Sasol has just demonstrated why institutional asset managers so rarely lift their heads above the parapet, even on issues that are of immense importance not only to investors but to the broader community. No matter how desperate a situation becomes, the institutions that control the country’s wealth prefer to engage behind closed doors.
Very occasionally a more thoughtful asset manager will balk at this modus operandi. Old Mutual Investment Group (OMIG) has done just that. When it publicly announced that it intends voting against three resolutions at the Sasol AGM on November 17, the chemicals and energy giant quickly slapped it down, calling the move “flawed and underpinned by conjecture”.
Apparently OMIG finally realised the traditional-style private engagements weren’t having much impact on one of the two most important issues for Sasol — reining in its devastating impact on the environment. (The second, related issue is remaining financially sustainable.)
The OMIG team have closely studied all 500-plus pages of Sasol’s financial 2023 integrated annual reporting suite: the sustainability report, climate change report and integrated annual report. And not only have they studied the tomes produced for financial 2023 but also for previous years.
Having done all of that, OMIG took the unprecedented decision to pre-declare its intention to vote against a number of climate-related resolutions at Sasol’s 2023 AGM.
The hope is that other shareholders will be encouraged to also use the opportunity of the AGM to express unhappiness about Sasol’s lack of progress, even regression, on the climate change front.
OMIG’s more active stance is in line not only with the recommendations of the UN-supported Principles for Responsible Investment (UN PRI) and Code for Responsible Investing in South Africa (Crisa), but it seems mandatory for many asset managers. After all, regulation 28 of the Pension Funds Act obliges a pension fund and its board to consider any factor that may materially affect the sustainable long-term performance of the asset.
OMIG’s decision to pre-declare its voting intention may seem an inevitable one for anyone who has studied the reports and concluded they invite greenwashing accusations. Despite 33 years of sustainability reporting, Sasol’s climate change policy seems focused on endorsing initiatives, signing accords and working towards joint venture agreements. It is obsessed with roadmaps but provides little to no quantifiable information on matters such as cutting greenhouse gas emissions (see page 10).
Alarm bells may have started to ring when investors reached page 83 of the latest integrated report. This deals with the remuneration of executives. The group’s top executives lost out on 23% of the long-term incentives issued in 2021 that were due to vest in 2023. But that chunk of long-term incentives — the second year Sasol’s remuneration policy included climate change performance targets — may not be lost for good. Shareholders are informed that the remuneration committee decided to “postpone an assessment of performance against the renewable energy targets, until more clarity is available in this regard”.
The committee appears to blame everyone other than the management for the fact that none of the performance targets relating to climate change was achieved. It is what psychologists might call a severe case of external locus of control.
Remarkably, the reverse seems to apply when it comes to assessing potential windfall gains on the long-term incentives that were awarded in 2021 — when there was a global slump in energy-related shares — and vested in 2023 when prices had recovered. The committee requested an independent assessment of potential windfall gains and, it reports, “on the basis of the independent assessment, the committee agreed that no windfall gain arose as the subsequent recovery of the share price coincides with the business recovery as well as the corresponding improvement in total shareholders’ return over the period”.
It is unfounded to say our climate targets have slipped given that our first major milestone is set to be achieved three years from now
— Sasol
But back to OMIG and its decision to inform its peers of its decision to vote against a number of resolutions.
In the letter sent to other fund managers, OMIG says it has taken the decision to pre-declare its voting intentions on what it believes is “an issue that impacts not only [our] clients but the broader market”. This is something of an understatement given that Sasol not only owns the largest single-point greenhouse gas emitter on the planet, namely its Secunda plant, but is the second-biggest polluter in the country, after Eskom.
Despite the evidence backing OMIG’s pre-declare decision, the letter indicates it was not one easily taken. Indeed, OMIG head of stewardship Nicole Martens told the FM shortly before last year’s Sasol AGM that, while the group did have some concerns, it was voting in favour of the climate change policy. At the time Martens was concerned the policy lacked details about the exact path the company was taking to reduce its climate impact.
So, last year OMIG was among the 94.05% of shareholders who voted in favour of the company’s climate change management approach, “including its climate change ambition, strategy and progress towards achieving the 2030 target and 2050 net zero ambition”.
Twelve months later, and after much engagement with Sasol, OMIG has decided it cannot again vote in support of the policy. In addition to voting against the climate change report, which is a nonbinding advisory vote, OMIG is also voting against the remuneration implementation report and the re-election of Muriel Dube who, in her position as chair of the safety, social & ethics committee, is the director responsible for sustainability.
A Sasol spokesperson tells the FM that OMIG’s move is based on misleading and inaccurate information. “As a responsible corporate citizen Sasol is committed to transparent disclosures based on the Task Force for Climate-Related Financial Disclosures,” says the spokesperson, adding: “It is unfounded to say our climate targets have slipped given that our first major milestone is set to be achieved three years from now.”
OMIG evidently feels that Sasol’s can-kicking climate strategy is no longer one it can support
In her letter explaining the decision to pre-declare, Martens says OMIG has been actively engaging with Sasol on its approach to the climate emergency for a number of years and was encouraged by the company’s commitment in 2019 to develop and disclose a climate plan. It continued to engage and monitor developments. But it appears little came of that.
“It is disappointing to report that despite multiple engagements (including multiple engagements with fellow shareholders) where we have expressed our concerns and presented requests for ratcheting up of ambition and for improved disclosure of tangible outcomes, the progress achieved with respect to the company’s strategy and its commitment to achieving its stated targets with respect to climate appears to be regressing,” writes Martens.
She acknowledges the vital role played by Sasol in the economy and in the “just transition” to net zero, but says this is all the more reason it is imperative the company transitions to more sustainable ways of production and does so in a socially responsible way.
As a signatory to the Net Zero Asset Managers Initiative, an international group of 315 asset managers with $64-trillion of assets under management, as well as the UN PRI and Crisa, OMIG evidently feels that Sasol’s can-kicking climate strategy is no longer one it can support.
It’s a view shared by Asief Mohamed of Aeon Investment Management, who commends OMIG for trying to encourage other institutional shareholders to hold Sasol to account. “The current Sasol management [have] nothing to lose by kicking the can down the road,” says Mohamed. “The real damage will only become evident after they’ve gone and shareholders are staring at billions of rand of stranded assets and a devastated environment.”
Mohamed says OMIG’s stance is commendable, given that fund managers are tasked with protecting long-term value for their clients.
Allan Gray, which is Sasol’s third-largest shareholder after the Public Investment Corp (PIC) and the Industrial Development Corp, is less forthcoming. A spokesperson tells the FM the company’s policy is not to pre-declare.
At last year’s AGM Allan Gray did vote in support of the climate resolution. However, it includes Sasol in its list of top five equity holdings “that present the most material ESG risks within our clients’ portfolio”. Allan Gray is primarily concerned about Sasol’s climate change disclosure and “future-fit strategy”, as well as air pollution and “associated regulatory compliance postponements”.
The PIC, which manages R2.6-trillion of assets and is Sasol’s single largest shareholder, seems less concerned about ESG matters. It won’t say how it will vote at the AGM, but in what suggests a tolerance for continuing pollution a spokesperson tells the FM: “The South African economy faces idiosyncratic problems, particularly very high unemployment. The PIC’s engagements around proposed solutions to reduce climate risks must take into account the social and localised economic impact in communities where our investee companies operate, as well as the longer-term sustainability of investee companies.”
It’s a depressing admission of shareholder failure on the matter of climate change — which makes OMIG’s principled stand all the more powerful.
* Crotty does occasional research for shareholder activist organisation Just Share
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