OUR KEY
MATERIAL ISSUES

The issues set out on the following pages are those that we believe underpin our strategic risks and opportunities and have the highest potential impact – positive and negative – on stakeholder value.

How we determine materiality

We take various stakeholder guidelines into account, including those set out in terms of the Sustainable Development Goals, the Global Reporting Initiatives, the International Integrated Reporting Council and King IV, as well as ratings agencies such as ISS-OEKOM and the FTSE4GOOD Index Series

Regulatory and reporting guidelines are mapped against stakeholder issues, as well as trends and developments in the external operating environment

How relevant is each issue to our business?

How does each issue impact our ability to create value in the short, medium and long term?

We regularly review our key material issues and their alignment with our strategy of intentional evolution


Our material issues

       
PRINCIPLES   PROSPERITY   PEOPLE   PLANET
  • Supply chain transparency
  • Ethical behaviour and corruption
 
  • Cost containment and capital allocation
  • Digitalisation
  • Product and process innovation
  • Circular economy and adjacent markets
  • Long-term demand growth for cellulosic based fibres
 
  • Safety
  • Employee engagement
  • Skills
  • Shared value
  • Labour relations
 
  • Climate change
  • Energy
  • Water
  • Biodiversity

PRINCIPLES

Supply chain transparency

MATERIAL ISSUE

Why it is important

Visibility into the supply chain helps identify risks and issues early, and also addresses consumer concerns about issues like deforestation.

 

How it links to other aspects of our business

Operating context: Increasing consumer and brand owner concerns about sustainability-related issues

   

How it links to risk

Uncertain and evolving regulatory landscape

Emerging risk

Integration of sustainability

WHAT WE DID ABOUT IT IN 2019
  • Rolled out our Supplier Code of Conduct across the group and began the review process by assessing raw material suppliers in countries with a score of 50 or lower in the Global Corruption Perception Index
  • Participated in Trado, a consortium including the Cambridge Institute for Sustainability Leadership that is testing blockchain technologies. The project is trialling the concept by using a shared data system for tea farmers in Malawi that supply Unilever and United Kingdom-based supermarket Sainsbury's.

Ethical behaviour and corruption

MATERIAL ISSUE

Why it is important

Creating clear boundaries and a consistent framework across geographies for ethical behaviour provides a foundation for unlocking growth opportunities as
One Sappi.

 

How it links to other aspects of our business

Operating context: Increasing consumer and brand owner concerns about sustainability-related issues

   

How it links to risk

Natural resource
constraints

Emerging risk

Integration of sustainability

WHAT WE DID ABOUT IT IN 2019

Global training on ethics targeted relevant new employees across the group, while regional training covered topics relevant to each region including general data protection regulations (GDPR) in Europe, insider trading in North America and the Protection of Personal Information (POPI) Act in South Africa.

PROSPERITY

Cost containment and capital allocation

MATERIAL ISSUE

Why it is important

Ongoing investment and cost containment are strategic pillars of competitive advantage.

 

How it links to other aspects of our business

Achieve cost advantages
Maintain a healthy balance sheet

 

   

How it links to risk

Cyclical macro-economic context
Highly competitive industry
Project implementation and execution
WHAT WE DID ABOUT IT IN 2019
  • Acquired Matane Mill in Quebec, Canada with capacity of 270,000 tons per annum of aspen and maple high-yield pulp to deliver the following benefits:
    – Increased levels of pulp integration by supplying pulp to our United States and European packagingerations
    – Secure supply of a raw material critical to product quality
    – Reduced input pricing and volatility in profitability
    – Avoid higher capital cost of internal high-yield pulp capacity
  • Completed a rebuild of PM8 at Lanaken Mill in Belgium. The PM can now produce woodfree coated paper in addition to lightweight coated paper, enhancing our ability to meet market demand
  • Took downtime at certain mills and began an asset review in Europe and North America in line with reduced demand in key markets.

Digitalisation

MATERIAL ISSUE

Why it is important

Digital solutions offer a new platform for innovation and efficiency as well as enhanced connection with customers and employees.

 

How it links to other aspects of our business

Achieve cost advantages

Operating context: Generation Z

   

Emerging risks

Industry 4.0

Integration of sustainability

WHAT WE DID ABOUT IT IN 2019
  • Launched digital group-wide learning initiatives
  • In Sappi Europe:
    Appointed a head of digital transformation
    Launched Octoboost, an internal technology start-up whose core mission is to develop innovative digital solutions for the print industry
    Signed a global strategic alliance with PerfectPattern to roll out artificial intelligence (AI) driven dynamic print planning and ganging technology to print businesses world-wide.

Product and process innovation

MATERIAL ISSUE

Why it is important

We view innovation not as an end in itself, but as an integral aspect of our business that provides sustainable, competitive advantages which make a significant difference.

 

How it links to other aspects of our business

Achieve cost advantages

Operating context: Increasing consumer and brand owner concerns about sustainability-related issues

   

How it links to risk

Evolving technologies and consumer preferences

Emerging risks

Industry 4.0

Integration of sustainability

WHAT WE DID ABOUT IT IN 2019
  • Piloted a new-generation manufacturing execution system to leverage data analytics make our processes more efficient and productive and enable tracking of information on quality, raw materials and environmental aspects
  • Continued to promote internal innovation through the Technical Innovation Awards. In 2019, Sappi Europe was named the 2018 winner for designing a completely new 'three layers in one headbox' for paperboard packaging that combines good printability with high bulk and good creasability. This step-change technology was successfully applied to the rebuild of PM6 at Maastricht Mill, making it the only producer world-wide to use this novel concept for its packaging product range
  • Collaborated closely with a specialist packaging converter and a global fast-moving consumer goods (FMCG) company to develop breakthrough proprietary barrier technology and support the launch of a new confectionery snack bar wrapped in recyclable paper (see box below)
  • Invested US$42 million in R&D initiatives.

An innovative solution for the circular economy

Packaging for the food industry that meets stringent health and safety standards and that is also recyclable is a longstanding challenge. Sappi has been working with leading consumer brand owners to develop and supply renewable paper-based packaging solutions by understanding and supporting the goals of making their packaging recyclable without compromising on food protection and shelf life.

One example of this is the new Sappi Guard range of products. These innovative papers for flexible packaging come with integrated barriers against oxygen, water vapour, grease, aroma and mineral oil. Thanks to the integrated barriers, there is no need to apply special coatings or laminations. The work was enabled by Sappi's 2017 acquisition of barrier film technology company Rockwell Solutions.

Sappi used this technology when it worked with a global FMCG company and a specialist flexible packaging converter to develop the wrapper for a new confectionery snack bar. The launch of the new snack bar highlights the benefits of collaboration across the value chain in a focused effort to increase the use of recyclable packaging made from renewable woodfibre.

Circular economy and adjacent markets

MATERIAL ISSUE

Why it is important

Producing more with less has become a global focus in light of a burgeoning global population and subsequent pressure on resources. In keeping with the approach outlined above, our aim is to extract more value from each tree and in doing so, move into adjacent markets in order to strengthen our core business model.

 

How it links to other aspects of our business

Accelerate growth in higher margin growth segments

Operating context: Increasing consumer and brand owner concerns about sustainability-related issues

   

How it links to risk

Evolving technologies and consumer preferences

Highly competitive industry

Project implementation and execution

WHAT WE DID ABOUT IT IN 2019
  • In August 2019, we commissioned the pre-hydrolysis liquor (PHL) evaporator at Ngodwana Mill, moving into the second phase of our sugar extraction project. This is to demonstrate industrial-scale operability of the technology to concentrate hemicellulose sugar streams, extracted from the wood, to levels required for downstream technologies. The work enables derisking the full-scale implementation of the sugar concentration technology, in turn opening up new revenue generation opportunities in the xylitol and furan chemistry value chains
  • We progressed the design of a furfural pilot plant to be established at Saiccor Mill. The plant will illustrate the technology, produce commercial samples and provide greater clarity on process economics. We anticipate beneficial operation in 2021
  • Construction of a 25MW Ngodwana energy biomass power plant at Ngodwana Mill, in which we have a 30% stake, began in July. The plant will use biomass from surrounding plantations to generate power that will feed into the national grid
  • We are building on our established position in lignin markets to expand into high-value markets, including substitution for phenol which is widely used in household products and as intermediates for industrial synthesis, as well as replacement for petrochemicals in foams. We are also diversifying into lignin as a replacement for starch in manufacturing recycled paper, as a fuel pellet binder and in the area of animal health and nutrition
  • We began testing fuel rods in one of the boilers at Tugela Mill. The rods, manufactured at Ngodwana Mill, comprise a mixture of waste coal slurry (from discarded thermal-grade coal fines), biomass and lignosulphonates. If positive results are achieved, the demonstration facility at the latter mill will be upgraded
  • We are advancing our Valida fibrillated cellulose technology and continue to conduct third-party development work with prominent global brand owners and technology institutions to develop a variety of applications where Valida's functionality can enhance everyday products responsibly and sustainably. The product is also being used to develop new advanced paper grades with greater strength and unique barriers
  • In terms of biocomposites, we continue to develop markets for Sappi Symbio which brings the haptics of nature and reduced environmental footprint to plastic composite materials. Sappi Symbio is a specially prepared and easy-to-use cellulose fibre ready to be easily dispersed into plastic compounds. Symbio compounds can be injection moulded and blow moulded into components for various sectors, including automotive, furniture, utensils, appliances and consumer electronics. Weight reduction, warm touch and high stiffness are just some of the product's many benefits.

Long-term demand growth for cellulosic-based fibres

MATERIAL ISSUE

Why it is important

Increasing our capacity in the DWP market aligns with our strategy of refocusing operations away from graphics paper to the higher-margin DWP sector, together with specialised packaging products and the biotech sectors.

 

How it links to other aspects of our business

Accelerate growth in higher margin growth segments

Operating context: Increasing consumer and brand owner concerns about sustainability-related issues

   

How it links to risk

Evolving technologies and consumer preferences

Emerging risks

Integration of sustainability

Cyclical macro-economics

WHAT WE DID ABOUT IT IN 2019
  • Completed a US$25 million capital investment at Cloquet Mill to debottleneck areas of the pulp manufacturing process and add 30,000 tons per annum of DWP production capacity
  • The expansion of Saiccor Mill to add 110,000 tons per annum of DWP capacity was around 40% complete at year-end and is on track for completion in the last quarter of 2020.
  • We continue to engage with customers to develop products and solutions for the market.

The uncertainty in textile markets as a result of the United States/China trade tensions – China is the largest exporter of apparel to the United States – and an oversupplied viscose staple fibre market are challenges for value creation in the short term, but we believe the fundamentals of the DWP market are sound. Accordingly, we expect sales volumes to remain healthy and anticipate that our expanded DWP production will be fully taken up to meet customer demand.

PEOPLE

Safety

MATERIAL ISSUE

Why it is important

Unsafe practices and conditions can have devastating consequences – the impact of human loss and suffering on individuals and those around them is immeasurable.

Globally, the pulp and paper industry, and forestry in particular, is viewed as potentially hazardous.

 

How it links to other aspects of our business

Achieve cost advantages
Rationalise declining businesses
Maintain a healthy balance sheet
Accelerate growth in higher margin growth segments
   

How it links to risk

Safety

Emerging risks

Integration of sustainability

WHAT WE DID ABOUT IT IN 2019

Our safety performance was deeply unsatisfactory:

  • Tragically, there were four contractor fatalities in Sappi Southern Africa
  • As shown below, the LTIFR for own employees and contractors deteriorated against the previous five years. The global own injury index (II) was an improvement on 2018, but above what was achieved in 2014, with the contractor II performance impacted by the four fatalities.
Lost-time injury frequency rate

Sappi North America's own employee LTIFR was the best ever. Year-on-year, own employee LTIFR deteriorated in Sappi Europe while contractor LTIFR improved, but both own employee and contractor LTIFR declined in Sappi Southern Africa. Performance in Sappi Europe was mainly affected by the integration of mills acquired in 2018. The region has conducted safety gap audits to redress the situation. With the assistance of a team from DuPont, Sappi Southern Africa is driving initiatives to improve safety systems and awareness. The focus on life-saving rules will continue in 2020 as the region's primary safety initiative.

Employee engagement

MATERIAL ISSUE

Why it is important

When employees are engaged at work, they feel a connection with the company. They believe the work they are doing is important and therefore work harder. This has obvious implications for productivity, career development and overall job satisfaction.

 

How it links to other aspects of our business

Achieve cost advantages
Rationalise declining businesses
Maintain a healthy balance sheet
Accelerate growth in higher margin growth segments
   

How it links to risk

Employee relations

Emerging risks

Integration of sustainability

WHAT WE DID ABOUT IT IN 2019
  • 90% of the total organisation participated in our 2019 survey – a 6% improvement on participation levels of 84% in 2017.
  • Overall employee engagement remains high, with 42% of employees fully engaged, 39% unsupported or detached and 19% fully disengaged

Skills

MATERIAL ISSUE

Why it is important

People are no longer looking for a 'job for life' but have moved towards 'learning for life'. At the same time, rapid changes in the operating environment are constantly reshaping the skills requirements of our business.

 

How it links to other aspects of our business

Operating context: Generation Z

   

How it links to risk

Employee relations
Failure to attract and retain key skills
WHAT WE DID ABOUT IT IN 2019
  • In 2019, we continued to implement programmes to enhance skills levels, particularly across priority categories of employees
  • We also continued to offer all employees access to detailed development plans and the opportunity to select online or classroom training from over 4,000 approved courses.

Shared value

MATERIAL ISSUE

Why it is important

Shared value involves developing profitable business strategies that deliver tangible social benefits. In other words, identifying societal challenges within our sphere of operation and finding ways of addressing these for the mutual benefit of communities and the company, thereby enhancing our social licence to operate, building our reputation as a responsible corporate citizen, establishing customer loyalty and attracting talent.

 

How it links to other aspects of our business

Operating context: Social disruption

   

Emerging risks

Integration of sustainability
Social unrest
Land restitution

WHAT WE DID ABOUT IT IN 2019

We continued to take a very active approach to Corporate Shared Value (CSV) both regionally and globally, driving key initiatives in support of our three primary stakeholder groups – employees, customers and the local communities in which we operate. Given South Africa's development needs, and in line with our longstanding approach, the bulk of spend was allocated to this region:

  • Sappi Europe: EUR100,000
  • Sappi North America : US$460,000
  • Sappi Southern Africa: ZAR50 million.

Investing in early childhood development

International research states that 90% of brain growth and development takes place before the age of five. Research also indicates that children whose development is nurtured early in life are more likely to be:

  • Successful in school, have fewer learning disabilities and be more likely to finish high school and seek further education or training
  • More productive in the workforce, hold better jobs, own their own homes
  • Healthier throughout their lives, physically and mentally.

Against this backdrop, the South African government prioritised early childhood development (ECD) as highlighted in the National Development Plan (NDP) Vision for 2030.

We began investing in ECD in 2014, partnering with key role players to achieve the following result

  • In Mpumalanga, we have developed an ECD centre of excellence at the Sappi Elandshoek community through Penreach, the largest teacher development programme in Africa. Sappi has sponsored training for the principal and five primary school teachers from a local primary school in ECD-related topics. Between 2016 and 2018, these teachers reached 415 children
  • In 2016, we extended the ECD programme to Gauteng, by sponsoring the Jabulani Training and Development Centre. Our sponsorship of the centre has contributed to training over 1,250 ECD practitioners in recent years
  • In 2018, a total of 22 ECD practitioners graduated from the ECD programme in KwaZulu-Natal with an NQF4 (a national standard) qualification, implemented under the auspices of Training and Resources in Early Education (TREE), and a further 36 will complete their training at the end of 2019. Of these, 18 will have an NQF4 certification which they will administer in their crèches, while the other 18 have been trained to run playgroups in their areas, where there were no ECD facilities before. Practitioners in this region have impacted over 2,000 children between 2016 and 2018.

Labour relations

MATERIAL ISSUE

Why it is important

Sound labour relations result in increased levels of engagement, enhanced productivity and a more harmonious working environment.

 

How it links to other aspects of our business

Operating context: Social disruption

   

How it links to risk

Employee relations

Emerging risks

Social unrest
Integration of sustainability

WHAT WE DID ABOUT IT IN 2019
  • Sappi endorses the principles of fair labour practice as entrenched in the United Nations Global Compact and Universal Declaration of Human Rights. At a minimum, we conform to, and often exceed, the labour legislation requirements in countries where we operate. We promote freedom of association and engage extensively with representative trade unions. Globally, 62% of Sappi's workforce is unionised, with 69% belonging to a bargaining unit.
  • Sappi enjoyed relatively positive industrial relations with trade unions at all manufacturing sites across the group and Sappi Forests' plantations in Sappi Southern Africa – attributable mainly to our proactive engagement strategy and initiatives

PLANET

Issues discussed here are covered in greater detail in the Planet section of our 2019 Group Sustainability Report, available at www.sappi.com

Climate change

MATERIAL ISSUE

Why it is important

Woodfibre is a key input into our business. Climate change could pose a risk to our plantations in South Africa.

 

How it links to other aspects of our business

Operating context: Increasing consumer and brand owner concerns about sustainability-related issues

   

How it links to risk

Natural resource constraints

Emerging risks

Integration of sustainability
Climate change

WHAT WE DID ABOUT IT IN 2019

We have established a working group to integrate the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD) into our risk assessment of climate change.

Sappi together with other forestry companies in South Africa, and with financial support from the Department of Science and Technology's Forest Sector Innovation Fund, has initiated a detailed climate change mapping project with the Global Change Institute (GCI) at the University of the Witwatersrand. This project will enable us to spatially map the risk across our entire land base, and understand how it changes over decades.

In addition, we continued to:

  • Adjust and direct our tree breeding strategy using modelled future climate data. This will help us to produce and select the most optimally suited hybrid varieties for each climatic zone
  • Replace pure species with hybrids more suited to future climatic conditions to enhance security of supply
  • Together with rapid understanding of the relative tolerance/susceptibility of our growing stock to new pests or disease, these techniques are critical in successfully managing the viability of our woodfibre base
  • Use of satellite imagery and drones to rapidly detect and respond to change
  • Monitor soil – under hotter and drier climatic conditions, the importance of soil organic matter will increase because of its ability to reduce soil temperature, and to increase the soil water infiltration rate and soil water holding capacity
  • Implement an extensive fire protection strategy, as climate change raises the potential for fires.

Understanding climate risks

A preliminary climate change investigation conducted by Sappi Forests' scientists indicated that climate change is likely to be larger in Southern Africa compared to the world average. The study indicated that maximum temperatures are more likely to increase than minimum temperatures, especially during the spring and summer months. It is also likely that spring rainfall will decrease, with more high-intensity rainfall in summer. The combined effect of higher temperatures and lower rainfall in spring is likely to increase tree stress. This in-house study highlighted that simply understanding changes to annual averages is not enough if we are to mitigate potential losses. Currently, the available climate projections do not meet Sappi's needs for the following reasons:

  • The time resolution is too infrequent – projections are typically for mid-century and end of century, whereas we need something closer to decadal intervals
  • The spatial resolution is too coarse – often regional, rather than plantation block specific.

The variables provided are too general – annual rainfall rather than its monthly distribution, mean temperatures rather than the extremes, wind, humidity and other variables absent.

Accordingly, together with other forestry companies in South Africa and financial support from the Department of Science and Technology Forest Sector Innovation Fund, Sappi has initiated a detailed climate change mapping project with the Global Change Institute (GCI) at the University of the Witwatersrand. The GCI team is made up of South Africa's leading climate change experts. The project entails two phases:

  • Phase 1: 2020: Generation of raster climate surfaces for the entire forestry domain of South Africa, at 8 km resolution, with monthly time resolution, for the years 2020, 2030, 2040 to 2100. The variables would include up to 20 important bioclimatic indicators as well as averages and information about their statistical distribution, such as variances, confidence ranges and probabilities of exceedance
  • Phase 2: 2021 onward: A second iteration of the variables generated for the one-year product, refining the indicators or making them more specific for species or issues; and/or including more ensemble members or scenarios to broaden the robustness of the evaluation; and/or 1 km data for selected parts of the country.

The regional climate modelling capacity established at Wits GCI can resolve all the needs of the industry, listed above. Wits GCI runs the CCAM Global Climate Model, a state-of-the-art Global Circulation Model (GCM), fully coupled with land and ocean. It can seamlessly use the same framework to incorporate the output of ensembles of other GCMs, and downscale them for Southern Africa in a very robust way. Outputs can be generated at any time interval. The Southern African downscalings already under way produce coverage at a fundamental resolution of 8 x 8 km over the entire South African forestry domain, fine enough to be able to represent important local phenomena (like the escarpment) that are invisible to GCMs. All primary climate variables are generated, so producing them as output tailored to the needs of forest bioclimatology is relatively straightforward.

The Variable Resolution Earth System Model used for the regional downscalings can then be used a second time, to generate projections with a resolution of as fine as 1 x 1 km, over an area of 200 x 200 km. This is a 'cloud-resolving' scale, so it can capture the specificity of rainfall in relation to terrain and aspect. The process is computationally intensive, so cannot immediately be applied to all the forest extent in South Africa, but over time key areas will be prioritised.

Energy

MATERIAL ISSUE

Why it is important

Given the high-energy intensity of our industry, the cost and availability of energy is a key consideration that must be weighed up in the context of a carbon-constrained world.

 

How it links to other aspects of our business

Achieve cost advantages

Operating context: Increasing consumer and brand owner concerns about sustainability-related issues

   

How it links to risk

Natural resource constraints

Emerging risks

Integration of sustainability
Climate change

WHAT WE DID ABOUT IT IN 2019
    Renewable energy (%)
  • Energy is a key input for our industry. Aggressively managing energy use reduces carbon emissions and enhances cost efficiencies. Globally, purchased energy costs as a percentage of cost of sales have not fluctuated significantly over the last five years and were 8.74% in FY19 (2018: 8.98%).
  • Environmental impact is reduced by the amount of energy as well as type consumed. We have made significant efforts to reduce our reliance on fossil fuels, thereby reducing fossil-fuel related greenhouse gas (GHG) emissions and separating our operations from the volatility of energy prices. In 2019, our global use of renewable energy as a percentage of total energy used was 52.9%. However, while our global direct (Scope 1) GHG emissions were stable in the year under review, indirect (Scope 2) emissions increased by 5.7% year-on-year. The main reason for the increase was the deteriorating emissions factor of energy derived from Eskom, the South African state power utility.

Water

MATERIAL ISSUE

Why it is important

Our operations are highly dependent on the use and responsible management of water resources. Water is used in all major process stages, including raw materials preparation (woodchip washing), pulp washing, screening, and paper machines (pulp slurry dilution and fabric showers). Water is also used for process cooling, materials transport, equipment cleaning and general facilities operations.

 

How it links to other aspects of our business

Operating context: Increasing consumer and brand owner concerns about sustainability-related issues

   

How it links to risk

Natural resource constraints

Emerging risks

Climate change
Integration of sustainability
Social unrest

WHAT WE DID ABOUT IT IN 2019
  • Globally, in 2019, we extracted 288.91 million cubic metres of total water for all purposes. However, our total water consumption is much lower than the amount extracted would indicate, because we return a high percentage of the water we use to the environment – 95% of water drawn was returned to the environment in the past year. Water that is 'consumed' in our operations is primarily water lost to the environment due to evaporation in the paper drying process and a small amount of moisture contained in our finished products.
Specific process water returned versus extracted (m3/adt)

Biodiversity

MATERIAL ISSUE

Why it is important

The plantations and forests from which we source woodfibre depend on healthy ecosystems and beneficial biotic processes taking place.

 

How it links to other aspects of our business

Operating context: Increasing consumer and brand owner concerns about sustainability-related issues

   

How it links to risk

Natural resource constraints

Emerging risks

Integration of sustainability
Climate change

WHAT WE DID ABOUT IT IN 2019
  • Globally, 74.8% of fibre supplied to our mills is certified. The internationally accepted, independently verified forest certification systems we use – PEFCTM, SFI® and FSCTM – all make provision for biodiversity management. In PEFCTM- certified forests, for example, managers must "ensure that forest management activities maintain, conserve and enhance biodiversity" while SFI® guidelines stipulate the protection of biodiversity. Principle 6 of the FSCTM's principles and criteria, states: "Forest management shall conserve biological diversity and its associated values, water resources, soils, and unique and fragile ecosystems and landscapes, and, by so doing, maintain the ecological functions and the integrity of the forest".
  • We set aside some 30% permanently unplanted land on our owned and leased landholdings in South Africa to conserve natural habitats and their biodiversity.
  • In Sappi Southern Africa, we have used systematic conservation planning to identify 166 important conservation areas (ICAs) on our land using a systematic conservation planning approach based on the presence of both plant and animal red data species, the size, connectedness, condition and aesthetic and recreational value of the area.