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Summary of findings and company response

Sasol’s 2014 Sustainable Development Report commences with the following statement:

Being a responsible and sustainable organisation is paramount to Sasol. In practice, this means we prioritise safety, and always promote ways to improve the environmental and social impacts of our activities, ensuring our presence results in positive benefits for our stakeholders.1

Sasol’s reports contain data on topics such as water use, emissions of certain pollutants and waste. However, there is very little disclosure of environmental non-compliances or incidents. Those incidents which are disclosed relate primarily to non-compliances at Sasol’s international operations.

For example, Sasol made no mention in its annual reports of the inspection by the Department of Environmental Affairs’ Environmental Management Inspectors of the Secunda Refinery in March 2008, at which numerous serious breaches of environmental laws were found. There was similarly no mention in Sasol’s annual reports of the follow-up inspection at this facility in August 2010, at which many of the same non-compliances were still ongoing.

In their response to Full Disclosure, Dr Jens Straatmann (Sasol’s Senior Vice President, Legal, Intellectual Property and Regulatory Services) and Mr Hermann Wenhold (Sasol’s Senior Vice President, Risk & SHE), stated:

…in the main, the incidents and matters referred to may not always be included in the above-mentioned reports, given the scope of our corporate reporting requirements. … Our AIR [Annual Integrated Report] is our primary annual report to stakeholders. It is intended to contain succinct and material information. … The material matters are considered to be critical issues in relation to achieving our strategic objectives and sustaining our business model and integrated value chain.

Sasol’s shareholders should certainly consider findings of multiple violations of environmental laws at one of Sasol’s biggest operations to be “material information” that should be included in Sasol’s annual integrated reports. For example, one of Sasol’s biggest shareholders, the Government Employees Pension Fund, as well as many of the fund managers managing investments of 2% or more in Sasol, like Allan Gray and Coronation, have all adopted the Code for Responsible Investing in South Africa. As such these institutions have committed themselves to integrate environmental, social and governance considerations into their investment decision-making. When the companies in which they invest fail to provide them with any information at all about serious environmental non-compliances, it is impossible for these investors to make informed decisions incorporating socially responsible considerations.

Furthermore, Sasol, in its shareholder reporting and in its response to Full Disclosure, repeatedly refers to matters of environmental performance, rather than environmental compliance. This is evidenced by the request in Sasol’s response to Full Disclosure that the response:

be read in conjunction with public disclosures made by Sasol consistent with our obligations and commitments in this regard. This includes our Annual Integrated Report … which will be supplemented by our web based Sustainable Development Report, annual report on Form 20F, Carbon Disclosure Project submissions and other online sustainability submissions such as the JSE SRI Index. … These disclosures provide information on Sasol’s material risks, sustainability challenges and associated responses and performance as guided by the International Integrated Reporting Framework, requirements of the King Code of Governance Principles 2009 … the Global Reporting Initiative … and requirements due to Sasol’s secondary listing on the New York Stock Exchange. (our emphasis)

Environmental performance, such as achieving a reduction of water use or greater energy efficiency, can be a process, monitored and managed by each company individually. Environmental compliance, however, is a state in which all applicable environmental legal requirements are in fact fulfilled. Whilst improving environmental performance is a laudable aspiration for the future, complying with the law is, by definition, obligatory, not just in the future, but at all times.  An investor may be forgiven for assuming, in the absence of information provided to the contrary, that such compliance may be taken as read, and that improving environmental performance happens over and above baseline legal compliance. Sasol apparently believes otherwise.

Dr Straatmann and Mr Wenhold provided a detailed and comprehensive response to Full Disclosure. Their letter can be viewed in full in the Sasol Limited’s response to Full Disclosure section of the report.

Sasol does appear to be making a concerted effort to improve its stakeholder engagement with a view to becoming more transparent about its environmental impacts. Nevertheless, in the recent past the company has demonstrated a worrying attitude towards the authority of environmental regulators in South Africa, and failed to disclose indisputably material information to its shareholders.

In 2014, Sasol instituted proceedings against the Minister of Environmental Affairs and the National Air Quality Officer to set aside new air quality standards, known as the “minimum emission standards”. These standards are applicable to the activities of Sasol and other large industrial polluters and require a reduction in the level of harmful pollutants emitted by industry.

Alongside the commencement of this litigation, Sasol also applied for a postponement from compliance with most of the standards. In early 2015, Sasol’s application for postponement was granted. Shortly afterwards, Sasol withdrew its litigation seeking to set aside the standards.2

The outcome of this case, had it gone ahead, would have had enormous repercussions for Sasol itself, for all other big industry affected by the introduction of the minimum emission standards, and for the achievement of an improved air quality regulatory system for South Africa as a whole. If Sasol had failed in both this litigation and its application for postponement from compliance with the minimum emission standards, the company would not only have found itself in serious violation of the law, but also would not have been able to come into compliance in the near future. However, during the period of approximately one year between the commencement and withdrawal of the litigation, the only indication that Sasol gave to its shareholders of this precarious situation – and its chosen momentous course of action – was the following statement in its 2014 Sustainable Development Report:

While the majority of our processes will be able to comply with the future MES [minimum emission standards], there are certain activities where we will be unable to comply, either within the stipulated compliance timeframes or within the specified emissions limits. For these specific cases, Sasol has submitted the requisite applications to extend compliance time frames. Where sustainable compliance solutions have been identified, these are being implemented. To ensure that we do not operate outside of future regulatory requirements, we have taken the additional step of seeking to review certain MES, within the time frames provided by the Promotion of Administrative Justice Act.3

The following statement is made in Sasol’s response to Full Disclosure:

Sasol’s annual report on Form 20F is filed with the United States Securities Exchange Commission in accordance with the Securities Exchange Act of 1934, in accordance with specific requirements, pursuant to Sasol’s secondary listing on the New York Stock Exchange. It should be read in conjunction with the AIR [Annual Integrated Report] as it provides information, for instance, on Sasol’s material risks, applicable regulatory dispensations and associated challenges as well as legal proceedings and other contingencies. (our emphasis)

However, Sasol’s 2014 Form 20F contained no mention of the litigation instituted by the company against the Minister of Environmental Affairs and the National Air Quality Officer, despite the significant “material risks” posed by the impending commencement of the minimum emission standards. It appears a reasonable assumption that the basis of the application for postponement was that compliance with the minimum emission standards would have such a material impact on Sasol’s business that such compliance was untenable. Whatever your view on this position, the materiality of the risk to Sasol, and hence the requirement to disclose it, cannot be doubted.