/ 30 October 2019

Sasol executive pay to be linked to emissions?

Acknowledging the growing global climate emergency
Climate change is the greatest long-term threat that any country faces this century (alongside nuclear annihilation).



It seems like just yesterday that shareholder activists pitched at Sasol’s annual general meeting in November 2018 to challenge the company on its environmental and social compacts, in particular what they saw as its failure to provide stakeholders with adequate climate risk disclosure or to set greenhouse gas emission reduction targets.

Sasol refused, on the basis of legal advice, to table a resolution submitted by the Raith Foundation at the AGM.Business Day reported: “The resolution called on Sasol to prepare an annual report detailing how it is assessing and ensuring long-term corporate resilience in a future low-carbon economy.”

Formed in 1950, the petrochemicals giant is the country’s largest industrial company with a market capitalisation of R188-billion, a major contributor to the fiscus in corporate tax as well as its facilities at Secunda being frequently cited as the leading single point of emissions globally.

Acknowledging the growing global climate emergency, Sasol yesterday released its climate change report, committing to “reduce by 2030 the absolute greenhouse emissions from our South African operations by at least 10%, off our 2017 baseline”.

The report, Positioning for resilience in a low-carbon future, is dated June 30 2019 and is the company’s “first report aligning with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)”.

Out-going joint chief executives Bongani Nqwababa and Stephen Cornell, who were sacked after a forensic investigation into the delays and cost overruns at the company’s $13-billion Lake Charles Chemicals Project, say in the report that “Sasol is reducing our greenhouse gas (GHG) emissions and is well aware of the need to develop solutions to the challenge of climate change. “The exponential growth in the body of scientific evidence and the related call for action, has demanded all to accelerate their responses.”

The report says that success [in emissions reduction] “is necessary because we are one of South Africa’s largest corporate employers, biggest taxpayers, as well as a significant contributor to socio-economic development. These considerations underscore the responsibility we have to ensure that our climate change response is meticulously considered and implemented.”

It says Sasol’s climate change ambitions are to “reduce our greenhouse emissions aligned with global climate change agreements, transform our business to ensure resilience in a lower-carbon future, and shift our portfolio to reduced and lower-carbon businesses.”

Hermann Wenhold, Sasol’s chief sustainability and risk officer, says in the report that to thrive fundamental change is required. “This is why we are implementing a three-pillar emission-reduction framework focusing on reducing emissions, transforming our operations and shifting our portfolio, with the aim of positioning our business for a carbon-constrained future.

“By reducing emissions through alternative feedstocks and technologies such as renewable energy, we believe our products, produced in an increasingly sustainable manner, will serve an important market need, while addressing climate requirements.”

Sasol says it reports “our GHG emissions in accordance with the IPCC and the World Business Council for Sustainable Development GHG Protocol. We measure, calculate and report on direct and indirect emissions, with 100% of these emissions verified by a third party.”

Civil society organisations including Just Share, the Centre for Environmental Rights, groundWork and Save the Vaal challenged Sasol on the issue at its 2018 AGM.

Just Share’s Tracey Davies says the company’s “total global GHG emissions (CO2 equivalent) in 2017 was 67 632-million tonnes (based on current disclosures, [which is] approximately 95% of Sasol’s GHG emissions are from South African operations.

She says this “target is not Paris-aligned, [but is] based on the probability of success of potential reduction opportunities, associated risks, economic viability and balance sheet capability to finance these activities”.

Davies says the Sasol climate report outlines the company’s preliminary assessments for “transforming [its] operations and shifting [its] portfolio”. She says, however, there will be questions about the extent to which Sasol’s scenario analysis is aligned with the Paris goals.

“The company states that none of its current scenarios are fully aligned with the International Energy Agency’s Sustainable Development Scenario (SDS) which, according to the Institute for Energy Economics & Financial Analysis (IEEFA), only gives us a 50% chance of achieving the Paris goals,” she says.

“IEEFA also states that “success in the SDS depends on carbon capture and storage (CCS) achieving commercialisation at scale by 2030”.

Sasol admits in its climate change report that “we do not see opportunities for this technology [CCS] at the moment to meaningfully impact our emissions profile.”

Sasol acknowledges in the report that the chemistry of the coal-to-liquid process limits the potential to “significantly reduce our process emissions from this plant, unless the feedstock is changed or solutions are found to capture and use concentrated carbon dioxide. Low-cost mitigation opportunities such as efficiency improvements and process emission reductions have already been achieved.

“We continue exploring and pursuing further options, where feasible, including the use of renewable energy, process optimisation and feedstock changes. The most significant future improvements involve increasing the intake of natural gas or switching to other hydrogen-rich feedstocks.”

Sasol says, though, that alternative feedstock availability is limited and constrains further application in South Africa. It has ambitions to change this situation by exploring for further additional gas.”

A report issued earlier this year by think-tank Climate Policy Initiative (CPI), Understanding the effect of a low carbon transition on South Africa, considered various restructuring options for Sasol’s Secunda plants, but concluded that the least-cost route will probably be to shut these down.

Davies says Sasol’s climate report “is a much more comprehensive acknowledgment of the risks posed by climate change to the company’s long-term sustainability than we have seen before,” saying this is a testament to the power of shareholder activism to shift corporate priorities.

“Sasol’s outgoing chair Mandla Gantsho acknowledges in the company’s 2019 Integrated Report that concern expressed by stakeholders at its 2018 AGM resulted in the company conducting “accelerated resilience testing of our corporate strategy against various climate change scenarios, including the Paris Agreement’s goal, which we support”.

Davies welcomes Sasol’s unequivocal acknowledgement and acceptance of the scientific basis for human-caused climate change, and admission that its operations, particularly Secunda, face major transition risks. “The report is a significant step towards meaningful climate risk disclosure, but it is only the start of the journey.”

Sasol undertakes in the report to issue a “emission reduction roadmap” by November 2020. “Our 2030 GHG reduction target and any further targets emerging from the roadmap development process will inform the incentive targets for 2021, which will include a climate change target, the details of which will be determined by the remuneration committee following discussions with our management team. The roadmap, together with other strategic priorities form critical inputs in determining targets to be included in the incentive plans.”

But, says Davies, “given the scale of the issue, and the pace at which we need to change if we are to achieve the Paris goals, shareholders will be asking whether Sasol’s targets are ambitious enough, and when achievement of emission reduction targets will be linked to executive remuneration,” she says.