OUR OPERATING
CONTEXT

Our external operating environment presents risks and opportunities, impacts our ability to generate value and informs our response to our stakeholders as well as our approach to material matters. Below we set out the key developments in our operating context in 2019 and our response.

  Slowing global growth and trade tensions  
Developments   Our response
     

The global economy in 2019 is on course for its weakest year of growth since the financial crisis. The International Monetary Fund is expecting global growth to slow to 3.0% this year, down from 3.2% in July 2019.

 

In South Africa, shortly after year-end we announced our intention to make investments totalling up to ZAR14 billion over the next six years in our South African operations.

We took commercial downtime at certain mills in 2019 and began a review of our assets in Europe and North America.

     

Slow global growth has been exacerbated by the ongoing trade wars between the United States of America on the one side and Europe and China on the other, which have impacted the global economy.

 

We have DWP sites in the United States of America and South Africa. Asia is the biggest market for our DWP and one of our major customers has a production site in China. However, we can supply this customer and others in the same country from our Saiccor and Ngodwana Mills in South Africa which currently have respective capacity of 800,000 and 250,000 tons per annum.

  Regulatory and environmental issues  
Developments   Our response
     

Belgium, Germany, Latvia, Poland and the United Kingdom impose fees on manufacturers that place packaging in the market to promote recyclability. More countries are considering introducing similar fees.

 

Sappi Europe has formed an internal recyclability task force with representatives across R&D, new business development, sustainability as well as innovation and marketing.

Sappi North America initiated similar work focused on increasing packaging recyclability.

     

The European Union's climate and energy framework promotes decarbonisation by setting 2030 targets for greenhouse gas emissions to decline by at least 40% below 1990 levels, renewables to deliver 32% of our energy and efficiency to improve by 32.5%.

 

Sappi Europe is leading the process of developing decarbonisation plans for each mill in Europe, while Sappi North America and Sappi Southern Africa are focusing on mills in their respective regions.

     

In South Africa, carbon tax was introduced on 01 June 2019. Our liability from implementation to the end of September is estimated at around ZAR20 million (some ZAR60 million per annum).

 

We, together with other industry members, are working with consultants appointed by the Department of Environmental Affairs on the rules for recognition of carbon in harvested wood products.

     

Parts of South Africa are still suffering from the effects of a devastating drought.

 

We achieved our specific water use target in South Africa and have funded the rehabilitation of water infrastructure in villages close to our areas of operation.

  The rise of populism, social disruption and Generation Z  
Developments   Our response
     

Globally, there have been mass protests about climate change. In South Africa, there have been marches to protest gender-based violence (GBV) which has now come under the national spotlight.

Close to many of our operations in South Africa, sporadic protests and incidents of violence took place, the result of a disaffected population protesting about lack of service delivery and job opportunities – the official unemployment rate is 29%, with the unofficial rate significantly higher and youth being most affected.

 

The Sustainability Council is reviewing how to integrate the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD) into our climate change response. A target for gender equity will form part of our 2025 sustainability goals. We continue to raise awareness about gender-based violence across the organisation through our employee wellbeing programme.

Our ZAR14 billion investment commitment (described earlier) will help to create direct and indirect jobs. In addition, we continue to promote participation in the forestry value chain through our Sappi Khulisa enterprise development programme which encompasses community tree farming. The total area managed currently is 34,139 hectares. In 2019, under this programme, 425,001 tons of timber (2018: 483,359 tons) worth some ZAR382 million (2018: ZAR387 million) was delivered to our operations. Since 1995, a total volume of 4,221,941 tons to the value of ZAR4.2 billion has been purchased from small growers under this programme.

We have intensified our enterprise and supplier development (ESD) drive by establishing a separate ESD department that identifies procurement opportunities and oversees mentoring programmes and capability training. A total of 129 small, medium and microenterprises (SMMEs) have been assessed and trained by our partners and 28 SMMEs have been integrated into the value chain across the business.

We have established skills centres at Ngodwana and Saiccor Mills that provide training for our own employees and also target unemployed youth with the overarching aim of stimulating SMME growth.

     

According to Bloomberg, Generation Z-ers account for 32% of the global population in 2019. This generation want companies to have a positive purpose that improves the world in some way. They are also more digitally connected than any previous generation.

 

The fact that our business is based on woodfibre, a renewable resource sourced from sustainably managed forests and plantations that help to mitigate the impacts of global warming, is widely communicated across social media. So too is our shared-value approach to doing business.

  Increasing consumer and brand owner concerns about sustainability-related issues  
Developments   Our response
     

According to the United Nations Environment Programme (UNEP), every year an estimated 8 million tons of plastic land up in the oceans and between 60% to 90% of the litter that accumulates on shorelines, the surface and the seabed comprises plastic. The most common items are cigarette butts, bags, and food and beverage containers.

 

We are taking advantage of anti-plastic sentiment by increasing capacity in packaging papers, particularly recyclable packaging. (See Our key material issues for details of our collaborative work to support the launch of a new confectionary snack bar wrapped in recyclable paper.)

Sappi North America solicits direct brand owner feedback through the Sustainability Customer Council, strengthening positioning against plastic end use.

     

Concerns about the impact of fast fashion on natural resources, particularly deforestation, are driving a move to ethical fashion.

 

Forest certification systems with third-party verified forest management and chain-of-custody processes ensure that responsible forest management practices are implemented in the forest and that woodfibre from certified forests can be identified throughout the supply chain. Globally, in 2019, 74.8% of fibre supplied to our mills was certified.

     

In terms of global warming, scientists officially pronounced July 2019 the warmest month the world has experienced since record-keeping began over a century ago. Alaska's sea ice melted for the first time in recorded history. Climate change activism around the world has accelerated.

 

Trees and forests play an integral role in the global carbon cycle. By sequestering carbon dioxide from the atmosphere and storing it in forest biomass and soils, forests store vast amounts of carbon and release oxygen back into the atmosphere. Harvesting managed semi-natural forests in a sustainable manner in line with internationally recognised forest certification systems as Sappi does, promotes growth and carbon uptake. So too does balancing harvesting with continual replanting and regrowth, as in our plantations in South Africa. Sappi North America highlights its superior carbon footprint compared to other key players in graphics and packaging through the EQ tool which resides on our e-commerce platform.

     

Biodiversity loss is unprecedented: The Intergovernmental Science Policy Platform on Biodiversity and Ecosystem Services (IPBES), the first intergovernmental report of its kind, finds that around 1 million animal and plant species are now threatened with extinction, many within decades, more than ever before in human history.

 

It is in our own interests to promote biodiversity in the forests and plantations from which we source woodfibre, discussed in more detail in Our key material issues. Sappi North America has invested in Forest in Focus, a platform using United States Department of Agriculture (USDA) forest inventory data to assess and promote forest health, including biodiversity.