18 September 2014 at 11:05 am
At the beginning of last week, Sasol’s year-end results were trumpeted in the business media. Headline earnings per share are up 14% to a record R60.16 in the year ended June this year. The energy group’s operating profit increased 7% to R41.7bn. Sasol CEO David Constable said “Sasol has outperformed our previous best efforts”, and announced a “new era for Sasol” as the company focuses on natural gas opportunities in Mozambique and the US.
What has not been trumpeted by the media — astonishingly, it has attracted barely a whisper — is the fact that, in May, Sasol and the National Petroleum Refiners of SA (Natref) — a Sasol Oil and Total SA joint venture — launched court proceedings against the government that aim to set aside most of SA’s hard-won air pollution regulations for big industry.
The law is complicated and the terminology tedious but, in essence, Sasol and Natref’s case is aimed at obtaining a court order setting aside a number of minimum emission standards for eight subcategories of highly polluting activities in the Air Quality Act’s “list of activities”. The standards are designed to limit the emissions of SA’s biggest polluting industries to try to make a dent in the already severely detrimental effects their operations have on our environment and on human health.
If Sasol and Natref are successful, none of the main polluting industries will have to comply with the new air quality laws that take effect in April next year.
Sasol and Natref have launched this litigation despite the fact that:
• They were key players in the multi-stakeholder process convened over almost five years by the government to determine appropriate minimum emission standards;
• They have already applied to the Department of Environmental Affairs’s national air quality officer for a postponement of compliance with the new standards; and
• The final published standards represented a compromise on the part of the government and nonindustry stakeholders, and are more lenient than those required of big industry in other parts of the world, including other countries in which Sasol operates.
SA faces huge air quality challenges, and the health implications and present and future costs of air pollution to the state are only just starting to be understood. Sasol emits vast quantities of greenhouse gases (70.7-million tons globally for the 2012-13 period) and its Secunda plant is the world’s biggest single-point emission source. The areas in which Sasol operates have some of the most polluted air in SA. All of Sasol and Natref’s operations fall within either the Vaal Triangle Airshed Priority Area or the Highveld Priority Area — declared as such by the minister of environmental affairs because air quality in these areas is so poor that specific air quality management action is required.
Being a Sasol shareholder is clearly a profitable exercise. But we no longer live in a world in which the only factor we need to consider when deciding where to invest is how much money a company makes, without asking questions about how it generates such extraordinary profits. This is reflected in the proliferation of talk in the financial world about “sustainable” and “socially responsible investment” (SRI).
Whether any of our major asset owners or investment managers is actually practising what they preach about SRI in SA is another matter entirely. Sasol is a case in point.
Sasol’s biggest shareholders are the Government Employees Pension Fund (GEPF), with 13.5% of the group’s total issued shares, and the Industrial Development Corporation (IDC), with 7.9%. Nine fund managers are responsible for managing investments of 2% or more of the share capital of Sasol.
The fund managers are the Public Investment Corporation (PIC) — including shares managed on behalf of the GEPF — Allan Gray Investment Counsel, Coronation Fund Managers, Black Rock, Sanlam Investment Management, Investec Asset Management, Old Mutual Asset Managers, the Vanguard Group, and Prudential Portfolio Managers. Of these 11 shareholders, nine are signatories to the United Nations principles for responsible investment. Vanguard and the IDC are not. The principles are a voluntary initiative, but signatories commit to upholding the “six principles”, the first three of which are:
• We will incorporate ESG (environmental, social and governance) issues into investment analysis and decision-making processes;
• We will be active owners and incorporate ESG issues into our ownership policies and practices; and
• We will seek appropriate disclosure on ESG issues by the entities in which we invest.
Many of these asset managers are also signatories to the Code for Responsible Investing in SA and make lofty claims about their commitment to SRI and to engagement with companies that are falling short in their ESG performance.
Surely, at the very least, these commitments mean that Sasol’s biggest shareholders should be asking the company’s board some probing questions about its attack on SA’s air quality regulatory regime? There is no evidence that they are doing so, or that they are even aware of the litigation.
The GEPF, the PIC and other pension fund managers must also comply with regulation 28 of the Pension Funds Act, which requires pension fund trustees to consider ESG factors when making decisions on behalf of the members and beneficiaries of their funds. On the face of it, Sasol’s biggest shareholder appears to take this obligation seriously — the GEPF website has this to say about the fund’s SRI approach: “GEPF is among the leaders in socially responsible investment in SA. We take ESG issues into account when making investment decisions. We also encourage the companies we invest in to strike a balance between profits and being socially responsible, and to actively manage their environmental impact while maintaining high levels of corporate governance standards.”
If the GEPF and Sasol’s other big shareholders fail to engage with Sasol on the reasons for and the effects of this litigation, it will be the clearest indication yet that their commitments to responsible investment are just empty words; good for public relations, but nothing more. At the very least, questions should be asked about:
• Why Sasol has made no announcements to its shareholders about this litigation;
• Why Sasol has failed to make the investments that are necessary to enable it to comply with the emission standards, despite being well aware — for at least five years — that improvements to its operations would be required; and
• What the long-term implications and costs to SA will be if the country fail to take urgent steps to reduce our dangerous atmospheric emissions.
At least part of Sasol’s success and profitability can be laid at the door of the support it received from the apartheid government. It should be striving to be a shining example of responsible corporate citizenship in SA. Instead, Sasol is leading the vanguard of big industry determined to continue to profit at the expense of our environment and our health. If its shareholders do not start to demand implementation of what they claim to be committed to in relation to SRI, engagement and disclosure, Sasol’s parting gift to SA will be a legacy of unaffordable health consequences and environmental devastation.
This article by CER attorney Tracey Davies was first published in Business Day on 18 September 2014.