Bayer Aktiengesellschaft (BAYN) Earnings Call Transcript & Summary

Hello, everybody. A warm welcome to our ESG Investor Webinar, the next one in our series, we're going to talk about crop protection topics today, about crop science topics. And we always want to choose topics which are at your highest interest and basically about topics that we collect from all the conversations we have with all of you. So today, it's all around crop protection, biodiversity, regenerative agriculture. But as you know, in every of our webinars, in every session that we have, there's one slide always the same, which is the next slide where we talk about the cautionary statements. So I'd like to draw your attention to the cautionary language that is included in our safe harbor statement as well as the materials that we have been distributing before. Thank you very much. And now let's just jump into the matter as of today. You can see in the agenda that we have 3 esteemed experts today in the call. We have Jessica Christiansen, we have Robyn Kneen and we have Daniel Glas, and they will introduce you into a lot of topics around the top -- around crop protection, pesticides -- we always say crop protection, many of you say pesticides, it's actually the same thing, biodiversity and regenerative agriculture. Why do we do these series of webinars? Because we have a really -- we have a deep interest in sharing information with you and being more transparent in enhancing our efforts on disclosure and transparency. And this is basically a run through the last years where we have started in 2017 to disclose all our safety studies of our crop protection products. That took quite a while, 2 years of very intense efforts to disclose all those studies. And I don't want to name all the efforts that we have done around the last couple of years. We have published a number of reports around topics that are of specific interest to you. Maybe just to highlight one thing, because after we published our safety studies, we received some comments like, are your studies really true? Is it okay if you just show us the data what we want to see? How is the data produced? Can we trust your data? And that's why we have launched the OpenLabs in 2022, where you cannot only see the studies, but also how we do these studies. The topics that we present today will be also part of reports being published a bit later in the year. So for example, the topic around crop protection R&D and stewardship will be a matter of a separate report. With -- also come with another report on our public affairs work and you will see more publications coming down the line. If you have a specific interest in specific topics and you want to know more, please let us know. The next slide is actually a little bit obsolete as of today. We do not need to talk about the existence of climate change and biodiversity loss. But I think it's still important to point to the fact that while in the past, we have talked a lot about the need to grow and to feed a growing world population, and I think that's really still true and our company has to make a contribution to produce enough safe and affordable food around the globe, we need to acknowledge that, as of today, we, at the same time, need to reduce the pressure on the ecosystems. So the big challenge for us is how can we produce more and preserve better at the same time. And that's why we have selected the topics that you can see on the next slide. And I want to go into these topics without any further delay. You will hear an update on our biodiversity strategy. Many of you have been asking us questions around the biodiversity strategy in the last couple of years. Maybe very interesting for you is to see how we are doing R&D and stewardship today, how we develop a new crop protection product. It's a very complicated process. It's really, really very detailed, so many studies. And we would like to make you aware of the complexity, but also about the accuracy of how we are dealing with that topic. And then, last but not least, in the end of our run of the show today, our Lighthouse Project, reducing environmental impact of crop protection, where we have made really substantial progress in the last couple of years. That's the agenda for today. And in the end, we will have a Q&A session with all of you, which I will introduce after we have been going through the presentations. And with this, I'd like to present to you, Jessica Christiansen. She's leading Sustainability & Stewardship in our Crop Science division. And she will present to you what we are doing on biodiversity, how we are making progress and then a new term, which has been introduced very intensively this year by our Crop Science colleagues, what we are doing to move to regenerative agriculture. Jess the floor is yours.

Thank you, Klaus, and pleasure to be here today to talk about biodiversity and regenerative ag. So we all know that biodiversity is critical to lots of aspects of our planet, agriculture and food production is no exception. So what does it mean for ag? If you look at the average abundance of native species, it's down about 20%, major land-based habitats, right, because of major land-based habitats. You think about 90% of all soils are expected to be degraded by 2050. That's a huge one when you think about agriculture, obviously. And then about 10% of insects are being threatened, so that's an average there. You think about the pollinators in particular, that's what we've been focusing on in agriculture quite a bit. Many populations of pollinators are in decline, whether it be bees, wasps, butterflies, and that's a huge concern when it comes to food production. So a lot of the row crops. The staple crops don't rely on pollinators, but many other crops do. And so that's -- this is a balance that we have to have. I think there's an estimation, for example, that about 5% of food production would be at risk if pollinators were wiped out in high income countries, and it will be higher than that in low- and middle-income countries, say, around 8% or so. So it would be very impactful, obviously. And then you can see about 9 out of 6,000 crop species account for 66% of total crop production. So this is around the reduction in diversity of cultivated crops. And so if you think about crop diversity, we know that's an important part to balance biodiversity as well. So lots of key items. This is just a handful of them that we are going to train and are very impactful on agriculture as well. So if you go to the next slide, let's talk about what the main drivers of biodiversity decline are. So pollution, you can see this is a couple of the big drivers here. But if you look at pollution, crop protection, these are some areas that we can actually control as far as in our wheelhouse, if you will. But we're looking at crop protection application with our crop protection environmental impact reduction goal. This is really around reducing the impact of our own crop protection portfolio. Even though crop protection is not the major contributor to loss of biodiversity, typically fertilizers, for example, in land use change are the bigger ones when it comes to agriculture. But our crop protection EIR goal definitely helps. And so this is something that we already have a commitment and are making really great progress towards. The impact of climate change might increase in the future. It can also contribute to habitat degradation, so that second bullet. This is all about sort of greenhouse gas and if you think about the nexus of climate and biodiversity coming together. So we are not only working towards greenhouse gas neutrality by 2030 in our own operations and net zero by 2050 in our own operations, but as we've mentioned several times in other discussions with you guys, we're also committed to helping our farmers reduce their greenhouse gas emissions on the most emitting crops by 30% as well by 2030. So this one will help with the climate change aspect of habitat degradation. And here's a big one, the land use change. And so this is one when you think about habitat loss, degradation that we've mentioned before, intensification are major drivers. So this is an area we really acknowledge that agriculture has a big role to play. And one that we are working towards how do we find the right balance of food production and land use and biodiversity. And so that's really what we're working towards if you kind of think about regenerative ag is how do we not only produce more with less, but how do we start restoring. And the restoring factor would help with this land use change. So if you go to the next slide, let's talk about the regen ag -- our regen ag position. There's not one definition of regenerative ag and -- which is interesting because it's not a new term either. So this has been around for a long time. But what we're really focused on there is the outcome based approach. And here's the 6 key outcomes that we want to focus on. And it needs to be crop agnostic so that every system is different. Every crop system, every region, every subregion within a region. So it needs to be very farmer-centric and it needs to be outcome-driven. So if you look at the yield increase and improved productivity, if we can't make our own farmers profitable, they will not adopt these changes and practices and we will not have impact at scale that we're hoping to drive. So that's really driven towards our customer, which is the farmer. So we need to make them profitable at this. But it also kind of leads to the social and economic well-being. And so if we can make the farmers profitable, it should lift the whole community up. The soil health aspect of regenerative and -- is absolutely critical, it's foundational. So the soil health aspect really drives productivity, water retention, greenhouse gas sequestration potential, for example. So all of these things really are underpinned by soil health. Soil health also drives a lot of biodiversity health as well. Mitigate climate change, the preserve or restore biodiversity. We'll talk about that in a little bit here, too, and then the water resources. So we have some key principles, but the basic premise of our regenerative ag position is that it needs to be flexible, it has to be customizable and it's really based on practices plus our products and portfolio really -- including crop rotation, it's a multiyear strategy. It's not just a season-by-season look. So let's talk about that in a little bit more detail, if you go to the next slide. So I mentioned, for us, our sustainability focus has been producing more with less. And that's not going away, but still is going to drive, actually, and it's foundational to drive regenerative agriculture. So we're still going to innovate. We're still going to do what we're good at, which is innovation around inputs for agriculture. But what we've got to get to is how do you produce more while restoring more. So not only with less, but the restoration factor. And so increasing productivity while renewing nature. That's not an easy to ask. And so there is this nexus there and we've talked about this before, too, of there's trade-offs sometimes. But with biodiversity, it's going to be really critical that we understand this restoration and restoring more in the nature-based aspects and the impacts agriculture has. So if we go into some examples of how we're trying to approach this, if you go to the next slide. This is one system that we're very focused on, which is direct seeded rice. And it's in our APAC region, starting in India. We just announced at the International Rice Congress that was at last week in Manila, Philippines. We're also going to start testing in the Philippines in 2024 as well. So we're looking at expansion. But rice in itself is a huge staple crop. It's calorie security for millions of people globally. But it also is one of the most environmentally draining products to -- or commodities to produce. So it uses about up to 40% of the world's irrigation water. It emits about 12% of methane globally. It's huge, huge impact on smallholder farmers. There's over 150 million smallholder farmers that produce rice. So this is a very logical one for us to focus on because we could touch many things all at once. And so what we're doing is looking at our system of solutions, and we're partnering with others to think about the full ecosystem around the farmer. It's everything from cash liquidity to inputs, ours and others, digital enablement and then offtakers to make sure that the profitability is getting back to the farmer. The goal of this right now with this system is to truly make it regenerative. And so one of the things we're working on at the moment, partnering with IRRI and some others, is how do we think about the crop rotations in the system, starting to collect and analyze more soil health data to say, can we increase and improve productivity of an entire system and a multi-crop system that's centered around direct seeded rice. So we're excited about this one. It has a lot of potential to have huge impacts, not only for the planet, but for millions of people globally. So let's talk about our pillars around biodiversity, if you go to the next slide. So we're really focused on 3 main pillars when we think about our biodiversity strategy. So I've mentioned the soil health benefits. So soil health is really underpinning regenerative ag. It also drives a lot of biodiversity. Think about yield stability, drought resilience, water resources, carbon, disease, et cetera. So what we're doing here is we have a lot -- we have a handful of long-term sustainability trials in the U.S., Argentina and India. India, I just spoke about. It's really centered around our rice program with several different crop rotations engaged. Argentina, we have some great example of that one as well, where it's row crops, so it's corn, soy, wheat rotations with several different inputs and digital tools. And in the U.S., it's row crops as well, looking at our Preceon -- our Smart Corn System, which is our short corn hybrids as well as with rotations and practice improvements. So that data is really going to help us not only understand what we need to be doing as far as how to mitigate biodiversity loss and get to this restorative goal in our systems. But it's also going to be proof points for our farmers to believe in adopting these practices. If you look at habitat, that's our second pillar, this is all about land use optimization and thinking about ecosystem services, too, in a -- such as natural pest control. So we have some programs and platforms launched already. In Latin America, we have for PRO Carbono, which is really about protecting the natural ecosystem forest and incentivizing those lands to stay and not be cleared while producing low-carbon soybean and then other commodities that we're working towards. So basically, we're trying to incentivize landowners to keep the forest, as well as incentivize soybean farmers to make more money on the existing land that we're producing on. So it's really working in partnership. We have lots of activities in North America around pollinators and habitat initiatives. So we work to make sure we have strips and buffers and where we have a milkweed program where we've been working to make sure we're putting back some of that natural habitat in areas. And also working on some digital tools to help our farmers understand their return on investment. Maybe they are better off not planting certain aspects of their -- certain parts of their fields, for example, and we can keep those for native habitat. And then we have a forward farm -- the Bayer Forward Farm, which is really a network of farmers globally that showcase these practices. So they're farmer-led, so it's not protocols that we design. It's their -- farmers do what they do. But there are progressive farmers that are actually showing other farmers and policymakers, for example, how to do these things and how it could work. So we're excited about those and we're going to continue to work on the habitat pillar, too, when you think about ecosystem services. Genetic diversity. So this is a tough topic, too, that we get a lot of questions about, typically. So when I think about genetic diversity, I think about resilience in our existing crops that we bring forward today. So we have row crops. We have a vegetable seed business. So it's really about how do you create increased genetic diversity even within the crops that are our own, so that you're really targeting more resilient systems as climate is changing. And then it's also about restoring and keeping diversity in general of crops. And so we work with a lot of gene banks. You can see a couple of example, bullets below. So we work with gene banks around the world to make sure that we're preserving crop diversity and genetic diversity with them. We're also, of course, focused on cover crops. So CoverCress is one that we've invested in. And it's starting in North America, where it's gene-edited pennycress weed, actually, that's edited to basically become a cash cover crop for growers. So it can help with the creating a regenerative -- more regenerative systems in our row cropping model systems in the U.S., for example, while enabling a new revenue stream for growers. So this one you can use as sustainable aviation fuel. That's the target. So it's coming, it's not launched yet, but that's a good example of how we're trying to make it more profitable for growers with our innovation, too. And then some interesting work with intercropping. So in our veggies business, and we're testing this in row crop too, it's really around how do you intercrop. So you have the beans, it's a pole bean basically the -- sorry, Moraleda -- I can't pronounce that word. The Moraleda being which is a pole bean and so veggie farmers are actually intercropping that with tomatoes, et cetera. So instead of [indiscernible] so they're covering the soil with another cash crop, one that could be used for food and/or an additional commodity to sell. So we're working more on intercropping technologies, too, in testing. And then in general, in biotech, our biotechnology organization, where we've been focused on how do you actually target more resilient, climate-resilient technologies as well. So the examples here are cold tolerance. We've been looking at heat tolerance, enabling no till. In some of these cover cropping systems, you need shorter or longer days in between as well. So we have a lot of activities ongoing in these main 3 pillars that we hope will drive biodiversity, restoration or preservation and, ultimately, our regenerative ag systems. So if you go to the next one, the challenge to this is what are we measuring? We have a lot of huge discussions in industry forums and with external parties, but the challenge in biodiversity is really this measurement piece, the KPIs. So here are some examples. We're really working across different platforms externally and with academics and NGOs, just to make sure we can hopefully align on some core principles. It needs to be somewhat flexible. As we said before, each system is a bit different. But I think we're getting closer to having some alignment on some global core principles at least around metrics. So what we're looking at is, if you think about pollution, I mentioned before, what we can measure is our crop protection environmental impact. And so that's what we're doing with our goal that we're reporting on. So that one is a treated area weighted environmental impact by hectare. David Glas is on the call here today, too. He'll be speaking a bit more to this later. We're looking at greenhouse gas reduction, as I mentioned. So we have a carbon intensity score that we report on -- we're starting to report on. And really, the last 3 are what we're working towards with these external forms, which is land degradation. So we're looking at different soil health metrics, like the soil health index, for example, is one that we're starting to utilize more. But there's lots out there when you think about soil health. There's the microbiome, the abiotic pieces. So we're working with different universities, et cetera, to kind of understand that more. Land use change, that habitat protection and restoration. Increase biodiversity in general with the nexus of food production, that last bullet. So that's what we're really working on, not only to test different technologies like environmental DNA and metabarcoding, remote-sensing, for example, for habitat and species, but also with different forms like the WBCDS (sic) [ WBCSD ] and TNFD on really the framework of what we're going to report. So we're looking at and working on the how, with this -- which is the different technologies because it needs to be scalable and affordable to do this. But it's also the what with some of these forms. So we're really thinking about how to do this in a pretty consistent, practical way. So the last slide I have is really about the partnering. It's -- this is a complicated space, as I just walked through. So how to do this is we have to partner. And it does drive our business. So we have business strategy around it, which is fantastic. So you can see that the green dots, it's a link to commercial. There's absolutely some commercial programs and strategies around these efforts. But we have to partner in this, particularly the R&D space. So I just mentioned some of these forms and it's working on the metrics and the technology. You can see in the EU, we have the BioMonitor4CAP where we're looking at some of these technologies. We have different programs like the National Fish and Wildlife Fund that we participate in. TELA Maize in Africa, Modern Breeding Project. So this just gives you a sense. And the point of this is that we have to have to work together. There's no way that one party can do this alone. And so this is an area that we have a ton of collaboration on and we'll continue to do so. So that was a fairly quick run through. I know we're going to have some time at the end for Q&A, which is great. But for now, I want to hand it over to my colleague, Robyn Kneen, who is now going to go through our R&D and stewardship in crop protection. So Robyn is the head of our Global Regulatory Scientific Affairs in our Crop Science division. So I'm going to hand it over to you, Robyn.

Great. Thanks very much, Jess, and a warm welcome to all of you. I'm really excited to be here today to talk to you about research and development. And especially as actually just this month, I just celebrated 35 years with Bayer and have actually spent my entire career in various roles in research and development. So I'm really happy to share with you some of the experiences I've had as I've gone through that journey that's been my career. And hopefully, you've seen this slide before as it represents the 5 platforms of Bayer's research and development. And if you look in the middle, that chemistry, this is what we're going to be talking about today. As a chemist myself, I've developed a deep appreciation and understanding of the importance of chemistry -- crop protection chemistry to agriculture, as well as a passion for ensuring the safety and sustainability of those chemical products that we used. And so let's walk through the journey. And on the next slide, we're going to start with a kind of overview of the research and development process, and there's a lot on this slide, so I'm just going to walk you through it. So if you look along the bottom here, you'll see a time span of approximately 12 years. And yes, this is how long it takes from discovery to market. And with an average investment of about EUR 250 million. So for every product that makes it. And of course, there's many, many products that don't make it for one reason or another. And I'm going to talk a little bit about why today. As you look on the left-hand side, you'll see there are 4 areas of focus for research and development. So chemistry, biology, toxicology and environment. And I'm going to focus on the toxicology and the environmental safety a little bit more today. And then finally, just below the years, you'll see that there's 3 main phases. It's actually shown as 2 here, but really, there's 3. The first one is discovery, the second one actually is part of realization, it's development. And then the third part is regulatory. And so that's what I'm going to walk you through today, the discovery, the development and then the regulatory. So let's start at the beginning on the next slide, which is actually where I began my career and that is in discovery. I have to tell you that discovery today looks very, very different to what it did when I began in discovery and partially due to a lot of the tools and technologies and capabilities that are available to us today. So Bayer has named its new approach to discovery, CropKey. And why is that? Well, this represents the approach to finding a key, so that particular chemistry that unlocks a biological target. So if we think about the desired activity that we want against pests, weeds or diseases, we can use today's modern computational tools to find exactly those active substances which impact that specific biological target, without impacting nontarget organisms. So highly selective. And this approach is then complemented through a series of predictive early safety evaluations using, again, different in vitro tests and in silico predictive models. So as we start to discover these new chemicals, if you go to the next slide, please, it's important to remember that there's no one factor which defines whether an active substance advances from discovery into development. And what this spider chart shows here is the different factors that we have to take into consideration. So we're looking not only at the efficacy against the desired pests, but we're also looking at all these other factors here that you can see in this spider matrix. And it's a balancing option to try and find that best key to solve the growers' challenges. And as you can see by the matrix here, it's like rebalancing these different aspects and making a decision. And so let's go to the next slide, and we'll move into the second area, which is the development phase of research and development process and talk a little bit about safety evaluation. So the fundamental basis for assessing safety is to determine the risk. So I'm going to pause here a moment and so that we can really understand what is risk. On the left-hand side here, you can see a silly little graphic of a person standing on the beach, watching a shark swim in the water. So where -- if you're on the beach and the shark is in the water, you're having no exposure to that shark. So whilst the shark represents a hazard, something which can be harmful, having no exposure means that you end up with no risk. Now of course, if you are to jump in the water with the shark, you're now exposed to the shark. And so this changes our level of risk totally. And so this is how -- what we -- the same approach that we take for evaluating crop protection chemicals. So we look at the hazard, we look at the exposure, we evaluate the risk. And we do this in 2 main areas. So one is the environmental risk assessment and the other one is a human health risk assessment. And I'm going to go a little bit more into both of these now on the next slide. And maybe just before I talk about this slide, and again, we'll walk through this one. I know there's a lot on here. But many of you may have heard the saying, the dose makes the poison. And I think that's also true when we talk about risks, right? When we -- it's around the level of exposure. I mean even water and oxygen can be toxic if too much is ingested or absorbed. And so again, it's really important to consider the potential harm and then the exposure to determine the risk. And so this is how we do it. So we begin of by doing hazard assessment. And I've shown an example here in the area of toxicology. And this is a list of the studies that we'll do in the areas of toxicology. And these studies -- some of these studies are short-term studies, they can take a few weeks, and others of these studies are long-term, chronic studies that can take 2 years or more. The important thing to remember about these studies is that there's a defined way in which they must be done. So it's -- we don't choose how to do the studies, it's directed and in great detail outlined in methods that come from regulatory agencies or international organizations. There's also a set of guidelines under which studies must be conducted and a set of rules which are called good laboratory practice. And I'll talk more about those on the next slide. So I've listed the -- no, sorry. Go back. I've listed the -- I've listed on the left-hand side here just the studies that we do in the area of toxicology. But I also want to -- I've not listed them here for space, but I also want to highlight that in areas of ecotoxicology, environmental fate, efficacy, product chemistry metabolism and residues, the studies conducted in all of these areas. So these studies are used to address the potential harm or the hazard that a substance can cause. And so now we know the hazard, we go to the right-hand side of the slide here, and we measure the exposure. And when we're considering exposure, we consider all the different ways in which a person could possibly become exposed to a crop protection chemical. It could be the applicator or a bystander or a worker in the field or a passerby or it could be people eating the food that's been treated. And so all of these aspects are evaluated through these exposure studies. And then once we have the data from these exposure studies, we take that along with the data from the tox-hazard studies and we're able to perform a risk assessment. And you can see at the bottom here, for example, as we're looking at the worker exposure, you can see all of the different aspects, which are also taken into consideration. This is just one example, again, for worker for risk assessment. And of course, we do risk assessments for environment -- many, many environmental species, as well as other ways in which humans -- so both human and environmental risk assessments, all the different ways that they can become exposed. So now we can jump to our GLP slide. GLP, as I mentioned, stands for good laboratory practice. And basically, they are a set of principles that outline how safety studies must be performed. And even though I've just shown you all of the studies that we do, very often, we still get criticism regarding the transparency and quality of the data that we produce. Studies are conducted by industry. This can be criticized also. However, it really doesn't matter who does the studies because the rules govern exactly how the studies must be done. And so anyone who follows the guidelines can do these studies. So you have to follow the good laboratory practice guidelines as well as the methodology, the detailed methodology outlined by regulatory authorities. And I want to pause here for a moment because we have a new initiative called OpenLabs, which actually is a -- gives anybody who wants to, the opportunity to come and see a study being performed. So you can see how we use a residue study as an example, and you can see how both the field and the laboratory part of the study is conducted and how everything is governed, including the audits that happen as you go along. All right. So let's move on. And now that we have the data, all of the -- we've generated all of the data to show that the product is safe, what do we do with it? Well, the data goes to regulatory authorities for evaluation, this evaluation can also take multiple years, our studies are also posted to our -- made available on our transparency website. So all of the studies that we've conducted for all of our crop protection chemicals are available upon request through our transparency website. So one of the things you can see here is that not every regulatory authority has exactly the same requirements. They're not totally harmonized around the world. And different countries have different approaches. So one obvious one, you can probably see here that North America is much more focused on the risk evaluation, as we described earlier. Whereas Europe focuses a lot more on a hazard-based approach. We also see that in many low- and middle-income countries, they're still developing regulations. And so in the absence of having own regulations, they utilize guidelines which have been put out by international organizations, such as FAO or OECD. Now to conclude on this section, and because the regions have very different requirements, as I just explained, whereas we in Bayer, we have the global view, we take a holistic standardized approach to safety and actually have gone one step further and raised the bar by implementing our own safety standards. So irrespective of the regulatory requirements, we have defined a minimum that must be met. And this may be akin to what is done in other industries, for example, also in the finance world. And so how have we approached and created our safety standards? Well, on the left here, you see we've taken the standards and guidelines of the international organizations. We then consider the latest scientific developments in risk assessment and take the standards of reference regulatory authorities. So those most sophisticated, science-based regulatory systems that exist. And we pooled all those together to create Bayer's safety standards, which has then also been validated by an independent panel of experts in this area. And from this, we've created our safety standards. And you can see at the bottom left and right corners just an image of a document, and this is actually our Operator Safety Standards, which has been published and is available if you're interested. So with that, I'm going to step aside from the process and just talk briefly about governance. And how do we -- governments -- governance for us is really how do we internally oversee all of the activities. And there's just 2 aspects of governance that I've shown here. The top diagram, as we go through research and development process, actually represents the governance and the committees and the standing Boards that define when a product is eligible for moving through the pipeline. So what we call phase advancements. And then in the lower part of the slide, we also have more of a, what we call LTO, license to operate, set of governance. And this overseas the specific decisions around our approach to issues, incidents, regulatory policy changes and also stewardship. And this leads me to our final topic, which is stewardship. And on this slide, on the lower part of this slide, you can see the scope of which product stewardship -- which we apply product stewardship. And as you can see, it goes directly from research development through all of our operations, production, packaging, marketing, responsible use and right up until discontinuation. And the international code of conduct, which you can see in the upper left here, FAO -- defined by FAO. This is a voluntary standard to which we subscribe and actually have gone one step further here as well and detailed out our product stewardship commitments, principles and requirements. And on the next slide, you can see just an outline of some of the examples. So we help farmers with the safe use of our products through personal training, support, guidance on the use -- proper use of protective equipment, and also container management and provide and support in case of incidents. So if you are interested to learn more about these and many other stewardship initiatives we have, then please follow up with us. And that brings my section to a close. And so thank you for walking through discovery, development and regulatory and stewardship with me today. And there are -- if you're interested to learn any more on any of these elements, these can actually be found in an upcoming report on our product development process, which is due for publication soon. And with that, I'd like to hand over to Daniel Glas. Daniel is part of our sustainability team and is the venture lead here for our environmental impact tool. Daniel, over to you.

Thank you, Robyn. It's a pleasure to be here today. Thank you very much for joining. First, I would like to talk about why crop protection is needed from our perspective. Crop protection helps farmers to secure or increase yields and thereby helping to feed a growing population and reducing pressure to bring additional biodiverse land into production. You can see this here on the example of corn on the chart here from Our World in Data, where corn production has gone up quite significantly in the United States by almost 2,000% in the last 150 years. Whereas, the area used for corn production in the United States has stayed more or less steady in the last 100 years. That does, of course, not mean that there has not been any lands use change for agriculture. There has been, but land use of agriculture is always inevitably related to loss of biodiversity. That statement is true for organic farming, for conventional farming, really for any kind of farming. But the loss is by far surpassed by the higher land use and extensive production systems. And as you heard as well from my previous speakers, of course, there is still a need to make agriculture more sustainable to walk towards regenerative agriculture, as you heard from Jessica earlier today. And here in this specific case, we're talking about our sustainability commitment to reduce our global crop protection environmental impact by 30%. Next slide, please. We have committed to a global commitment covering all Bayer Crop Protection products applied on a field throughout the globe. The KPI itself is crop protection environmental impact per hectare treated area weighted. I will explain that with an analogy later in more detail. And think about this commitment as a relative commitment. It's a relative commitment on our global portfolio against the baseline in the past. The baseline here is set in 2014 to 2018. We're using a 5-year average to account for variance in CP application. Next slide, please. Quantifying the impact has been -- in the last years, we've been working on this really the most daunting task, and we've only been able to do that by partnering with leading universities around the globe. We have partnered here with universities developing the models called PestLCI and USEtox. They are being developed since years, actually decades, by an academic consortium orchestrated by the United Nations Environment Programme. The models were used by the European Commission, to mention one example, or some -- even some of our industry peers. The point -- the most important point is that we are using an external method to quantify the environmental impact of crop protection. So when I say method, I mean, the calculation is from [ stealth ], but of course, as well the data we use to quantify our global baseline. The models themselves, the data we use, is freely available. And in everything we do in terms of quantifying the impact, we rely on the academic consortium. But as well on an external panel of experts and a third-party panel, which reviews the way we quantify our environmental impact. On a very high level, it's very simple how this calculations run. So first and foremost, everyone thinks about volume, if you think about crop protection or pesticides and you think about environment, volume, of course, matters and that's being taken into account. But equally important is how the product is applied and what crop it is applied, where is it applied, when and things like this. And based on all of these factors and many more, the models can quantify an emission in the environment in making of crop protection in this case. And then, ultimately as well, an environmental impact. On the next slide, I would like to put this in context to what you have heard from Robyn, the previous speaker here. You heard Robyn talk about extensive safety testing. And this statement, of course, applies here to everything we do, as Robyn outlined. And to put this in context with the sustainability commitment, the easiest way to think about it is that we are going the extra mile for sustainability as a company. And what Robyn talked about and what those models do on the previous slide is basically those blue bars here in a very simplified manner on the bottom, yes? We quantify impact of products and then we know what to focus on to reach our commitments. I will explain that in more detail moving forward. But it's important to keep in mind that this does not contradict what Robyn outlined, it is the same thing just that everything we do is safe and therefore, safe as well for the environment. And what we talk about here is going the extra mile for sustainability. On the next slide, we would want to give you an overview of what we have achieved so far. Recently, roughly a year ago in the Bayer Sustainability Report 2022, we have communicated, for the first time, quantitatively against our commitment. So far, we have achieved a 14% reduction of our global crop protection environmental impact. We're using a 5-year rolling average, 2017 to 2021 is the performance tracking period. The 14% refer, of course, against our baseline in 2014 to 2018. Together with our academic partners, we have as well been able to quantify not only our own crop protection impact, but as well everyone else's in the industry, peers, industry peers, but as well generics. And based on this analysis, we've been able to estimate that while we're leading on the crop protection side in terms of market share, we have only a 2% contribution to the global environmental impact of the crop protection industry, the whole crop protection industry. You probably wonder how this is possible and how does this relate to what you have been hearing from the previous speaker. On the next slide, it's the easiest way to talk about this with an analogy. In this case here, the seesaw. Each product in our portfolio, and we have a lot of products in our Crop Protection portfolio, it's a ball here in this simple example. The position of the ball or the product, left-right, is mainly determined by things like how much is applied, the volume, but as well, what we call environmental profile, this is what Robyn has been talking about. So for example, things like how fast does it degrade, what's the effect on the environment, yes? But let's call it environmental profile and volume. Those are the main 2 drivers for the position of the ball. Everything on the left-hand side in this very simple example, helps us with our commitment. Everything on the right-hand side doesn't. The size of the ball is as well important. I mentioned earlier that we have a KPI called global treated area-weighted environmental impact per hectare, and we want to reduce per hectare. But the size of the ball is the treated area. So we factor in whether we sell or a product has been applied on 1,000 hectares or 100 million hectares around the globe. That is factored in. That's the size of the ball. And what we have been completing last year is a full assessment of our global portfolio and a small -- an assessment how our R&D criteria for product development related to this commitment, what Robyn has been talking about. And in very simple words, everything on the left-hand side, that is innovation. So if we manage to bring more sustainable crop protection to the market with the standard Robyn has been talking about, we're adding to the left-hand side, and this will help our commitment. In this case, there is as well a no conflict between a sales objective and a sustainability commitment because it goes hand in hand. Having said that, it is not enough for our sustainability commitment. We have as well identified a few products on the right-hand side, which we are working on currently to mitigate. On the next slide, I would want to talk about the main contributors so far to 14% and as well moving forward, what will help us. The main contributors can be broken down really in 4 main categories. It's the criteria we use internally governing how we develop new crop protection products, as just outlined. That's really critical. But of course, as well what products and active ingredients that we in-license or acquire through acquisitions and vice versa. We have as well an ongoing portfolio governance process, where we decide as well to phase out or divest certain products. That's really important. That would be your number three. And last but not least, of course, it matters how our products are applied by our customers, by the farmer. And you see here a few examples on the crop protection side. You heard me talking a lot about crop protection so far, and of course that's critical as already mentioned. Having said that as well, seed and trait helps with our sustainability commitment or -- as well as digital efforts. So you see here examples on the trait side. Those are insecticide-tolerant traits. That helps to reduce the amount needed of insecticides, for instance, a very simple example. Of course, that helps. And on the digital side, you probably heard as well about efforts to apply crop protection ever more precisely with digital technology. So in other words, reducing the volume needed. Of course, that helps as well with this commitment. So the point being is crop protection innovation is essential and bringing more sustainable chemistry to the market is essential, but as well efforts on the seed and trait and digital side are equally important. On the next slide, I would want to conclude with what have we done this year and what can you expect moving forward. This year, in 2023, we have launched, and these are just a few examples, a few highlights, a new research partnership, adding additional universities to the work. And this specific work focuses on expanding the models I outlined earlier to cover pollinators. I think a very important topic we started working on. Secondly, later in this year, you can expect a submission of the first publication of this ongoing academic collaboration we had over the last 2, 2.5 years. In this case, this is a publication making the crop protection application pattern dataset public, which then leads in a second step as well to aid, to our knowledge and the university's knowledge, first ever global impact assessment paper in academic journals, making this data available to the public. 2024 and moving on, we would want to continue and intensify our efforts to work with industry partners, in this case, specifically linking back to regenerative agriculture and Jessica's comment that there is no one set of definition. We are working with across industry platforms in an attempt to standardize the definition around regenerative agriculture. In this specific context here, for this commitment, we are working towards bringing this academic work in terms of a CP sustainability metric into these regenerative agriculture metric set. In addition, we aim to contribute to a public calculator. So having a publication with a lot of data is nice, but having an easy public calculator to quantifying your own data set of crop protection is maybe even better. The academic consortium plans to do that, and we would want to contribute to that development as well. And in 2025 and later on, we expect, based on current estimates, the publication of the pollinator impact assessment methodology and as well the soil impact assessment methodology, which we already committed to integrating in our ongoing calculation and efforts in our sustainability report. Thank you very much for your attention. And with that, I would want to hand over to Klaus Kunz for the Q&A.

Thank you, and a very big thank you to Jess, Robyn and Daniel. I think you may have noted that we try to bring a lot of complex topics across, within only 60 minutes. And for me, it's really, really important that you can see that as of today, in our company, if we try to find a new crop protection agent, a new active ingredient, a new active substance, a new molecule, it's not just a matter of finding the most active molecule to control aphids or white flies or bugs, it is really the matter to find a molecule, which is, on the one hand, serving farmers' needs. So there must be -- of course, there must be efficacy to control. But there must also be a safety profile of these compounds. And I think the intensity that we put into identifying molecules already in the very early screening phase, when it's already part of a selection process of many, many compounds that we do not only look into the efficacy against aphids, but also against the selectivity, for example, for pollinators. This has really been growing and growing and growing and growing over the last years. And also that we have been trying to set standards for ourselves that we do not only need to just go and try to register what's possible in a given country, but that we want to have higher standards for us. And that, for example, and you may know that we do not commercialize any product anymore around the world which is classified as WHO tox Class I and many other standards that we have been introducing in the recent years. So this is very important information that we wanted to bring across and also the incredible complexity of the regulatory process. If people say, can you not register or come with a replacement of a given product a bit faster? No, we can't because there are some studies which take more than 2 years and there's no shortcut to the process, and we will never go for the shortcut of any of those processes. So once again, a big thank you to Jess, Robyn and Daniel.

I would like now to go into the Q&A. All investors who joined today's webinar via Zoom can actively participate in the Q&A session. It's essential that you specify your first name, last name and company in the name field in Zoom in order to allow for correct identification. And to ask for a question, please click on the raise your hand field, and we will then ask you to put up your question. And there's already one question out there. By the way, everybody else who's on YouTube who's not an investor, of course, can also follow the Q&A session in the next couple of minutes. Yes, the first question is already out, and we have it from Gunther Zechmann from Bernstein. And I would like to ask you, Gunther, to quickly ask a question. Gunther? I hope you are still with us. If not, I can ask it for you. It's a question which I will direct to Jess. The question is, Jess, can you please elaborate a bit more on how farmers are going to be incentivized to switch to new farming practices and also a little bit about the economics of carbon farming? That's the question from Gunther Zechmann from Bernstein.

Yes, thanks. That's a great question. So changing is not easy, we know that, particularly as you think about switching to more regenerative systems because it could take a few years for soil health to build up and for the productivity increases to be seen by the farmers. So there's a few things we do. In our Carbon Programs, in particular, it varies by country. But in the U.S., for example, our farmers are paid per acre based on the practices that they do, whether they generate a carbon credit or not. So they have no till, limited till, cover cropping. They get a certain dollar per acre payment. So that's sort of the base. The other thing we're looking at is how do we really enable our farmers to participate in both carbon labels or incentives from the value chain players. So all the big value chain players are working to reduce their Scope 3 emissions, greenhouse gas emissions. And that's really their ingredients, right, that they use and that they purchase. So that's another opportunity that's not the voluntary carbon market, but it is an opportunity for growers to get a premium if they if they grow their commodities in a certain way and improve that. So we're really focused on how do we enable the data collection, the measuring, recording, validating services. How do we enable the farmers to actually participate in the programs, whether it's a voluntary market or involuntary. And then in general, when we launch new systems and products, we typically have some marketing campaigns, other things as far as helping the farmers financially in these programs, while they're learning the new technology. And so we help sort of bridge until they can get up to speed. But in general, going back to my first comment, we are needing to work and partner with financing institutions because what I'd like to say, it's like a bridge financing. I think we need to get the farmers kind of up to par as they switch to more regenerative systems. And to do that, we need to help cover some of their costs in the initial years, not forever, but in the initial years. Every market in the carbon farming, the economics, to end with this one, is different. So there's -- a lot of countries don't have a voluntary market established. Some countries are in the progress -- or process of doing that and writing policies and the rules around it. So we're watching that very closely and trying to customize market by market to ensure that farmers can be more profitable, either as an additional revenue stream or getting premiums direct from value chain players for insetting or offsetting. Hopefully, that answers the question, Klaus.

Can you hear me now?

Absolutely, Jess. Yes, we can hear you now.

Great. Sorry, I had a technical issue. It's called a mute button. If I could just follow up on that, please. Could you, just quantitatively as much as you can, talk about what carbon prices, whether in the voluntary market or in some regulated market, would be required for this to be profitable for the farmer or anyone along the value chain, please?

Yes. For the voluntary market, I don't know. I don't have the exact numbers right now. So I don't know, Klaus, if you or anybody does that's on the call, but we can follow up on that. If you're asking about what the per CO2 ton equivalent ton is, is that what you're asking, Gunther?

Yes, that would be helpful.

Yes, yes. Okay. I just got a -- so I think that somebody just popped in the chat for us here on our side. So...

I think $25 per ton.

Yes. $25 per ton. And that's USD. It's just -- right. Yes. Thank you. [ Charlie ] just put that in the chat for us.

Thank you, Jess. I think it's a very dynamic field. The carbon markets and soil carbon still is a very complicated topic. We are still in the early phase, and there will be still a couple of more questions to be answered as we move forward to solidify that space. The second question comes from Angela Flaemrich from Sustainalytics Engagement. Angela, can you please answer -- put up your question?

Yes. Do you want me to put in the chat or just read it out?

Just read it, please.

Okay. Great. I really appreciate Bayer bringing all the experts to speak to us about this. I have three questions. The first one is, I want to double check regarding the independent third party that validates Bayer's safety standards. Who is that third party? And when do they or how frequently do they validate?

Robyn?

Yes, I can answer that. So we actually pooled together a panel. I believe we had 3 or 4 experts from around the globe, who were expert -- renowned experts in the field of operator safety. Different geographies, different backgrounds, but really known and have published in the area of operator safety. So -- and really, this was a onetime look at the standard as it was being developed. So I think if we do an update to it, we would obviously get it reevaluated at that time.

Okay. Great. The next question is regarding the -- Bayer's decision to comply with the WHO International Code of Conduct on Pesticide Management. Can you -- when was that decision made? Is it a recent development or otherwise?

Maybe, again, Robyn?

Yes. I'm not sure. It's not recent. Just -- we don't have [ Carol ] with us today. She's our stewardship expert.

Now, we can find the exact year for you, but it's not recent, to answer your question. This has been something we've committed to for many years now.

I mean to comply with the code of conduct, that goes long way back. The additional commitment to not commercialize products classified as established WHO tox Class I, it goes around a decade back already. And there's additional commitments which have come along the way. For example, the commitment is along the SURPASS project that we have these operator safety standards, this is much younger. This is only 2 years old. So it's basically an evolution, but the WHO tox Class I that -- it dates around 10 years back already.

Okay. I see. Okay. Then I didn't quite realize it was the linked to that one. Like that makes sense then. And the last question is regarding the license to operate committee. Can you tell us a bit more around the functioning and structure and timing and all of that with it?

Yes. So this is actually a subcommittee of our ELT, our executive leadership team. So members of the executive leadership team sit on that committee. It is held, on average, about 3x a year, but -- as topics dictate, and they are really giving the final sign-off. As I said, when we have challenges or questions or decisions that need to be taken, whether it's around issues, incidents, regulatory policy changes or stewardship approaches. And as you saw on the slide, there's other subcommittees of that committee where, depending on the impact to the business and the series -- and the -- and also the potential impact also to -- from a safety perspective or from a stewardship perspective or -- then, things will get elevated up through those committees.

Okay. I mean it's just the...