BASF’s green biotech pivot reveals how large petrochemicals companies are impacting the bioeconomy
Old and new
Startups are almost synonymous with the sustainable biotech industry and emerging sectors more generally. It is no mystery why this is the case. Market differentiation for new firms is tied to product novelty rather than scale, reputation, or capital.
With less stake in existing processes, start-ups are more willing to question established forms of value creation. Their raison d’etre is to rush innovative products through nimble pipelines unencumbered by deference to traditional methods. By contrast, larger enterprises can fall back on stable revenue from tried and tested processes with shareholder satisfaction often dependent on this.
Yet industrial scaling in emerging technologies still depends on mature firms. While startups may achieve major breakthroughs relative to their small budgets, established companies tend to invest more in R&D in absolute terms thanks to their sheer capital clout.
Interestingly, the companies proving integral to scaling sustainable biotech are those which drove the late 19th century synthetic chemicals revolution. The era saw the rise of petrochemical refinery techniques, synthetic fertilisers, polymers, and synthetic dye formulations, the toxic legacies of which green biotech firms are trying to innovate away from.
One of the names still standing from this key moment is BASF, now the largest chemical company in the world by revenue. For the last twenty years, has been augmenting its portfolio with sustainable biotech ventures, shaping the future of the green tech sector in the process.
There are multiple ways that legacy giants relate to small, new firms dedicated to sustainable technology. One way is through contractual supply partnerships where startups can secure a reliable source of demand that justifies scaling.
BASF embarked on a supply partnership in September 2022 with Ingedi, a China-based supplier of natural chemicals for personal care. BASF will experiment with their ingredients by incorporating them into their own formulations and commercializing them globally.
In September 2022, BASF entered another such partnerships in the bio-cosmetics space by signing a contract to exclusively license and commercialise proprietary technology from RiKarbon.
RiKarbon upcycles bio-waste into biodegradable emollients for personal care items. Founded in 2018, the company had only just transitioned to the pilot stage when it began its partnership with BASF. BASF plans to market launch its RiKarbon products in 2024.
A Source of Venture Capital
The most common way in which large chemical firms are nurturing the sustainable biotech sector is via venture capital funding.
In summer 2022, BASF joined Aqua-Spark, a Dutch investment fund, to pump $18.5 million into a Series B transaction for a Sea6 Energy, Bangalore-based seaweed producer and aglae-based inputs producer.
BASF’s financing of a seaweed producer is part of growing investor interest in offshore seaweed farming. Although algae is an increasingly popular feedstock for biodegradable plastics, obtaining high volumes cheaply still prevents it from striking price parity with petrochemical materials.
Seaweed is increasingly the go-to feedstock choice in bioplastics, BASF is also investing in renewable materials that are yet to be discovered. In March 2021, it backed the Chinese biotechnological platform by Bota Biosciences. Founded in 2019, the startup is developing a proprietary technology that can produce different kinds of high value industrial products using living cells and enzymes.
Bota Biosciences does not produce a particular product. Rather, it has developed a software platform that could yield a multitude of bio-based solutions across a range of industries. By digitally testing out different combinations of phenotypes, its platform can quickly identify suitable microbial hosts for particular chemicals or evolve new strains for different purposes.
Through efficient digital experiments that avoids the time and cost involved in laboratory trials, it can even develop and improve manufacturing processes for turning raw feedstock into high-value items. These could be anything from bio-fertiliser to new forms of packaging materials.
Using BASF’s investment, Bota Biosciences plans to scale their processes and expand its development and production capabilities.
BASF is also collaborating as research partnerships with smaller firms. One area has been circular gas fermentation, which BASF has been exploring with the U.S. startup LanzaTech since 2018. This involves capturing and turning industrial waste gases that would have otherwise been released into the environment into high-value chemicals.
In 2021, BASF and LanzaTech reported its first breakthrough: they produced n-octanol, an organic compound that is used in making perfumes and flavourings, from carbon monoxide and hydrogen for the first time.
This was a genuine advance for industrial bio-synthesis. Normally, n-octanol is toxic to microorganisms but LanzaTech was able to program this response out of them using biotechnological methods.
In 2017, BASF entered a research partnership with Irish biotech start-up Nuritas to discover and commercialise new peptides for food and health ingredients using DNA analysis and artificial intelligence. A year later, the pair has used Nuritas’ AI discovery capabilities to develop the new PeptAide 4.0. This bio-based remedy for inflammation draws on peptides found in organic rice.
The rise of digital tech was a story of larger firms absorbing smaller competitors and it looks as though green biotech may be headed this way too.
BASF’s green startup acquisitions have concentrated on bio-based agricultural technologies and platforms for developing them. Products in this area include biological fertilisers, soil conditioners, seeds, herbicides, and pesticides usually obtained through genetic engineering.
BASF was actively acquiring young agricultural biotech startups back in the 2000s, such as Belgian biotech company CropDesign in 2006. The deal aimed to advance BASF’s plant biotech company BASF Plant Science.
CropDesign was a classic example of a smaller firm taking a research-driven product out of academic laboratories and into the private sector. It was a spin-off from two biotechnology institutes at the Universty of Ghent founded by a doyenne of plant genetics Marc Van Montagu. Its product is a technology platform for discovering favourable genetic traits in corn, rice, and other crops.
Yet BASF’s acquisition of CropDesign also showed the pitfalls of being the first movers in an emerging field. In May 2016, CropDesign ceased operations with BASF stating they wished to focus on “more rapidly marketable projects”. VIB, a Flander’s based life sciences company, acquired it from BASF in 2021.
BASF found a more market-ready bio agetch segment in the form of bio-based crop protection. In February 2022, it acquired the Israeli agro-biotech startup Fortephest, a five-year old innovator developing bio-inspired and bio-based solutions for agricultural pest control. It harnesses enzymes and mechanisms found in plants naturally to tackle herbicide-resistant weeds.
BASF’s interest in bio-based agtech reveals much about the strategic priorities of BASF. By taking on this segment, it aims to build on its long expertise in traditional petrochemical fertiliser, pesticide, and fungicide portfolio. Its justification for expanding into bio-agetch is to capture the sustainable agriculture market as food insecurity concerns grow on the back of a more volatile climate.
At the same time, the company has largely steered well clear of another biotechnology that positions itself as the answer to climate-driven food insecurity: alternative protein. Despite the magnetic draw that fake meats held over investors in recent years, its stock crashed spectacularly in the post-Covid ear. In hindsight, BASF’s agtech investment have proven to be prudent. Agricultural inputs are a global commodity with a far wider market than vegan meats, potentially offering more reliable returns.
Inertia and momentum
For over 150 years, BASF has been manufacturing some of the most unsustainable chemicals in the world. Its business model remains highly bound up with the products of the petrochemical industry.
Nonetheless, the firm insists on the need to transition away from fossil dependency, setting itself a zero net greenhouse emissions by 2050. A November 2022 company presentation explicitly outlined the company’s intention to be at the forefront of a new, green capitalism.
Developing and commercialising biomaterials is a key plank in both its decarbonisation and innovation strategies. In 2012, BASF set up a white biotechnology research unit to develop industrial bio-based products made with biocatalysis and fermentation. In 2021, it poured €2.2 billion into developing sustainable products in 2021 across renewable energy, electrification of production, circularity and new raw materials.
In the same year, BASF purchased 1.3 million tons of bio-based raw materials to produce items in its bio-based range such as evocio, a biodegradable plastic for agricultural waste bags and mulch films. Bio-based and biodegradable formulations for cosmetics ingredients is another big area of focus. Their Castaline cosmetic product is used from the waste of chestnut tree extraction in France and recycle mixed plastic waste and tire waste by extracting pyrolysis oil.
While BASF is now a major player in the bioeconomy by virtue of its size and emissions targets, bio-based activities still yield only a tiny portion of overall revenue. In 2021, it made €3.5 billion in sales from 3000 biotech or biodegradable products which amounted to around 4% of its $78.6 billion dollars in total revenue. Its chemicals segment, which exclusively covers petrochemicals, remains the biggest contributor to its EBITA at 39 percent.
Given its high historical and ongoing emissions, BASF’s reductions in this areas should be more aggressive than most. However, while it aims to lower GHG emissions by 25 percent in 2030 compared to 2018, its 2021 carbon dioxide emissions actually increased from its baseline, from 17.025 million metric tons in 2018 to 17.234.
Without major government-led incentives and regulations, it is highly unlikely that BASF will dispense with synthetic petrochemicals at the pace required. Its role in decarbonisation will more likely come through collaborations with green biotech startups. Having been founded in an era of worsening climate impacts, newer biotech firms tend to have climate solutions in its DNA, much like BASF – a child of the industrial era – has petrochemicals in its own.
Functioning as a source of demand, investment, and research support, chemical giants will continue to stimulate emerging value chains regardless of whether they meet their own lofty climate goals.