality declination can Unknown Unlikely Infrastructure investment Lowmedium Lowmedium We keep the Sarapuí treatment plant with best possible performanc e and implemente d intermediat e reservoirs that increases reliability of its operation. In 2012, we constructed a river reservoir at this site to become independen t from the municipal water supply when the Sarapui River is too

23 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs Brazil Other: GHAASBasin34 57 Regulatory- Regulation of discharge quality/volume s leading to higher compliance costs Higher operating costs lead to the treatment plant interruption and consequent change in supply source, with higher costs alternatives. Belford Roxo sites could be affected by more rigid limits for wastewater discharge. These limits are being introduced in Rio de Janeiro state, which exceed federal wastewater standards. If the specification for wastewater discharge Unknown Unlikely Engagement with public policy makers Lowmedium Lowmedium polluted. The resettlemen t of the population from one side of the Sarapui River, as part of an urban city project has also contributed to a better water quality. We participate in forums and technical groups from stakeholder s to follow discussions related to new regulations and tendencies that can affect industry. Currently, we are also

24 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs China Yangtze Physical- Pollution of water supply Higher operating costs becomes stricter we would need to implement further infrastructure to comply with regulations and to avoid pollution of water supply. According to WRI analysis our Bayer Integrated Site Shanghai (BISS) is located in a region with extreme water scarcity but we are currently not affected and protective measures have been taken. Furthermore, water pollution could lead to financial, Unknown Unlikely Unknown Comply with local legal requirements or company own internal standards, whichever is more stringent Unknown monitoring the wastewater treatment plant inflow and outflow to avoid pollution of water supply and thus problems resulting from waste water discharges. In order to adhere to the strict wastewater discharge standards and offer transparenc y about environmen tal performanc e indicators several measures have been taken at BISS. Besides wastewater

25 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs regulation or reputational. Thus, for our operations the onus is to be vigilant about complying with safe operating procedures and keep pollution out of our waters. pretreatment and monitoring to further decrease our wastewater emissions, we have added a central wastewater treatment plant at BISS and connected the drainage system for inorganic waste water (DSIV) online meter to the local authority for monitoring. We have also been proactive in exploring salt water recycling with local partners.

26 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs India India Narmada Narmada Physical- Flooding Physical- Pollution of water supply Supply chain disruption Brand damage Our Indian site may be subject to monsoons. In India, pesticide and chemical residues are frequently found in water. This is a general problem in India, not a specific Bayer problem. But this circumstance could be picked up by the media or NGOs, drawing public attention to the topic and possible to Unknown Unknown Probable Probable Greater due diligence Comply with local legal requirements or company own internal standards, whichever is more stringent Lowmedium Lowmedium Mediumhigh Mediumhigh Comprehen sive monitoring systems are in place at this site to ensure appropriate reaction times and risk manageme nt responses. Focus on the type of wastewater being emitted to the shared government water treatment facilities in Vapi. Engineering controls are being introduced until 2015 to enhance these wastewater emissions. BCS is taking

27 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs Thailand Other: GHAASBasin31 11 Physical- Drought Constrain t to future growth companies in the chemical industry. This site is located in a region with water scarcity and experienced >6 years Probable Lowmedium Infrastructure investment Low action to ensure the correct application of its products. In addition to the requested labeling. Bayer is also actively engaged in a continuous dialogue with Bayer stakeholder s including employees, customers, suppliers, investors, neighbors, NGOs, politicians and the general public. To avoid temporary water shortages in the future we

28 Country River basin Risk driver Potential Description of Timeframe Likelihood Magnitude of potential financial Response Costs of response Details of and costs temporary water shortages in To avoid temporary water shortages in the future we have implemented several measures and thus this risk is rated as low to medium. constructed up an own alternative water basin. Furthermor e, we have taken several measures to reduce water consumptio n e.g. the set-up of a special committee to constantly monitor water supply or yearly targets.

29 W3.2c Please list the inherent risks that could generate a substantive change in your business operations, revenue or expenditure, the potential to your supply chain and the strategies to mitigate them Country River basin Risk driver Potential Description of Timeframe Likelihoo d Magnitude of potential financial Response Costs of response Details of and costs Other: The risk driver reported in this row applies to different Bayer sites in Europe. Listing this risk for each river basin separately would result in a vast amount of redundant information. To ensure the readability of the report for all interested stakeholders we have decided to group the information for Europe here. Reputational- Negative media coverage Constraint to future growth Low enforcement of wastewater standards for pharmaceutical or chemical suppliers esp. in developing countries can lead to incidences of increased respective concentrations in environmental water bodies and potentially in drinking water. Bayer carefully selects and assesses its suppliers. So, we rate probability of this risk as low and do not expect any significant financial Unknown Unlikely Unknown Tighter supplier performance standards Low Our Supplier Code of Conduct is the main to protect against sustainability related supplier risks, e.g. it contains aspects related to water management and responsible water use. It is the basis for supplier selection, evaluation processes, supplier selfassessments and on-site audits. Through partnerships, we further drive those topics: e.g. within the Pharmaceutical Supply Chain Initiative or the Together for Sustainability Initiative.

30 Country River basin Risk driver Potential Description of Timeframe Likelihoo d Magnitude of potential financial Response Costs of response Details of and costs United States of America Trinity(Texas) Physical- Flooding Constraint to future growth implications. If such topics are picked up by media or NGOs, certain reputational risk exists for the entire industry. Flooding from hurricanes/ tropical storms will always be a major concern. These events could affect several industries, including customers and suppliers. Current-up to 1 year Probable Mediumhigh Comply with local legal requirements or company own internal standards, whichever is more stringent Medium As part of the Bayer Emergency Response System (BayERS), Bayer Baytown has emergency action plans for hurricanes/tropical storms. These plans include a fully staffed emergency operations center, hurricane ride out teams, after hurricane startup teams, and Pittsburgh emergency operations help. Bayer works with the Department of Homeland Security to coordinate raw materials usage after a hurricane.

31 Country River basin Risk driver Potential Description of Timeframe Likelihoo d Magnitude of potential financial Response Costs of response Details of and costs Bayer also provides hurricane relief supplies for employees which helps the employee get back to work faster. Brazil Other: raw material suppliers are located in many different states in Brazil and abroad. Physical- Flooding Supply chain disruption The probability of a significant from floods is currently low. Nevertheless, we recognize the risks that could result from major disruption to the business operations of one of our key suppliers and to the transportation and distribution infrastructure, as key raw materials are supplied via road freight. Unknown Unlikely Low Supplier diversification Low Bayer mitigates supply chain risks by diversifying the supplier base, therefore reducing the dependency on a few selected suppliers. There are only few cases where Bayer relies on a single source of supply. It is highly unlikely that two independent suppliers are adversely affected at the same time. Brazil Other: raw material suppliers are located in many Physical- Increased water stress Supply chain disruption If suppliers face severe water scarcity their operations can Unknown Unlikely Low Supplier diversification Low Bayer mitigates supply chain risks by diversifying the supplier base, therefore reducing

32 Country River basin Risk driver Potential Description of Timeframe Likelihoo d Magnitude of potential financial Response Costs of response Details of and costs different states in Brazil and abroad. be ed, disturbing continuous supplying. the dependency on a few selected suppliers. There are only few cases where Bayer relies on a single source of supply. It is highly unlikely that two independent suppliers are adversely affected at the same time. In addition, over the year, temporary shortages can be balanced out. China Yangtze Physical- Increased water scarcity Constraint to future growth In general, our suppliers located nearby our operations are exposed to the same physical risks as Bayer e.g. increased water scarcity. This could lead to disruptions of operations, but so far, we have not been affected. Thus, water quality and respective Unknown Unknown Unknown Engagement with community Unknown In order to adhere to the strict wastewater discharge standards and offer transparency about environmental performance indicators several measures have been taken at BISS. Besides wastewater pretreatment and monitoring to further decrease our wastewater

33 Country River basin Risk driver Potential Description of Timeframe Likelihoo d Magnitude of potential financial Response Costs of response Details of and costs Thailand Chao Phraya Physical- Flooding Constraint to future growth wastewater treatment methods are important also for our suppliers. Impact to packaging supplier and to chlorine supplier. Current-up to 1 year Probable Lowmedium Supplier diversification Low emissions, we have added a central wastewater treatment plant at BISS and connected the drainage system for inorganic waste water (DSIV) online meter to the local authority for monitoring. We have also been proactive in exploring salt water recycling with local partners. Alternative suppliers for packaging available. Chlorine supplier has alternative raw material supplier.