Risk and opportunities – managing impacts and relationships? Sasol annual review and summarised financial information 2010 2010 Annual Review focused and energised sasol annual review and summarised financial information 2010 AR Oil & Gas South Africa Sasol has a well-developed risk management capability. The principal risks of the Sasol group are summarised below. Each risk is explained in relation to why it is material to Sasol, and how we are managing it. principal integrated risks Context: Details of our risk management process are provided in the corporate governance section of the annual financial statements. Our main financial risks, including those related to the global economy and currencies and commodity prices, are disclosed in our chief financial officer’s review of the annual financial statements.* Risk of increasing portfolio exposure to high-risk countries. This covers a broad range of risks from those related to human rights to the availability of reliable utilities and infrastructure. Sasol’s growth ambitions depend mainly on the opportunity to commercialise its GTL and CTL technologies across new frontiers. Most of the world’s available gas and coal reserves are in developing countries, often in remote and underdeveloped locations. Mitigation: Sasol follows strict procedures for measuring country risks. We use our carefully formulated business development and implementation model, the level of equity participation through joint ventures as well as information from reputable rating agencies to assess country risk on a regular basis. Wherever it operates, Sasol is guided by its values and code of ethics. We believe in business and social partnerships, based on our South African experience. Context: Sasol’s growth ambitions include a number of large projects that require significant technical skills, as well as capital equipment and raw materials. The recession has led to some easing in the market for construction talent, but critical skills needed to execute projects are still relatively scarce, putting pressure on the cost of projects. Additionally, the prices of many key inputs, like steel, remain high. Context: While Sasol’s safety performance compares favourably with typical recordable case rate (RCR) values for petrochemicals/chemicals operations (excluding mining), the improvement in our RCR in 2008 did not continue during 2009 and 2010. It has reached a plateau and in 2010 we had eight fatalities. This is not acceptable and we remain committed to achieving our goal of zero harm. On the environmental front, the recent oil spill in the Gulf of Mexico could result in even more stringent safety requirements at drilling operations the world over. The development of facilities in new territories presents a challenge to ensuring the appropriate accommodation of Sasol SH&E policies and design standards. Not succeeding with the engineering, construction and commissioning of new plants. Mitigation: Sasol has a comprehensive plan to access, train and retain appropriate skills. We are broadening our supply base, building relationships with new manufacturers of equipment in countries like India and China. We regularly review international benchmark findings on project management and incorporate into practice the learning from previous projects. We work to continuously optimise project design. A major safety, health or environmental (SH&E) incident or liability. Context: To sustain Sasol’s business, the group understands the importance of creating a high-performance, ethical, inclusive culture for all its employees. In this way we will be able to attract and retain the skills we need. South Africa has various laws in place to meet the country’s transformation targets, and which are required to obtain various licences, permits and mineral rights. Failure to meet these may have material consequences for Sasol’s reputation, licence to trade and ability to attract and retain skills. Mitigation: We manage our activities according to the philosophy of ‘zero exposure to harm’. All Sasol operations are committed to meeting strict performance targets on safety and health, process safety management, greenhouse gas (GHG) emissions, water management, energy efficiency and volatile organic compounds. We regularly update and train our staff on these key SH&E requirements and carry out internal and external audits to check compliance with SH&E regulations. Context: With increasing understanding of the causes and consequences of climate change, there are greater global efforts to reduce GHG emissions. These include laws to reduce emissions, with possible financial penalties for not doing so. Sasol’s processes make the group a significant emitter of GHGs. Its growth aspirations rely on a viable CO2 reduction solution being developed. Failure to deliver timeously on cultural change initiatives and transformation in South Africa. Mitigation: Five processes underpin Sasol’s success in delivering on its goal to develop the company’s culture and meet its targets in South Africa for transformation. These are Values-driven Leadership, talent management, employment equity, diversity management and compliance with the broad-based black economic empowerment (BEE) scorecard. The Sasol BEE office coordinates activities to optimise Sasol’s compliance with transformation requirements. The Sasol Inzalo BEE equity ownership transaction was concluded in 2008, and our BEE focus also includes enterprise development to support sustainable small businesses. Risk of not delivering a viable carbon dioxide (CO2) solution. Mitigation: GHG reduction targets are in place and a sub-committee of the group executive committee (GEC) has been established to provide direction on issues related to Sasol’s GHG reduction plans. The group’s approach to reducing its GHG emissions is based on four pillars: increased use of lowcarbon energy, increased use of renewable energy, improved energy efficiency at its operations and implementation of carbon capture and storage (CCS). A new business unit, Sasol New Energy, has been formed to manage the first three, and the fourth is being coordinated by a CCS project team. Context: Authorities globally are intensifying their efforts to identify and prosecute conduct that is in violation of laws. In particular, they are focusing on anti-competitive behaviour, which can lead to fines, civil claims and damages awards. Various jurisdictions have specialised legislation aimed at combating corruption and companies found guilty of contraventions face fines and damage to their reputations. Tax laws are becoming increasingly complex, as are sanctions against certain jurisdictions. Context: Increasing environmental and energy security considerations mean that competition in our industry is intensifying, with more public and private resources being committed to developing new technologies. Non-compliance with applicable laws, regulations and standards. Mitigation: A group legal compliance committee has been established and additional legal compliance employees have been recruited. Regular legal compliance risk assessment workshops are held throughout the group and specific compliance programmes are implemented. These include training in high-risk legal compliance areas such as competition and anti-corruption. Sasol is setting up a public policy and regulatory affairs department to focus on finding solutions to the key policy and regulatory challenges the group faces. Viable superior or alternative technologies from competitors. Mitigation: Numerous management controls are in place to mitigate this risk and enhance group operability. A more robust risk impact scale for technology has been employed. Improved intelligence gathering helps us identify and address competitor technologies. * Please see risk section (Item 3 D Risk factors) of the annual report as filed on the Form 20-F for more comprehensive disclosure on the material risks facing the Sasol group of companies. 16 annual review 2010 • our business • principal risks 17 pp 16-17 Sasol have reported on their principal risks at the beginning of their report, choosing to leave the details regarding risk management processes until the governance section of the report. A combination of financial and non-financial risks are presented and, for each, there is contextual detail provided to inform the reader why this particular risk is deemed as principal to Sasol. There is also information provided regarding mitigation activities in place. 46 Integrated thinking in reporting
