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Investors welcome Sasol’s decarbonisation roadmaps, focus now moves to implementation and near-term milestones

16th February 2022

Sasol released its 2030 and 2050 decarbonisation roadmaps in 2021 following engagement with Climate Action 100+ investors

CONTEXT

Sasol, South Africa’s largest integrated energy and chemicals company, is one of highest corporate emitters on the African continent. Its Secunda plant, which uses a carbon-intensive coal-to-liquids process to produce synthetic fuel, is the largest single-site emitter in the world. The company is targeted by Climate Action 100+ because its combined Scope 1, 2 and 3 GHG emissions make it systemically important for the global transition to net zero.

The company is critical to the South African economy as an employer that accounts for a large proportion of the country’s liquid fuels and large share of the inputs into a range of manufacturing industries including mining, healthcare, plastics and cleaning products. The workers in the coal industry that feeds Sasol’s inputs and energy matrix are a significant part of the country’s Just Transition, and therefore must be taken into consideration in the company’s shift towards net zero emissions. As a result, it is vital that investors engage Sasol on its climate change strategy as part of the initiative, and thereby support and accelerate the decarbonisation of its business.

WHAT HAPPENED

The Climate Action 100+ engagement with Sasol started in 2020, with AllianceBernstein and Fidelity International stepping up as lead investors. In early 2021, a number of South African investors joined the team and the leading South African investor Ninety One became a co-lead engager. The Climate Action 100+ investor group engaging Sasol today includes both large international investors and key local South African players, including a number of Sasol’s top investors, who together bring in-depth knowledge of the company, sector and the South African market.

In the first half of 2021, Sasol announced that it would release a more ambitious transition plan at its Capital Markets Day in September. Ahead of this release and a shareholder vote on the company’s climate strategy in November, the engagement with Sasol reached a critical juncture.

Climate Action 100+ investors consistently engaged the company throughout the year to ensure that it developed a sufficiently credible and robust decarbonisation strategy. Ahead of Sasol’s Capital Markets Day, Climate Action 100+ investors clearly communicated their expectations of Sasol’s decarbonisation plans to the company’s Board and Executive Leadership Team. They requested that Sasol publish a transition plan through to at least 2030, which includes Just Transition issues, clear science-based short-, medium- and long-term targets and details on how the company’s capital allocation plans will support its transition, among other areas. Investors also called on Sasol to align with the Climate Action 100+ Net-Zero Company Benchmark.

OUTCOMES

Following consistent engagement with Climate Action 100+ investors, Sasol published its 2021 Climate Change Report at its Capital Markets Day. The report addressed several of the areas requested by investors. It demonstrated a marked increase in ambition and suggests that climate change is now a strategically important issue for Sasol.

In the report, Sasol set a new net zero by 2050 target, increased its medium-term Scope 1-2 target from a 10% reduction to a 30% reduction by 2030[1] (from a 2017 baseline) and set a target to reduce its Scope 3 emissions from the company’s energy business by 20% by 2030 (compared to a 2019 baseline). The company also laid out its 2030 GHG emission reduction roadmaps for its Energy and Chemicals Businesses and a 2050 roadmap for its Energy Business.

In addition, Sasol referenced Climate Action 100+ in its Climate Change Report, reflecting the initiative’s influence on the company’s net zero transition planning. In the introduction to the report, Sasol’s Chair of Safety, Social and Ethics Board Committee  noted that Sasol’s engagements with investors, including with Climate Action 100+, have “shaped their climate change management approach”.

After Sasol’s Capital Markets Day, Climate Action 100+ investors continued to push for clarifications on emission reductions prior to 2030. A key point of discussion was stressing the impact that ESG considerations, in particular GHG emissions, were having on the company’s cost of debt over the near term. With a major refinancing of Sasol’s capital structure pending in 2022, this was an important factor facilitating more constructive engagement.

WHY IT MATTERS

Sasol’s 2021 Climate Change Report is a significant step forward in terms of the company’s public disclosure on climate change, emissions reduction targets and decarbonisation planning. It shows how sustained investor engagement can positively shift corporate approaches to tackling climate change. It also demonstrates the positive impact of investor stewardship in emerging markets, which face very different decarbonisation constraints to developed markets.

Nevertheless, important gaps remain in Sasol’s transition plans. Crucially, Sasol’s decarbonisation roadmaps are still not consistent with a 1.5°C pathway. Among other things, the company’s decarbonisation strategy lacks short-term (pre-2026) emissions reduction targets, which risks backloading crucial emissions reductions to the end of the decade. It is also unclear how Sasol will procure sufficient quantities of natural gas, which it is seeking to use as a transition fuel as it moves away from coal, and what types of capital expenditures will be needed to support its transition plans.

PRIORITIES FOR 2022 ENGAGEMENT

Climate Action 100+ investors are now intensely engaging Sasol on moving from rhetoric to action: the focus of the engagement has shifted to the execution of the company’s decarbonisation plans and the inclusion of short-term (pre-2026) milestones.

Climate Action 100+ investors are planning to meet with Sasol’s Board and Executive Leadership Team in early 2022 to discuss this further, following the release of the March 2022 Climate Action 100+ Net-Zero Company Benchmark company assessments.

Given that the IPCC has made it clear that worldwide emissions must decline by roughly half by 2030 if the 1.5°C global warming target is to remain within reach, Climate Action 100+ investors are also focusing the engagement on absolute emissions reductions Sasol has to make by 2030.

ENGAGEMENT MILESTONES

  • June 2020: Sasol releases its first 2020 Climate Change Report. The report indicates that Sasol is in the process of defining a 2050 emissions reduction ambition and roadmap, which will be communicated in Q4 2021.
  • December 2020: Climate Action 100+ investors meet with Sasol for the first time.
  • March 2021: The first Climate Action 100+ Net-Zero Company Benchmark company assessments are published. Sasol issues a public response to the Climate Action 100+ Benchmark, outlining where it disagrees with its assessment.
  • May 2021: The Climate Action 100+ investor coalition holds two meetings with Sasol to discuss the company’s 2030 and 2050 emissions reduction strategy. The company commits to releasing information on this in Q4 2021.
  • September 2021: Ahead of Sasol’s Capital Markets Day, the Climate Action 100+ investor coalition sends a letter to the company’s Board, outlining what it expects to see in their upcoming public climate change disclosures. Following significant engagement with investors, the company publishes its 2021 Climate Change Report.
  • November 2021: Ahead of the company’s AGM, Climate Action 100+ investors send a letter to Sasol’s Board and meet with the company’s CEO and Chairman to discuss the company’s decarbonisation strategy and how the company is going to address the remaining gaps. The transition plan vote passes with majority support.
  • January 2022: Climate Action 100+ investors send another letter to Sasol’s Board, outlining what they expect in terms of the execution of the company’s transition plans and additional disclosures. They request a meeting in early Q2 2022 to discuss this further.

 

[1] Sasol’s Scope 1 and 2 30% by 2030 emissions reduction target applies to both its Energy and Chemicals businesses.