assured 2010
Performance Report

LIFE: Our values [ @50 ]

Bayer’s corporate culture is an important factor in the company’s success. Central to our culture are our values: Leadership, Integrity, Flexibility and Efficiency – or LIFE for short. These provide us with guidance for our daily work as we seek solutions to the major challenges of our time, in line with our mission “Bayer: Science For A Better Life.”

L – Be passionate for people and performance

  • Show personal drive, inspire and motivate others
  • Be accountable for actions and results, successes and failures
  • Treat others fairly and with respect
  • Give clear, candid and timely feedback
  • Manage conflicts constructively
  • Create value for all our stakeholders

I – Be a role model

  • Comply with laws, regulations and good business practices
  • Trust others and build trustful relationships
  • Be honest and reliable
  • Listen attentively and communicate appropriately
  • Ensure sustainability: balance short-term results with long-term requirements
  • Care about people, safety and the environment

F – Drive change actively

  • Be ready to adapt to future trends and needs
  • Challenge the status quo
  • Think and act with customers in mind
  • Seek out opportunities and take calculated risks
  • Be open-minded
  • Embrace lifelong learning

E – Manage resources smartly

  • Focus on activities that create value
  • Do things simply and effectively
  • Deliver with appropriate costs, speed and quality
  • Speed up good decision-making
  • Be accountable for consistent execution
  • Collaborate for better solutions

Risk management in Bayer’s subgroups [ @57 ]

All subgroups continued to implement their risk management processes in 2010.

Bayer HealthCare

In 2009, Bayer HealthCare issued an Enterprise Risk Management Directive, which defines the risk management process for all production areas. The company has introduced a uniform global procedure to ensure timely identification and foresighted management of risks. The aim is to minimize the impact of potential risks on the supply of our products to patients and to limit the possible negative implications for the company.
Potential risks are identified and evaluated, and action taken where necessary, using a uniform method at all of Bayer HealthCare's production sites. In addition to production-related risks, the procedure takes account of procurement and health, safety, environmental protection and quality (HSEQ) risks and those caused by natural disasters. Application of this uniform global method allows transparent and comparable presentation of risks, thereby greatly improving the basis for deciding on possible counteractive measures.
Bayer HealthCare is also aware of its responsibility to patients in the event of global crises. In particular, that includes being prepared for pandemics. Bayer HealthCare has therefore defined specific global and local contingency plans. Both production and other areas of the company have their own risk management systems.

Bayer CropScience

Bayer CropScience takes an all-round approach to risk management, which it regards as an integral part of its organizational structure and planning processes. Ultimately, every employee is responsible for evaluating and dealing with risks. The company defines four key areas for risk management. First, we focus on external compliance, in other words ensuring we comply with the applicable laws, respect effective patent rights and do not cause any hazards in the area of HSEQ. Second, we endeavor to minimize operational and strategic risks by continually monitoring our strategy. Third, we take account of risks resulting from events or developments (event risks) both inside and outside the company that could jeopardize a steady increase in the value of the company. The fourth area of risk management at Bayer CropScience focuses on internal compliance, which is monitored with the aid of internal audits. In addition, an Incident Command System is generally used to minimize our financial risks.

Bayer MaterialScience

Bayer MaterialScience divides risks into four categories: process and organizational risks, event risks, planning and market risks, and legal risks. In the first category, an internal control system has been introduced. To manage event risks, Bayer MaterialScience has developed a system to ensure timely identification of risks in keeping with the German Stock Corporation Act (AktG). Risk management is the responsibility of an Overall Risk Coordinator, supported by a number of Functional Risk Coordinators and appropriate experts. Their task is to identify and evaluate risks and document them where appropriate in BayRisk, Bayer’s Group-wide database. Planning and market risks are addressed centrally by the Bayer Group. The key tools used for this are strategy and portfolio management and Group planning and auditing conferences. Bayer MaterialScience minimizes legal risks principally through systematic implementation of its Corporate Governance Policy.

Focus of political lobbying activities at Bayer [ @62 ]

In order to foster consensus-based dialogue, Bayer closely coordinates its activities on key political issues with national and international industry associations. We also maintain close contact with other stakeholder groups in our society, for example in the environmental and health fields. Good collaboration with local initiatives and organizations in the vicinity of our sites is important to us.

In 2011, Bayer’s political activities focused on the following issues:

1. Acceptance of products and technologies

For Bayer, acceptance of its products and technologies is vital. A reliable long-term basis for planning our highly complex facilities and innovative products is only possible if society recognizes our investments as being both beneficial and sufficiently safe. Consequently, in the political discourse we pay enormous attention to weighing up the risks and benefits transparently and actively seek dialogue with various groups that tend to be skeptical about modern technologies. Our commitment to clarifying issues relating to the use of nanomaterials is an example of open dialogue with scientists, politicians, non-governmental organizations and government representatives.
Risks cannot be clarified solely on the basis of scientific findings. In particularly sensitive areas such as health and the environment we also need to take account of ethical considerations and the concerns of individuals. At the same time, we need to find ways of utilizing inventions productively for society. Green biotechnology is a case in point.

2. Innovation: progress and acknowledgement

Bayer is an inventor company with a long tradition of introducing successful and sustainable innovations. We are highly dependent on valid patents to protect the results of our high investment in research and development. Alongside basic conditions that foster innovation, legislation on the protection of intellectual property enables us to continue to invest in research and realize new developments in the future. We are also committed to providing direct support for research and development so we can play a part in the future growth of the knowledge society.

3. Sustainable health care systems

Sustainable health care systems need to find a balance between patients’ needs for innovative health care services, the limited financial resources of health care providers and market-based pricing for medical products. Complex registration and reimbursement procedures can delay or even prevent free access to innovative drugs. Our aim is to help patients obtain safe and innovative medicines as quickly as possible. Fair remuneration of our medicines and research activities is essential in this context.

4. Chemicals management

Safe production and handling of chemical products are particularly important for our company. Modern chemicals management is based on a combination of statutory obligations and voluntary commitments. Examples are REACH and GPS.
GPS, the Global Product Strategy, is a voluntary initiative of the International Council of Chemical Associations (ICCA). It is the chemical industry’s contribution to the UN’s international chemicals policy and aims to harmonize safety standards in developing, emerging and industrialized nations. The BayCare website shows how Bayer implements the GPS initiative. Our subgroups have special product stewardship programs and Bayer aims to meet its product stewardship obligations through careful analysis of all substances, safety assessments, understandable communication at all stages in the product chain, training programs and global commitment.
The European Commission has proposed that a fitness check be introduced for regulations in order to reduce duplication of regulations and unnecessary bureaucracy. This approach is both sensible and necessary. The statutory framework should be structured cost-efficiently without weakening the aims of protection or calling them into question.

5. Energy policy and climate protection

There are many different aspects of energy policy and climate protection. For industrial companies, the priorities are aspects such as safety, affordable energy prices, uniform conditions in which to do business and open markets. The financial burdens expected from the third E.U. emissions trading period are likely to be critical. Carbon leakage, in other words the relocation of energy-intensive industries to other regions, would be a particularly bad solution from both an economic and an ecological viewpoint.
However, there are also other dimensions to energy policy and climate protection. Reliable energy supply and the long-term shift to renewable energies are challenges for society as a whole. Through new production processes and increased efforts to enhance energy efficiency, the company is continuously improving energy usage and save resources.
Through its Climate Program, Bayer endeavors to market innovative products that reduce greenhouse gas emissions or help limit the impact of climate change. We also support an international agreement on climate policy. In parallel with this, energy policy and climate protection should bring tangible progress in key regions of the world. To achieve that we play an active role in the dialogue with society and politicians.

“Learning for Life” initiative: our training initiatives in figures [ @69 ]

We have continued to adjust our collaboration with the Naandi Foundation in India to reflect current developments. In 2010, 535 school students received educational support at 23 Academic Learning Centers. A further 834 children attended 29 Early Childhood Education Centers in 2010. These child care centers enable older children to attend school by freeing them from the obligation to look after younger siblings. As a further incentive, we offered new scholarships for school students in 2010. We no longer operate bridge schools because there has been a sharp decline in child labor.
At present, our “Learning for Life” initiative is focusing on vocational training. In the Indian state of Karnataka, for example, 1,949 trainees regularly attended vocational lessons in the 2009/2010 and 2010/2011 academic years. Through the “Introduction to Basic Technology” project, we have introduced vocational education at, initially, five government schools in collaboration with local non-governmental organizations. Further, the Bayer Ramanaidu Vignana Jyothi School of Agriculture offers young people the opportunity to gain a qualification as farm assistants. Since 2010, twice as many students have been able to start their training at this school: instead of a one-year course, two intensive six-month courses are now offered for a total of 60 students.

Further measures in our Child Care Program [ @70 ]

At the end of July 2010, we organized a workshop in Hyderabad in collaboration with the Fair Labour Association. In a multi-stakeholder workshop, participants discussed borderline cases of child labor and came up with valuable ideas on how companies can deal with them.
Together with the Richard Ivey School of Business at the University of Western Ontario in Canada, we have compiled a case study on the Bayer CropScience Child Care Program for use in academic courses. The case study shows a company can deal with situations that confront them with a dilemma.
We also presented and discussed the program at national and international conferences such as the German CSR forum ENVICOMM in Stuttgart in April 2010 and the 30th Strategic Management Conference in Rome in September 2010.
A case study of the Bayer CropScience Child Care Program has been published on the CSR WeltWeit website, a corporate social responsibility information portal initiated by the German Foreign Office and the Bertelsmann Foundation.
The Bayer CropScience Child Care Program was highlighted in the German government's ninth human rights report covering the period March 2008 to February 2010 as an example of good practice in the field of corporate social responsibility.

Management and Corporate Governance


Bayer is a global enterprise with core competencies in the fields of health care, nutrition and high-tech materials. At the same time, we want to create value through innovation, growth and high earning power. That is closely linked to responsible corporate governance.

Safeguarding the future through investment in emerging markets: with two-digit growth rates, Greater China has become one of Bayer’s most important markets. Since the beginning of 2011, a large new Bayer Cross has adorned the skyline of Shanghai.
Our corporate culture finds expression in our mission “Bayer: Science For A Better Life” and in our values. In 2010, we brought together our values in the term LIFE [ @50 ], which stands for Leadership, Integrity, Flexibility and Efficiency. Our values guide our business conduct.
One of the four elements of LIFE is Integrity, which we understand to mean complete compliance with all laws, directives and regulations and being an honest and reliable partner for our stakeholders. Clear corporate governance structures and transparent principles for worldwide compliance are the foundations that underpin the long-term success of the Bayer Group. Wide-ranging risk management helps us identify and counter possible risks as early as possible. Bayer also contributes to the positive development of the economy and society in the regions in which it operates.
Value-oriented corporate governance is put into practice through Group-wide regulations and policies, for example on sustainable development and the integration of sustainability into supplier management and our global policy on human rights and working conditions. Responsible corporate governance is the basis for sustainable growth and business success.

Targets 2015

Supplier management

  • Inform all suppliers with purchase-order-relevant volumes about the Bayer Supplier Code of Conduct
  • Assess the sustainability performance of suppliers that represent = 75% of the total procurement volume and = 75% of the procurement volume from risk areas
  • Annually audit the sustainability performance of at least 10% of the suppliers from risk areas or at least 15 suppliers

Compliance

  • Extend compliance training to 100% of all Bayer managers

2010: Group targets achieved

In 2010, we grew sales 12.6 percent (8.0 percent on a currency- and portfolio-adjusted basis) to a new record of €35.1 billion. Earnings before interest, taxes, depreciation and amortization (EBITDA) and before special items improved 9.7 percent to €7.1 billion. The operating result (EBIT) declined 9.2 percent to €2,730 million despite the positive business trend at MaterialScience. Earnings were held back by special items totaling €1,722 million. In fiscal 2010, these comprised impairment losses of €957 million, €703 million for litigation and €62 million for restructuring, see also key data.

Bayer stock is a sustainable investment

Investors are showing an increasing interest in how companies integrate ecological and social aspects into their strategies and business activities. That is particularly true of long-term institutional investors such as pension funds. According to surveys by the European Sustainable Investment Forum (Eurosif), the Social Investment Forum (US) and the Responsible Investment Association Australasia, institutional investors are a significant force in the global market for sustainable investment, which grew to €7.6 trillion in 2009.
Bayer stock is included in many sustainability indices and funds. We have been included in the Dow Jones Sustainability Index (DJSI) World without interruption since the establishment of this index in 1999 and regained a place in the DJSI Europe Index in 2010 after a break of two years. Bayer has also been listed in the FTSE4Good sustainability index since its establishment in 2001. Storebrand, a Norwegian financial services provider focusing on sustainable investment, classifies Bayer as a best-in-class company in the pharmaceutical sector. The Carbon Disclosure Project (CDP) [ 51 ] [ 52 ] has once again included Bayer in the Carbon Disclosure Leadership Index (CDLI) as the best company in the health care sector. In the newly created Carbon Performance Leadership Index (CPLI), Bayer is listed with a top rating of  “A,” confirming our leading position in climate protection.
The table provides an overview of the sustainability indices and funds [ 53 ] in which Bayer is included.
1_Our performance in relevant sustainability indices and sustainability funds
Bayer’s listing
Index/Fund200820092010

DJSI World
DJSI Europe––

FTSE4Good Global Index and
FTSE4Good Europe Index
FTSE4Good Environmental Leaders Europe 40 Index
–

ASPI Eurozone

Storebrand SRI Funds

Carbon Disclosure Leadership Index*
Carbon Performance Leadership Index* (published in 2010)

NYSE Euronext Low Carbon 100 Europe Index

Access To Medicine Index *
**

* The Carbon Disclosure Leadership Index, the Carbon Performance Leadership Index and the Access To Medicine Index are not trading indices.
** Not re-assessed in 2009

Corporate governance

Bayer has always placed great importance on responsible corporate governance [ 54 ]. In 2010, the company issued a declaration that it complied with the recommendations of the German Corporate Governance Code [ 55 ] , with one temporary exception. In December 2010, the shareholder service provider IVOX ranked Bayer’s corporate governance top among all DAX companies. Further information can be found in the Corporate Governance Report of the Annual Report 2010, which provides extensive information on how the Board of Management works and on its control mechanisms.

Compensation of corporate officers is based on corporate governance principles

The role of the 20-member Supervisory Board is to oversee and advise the Board of Management. Under the German Codetermination Act, half the members of the Supervisory Board are elected by the stockholders, and half by the company’s employees.
Even in the past, compensation of Bayer’s Board of Management was aligned to sustainability, and complied with the recommendations of the German Corporate Governance Code and German legislation on the appropriateness of the compensation of members of management boards (VorstAG). To ensure that the Bayer Group continues to comply with these criteria, the Supervisory Board made a number of adjustments to the compensation of the Board of Management in December 2009. These were implemented in 2010.
Transparent compensation systems are a key element in good corporate governance. In 2010, the compensation of the Board of Management basically comprised five components: a fixed annual salary, a short-term incentive award on a yearly basis in relation to a target amount, a long-term incentive award for a four-year period in relation to a target amount, a further long-term compensation component introduced in 2010 involving a grant of virtual Bayer shares subject to a three-year retention period, and a company pension plan conferring pension entitlements that increase with years of service. Compensation in kind and other benefits are also provided, such as the use of a company car for private purposes or reimbursement of the cost of health screening examinations.
The remuneration of the Supervisory Board is based on the relevant provisions of the Articles of Incorporation, which were last amended by a resolution of the Annual Stockholders’ Meeting on April 29, 2005. Further information can be found in the compensation report of the Annual Report 2010.

Compliance at Bayer

Bayer expects the conduct of every employee to be determined by integrity at all times. The company does not tolerate any violation of applicable laws, codes of conduct or internal regulations.
In the Corporate Compliance Policy [ 56 ], the Group Management Board outlines the company's clear commitment to corporate compliance and specifically states that it will forego any business that involves violating these principles.
This policy contains commitments to fair competition, integrity in business dealings, the principle of sustainability and product stewardship, the upholding of foreign trade laws and insider trading laws, proper record-keeping and transparent financial accounting, fair and respectful working conditions, and avoidance of all forms of discrimination. Other requirements are protecting the company’s intellectual property and the legally recognized rights of others, keeping corporate and personal interests separate and cooperating with the authorities. These principles include responsible marketing. Information on our policy guidelines on the marketing of medicines can be found in the Innovation and Products section.
Every operating company in the Bayer Group has a Compliance Officer who reports to the Chief Subgroup Compliance Officer. The Chief Subgroup Compliance Officers in turn report to the Group Compliance Officer, who is appointed by the Group Management Board. At least once a year, the Group Compliance Officer and the Head of Corporate Auditing report to the Audit Committee of the Supervisory Board on any compliance violations that have been identified. In 2010, we introduced a global database where all compliance violations are entered. 67 compliance officers received training at three central Compliance Officer Workshops in 2010. These workshops also serve as a platform for sharing experience and creating a “compliance community.”

Targets 2015

» Compliance
We provide continuous compliance information and training for our employees, and the brochure on our Corporate Compliance Policy is available in 42 languages. To ensure that employees are constantly aware of the importance of this issue, we have developed a web-based training module entitled “Corporate Compliance Basics,” which was introduced in 2010. Around 19,800 managers worldwide successfully completed this module in 2010 (this corresponds to around 61 percent of all managerial employees and around 18 percent of the total workforce).
By virtue of their positions, our managers have a special obligation to set an example for their employees, spread the compliance message within their companies and take organizational measures to implement it. Senior managers can be required to repay variable compensation components for up to five years if systematic violation of the applicable legislation with financial damage to Bayer has occurred in their sphere of responsibility and could have been prevented if they had taken appropriate action. A fixed compliance target has been included in the performance evaluation of members of the Group Leadership Circle for 2010.
Every employee is required to report any infringement of the Corporate Compliance Policy without delay. Hotlines allowing anonymous reporting have been set up worldwide. The only exception is in France, where this reporting obligation does not apply due to the nature of national law there. In 2010, our global compliance hotline and e-mail address registered 29 reports, five from Germany and 24 from other countries. 27 reports were received by e-mail (14 of them anonymously) and two by phone (one anonymously).
Corporate Auditing reviews the effectiveness of the Corporate Compliance Policy regularly on behalf of the Group Compliance Committee.

Risk management

Business operations necessarily involve opportunities and risks. Effective management of opportunities and risks is therefore a key factor in sustainably safeguarding a company's value.
Managing opportunities and risks is an integral part of the corporate governance system in place throughout the Bayer Group, not the task of one particular organizational unit. Sustainability aspects are included in risk management at Bayer because they play a part in safeguarding the company‘s value. Along with excellent product quality and corporate compliance, they form the basis for the long-term sustainability of our business operations and business success. We expect the same from our suppliers.
Key elements of the opportunity and risk management system are the planning and controlling process, internal Group regulations and the reporting system. At regular conferences held to discuss business performance, the opportunities and risks that are evaluated both qualitatively and quantitatively in determining the strategies of the strategic business entities and the regions are updated, and targets and necessary actions are agreed upon.
The principles of the Bayer Group’s risk management system are set forth in a directive published on the Group-wide intranet. This directive contains fundamental principles in accordance with the requirements of the German law on control and transparency in business (KonTraG) and includes the principles for the early identification, communication and addressing of risks.
In the Bayer Group, risks are systematically and continuously identified, analyzed and documented in a database. Risks are defined as events and possible developments within or outside of the company that could jeopardize a sustained increase in corporate value. Risk-relevant information is compiled regularly and on an ad hoc basis. The documentation contains a description of the risk, an assessment of the extent of possible damage and the probability of occurrence, along with measures to monitor and counteract the risk. The criteria are set out in a special procedure (BayRisk Instruction). Risk management at Group level is assigned to the Chief Financial Officer. Clear responsibilities within the organizational units ensure the efficiency of the risk management system. More information on risk management in the subgroups can be found in our online report [ @57 ].
Corporate Auditing is responsible for coordinating Group-wide identification and documentation of risk factors and for ongoing development of the risk management system. The effectiveness of the risk management system is reviewed by internal auditors at regular intervals. In addition, the external auditor assesses the early warning system as part of the annual financial statements audit and informs the Group Management Board and the Supervisory Board of its findings.
Bayer has production facilities in more than 100 countries. Some of them can be affected by natural disasters such as floods and cyclones. An emergency response system (Bayer Emergency Response System, BayERS) to protect employees, the local community, the environment and production facilities is therefore an obligatory element in the integrated HSEQ (health, safety, environmental protection and quality) management systems at our production sites. The basis for this is set forth in a procedure on crisis management in the Bayer Group. An extensive opportunity and risk report can be found in the Annual Report 2010.

News

Zoom image
Bayer employee Gary Xi at the production plant in Shanghai for high-performance polycarbonate
Investing in the growth market of China
Bayer intends to significantly expand its capacities for the production of high-performance materials in China by 2016. Investment totaling some €1 billion is planned at our Shanghai site. This means Bayer will focus even more intensively on the Asia/Pacific region, where it expects consistent growth in its customer industries. Capacities for the polyurethane raw material MDI are to be more than doubled to one million metric tons per year and for high-performance polycarbonate to 500,000 metric tons per year. The company also plans to considerably expand its research and development activities there. The aim is to ensure even greater proximity to Asia’s booming market for polycarbonate plastics.

Legal risks

We are exposed to numerous legal risks from legal disputes or proceedings to which we are currently a party or which could arise in the future, particularly in the areas of product liability, competition and antitrust law, patent disputes, tax assessments and environmental matters. The outcome of any current or future proceedings cannot be predicted. It is therefore possible that legal or regulatory judgments could give rise to expenses that are not covered, or not fully covered, by insurers’ compensation payments and could significantly affect our revenues and earnings.
Legal proceedings currently considered to involve material risks are described in the Annual Report 2010.

Open and transparent lobbying

Politics and legislation play a key role in shaping the conditions in which we operate. As a global company, we want to actively contribute our expertise and participate in the political decision-making process. We see lobbying as an important and legitimate way of doing this. We have set clear rules for these activities through our Code of Conduct for Responsible Lobbying [ 59 ], which reflects the principles set in the Green Paper on the E.U.’s European Transparency Initiative. The principles include making sure that it is clear whose interests are being represented. Within Bayer, the Community Council for Politics is responsible for the focus and prioritization of the Group’s political work. This includes both Group-wide tasks such as the publication of the Bayer Policy Letter [ 60 ] or the entry in the lobby register and dealing with subgroup-specific political matters. In 2011, Bayer’s political lobbying is focusing [ @62 ] on the acceptance of products and technologies, fostering and recognizing innovation, sustainable health care systems, chemicals management, and energy policy and climate protection. Key interfaces are our liaison offices in Berlin, Germany; Brussels, Belgium; Washington, United States; and Beijing, China.
To enhance transparency, Bayer was one of the first companies in the chemical and pharmaceutical sector to be entered in the European Commission’s lobby register [ 63 ] and discloses the relevant costs of its lobby work at E.U. level (€1.85 million in 2010). We are expecting a similar initiative in Germany and would enter the company in a German register if one were to be introduced. In 2010, we spent €1.2 million on our liaison office in Berlin. That figure comprises personnel, operating and project costs. In the United States, Bayer discloses its lobbying costs in several official databases that calculate costs on various bases.
In keeping with the above directives, Bayer does not make any direct donations to political parties, related institutions, politicians or candidates for political office. However, associations to which we belong make donations on their own initiative, in compliance with the relevant statutory regulations, especially laws on party political activity. In the United States, individual employees utilize the opportunity to support candidates for parliamentary office by making private donations via the Bayer Corporation Political Action Committee (BayPac). Political action committees in the United States are state-regulated, legally independent associations of employees established to collect and distribute private donations to political organizations and candidates for political office. Consequently, such donations are not donations made by the company. The BayPac contributions are regularly reported to the U.S. Federal Election Commission [ 61 ]. Full details can be viewed on the Commission’s website.
In October 2010, the Climate Action Network made allegations that in the campaign for election to the Senate Bayer had systematically supported U.S. politicians WHO question climate change and block action to protect the climate. That allegation is incorrect since Bayer as a company cannot influence the distribution of private funds. Bayer is committed to climate protection and initiated its own ambitious Climate Program in 2007.

News

CO pipeline exceeds safety standards

Bayer has constructed a 67 kilometer pipeline to transport carbon monoxide between the sites of Dormagen and Krefeld-Uerdingen in Germany. Carbon monoxide is one of the most important chemical building blocks and is required for the manufacture of high-tech plastics. The start-up of the pipeline has been delayed so far because of sub judice claims brought against the project and statutory requirements. The Landtag (State Parliament) of North Rhine-Westphalia (NRW) has determined on several occasions that the project benefits the people and economy of the state. In Bayer’s view too, the pipeline comprises an important infrastructure project that will strengthen NRW as an economic location and benefit the labor market. With its safety concept for the pipeline, which runs as far as possible along existing infrastructure routes on the right bank of the Rhine, Bayer exceeds the standards that apply to date and goes beyond the legal requirements. Pipelines are the safest and most environmentally friendly way to transport most liquid and gaseous substances. All over the world, carbon monoxide is transported safely through pipelines. You can find more on the CO pipeline [ 58 ] on the Bayer website.

Regional commitment

As an international company, Bayer supports economic and social development in many parts of the world. We regard ourselves as a regional employer and aim to create jobs locally. At our sites we make a contribution to securing social structures and also strengthen regional purchasing power. In 2010, our personnel expenses and expenses for pension plans and pension obligations amounted to €25,798 million. In addition, regional tax payments benefit the communities in which we have a presence.
2_Personnel expenses and pension obligations* (worldwide, € million)
2006**2007200820092010
Personnel expenses6,6307,5717,4917,7768,099
- of which pension and social security contributions1,4141,6111,5131,4901,623
Pension obligations***16,70815,02214,91015,93117,699

* Figures for 2006 to 2009 as last reported
** The 2006 figures only contain Schering from June 23, 2006.
*** Present value of defined-benefit obligations for pensions and other post-employment benefits

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We also invest in local research, a fact evidenced by a large number of alliances with regional scientific institutes. For example, BHC is strengthening its research efforts with a new U.S. innovation center in San Francisco, BCS supports research in the Department of Plant and Soil Science at the Texas Tech University, and BMS opened a research center for functional films in Singapore in 2010.
Bayer invests in its sites around the world. This includes environmental investment that goes beyond statutory requirements. We perform a voluntary ecological assessment for all investment projects exceeding €10 million.
In China, Bayer will continue to expand its capacities. The further development of the German sites through the arrival of new companies is an essential task of Currenta, the manager and operator of Chempark. A cooperation has been entered with the Nanjing Chemical Industry Park in China to share experience and for joint training initiatives and an exchange of employees for a limited period.
Bayer CropScience wants to help raise living standards in rural areas of India by increasing value-added and ensuring this is reinvested in the community. In 2010, it therefore launched the Model Village Project [ 64 ]. We intend as our first step to introduce systematic droplet irrigation in seed production. We shall implement further suitable measures as the project progresses, such as facilitating direct market access to farmers or offering education and training options to children. Pforzheim University from Germany is our partner in the development of further concepts.
Our procurement volumes are also a significant factor in the development of many regions. In 2010, Bayer sourced goods and services totaling some €14 billion from around 94,000 suppliers in more than 110 countries. In the OECD countries, the most important countries for procurement, apart from Germany, were the United States and, some way behind, Japan. These countries account for around 70 percent of our procurement spending. In non-OECD countries, Asian countries head the league. China, India, Thailand and Singapore occupy four of the top five places. Brazil, which ranks second, is the only non-Asian country among the top five.
3_Suppliers and procurement expenses according to economic region
Suppliers (percent)Spending (percent)
Non-OECD countries (approx. 70 % of all countries)2816
OECD countries (approx. 30 % of all countries)7284
Total100100
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In addition to business relations with employees and suppliers, Bayer plays a role in the communities around its sites worldwide. Further information is given in the Social Commitment section.

Our supplier management – setting standards for good relations

Procurement of products and services in widely differing markets and locations presents special challenges to our procurement organization.
To ensure that quality, environmental protection and social standards are observed at all stages in the supply chain, we take our responsibility seriously in our day-to-day dealings with currently around 94,000 suppliers. The Group-wide policy guidelines issued by the Procurement Community [ 65 ] set out the principles of our procurement policy, which clearly reflect our values and leadership principles. Procurement has established a wide range of initiatives to support our sustainability objectives, for example, as part of our Climate Program.

Clear requirements for suppliers

At the end of 2009, we introduced a Supplier Code of Conduct [ 67 ] based on the principles of the UN Global Compact [ 68 ]. This code of conduct covers ethics, employee relations, management systems and health, safety, environmental protection and quality (HSEQ). The issues addressed include a ban on corruption and child labor, the observation of human rights, the assurance of product safety and health and safety in the workplace, and the responsible use of natural resources. Bayer expects its suppliers to accept the sustainability principles set out in this code of conduct, which forms an integral part of our supplier selection and evaluation process. In 2010, it was integrated into our Group-wide electronic ordering system and contracts.

Dialogue

Global Supplier Days focus on sustainability

Supplier Days are designed to help suppliers implement sustainability in their own companies. The first Supplier Day took place in China in 2010.
In 2010, we provided information on our understanding of sustainability to more than 400 of our most important suppliers. Through this global dialogue we aim to show suppliers the demands we make on sustainable procurement and how they can meet requirements in their own companies. Bayer MaterialScience organized a first Supplier Day in China in March 2010. This was very successful and 90 representatives from 54 companies in Asia took up the invitation to this event. Further Supplier Days were held in 2010, for example in Germany, Spain, the United Kingdom and India. To give our partners an incentive for sustainable conduct, Bayer Crop-Science, the largest local Bayer procurement organization in India, awards a sustainability prize for its suppliers.

Training our procurement staff

We use a web-based training program to familiarize our procurement staff with present and future challenges relating to our code of conduct. The three training modules are mandatory and cover the principles of sustainability, the content of the code of conduct and instructions on selecting and evaluating suppliers that specify a four-step procedure to implement the code of conduct. The content of these modules is continuously updated and adapted to the needs of the target group. In addition to strategic procurement staff, a further 200 employees with procurement functions were included in the training program in 2010.

Reviewing suppliers’ observance of our sustainability principles

Supplier self-assessments and audits are used to check whether the demands made by the Bayer Supplier Code of Conduct are being implemented and complied with along the supply chain.
The suppliers to be checked are selected using a country-based risk approach based on our country index for sustainability risks derived from the risk assessments of various international indices such as the Corruption Perception Index [ 66 ] published by Transparency International.
On the basis of this risk approach, we used standard questionnaires in 2010 to evaluate 147 suppliers, mainly from China but also from India, Thailand, the Philippines and Guatemala. Together with the evaluations performed in 2009, based on procurement spending we have already covered 50 percent of suppliers in the risk category and will continue to increase this percentage. In addition, 124 suppliers from non-risk countries were evaluated in 2010. They were selected by the subgroups using business-related criteria. These checks were supplemented by country-specific projects, for example an evaluation of more than 200 suppliers in India.
Together with an independent external auditor we had pilot sustainability studies carried out on suppliers in China in 2010. In the future, we intend to carry out random audits on the data provided by suppliers in self-assessment questionnaires and check up on the agreed development activities.
The data compiled from the supplier questionnaires and audits are used to determine whether specific suppliers meet Bayer’s requirements or whether we need to define further development measures and goals in collaboration with them. Action plans were drawn up with several suppliers in 2010. These are documented centrally and their implementation is tracked. So far, we have not identified any infringements that were so serious that they resulted in exclusion or termination of contracts with suppliers.

Targets 2015

Supplier management
Our process is also subject to continual evaluation and we have set ourselves ambitious targets up to 2015. We also regularly review and, if necessary, revise all modules, for example our sustainability standards, supplier questionnaire and the supplier development process.

Continuous improvement

Almost one year after introduction of the Bayer Supplier Code of Conduct, we reviewed our processes together with an external consultancy. The recommendations made on the basis of this review have already been integrated into our targets for 2011:
  • Expand the present country-based risk approach: additional reviews of strategic and key suppliers from non-risk countries
  • Step up the number of sustainability-specific supplier audits by independent, external auditors
  • Improve central reporting and monitoring through stepwise integration of sustainability assessments into a Group-wide supplier management system.

Human rights as a benchmark

Bayer pays special attention to respect for human rights. Our Supplier Code of Conduct is based on the principles of the UN Global Compact and also takes up the sustainability principles and our Human Rights Position. The purpose of this code of conduct is to strengthen the common understanding by Bayer and its suppliers of how sustainability is implemented in our day-to-day business. Special attention is paid to the protection of employees and to ensuring that they are treated fairly and respectfully. Another key focus is on checking that the ban on child labor is enforced.
Unfortunately, child labor is still widespread in many countries. In a number of countries in which we are present and maintain business operations, children are still used for activities such as field work to contribute to the subsistence of families. In keeping with our Human Rights Position, we require suppliers along our entire supply chain to refrain from using child labor.
For many years, Bayer CropScience has taken resolute and systematic action against child labor in our cotton seed supply chain in India and helps assert children’s rights through the Bayer CropScience Child Care Program [ 71 ]. The prime aim of this program is to alter attitudes to child labor. Farming can be pursued profitably even if children are not part of the workforce. Education plays a key role in securing a lasting improvement in children’s living situation.
Our “Learning for Life” [ @69 ] initiative, which comprises projects established in conjunction with local non-governmental organizations and educational institutions as part of our Child Care Program, helps provide better education opportunities. Schools and training centers offer children a wide range of opportunities, from reintegration into the regular school system to vocational training. More than 2,400 children and young people benefited from these offers between 2005 and 2010. The focus of the program is currently on vocational training. Further information and more detailed figures can be found on the Internet.
These educational activities are supplemented by contractual agreements with seed producers. In addition, the fields used for cotton seed production are checked at least six times each season. Moreover, we pay a bonus to suppliers who strictly enforce the ban on child labor, and run training sessions to enhance agricultural efficiency. Graduated sanctions are applied for non-compliance. These range from oral warnings to termination of the contract in the case of repeated non-compliance. Once a year, corporate auditors Ernst & Young, India, conduct an unannounced on-site inspection of farms selected on a random basis.
Two indicators are used to measure the success of this extensive range of activities. The table shows the development since the “Kharif” season of 2005/2006.
4_Results of field monitoring: production of cotton seed in the “Kharif” season in India
2005/
2006		2006/
2007		2007/
2008		2008/
2009		2009/
2010		2010/
2011
Child labor incidence rate per acre* monitored0.570.150.0140.010.0020.001
Child labor cases as per total workforce in %13.92.80.310.240.060.03

* 1 acre = 4,046.86 m²

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In 2010, we started to present our Child Care Program [ @70 ] in the cotton seed sector to interested stakeholders and step up dialogue with them. Systematic field monitoring in the vegetable farming sector was continued in 2010. As announced, we also started to roll out the program to the production of seeds for hybrid rice.
Last updated: May 17, 2011
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http://www.sustainability2010.bayer.com/en/management-and-corporate-governance.aspx

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