Responding to stakeholders’ burning issues |

Responding to stakeholders’ burning issues

RESPONDING TO STAKEHOLDERS’ BURNING ISSUES

Stakeholders have requested additional information on the following burning issues:

How can they verify that our reduction targets are aligned with the Paris Agreement?

As communicated in our annual Climate Change Reports ( CCR ), we have used the globally accepted International Energy Agency (IEA) absolute contraction methodology in determining our 2030 greenhouse gas (GHG) targets. When applying this approach, our 2030 target is recognised as being a well-below 2°C target, while our net zero fossil-fuel-free vision supports 1,5°C.

We are unable to use Science Based Targets initiative (SBTi) methodologies to validate our alignment with the Paris Agreement. Regardless, we continue to engage with the SBTi and other organisations like the Transition Pathyway Initiative (TPI) to encourage the development of sector-specific methodologies suitable for our business (see page 12 of our 2023 CCR ).

Despite our continued communication on the alignment of our targets, we still receive stakeholder feedback requesting external validation. We take this input seriously and so, in recent months, we have been exploring other standards and approaches that could be used to validate our targets. One such standard, the PAS2060 approach, shows promise for its applicability to our business and target setting. Further information on our work in this regard will be provided in future disclosures.

Timelines for establishing a Scope 3 Category 12 emission target

Category 12 emissions (relating to chemical products’ end of life emissions) are notoriously difficult to quantify. Doing so is particularly difficult for a business such as Sasol given the multiplicity of products we produce and sell – and the many multiple uses to which our customers put our upstream products. The complexity of calculating Category 12 is reflected by the various methodologies and, indeed, assumptions that exist for doing so. This difficulty stems from the need to have a detailed and near exhaustive understanding of the disposal methods used by our customers – and their customers (see page 42 of our 2023 CCR ). As intimated previously, we identified the World Business Council for Sustainable Development (WBCSD) methodology as an appropriate basis on which to undertake these calculations. This year, we initiated a third-party evaluation of our Category 12 accounting methodology. This is an extensive and intricate process that is taking considerable time and resources to complete. Once clarity is achieved, we will inform stakeholders of our findings and whether there is a need for further action because of the materiality of these emissions.

Affordability of our roadmaps

Specifically, affordability of the roadmap to meet the 2030 targets has been questioned, including the scope of capital expenditure.

Our roadmap development process was designed to account for affordability, amongst other key imperatives, such as GHG reductions and socio-economic considerations. In terms of affordability, we focused on complexity, scope, the sequencing of capital spend, practicality of retrofits to existing plants and also relative economic viability/justification of an option against its alternatives. Disciplined capital allocation procedures were applied, with capital flowing in a phased manner from 2025. Our cumulative capital expenditure for the emission-reduction roadmap to 2030 will range between R15–25 billion (in real 2023 terms).

Our 2030 roadmap is self-funded, with allocation of capital for mitigation levers following a disciplined and prudent capital allocation framework, in terms of which our roadmap needs are catered for as part of first order allocation (see page 28 of our 2023 CCR). A trade-off is expected between capital and operational expenditure costs for some of the levers; this explains the wide range provided. Projects will have to meet our defined return criteria and various mechanisms will be explored to offset cost increases. Process and energy efficiency projects, as well as integration of renewable energy, remain economically beneficial.

Greater detail on the emission-reduction roadmaps to 2030.

Sasol has communicated, through various platforms and annual reports, on how our 2030 emission-reduction targets will be achieved. We aim to directly decarbonise our existing assets with known technologies and through our emission-reduction roadmap have detailed the timing of interventions and absolute reduction milestones to be achieved as we progress to 2030. We have been clear that we do not prioritise using offsets to meet targets. However, well-vetted offsets may need to be considered if mitigation measures are unsuccessful, particularly in the context of the current national and global environments.

Our plans have been corroborated by Deloitte & Touche, who conducted an external audit, and external studies conducted by independent third parties such as S&P Global and the National Business Initiative (NBI).

In total, we plan to reduce 19 MtCO2e by 2030, aiming for a fossil-fuel-free net zero ambition by 2050. Reductions will be achieved through a range of levers including decreasing the amount of coal being fed to the Secunda gasifiers, turning down of coal-fired boilers, bringing in renewable energy and continuing the drive for energy and process efficiency. We are considering the introduction of additional natural gas as a substitute for coal, if economically viable.

Multiple factors that are beyond our control, such as regulatory approvals and global geopolitical and macroeconomic developments, introduce uncertainties into our roadmap. However, we have in place strategies to mitigate these uncertainties as far as possible as we deliver against the target. A similar scenario is playing out for our Chemicals roadmap, where renewable electricity deployment has been delayed, potentially impacting our 2026 milestone.

We continuously evaluate optionality on our 2030 roadmap, factoring in the changing macro- economic landscape and our own mitigation opportunities, as technologies evolve.

Sasol plant

Viability of, and funding considerations for, green hydrogen in Sout Africa today.

It is acknowledged that green hydrogen will be a pivotal component of the energy transition and for decarbonising the global economy. The International Renewable Energy Agency (IRENA) estimates that in 2050 hydrogen could meet up to 12% of global energy consumption.

Around the world, governments are enthusiastically embracing green hydrogen’s potential for decarbonisation and economic growth. Several are not only investing in their own countries but making sizeable funding available for green hydrogen initiatives in the developing world, including South Africa.

Green hydrogen presents South Africa with a once-in-a-century opportunity to turn its exceptional solar and wind endowments into the next natural-resources boom – one that will spur very large investment and the creation of jobs and economic activity. Active government leadership taking the form of enabling policy, legislation, regulation and incentives – is urgently needed to ensure that South Africa fully exploits its vast green-hydrogen potential.

Affordable green hydrogen, enabled by global regulatory support, will allow for the large-scale production of sustainable aviation fuel (SAF), for example through the recently announced joint venture (JV) between Sasol ecoFT and Topsoe (subject to approval by the relevant authorities) that will decarbonise the hard-to-abate aviation sector. Also, in June 2023, the Dutch and Danish governments announced investment towards creating a new US$1 billion South African green hydrogen fund.

As one of the largest global producers and users of grey hydrogen at our Secunda facility, we are ideally placed to advance the country’s green hydrogen-potential. However, there are some risks and challenges that still impede the large-scale deployment of green hydrogen projects in South Africa. These include:

  • significantly high capital and operational costs;
  • inability to attract investment;
  • infrastructure limitations, particularly logistics, to place products in demand areas;
  • lack of incentives; and
  • lack of uninterrupted electricity supply.

Divergent views are held by proponents and detractors regarding the significance of green hydrogen in a low-carbon economy. Irrespective, it is critical to understand where and how to employ green hydrogen for effective use within the energy ecosystem. Sasol, through our extensive experience in the production and use of grey hydrogen, possesses a competitive edge in terms of the development, deployment and use of green hydrogen.

For the links between Fischer-Tropsch (FT), green hydrogen and decarbonisation, as well as opportunities presented by green hydrogen and green power, (see page 14 of our 2023 CCR).

The extent to which Sasol is aligned with Expert Group’s recommendation, released in November 2022

UN EXPERT GROUP RECOMMENDATION

A net zero pledge should be made publicly by the leadership of the non‐state actor and represent a fair share of the needed global climate mitigation effort.

Pledges should contain interim targets and plans to reach net zero in line with Intergovernmental Panel on Climate Change (IPCC) or IEA net zero GHG emissions‐ modelled pathways that limit warming to 1,5°C and with global emissions declining by 50% by 2030, reaching net zero CO2 emissions by 2050 and net zero GHG emissions soon after.

OUR POSITION

Executives regularly communicate our Board-endorsed net zero ambition, including our fair share commitment. We have set five-year milestones to 2030 and will set further milestones as greater clarity emerges on our mitigation options.

In 2021, we announced that we assessed multiple pathways to our net zero ambition by 2050, with the preferred pathway being fossil fuel free by utilising green hydrogen, renewable energy and other sustainable sources of carbon. Our 2030 target is well below 2°C aligned according to the IEA’s absolute contraction pathway and 1,5°C-aligned for our fossil-fuel-free net zero ambition.

Our 2030 goal is aligned with the Paris Agreement’s 2°C collective goal and our net zero ambition is aligned with the 1,5°C collective goal but our pathway cannot accord with expected annual linear reductions due to the nature of our operations and available mitigation levers (see page 12 of our 2023 CCR).

We stress that the 1,5°C is a global collective goal and that those with the capacity to do so should make greater contributions while other actors will require support and be on different trajectories to reach net zero. (from the report itself; ‘‘Those that have the capacity to move faster than a 50% reduction by 2030 and net zero CO2 emissions by 2050 should do so, while some developing-country non-state actors may require more support on their path to net zero’’).

UN EXPERT GROUP RECOMMENDATION

Companies must prioritise urgent and deep reduction of emissions across their value chain. High‐integrity carbon credits should be used for beyond‐value‐chain mitigation but cannot be counted towards a company’s interim emissions reductions required by its net zero pathway. A high‐quality carbon credit should, at a minimum, fit the criteria of additionality and permanence.

Companies must publicly share their comprehensive net zero transition plans, detailing what they will do to meet all targets, align governance and incentive structures, capital expenditure, R&D, skills and human resource development, and public advocacy, while also supporting a just transition.

OUR POSITION

We have committed to a net zero ambition on scope 1, 2 and 3: Category 11, as well as setting 2030 reduction targets while making improvements each year to our target tracking and emissions profiles. We are also taking decisive steps to reduce other (non-Category 11) emissions – (see pages 41 - 42 of our 2023 Climate Change Report (CCR) ).

We have set absolute targets that include methane (CH4), nitrous oxide (N2O) and CO2. Our targets cover more than 95% of total scope 1 and 2 emissions and more than 80% of scope 3 emissions.

We currently only count offsets towards reducing our carbon tax liability and to achieve value-chain mitigation such as business travel emissions. We follow the principles of the mitigation hierarchy, prioritising on-site reduction and only using offsets to meet targets as a last resort - (see pages 44 - 45 of our 2023 CCR).

We practise the principles of additionality (mitigation activities that would not have happened without the incentives created by carbon credit revenues) and permanence. Our offset strategy is underpinned by a set of core carbon principles - (see page 44 of our 2023 CCR).

In our 2023 CCR and other disclosures we detail:

  • Our capital allocation process (page 28).

  • Emission-reduction roadmaps (pages 4 – 5).

  • How R&D expenditure and human-resource development are being re-directed towards climate- change mitigation (page 35)

  • Our public advocacy principles and work (page 62 and in our 2023 Climate Advocacy and Policy Supplement (CAPS) report).

  • How climate change is governed at Sasol (pages 56 – 60).

UN EXPERT GROUP RECOMMENDATION

All net zero pledges should include specific targets aimed at ending the use of and/or support for fossil fuels in line with IPCC and IEA net zero GHG emissions‐ modelled pathways that limit warming to 1,5°C with no or limited overshoot, with global emissions declining by at least 50% by 2030, reaching net zero by 2050.

The transition away from fossil fuels must be just for affected communities, workers and all consumers to ensure access to energy, and avoid transference of fossil fuel assets to new owners. The transition away from fossil fuels must be matched by a fully funded transition toward renewable energy. Companies’ net zero plans must not support new supply of fossil fuels.

Non‐state actors must align their external policy and engagement efforts, including membership in trade associations, to the goal of reducing global emissions by at least 50% by 2030 and reaching net zero CO2 emissions by 2050, followed by net zero greenhouse gas emissions soon after.

As part of companies’ net zero plans, businesses must achieve and maintain operations and supply chains that avoid the conversion of remaining natural ecosystems.

Companies must annually disclose their GHG data, net zero targets and plans for, and progress towards, meeting those targets, and other relevant information against their baseline along with comparable data to enable effective tracking of progress toward their net zero targets.

OUR POSITION

Our stated preferred net zero ambition is to be fossil fuel free, which is aligned with the 1,5°C goal. However, in charting the pathways to net zero, we take an approach that aims to balance the elements of people, planet and profit – in doing so we have set a 2030 target that is well below 2°C aligned. Again, it is important to acknowledge that 1,5°C and declining emissions by at least 50% by 2030 is confirmed by the UN itself as being a global target that each party must contribute towards achieving.

This report explains our commitment to a just transition and energy security for all (see pages 52 – 55 of our 2023 CCR ). Sasol supports the responsible sourcing of transition gas to reduce coal consumption and has committed to no investments in new coal reserves (see page 29 of our 2023 CCR). Since 2020, we have publicly disclosed detailed information on our advocacy work and industry- association memberships (see pages 62 – 67 of our 2023 CCR and our 2023 CAPS ). Our 2023 Sustainability Report (SR) unpacks our commitment to biodiversity. We have started incorporating nature-based solutions into our offsets strategy (see pages 44 - 45 of our 2023 CCR ).

We have reported our GHG data using a mass-balance methodology since 1996 and practise both second- and third-party assurance with target tracking against the baseline transparently disclosed (see our SR for scope 1 and 2 and page 71 of our 2023 CCR for scope 3). We undertake continuous methodology and data improvements, which are detailed in our annual reports. 

UN EXPERT GROUP RECOMMENDATION

Companies must have their reported emissions reductions verified by independent third parties.

Disclosures ought to be accurate and reliable. Businesses should seek independent evaluation of their annual progress reporting and disclosures, including opinion on climate governance, as well as independent evaluation of metrics and targets, internal controls evaluation and verification on their GHG emissions reporting and reductions.

All businesses with operations in developing countries should demonstrate how their net zero transition plans contribute to the economic development of regions where they are operating, including integrating just transition elements (e.g. skills development for vulnerable communities dependent on high‐emitting industries), resilience and other developmental concerns, such as inequality, gender and energy access issues.

OUR POSITION

Our scope 1 and 2 GHG emissions are subject to annual third-party review with limited assurance provided for selected Scope 3 categories (see our SR for scope 1 and 2 and page 71 of our 2023 CCR for scope 3).

Our scope 1, 2 and material scope 3 GHG data are subject to third-party assurance (see our SR for scope 1 and 2 and page 71 of our 2023 CCR for scope 3) and Sasol Energy’s GHG reduction roadmap has been externally assured (see our 2021 CCR). We voluntarily disclose annually to CDP and the Dow Jones Sustainability Index (DJSI), which covers topics of progress and our governance processes. These are independently assessed by these bodies.

We prioritise socio-economic development, most notably in South Africa and Mozambique, with a dedicated Just Transition Office focused on resilience and the upliftment of affected communities (see pages 52 – 55 of our 2023 CCR). Our net zero ambition is predicated on utilising green hydrogen and sustainable carbon to produce SAF and sustainable chemicals from our existing assets. This will contribute to development of new low-carbon economic activities and increased job opportunities. By transitioning existing assets, we avoid ‘ghost towns’, and communities in the areas where we operate will be sustained with gainful employment opportunities.