While we often speak about the value of engaging with the companies we invest in on behalf of our clients in private, we also recognise the need for public accountability. In our 2021 Stewardship Report, we set out several ESG engagement and performance commitments for 2022 to 2025 in a drive towards greater self-accountability and transparency with our clients. Raine Adams shares an update on our progress.
For 2022, the following ESG engagement commitments were made:
- Environmental: Air pollution – three companies will be contacted on compliance with SA air emission standards.
- Social: Safety in mining – three identified high-risk companies in our clients’ portfolios will be contacted based on a 2021 sectoral safety review.
Below, we detail the outcomes of these commitments and provide an update on the progress we have made towards fulfilling our longer-term commitments.
Outcome of ESG commitments for 2022
Environmental: air pollution
Engagement target: “Three companies will be contacted on compliance with SA air emission standards. We held ESG engagements with these companies on air pollution during 2021 but require follow-ups to monitor progress.”
1. Sasol
We had various engagements with Sasol representatives during 2022. These included queries around carbon tax and an update on their compliance with minimum emission standards (MESs) related to air pollution. We enquired about Sasol’s application to change its sulphur dioxide (SO2) limit from a concentration-based MES limit to a load-based limit and whether this was to meet the MES limit by 2025. Sasol noted that they still will not meet the limit, but that SO2 reductions should materialise post 2026 as a result of their climate strategy. We have some concerns over the feasibility of this strategy given that its reliance on gas introduces other risks to the business, but continue to engage on this matter.
2. Eskom
We attended a talk by Eskom’s former chief executive officer (CEO), André de Ruyter, at the Standard Bank Climate Summit. We noted that there had been no further developments since our prior engagement on air pollution, and therefore did not call for another one-on-one meeting. In light of the current loadshedding crisis and the substantial associated socioeconomic impacts, we believe that keeping the lights on and tackling the governance crisis should be the current priorities.
3. Sappi
We contacted Sappi’s head of Investor Relations to follow up on several ESG issues discussed during an ESG engagement in 2021. We enquired about an investigation into Sappi Saiccor’s alleged air emission transgressions that had been referred to the National Prosecuting Authority. At the time, there were no further developments to report. We also asked for an update on air pollution emissions for FY2022, given an increase in SO2 emissions in 2021. In April 2023, it was publicised that Sappi has pleaded guilty to exceeding SO2 emission limits at the Saiccor mill between July 2012 and December 2014 and has been ordered to pay an R8m fine. Sappi has invested in addressing its Saiccor emissions since 2014 and we are comfortable that management’s efforts are sincere. Management also commenced a R7.7bn expansion and environmental upgrade project at Saiccor in September 2022, which will have further benefits in terms of reducing its broader environmental footprint. We will continue to monitor its air pollution management.
Social: safety in mining
Engagement target: “Safety-focused engagements with three identified high-risk companies in our clients’ portfolios, based on a 2021 sectoral review.”
1. Sibanye-Stillwater
We held a safety-focused meeting with the CEO and chief regional officer of Southern Africa. We unpack this engagement on page 23 of our latest Stewardship Report.
2. AngloGold Ashanti
AngloGold Ashanti’s safety profile improved in 2021 following the sale of its South African assets to Harmony. These assets generally had the highest number of fatalities and total recordable injury frequency rate (TRIFR). In 2022, the company requested that we meet with an independent consultant for an ESG discussion, during which we could share our views on material ESG considerations for the group. While we discussed multiple ESG issues, we emphasised that safety must be an ongoing priority despite the disposal of its highest-risk assets. Subsequently, we contacted AngloGold Ashanti with disclosure recommendations across multiple ESG themes: workforce, communities, climate change and tailing storage facilities (TSFs). Based on our monitoring, we are pleased with AngloGold’s progress on safety. The continuing operations TRIFR has declined from 2.26 per million hours worked in 2018 to 1.26 in 2022, and there were no fatalities in 2022. While safety metrics seldom follow a smooth trendline, we believe that safety is being well managed when comparing its metrics to that of local and global peers.
3. Glencore
We did not hold a safety-focused engagement with Glencore, as we felt comfortable with the workforce safety prioritisation strategy outlined in its reporting. However, in a meeting with the chairman, head of Sustainable Development and company secretary (primarily on governance and remuneration), we asked for an update on the management of their TSFs, rated “very high” and “extreme” in terms of potential impact. They confirmed that these TSFs will conform to the International Council on Mining and Metals’ Global Industry Standard on Tailings Management (considered best practice in the industry) by August 2023. This is important to reduce community safety risk.
An update on a selection of medium-term commitments that are underway
Environmental: climate change
Performance target to 2025: “Engage with investee companies to set science-based greenhouse gas emission reduction targets, with the objective that 30% of Allan Gray’s top 40 local equity holdings’ financed emissions must have committed to a science-based target by 2025, preferably verified by the Science Based Targets initiative (SBTi) (if not, on an explain basis).”
1. Sappi
During a 2021 ESG meeting held with Sappi, we queried why its greenhouse gas (GHG) emission reporting excluded the carbon “sink” (i.e. carbon removal) provided by its plantations and the significant percentage of its land that is preserved for conservation, and how this would be incorporated into any GHG target setting. Sappi noted that it had engaged with the SBTi on target validation. In 2022 we requested an update. Sappi informed us that the Greenhouse Gas Protocol Land Sector and Removals Guidance is currently in the pilot phase and Sappi is a participant. The Guidance will direct companies on how to report GHG emissions and removals from land use, land use change, biogenic products and carbon dioxide removal technologies. Once the protocol is finalised, likely in 2023, it is expected that science-based targets will be extended to include the biogenic emissions or sinks from forests. Sappi has made good progress in the interim, with the SBTi validating its science-based targets in 2022. In addition to operational GHG reduction targets, Sappi has committed to working with suppliers to progress their own science-based targets, aiming for 44% of its suppliers by spend to have these targets in place by 2026.
2. Glencore
Glencore has previously noted that SBTi verification is not possible due to methodology complexities for diversified miners. This is supported by the fact that other diversified miners do not have SBTi-verified GHG reduction targets either. We asked Glencore for an update in 2022. While it has subsequently engaged informally, there was no progress to report in this regard. We continue to engage with Glencore on its climate strategy, which includes a 50% reduction in scope 1, 2 and 3 GHG emissions by 2035 and net zero by 2050, primarily through the managed decline of its thermal coal mining business. We are comfortable with this level of ambition but requested greater disclosure around climate modelling, which has been provided in Glencore’s 2022 Climate Report published in March 2023.
3. Standard Bank
In 2022, we held a climate-focused engagement with Standard Bank (see page 22 of our latest Stewardship Report for further details). During this discussion, we requested further details of the challenges that it faced in relation to setting an SBTi-verified GHG reduction target on its loan book. Our takeaway was that, despite the challenges, Standard Bank is focused on managing the carbon footprint of its loan portfolio.
Governance: ethics and compliance culture
Engagement target to 2023: “Engagement with top holdings as we expand our governance dashboards to better capture and document aspects such as board composition, compliance processes and corporate culture.”
In 2022, we conducted a board review of Allan Gray’s top 30 equity holdings as a preliminary dataset for our governance dashboards. Factors examined include executive succession, capacity of board members, non-executive remuneration developments and various board composition aspects. The outcomes will be used to inform our company engagements. We continue to develop our broader governance framework and build on our existing tools such as our directors database. The 2023 Stewardship Report will present the outcomes.