Management Report

Sustainable Development

Our strategy to promote sustainable development is based on the Bayer Group’s values, leadership principles and guidelines, and is defined by our Sustainable Development Policy and various voluntary commitments such as the Responsible Care Global Charter and the United Nations Global Compact. Our sustainable development strategy is spelled out and illustrated in directives and stated corporate positions. Our existing committees for sustainable development and for health, safety and environmental issues continued their work in 2007. We developed a Group-wide position on human rights and presented the “Bayer Climate Program,” which is based on our new policy on climate change. Both apply in all countries and regions where Bayer operates throughout the world. The subgroups and service companies are charged with implementing these policies on a day-to-day basis.

How we measure and manage our performance in this area is illustrated by the Sustainable Development Program 2006+ (“Our goals for 2010”), comprising several fields of activity including innovation, product stewardship, excellence in corporate management, social responsibility and responsibility for the environment. Within these fields, we have assigned specific measures to each goal in order to monitor our progress and document the achievement of targets. The Bayer Group’s Sustainable Development Program takes into account the goals of all the subgroups and service companies, and their management teams are responsible for its successful implementation.

In 2007, most of our key performance indicators held steady or further improved. The number of reportable environmental incidents and the industrial injuries rate both fell considerably. The number of reportable transportation incidents remained at the previous year’s level; we have reorganized this process for the future and adapted Group regulations and responsibilities accordingly. Phosphorus and organic carbon emissions rose and energy use increased due to a higher production volume and the inclusion of the full data for the acquired Schering facilities. Greenhouse gas emissions remained level despite a higher production volume.

In our 2006 Sustainable Development Report, we published not only direct greenhouse gas emissions, but also – for the first time – our indirect greenhouse gas emissions related to energy purchase on a portfolio-adjusted basis in line with the Greenhouse Gas Protocol. Our Sustainable Development Report, now issued annually, is based largely on Version G3 of the Global Reporting Initiative (GRI) for sustainability reporting, which was co-founded by the United Nations. Bayer’s 2007 Sustainable Development Report is scheduled to appear at the end of May 2008.

It is important to us that we participate in shaping external conditions. Bayer is keenly involved in the discussion surrounding environmental and consumer protection strategies and regulations at both the national and international levels. Committed as we are to product stewardship, we also support the objectives of the E.U. chemicals policy (REACH), which are to ensure the safety of everyone who comes into contact with chemical products throughout their life cycles and to further improve consumer safety and environmental protection. We therefore played a constructive part in the revision of the E.U. chemicals policy. In 2007 the Group Management Board issued an internal directive entitled “REACH Implementation” to ensure that chemicals are registered, evaluated and – where necessary – submitted for approval in line with the REACH policy.

We endorse the goals of the E.U. action plan for improving health and the environment, which in its first cycle focuses particularly on children’s health. It is essential here to look at all factors influencing children’s health and focus on relevant health problems. Decision-making must continue to be based on the scientific assessment of risk, which is increasingly based on biomonitoring. We support scientifically founded biomonitoring programs and have developed a Group-wide position on this topic.

Category	Key Performance Indicator	2006¹	2007¹
Health, Safety and Environment
Health and Safety	Industrial injuries to Bayer employees resulting in at least one day’s absence (number of injuries per million hours worked)	2.8	2.4
	Reportable industrial injuries to Bayer employees (number of injuries per million hours worked)	4.3	3.7
	Major environmental incidents	8	3
	Transportation incidents	9	10
Emissions and waste	Direct greenhouse gas emissions (CO₂ equivalents in million metric tons)*	3.9	3.9
	Indirect greenhouse gas emissions (CO₂ equivalents in million metric tons)*	3.7	3.7
	Volatile organic compounds (VOC) (thousand metric tons/year)	2.9	2.9
	Total phosphorus in waste water (thousand metric tons/year)	0.8	1.0
	Total nitrogen in waste water (thousand metric tons/year)	0.7	0.7
	Total organic carbon (TOC) (thousand metric tons/year)	1.5	1.8
	Hazardous waste generated (million metric tons/year)	0.3	0.3
	Hazardous waste landfilled (million metric tons/year)	0.1	0.1
Use of resources	Water use (million m³/day)	1.2	1.2
	Energy use (petajoules [10¹⁵ joules]/year)	86.4	91.7
Employees and Society
Diversity and opportunity	Percentage of women in Bayer Group senior management**	3.8	4.3
	Number of nationalities in Bayer Group senior management**	17	16
Training and development	Training costs in percent of personnel expenses	2.2	2.0
Employment	Number of employees by region as of December 31 (permanent and temporary)
	Europe	57,800	56,200
	North America	17,200	16,800
	Asia/Pacific	17,300	18,900
	Latin America /Africa/Middle East	13,700	14,300

2006 figures restated
1 including Schering as of June 23, 2006; excluding the Diagnostics Division, H.C. Starck and Wolff Walsrode
* as per Greenhouse Gas Protocol
** At year end 2006 no former Schering employees had yet been named to the Bayer Group Leadership Circle.

Evaluating both benefits and possible risks is a key element in Bayer’s product development. The safety and environmental compatibility of our products have top priority. Biotechnology and nanotechnology hold tremendous potential for major products and applications in the areas of health care, nutrition and environmental protection. In 2007 we therefore issued an updated position on the responsible use of genetic engineering, along with the “Bayer Position on Nanotechnology” and the “Bayer Code of Good Practice in the Manufacturing and On-Site Use of Nanomaterials.” All of these underscore our commitment to safety and environmental protection. In the field of nanotechnology, we are also involved in the “Nanocare” and “TRACER” safety research projects of the German Ministry of Education and Research.

Working for climate protection

Climate change presents a major global challenge. Since 1992 Bayer has set for itself and published ambitious targets for the reduction of energy use and CO₂ emissions. Between 1990 and 2006 we reduced our direct and indirect greenhouse gas emissions by 36 percent. The calculation is in line with the Greenhouse Gas Protocol and is portfolio-adjusted. In 2007 Bayer launched the integrated Group-wide Bayer Climate Program with the goals of further reducing CO₂ emissions from its own production facilities and developing new solutions for protecting the climate and addressing climate change.

Initiated by the Group Management Board, the program comprises a package of measures to be implemented over a period of several years. As part of the Bayer Climate Program, the company is bundling its specific competencies and has initiated groundbreaking projects such as the “Eco Commercial Building” – a global concept for zero-emissions office and industrial buildings. Other projects include developing stress-resistant plants, helping to ensure the effective use of biofuels, and the “Bayer Climate Check” for production processes.

Bayer plans to provide €1 billion for climate-relevant R&D and projects over the next three years.

For the period from 2005 through 2020, Bayer has set itself new emission targets that are particularly ambitious in view of the greenhouse gas reductions it has already achieved. The Bayer MaterialScience subgroup aims to lower its global specific greenhouse gas emissions per ton of products sold by 25 percent. Bayer CropScience plans to reduce absolute emissions worldwide by 15 and Bayer HealthCare by 5 percent.

In the United States, Bayer Corporation is voluntarily participating in the emissions trading program of the Chicago Climate Exchange (CCX) and has committed to reduce its greenhouse gas emissions by 6 percent overall between 2003 and 2010. This goal has already been achieved.

Bayer is also involved with the Global Roundtable on Climate Change (GRoCC), participating in this worldwide dialogue with politicians, institutions, industry, science and environmental associations. We are also active in the business leadership initiative “3 C: Combat Climate Change” and the Climate Change Dialogue of GLOBE International.

Sustainable investment

Bayer stock is included in various indices and investment funds that focus on companies with sustainable and responsible corporate policies.

Bayer has been listed in the Dow Jones Sustainability Index World (DJSI World) since it was first established in 1999 and in the European Dow Jones Sustainability Index STOXX (DJSI STOXX) since its inception in 2001. Our stock has also been included in the annually published benchmark series of the FTSE4Good indices since it was launched by the Financial Times and the London Stock Exchange in 2001. In 2007, Bayer was additionally included in the newly established FTSE4Good Environmental Leaders Europe 40 Index, which lists European companies with optimal environmental management. Analysts at the Storebrand Principal Fund again rated Bayer among the top companies in its peer group at the beginning of 2007, awarding it the ranking “Best in Class – Environmental and Social Performance.” In addition, our shares were again listed in the French “Advanced Sustainable Performance Indices” (ASPI) Eurozone Index in 2007. As in 2005 and 2006, Bayer was last year named “Best in Class” by the investor group Carbon Disclosure Project (CDP) as one of the world’s leading companies in the area of climate protection. In 2007 the company was listed for the third consecutive year in the Climate Disclosure Leadership Index, the first global climate protection index. Bayer is the only European chemical company listed in this index.