Why ESG is more than just decarbonisation

Jun 2022

The issue

Sasol, South Africa’s largest integrated energy and chemicals company, is one of the highest emitters in Africa and hence its combined Scope 1, 2 and 3 emissions make it systematically important in the global transition to net zero. The company plays a central role in the South African economy, providing energy security as well as many jobs. Therefore, the company’s decarbonisation plans must consider the broader socio-economic consequences, to achieve a just transition.

The issue

Engagement type One-to-one

Our engagement

In the first half of 2021, Sasol announced that it planned to increase the ambition of its transition plan, with publication of updates expected at its Capital Markets Day in September. Throughout 2021, leading up to the publication of the updated plan, Fidelity and the Climate Action 100+ investors engaged in constructive ongoing discussions with the company. Ahead of the Capital Markets Day, we communicated our expectations for Sasol’s decarbonisation strategy to the company’s board and executive leadership team.

This included our expectation that Sasol publish a transition plan through to at least 2030 consistent with the ‘Just Transition’, plus details of how the company’s capital allocation will support the transition. We also called on Sasol to align with the Climate Action 100+ Net-Zero Company Benchmark.

The outcome

When Sasol published its 2021 Climate Change Report at its Capital Markets Day, we were pleased to see that the report addressed several of the key areas that we had highlighted, indicating a marked increase in the ambition of its climate strategy.
The report included a commitment to achieve net zero by 2050, as well as increased ambition of the company’s Scope 1 and 2 targets from a 10% reduction by 2030 to a 30% reduction (vs 2017 baseline). The company has also set a target to reduce its Scope 3 emissions from the company’s energy business by 20% by 2030 (vs 2019 baseline). In addition, the company laid out roadmaps to guide on GHG emissions reductions for its Energy and Chemicals business and a 2050 roadmap for the Energy Business.
While the Climate Change Report demonstrated encouraging progress for Sasol, we believe that gaps remain in the company’s transition plans. Crucially, Sasol’s decarbonisation roadmaps are still not consistent with a 1.5°C pathway. Climate Action 100+ investors continue to engage with Sasol, shifting their focus to the execution of the company’s decarbonisation plans and the inclusion of short term (pre-2026) milestones. In the near term, our discussions will also look to highlight the impact that GHG emissions could have on the company’s cost of debt, with a major refinancing of Sasol’s capital structure pending in 2022.