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Picture: BLOOMBERG/WALDO SWIEGERS
Picture: BLOOMBERG/WALDO SWIEGERS

Sasol is a systemically important company in SA. The company produces a third of SA’s liquid fuels, is the largest corporate taxpayer and directly employs 22,000 people permanently and hundreds of thousands indirectly. 

The problem is that its SA operations emit more than 60-million tonnes of carbon dioxide a year, making Sasol the country’s second-largest carbon emitter after Eskom. These emissions were likely the reason Extinction Rebellion SA shut down the Sasol AGM last week. 

As the world grapples with the urgent need to reduce carbon emissions to limit global warming, the realities of transitioning a business as complex and important as Sasol are becoming apparent.

Once a company has accepted the need to transition, we believe the role of investors is to work with it to ensure a credible plan is developed and implemented.

At Ninety One we assess the likelihood of a business reducing emissions in line with a Paris-aligned pathway using three pillars. 

First we look at the quantum of emissions reduction and adjust this for sector and geography. The world needs to reduce emissions by 50% by 2030 from the 2019 level to keep alive the hope of limiting global warming to 1.5°C.

However, more will need to be done by certain sectors, notably electricity generation. And developed markets will need to do far more than emerging markets. 

Therefore, we assess Sasol’s decarbonisation targets of a 30% reduction in scope 1 and scope 2 emissions by 2030 as broadly Paris aligned, adjusting for sector and geography. This target is also aligned with the lower bound of SA’s nationally determined contribution, which the cabinet approved in October 2021. 

Our second pillar looks at the viability of the company’s plan to meet this target, while the third pillar considers implementation. Sasol’s plan is based on a 25% reduction in coal used by 2030. This relies on: 

  • Energy and steam efficiency projects to reduce overall energy requirements at Secunda;
  • Replacing self-generated power from fine coal waste with 1.2GW of renewables in SA operations. The company will procure renewables in a joint venture with Air Liquide to deliver 800MW to Sasol; and 
  • A fine coal briquetting solution to convert this coal into usable coarse coal feedstock for the production process.

This combination of solutions will enable Sasol to turn down up to six coal-power generation boilers. The turndown of each boiler will cut 1-million tonnes a year of carbon dioxide emissions and contribute about 18 percentage points of the 30% carbon dioxide reduction target.

The remaining 12 points of the 2030 target is projected to come from reducing coal feedstock into the production process (gasifiers) from 2030. This will result in Secunda production volumes dropping to 6.7-million tonnes a year.

Therefore, sourcing cleaner alternative feedstocks — such as gas — to uplift production volumes back towards 7.2-million tonnes a year is essential to ensure that the transition strategy remains affordable and energy security in SA is not compromised. 

We view the plan as broadly plausible. However, in the past year the company has concluded that importing liquefied natural gas (LNG) is no longer financially viable. It is seeking to increase the gas available from Mozambique and potentially use biogenic feedstock to replenish output.

This is partially mitigated by the increased comfort in Sasol's renewable energy procurement, which is now ahead of plan, and the subsequent boiler turndown. 

With each year that passes we expect our confidence in the company’s ability to execute their transition plan and meet its 2030 targets to rise. With only seven years to go, we do not have the luxury of time.

Positively, Sasol’s management has accelerated the design of the coal briquetting solution, procured renewable energy ahead of the plan and extended the Mozambican gas supply plateau over the past year. 

In contrast, the uncertainty over Sasol’s gas plan means our level of confidence has in fact fallen in the past year. We are sceptical that the management team in 2030 (which may look considerably different to the current team), will choose to sacrifice output for climate considerations and thus do not see that as a viable fallback plan. Therefore, we voted against the 2023 climate change report. 

This is not a wholesale rejection of Sasol’s climate strategy. We remain confident in management’s commitment to developing and implementing a plausible transition strategy and encourage the board to support this. 

Beyond 2030 the company is also working on creating optionality to deal with longer-term emissions by forming partnerships to produce sustainable aviation fuel with Topsoe and develop the green hydrogen economy with a range of companies.

This vote is not intended to discourage Sasol from pursuing its climate strategy, but rather to encourage it to accelerate progress and demonstrate more tangible evidence of implementation to stakeholders to drive long-term sustainable value creation.

If Sasol can provide more evidence of a credible feedstock strategy to restore volumes or demonstrate that the plant remains economically viable at lower production volumes from 2030, we will change our vote in 2024.

We plan to continue our open and constructive dialogue with the company. Sasol has a critical mass of engineering talent in a country that is desperately short of skills. If it can successfully transition it can help create a new growth path for SA. 

Successful transition for high-emitting companies will not be linear. It will be complex. It requires strong leadership. Not everyone will be happy with the pace of change — as shown by the disruption of the AGM. 

Sasol’s new CEO designate, Simon Baloyi, has extensive technical and managerial experience with the company. He has a big job ahead. If he can use the climate imperative to successfully transform this high-emitting company he will create immense shareholder value and do SA proud. 

• Moola is chief sustainability officer at Ninety One.

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