Sasol, SA’s biggest private-sector polluter, has a new boss. Simon Baloyi, who takes over from Fleetwood Grobler in April 2024, inherits a group under intense pressure from investors and activists to cut its carbon emissions.
Sure, Baloyi’s appointment is a laudable effort at racial diversity, as it reflects the company’s commitment to transformation and inclusion and its recognition of the talent and potential of black people in the energy sector. But it is hard to shake the feeling that it is also a poisoned chalice.
Baloyi will need to convince shareholders, activists and regulators that Sasol can deliver on its ambitious decarbonisation targets, while also navigating a challenging macroeconomic environment and maintaining profitability.
Baloyi, now group executive vice-president of energy operations and technology, has been with Sasol for 23 years. He has experience in leading Sasol’s gas business, a key part of its transition plan. Sasol aims to reduce its emissions 30% by 2030 and reach net zero by 2050, mainly by switching from coal to gas and renewables.
However, some investors are sceptical about the feasibility and cost of this strategy, especially given uncertainty about gas supply and pricing in the region.
Sasol also faces more scrutiny from civil society groups, which accuse it of not being transparent and accountable enough on its climate performance. On Friday, a group of Extinction Rebellion protesters disrupted Sasol’s AGM, forcing it to be cancelled.
While the protest was a legitimate expression of frustration and anger at what they perceived to be Sasol’s inaction, it also deprived the shareholders of an opportunity to voice their dissent and send a clear message to the company. The protest prevented a landmark vote on Sasol’s 2023 climate change report, which several asset managers, including Old Mutual and Ninety One, had planned to oppose. They argued that the report lacked clarity and commitment on Sasol’s interim targets and progress.
Sasol should not use this incident as an excuse to avoid engaging with its shareholders on its climate response. It should reschedule the meeting as soon as possible and address issues of concern raised by the investors.
Mounting pressure on Sasol, which has committed to spending R15bn-R25bn from now to 2030 to cut emissions, may tempt Baloyi to rethink that range if he wants to keep climate-conscious investors on his side. Sasol’s share price fell almost a quarter in the past year, outperformed by global rivals BP and TotalEnergies, which are investing heavily in renewable energy.
But spending on energy transition is not without risks. Assuming Baloyi spends anything near the top of the range over the next seven years, Sasol would part ways with an average of R3.6bn, or a hefty 11% of its annual core profit, or earnings before interest, tax, depreciation and amortisation (ebitda). That’s manageable in pursuit of the deft balance to protect the short-term commercial logic of the business and its long-term sustainability.
The upshot of rushed, haphazard investment in the energy transition is obvious: it has the potential to call into question the economics of the Secunda plant, which is Sasol’s biggest moneymaker and also its biggest headache. In that scenario, the livelihood and welfare of tens of thousands of communities will be on the line, finance minister Enoch Godongwana will lose one of the biggest taxpayers and SA will have to fill a big hole in petrol consumption via imports.
Sasol’s dilemma mirrors the wider predicament of SA, which depends almost entirely on coal-fired power stations for electricity. Western countries such as Germany have offered to give more than $8bn to Pretoria, on the condition that it comes up with a feasible investment plan to switch from coal-based electricity to renewables.
To be sure, Sasol and SA must join the world in switching to climate-friendly forms of energy in the age of the carbon border taxes, disruptive environmental activists and growing pressure for investors and funders. But the switch requires a careful and comprehensive transition plan that would balance the environmental, economic and social objectives of the country.
Baloyi will have to rebuild trust and confidence with Sasol’s stakeholders. He will have to balance the need to invest in low-carbon technologies and projects while managing Sasol’s debt and cash flow. He will have to demonstrate that Sasol can be a responsible corporate citizen and a profitable business.
Sasol is a strategic asset for SA, contributing to its energy security, economic growth and job creation. Baloyi has the opportunity to lead Sasol’s transformation into a cleaner and more resilient company, but he will also face many challenges and trade-offs along the way. He will need to show that he can handle the heat.
• Motsoeneng is Business Day deputy editor.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.