Protection: Theo Botha is one of two shareholders, supported by Just Share, who want a resolution tabled at Sasol’s AGM asking investors to consider its vulnerability in a climate-aware world. Picture: SIMPHIWE NKWALI/SUNDAY TIMES
Protection: Theo Botha is one of two shareholders, supported by Just Share, who want a resolution tabled at Sasol’s AGM asking investors to consider its vulnerability in a climate-aware world. Picture: SIMPHIWE NKWALI/SUNDAY TIMES

In financial markets around the world, climate change is increasingly recognised as a mainstream investment issue with serious potential implications for financial risk and return. As a result, there has been a dramatic rise in shareholder activism focused on fossil fuel companies.

This activism has mostly sought to get companies to disclose information showing how they are preparing to manage the risks posed to their businesses and to shareholder capital by the transition to a low-carbon economy.

In 2015 (the latest year of available data), SA ranked 14th globally for CO² emissions. Excluding Eskom, some of the biggest contributors to these emissions are companies listed on the JSE.

The biggest is Sasol. In 2017, Sasol’s greenhouse gas emissions were 67.6-million tonnes (Mt). To illustrate the magnitude of this figure, consider that the total greenhouse gas emissions for 2014 (the latest estimates available) for the entire country of Portugal were 63.3Mt, for New Zealand 60.3Mt, Ireland 58.3Mt and Switzerland 46.2Mt.

Given the role Sasol plays in SA’s economy, its shareholders should all be worried about how this company is going to adapt to a low-carbon future, including how it plans to transition its South African employees out of its carbon-intensive production processes to avoid a devastating sudden loss of jobs.

Sasol is one of SA’s 20 biggest companies by market capitalisation. Millions of pension holders have a stake in it. The Government Employees Pension Fund alone holds 12.5% of Sasol’s shares. However, local institutional investors appear to be largely ignoring climate risk.

In addition to the physical risks to operations presented by climate change, fossil fuel companies like Sasol face climate-related "transition risks" stemming from regulatory and technology changes aimed at reducing greenhouse gas emissions; and liability risks — in particular, lawsuits that seek damages from firms for their contributions to climate change and the damage that it causes.

In April, Sasol shareholders Theo Botha and the Raith Foundation, supported by shareholder activism nongovernment organisation (NGO) Just Share, submitted a shareholder resolution to Sasol for tabling at its 2018 annual general meeting (AGM). The resolution largely mirrored the "two degree scenario", or 2DS, proposals tabled at other fossil fuel company AGMs in the past three years. These proposals ask companies to assess the effects on the companies of a scenario in which global average temperature rises are kept to below 2°C, as in the Paris Agreement.

The resolution asks shareholders to consider Sasol’s massive greenhouse gas emissions and consequent vulnerability to transition and liability risks and to vote on the proposal that Sasol should prepare an annual report detailing how it is assessing and ensuring long-term corporate resilience in a future low-carbon economy.

This would include an assessment of the medium-and long-term impacts on Sasol’s operations and sustainability of technological advances, global climate change policies, domestic climate change laws and the actual effects of climate change.

Given the role Sasol plays in SA’s economy, its shareholders should all be worried about how this company is going to adapt to a low-carbon future, including how it plans to transition its South African employees out of its carbon-intensive production processes to avoid a devastating sudden loss of jobs.

At the end of June 2018, Sasol informed Botha, Raith Foundation and Just Share that it would not be tabling the resolution at its 2018 AGM. Sasol said that it has received a legal opinion to the effect that "the matters included within the draft resolution are within the authority of the board and management and do not constitute matters that shareholders are entitled to exercise voting rights on within the meaning of section 65(3)(a) of the Companies Act". The company declined to share this legal opinion with the shareholders.

Sasol’s interpretation of the law is extremely narrow. The Companies Act allows any two shareholders of a company to propose a resolution concerning any matter in respect of which they are each entitled to exercise voting rights. The risks posed to Sasol’s business by climate change, and its plans for long-term resilience in the face of these risks, are surely issues that shareholders should be entitled to vote on — particularly given the growing number of global fossil fuel companies that have already tabled almost identical resolutions to shareholders at recent AGMs.

Since 2015, shareholder-backed climate resolutions have passed at Shell, BP, Exxon Mobil, Occidental Petroleum, PPL and Kinder Morgan. The Exxon and Occidental resolutions were backed by investment managers BlackRock and the Vanguard Group, each of which own more than 3% of Sasol’s shares. In 2017, about 90 climate-related shareholder proposals were tabled at the AGMs of listed US companies. As at February 2018, 83 climate-related shareholder resolutions had been filed for the 2018 American "proxy season".

Sasol says the resolution is in any event unnecessary because the company is doing the work requested by the resolution. This means, of course, that the terms and timing of this disclosure are entirely within the control of Sasol’s management, and that it could be years before shareholders see the results. If Sasol is taking these issues seriously, then tabling the resolution would assist its progress on climate risk disclosure.

Refusing to table the resolution also lets SA’s institutional investors — extraordinary stragglers on climate change by global standards — off the hook. They will not have to demonstrate publicly whether they are taking climate risk seriously when making investment decisions for the funds they manage.

Shareholder voices on this issue will only get louder, and Sasol has missed an opportunity to engage positively on climate risk. For shareholder activists like Botha, Raith Foundation and Just Share, this is only the beginning, and South African companies can expect to see more resolutions coming their way in the near future. It remains to be seen whether others will be progressive enough to table them.

• Davies is executive director of shareholder activism and responsible investment NGO Just Share.