Application of the King Code of governance principles for South Africa (2009) -
ethical leadership and corporate citizenship board and directors audit committees the governance of risk the governance of information technology compliance with laws, rules, codes and standards internal audit governing stakeholder relationships integrated reporting and disclosure
1 July 2016
SASOL LIMITED
Sasol Limited (Sasol/ the Company) is a listed company on the Johannesburg Stock Exchange operated by the JSE Limited (JSE). Sasol is also listed on the New York Stock Exchange (NYSE) for the purpose of registering its American Depositary Receipts with the United States Securities and Exchange Commission (SEC). The Company complies with the principles of King III, the mandatory corporate governance requirements of the JSE and the applicable NYSE corporate governance requirements. Although the King Code is generally adopted on an “apply or explain” basis, paragraph 3.84 of the JSE Listings Requirements stipulates that issuers must comply with certain specific requirements concerning corporate governance. Sasol complies with all the requirements of paragraph 3.84. For the period ended 30 June 2016, Sasol applied all the principles of the King Code as disclosed in the attached table.
Governance principle
1
“apply or explain”
application by Sasol
Ethical leadership and corporate citizenship Responsible leadership
1.1
The board should provide effective leadership based on an ethical foundation
applied
Sasol Limited’s board of directors (the Board) exercises effective leadership, adhering to the duties of a director, in discharging its responsibility to provide strategic direction and control of the Company as 1 provided for in the Board charter and the Sasol Limited MOI . The Board is committed to driving the strategy and Sasol’s operations, based on an ethical foundation, to support a sustainable business, taking into account Sasol’s short- and long-term impact on the economy, society, environment and its stakeholders. The Board further: • exercises control through the governance framework of the Company which includes detailed reporting to the Board and its committees, Board reserved decision-making authority and a system of assurances on internal controls; • considers and sets the vision and strategic direction of the Company – strategy being an essential component of most Board meetings with two meetings per year devoted to only strategy; and • determines and sets the tone of Sasol’s values, including principles of ethical business practice, human rights considerations and the requirements of being a responsible corporate citizen and through the 2 NGSE Committee, approves Sasol’s code of ethics, based on responsibility, honesty, fairness and respect. The code guides interaction with all stakeholders of the group. The ethics programme (see principle 1.3) and dedicated effort to create awareness of and provide training on anti-corruption and anti-competitive behavior each contributes to a strong ethical foundation.
applied
The Board approves the strategy and key imperatives and priorities of the business, including Sasol’s sustainable development strategy. Through stakeholder engagement and collaboration Sasol has committed to understanding and being responsive to the interests and expectations of stakeholders and to partnering with them in finding lasting solutions to sustainability challenges. It is a Sasol group imperative to be a values driven organisation, to deliver
“Effective leadership” is characterised by ethical values of responsibility, accountability, fairness and transparency
1.2
The board should ensure that the company is and is seen to be a responsible corporate citizen A responsible corporate citizen should protect, enhance and invest in the wellbeing of the economy, society and natural environment; and fulfill its legal and moral obligations in respect of its economic, social and natural 1 2
Memorandum of incorporation Nomination, Governance, Social and Ethics Committee 1
Governance principle
“apply or explain”
environments
1.3
The board should ensure that the company’s ethics are managed effectively
2
Boards and directors
application by Sasol
on the South African transformation agenda and to fulfill its legal and moral obligations. Sasol’s Integrated Report, supplemented by web-based sustainability reporting details the group’s sustainable development priorities and framework, response to global change, material sustainability challenges, governance, ethics and human rights, safety, developing and retaining a skilled and diverse workforce, responding to the changing regulatory context, addressing climate change and promoting water stewardship. The Board focuses on the above matters through its Risk and SHE 3 Committee and its NGSE Committee. applied
The NGSE Committee has oversight of and monitors Sasol’s activities with regard to ethics, ensuring it is integrated in the operations of the Company. Sasol’s code of ethics and Supplier code of ethics are communicated to employees, suppliers and service providers and supported by a comprehensive ethics programme which includes amongst other aspects, driving an approved ethics strategy, managing ethics risks, codes, policies and guidelines, ethics training (to advance ethics awareness and understanding), detection and resolution of ethical violations and management of an independent ethics reporting line.
Role and function of the board 2.1
The board should act as the focal point for and custodian of corporate governance
applied
The Board has approved a charter which sets out its governance responsibilities and meets at least four times per year. Through the NGSE Committee, the Board implements and monitors the governance practices within the group.
2.2
The board should appreciate that strategy, risk, performance and sustainability are inseparable
applied
The Board informs and approves Sasol’s strategy which is aligned with the purpose of the Company, the value drivers of its business and the legitimate expectations of its stakeholders and aimed at ensuring sustainability; and which takes into account the top risks facing the group. Through the Risk and SHE Committee, the Board approves and monitors the enterprise wide risk management framework which is taken into account in the strategic and business planning process.
3
Risk and Safety, Health and Environment Committee 2
Governance principle
“apply or explain”
application by Sasol
2.3
The board should provide effective leadership based on an ethical foundation
applied
See principle 1.1.
2.4
The board should ensure that the company is and is seen to be a responsible corporate citizen
applied
See principle 1.2.
2.5
The board should ensure that the company’s ethics are managed effectively
applied
See principle 1.3.
2.6
The board should ensure that the company has an effective and independent audit committee
applied
See principle 3.
2.7
The board should be responsible for the governance of risk
applied
See principle 4.
2.8
The board should be responsible for information technology (IT) governance
applied
See principle 5.
2.9
The board should ensure that the company complies with applicable laws and considers adherence to nonbinding rules, codes and standards
applied
See principle 6.
2.10
The board should ensure that there is an effective risk based internal audit
applied
See principle 7.
2.11
The board should appreciate that stakeholders’ perceptions affect the company’s reputation
applied
See principle 8.
2.12
The board should ensure the integrity of the company’s integrated report
applied
See principle 9.
2.13
The board should report on the effectiveness of the company’s system of internal controls
applied
This is reported on in the Integrated Report.
2.14
The board and its directors should act in the best interests of the company
applied
Directors are aware of and take their fiduciary duty to the company very seriously. The Board and directors are entitled to seek independent professional advice at Sasol’s expense concerning the company’s affairs and have access to any information they may require in discharging their duties as directors. The Board charter outlines the policies and practices of the Board on 3
Governance principle
“apply or explain”
application by Sasol
matters such as, amongst others, directors’ dealings in the securities of the company and declarations of conflicts of interest. Directors adhere to Sasol’s declarations of interest policy, which is based 4 on the Companies Act requirements. The Board, through the NGSE Committee, considers and notes the declarations of interest tabled and identifies and acts on untenable conflicts. Sasol’s directors, executives and senior employees are prohibited from dealing in Sasol securities during certain prescribed periods. The Company Secretary regularly informs directors, executives and senior employees of the insider trading legislation and advises them of closed periods. A report on directors’ dealings in Sasol’s shares is tabled at each Board meeting and is disclosed in terms of the applicable JSE and NYSE listings requirements. 2.15
The board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed as defined in the Companies Act
JSE 3.84(c) (2.16)
The board should elect a chairman of the board who is an independent non-executive director. Issuers must have a CEO and a chairman and these positions must not be held by the same person. The chairman must either be an independent director or the issuer must appoint a lead independent director as defined in the King Code.
4 5
applied
The solvency and liquidity of the company is explicitly considered and minuted as part of the process of finalising interim and final financial results and implicitly when considering the financial report at each quarterly Board meeting. In terms of the MOI, Sasol must ensure that it considers business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed, as defined in the Companies Act.
complied
The Board has adopted the view that all non-executive directors exercise independent judgement at all times with respect to material decisions of the Board. All non-executive directors have been determined by the Board to be independent directors in accordance with the King Code and the rules of the NYSE. In accordance with the King Code, a lead independent director has been appointed to deal with any perceived issues flowing from the limited area of potential non independence or conflict of interest. The role of the Chairman is formalised. Annually an assessment of the Chairman’s ability to add value and his performance against what is expected of his role and function is conducted by the Board. The Board and the NGSE Committee are responsible for succession planning for the position of the Chairman. 5 Neither of the Joint CEOs of Sasol fulfils the role of Chairman of the Board.
Companies Act 71 of 2008 Joint Presidents and Chief Executive Officers 4
Governance principle
2.17
The board should appoint the chief executive officer and establish a framework for the delegation of authority
“apply or explain”
application by Sasol
applied
On recommendation of the NGSE Committee, the Joint CEOs were appointed by the directors. The role and function of the Joint CEOs are specified in the Board charter and the performance of the Joint CEOs is evaluated by the Board against the criteria specified. Mr DE Constable’s term as Sasol’s CEO came to an end on 30 June 2016. The Board appointed Messrs S R Cornell and B Nqwababa as Joint CEOs with effect from 1 July 2016. 6 The Board appoints members of the GEC upon recommendation of the Joint CEOs and the NGSE Committee, and with the assistance of the NGSE Committee, is responsible for ensuring that succession plans are in place for the position of CEO and other members of the GEC. The Board approves and regularly reviews the framework and top level delegation of authority in terms of which matters are delegated to the Joint CEOs. The Joint CEOs are jointly and severally the highest executive decision-making authority of the group and are jointly and severally delegated with authority from and are accountable to the Board for the successful implementation of the group strategy and the overall management and performance of the group, consistent with the primary aim of enhancing long-term shareholder value. The Joint CEOs can act separately or jointly. Specific matters have been reserved that require a joint decision by the Joint CEOs. The Board has agreed to the manner in which to resolve a deadlock in respect of any matter pertaining to their delegated authority or regarding the development and implementation of the group strategy and the overall management and performance of the Sasol group. In terms of the delegation of authority framework, the GEC supports the Joint CEOs in the implementation of the group strategy and the overall management and performance of the Sasol group. The Joint CEOs may sub-delegate all matters not specifically reserved for decision-making by the Board or shareholders.
complied
The capacity of each director is categorised as defined in the JSE listings requirements. The Board comprises a majority of independent nonexecutive directors. A rigorous review on the independence and performance of independent non-executive directors serving more than 9 years is undertaken by the Board with the support of the NGSE Committee.
Composition of the board 2.18 JSE 3.84(f)
6
The board should comprise a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent.
Group Executive Committee 5
Governance principle
“apply or explain”
The capacity of each director must be categorised as executive, non- executive or independent, using the following as guidelines to determine which category is most applicable to each director: (i) executive directors: are directors that are involved in the management of the company and/or in full-time salaried employment of the company and/or any of its subsidiaries; (ii) non-executive directors are directors that are not: (1) involved in the day to day management of the business, or (2) full-time salaried employees of the company and/or any of its subsidiaries; (iii) independent directors are as defined in the King Code. In addition, it must be noted that any director that participates in a share incentive/option scheme, will not be regarded as independent
application by Sasol
There are four executive directors on the Board, including the Joint CEOs 7 and the CFO . In terms of the Company’s MOI, one-third of directors must retire at every annual general meeting and are eligible for re-election. When considering appointment or re-election of directors the Board, with the support of the NGSE Committee, gives consideration to the knowledge, skills and resources required for conducting the business as well as considering its size, diversity and demographics to ensure its effectiveness.
JSE 3.84(b)
There must be a policy evidencing a clear balance of power and authority at board level to ensure that no one director has unfettered powers
complied
There is a clear distinction drawn between the roles of the Joint CEOs and the Chairman and these positions are occupied by separate individuals. All non-executive directors have been determined by the Board to be independent directors. In accordance with the King Code, a lead independent director has been appointed to deal with any perceived issues flowing from the limited area of potential non independence or conflict of interest. The NGSE Committee reviews the composition of Board committees and makes recommendations to the Board with regard to their composition, including appointment of the chairmen of each committee, taking into account factors such as diversity and skills and the need to create an even spread of power and authority. The Board charter and terms of reference of the NGSE Committee evidence this.
JSE 3.84(k)
There must be a policy on the promotion of gender diversity at board level.
complied
The Board incorporated a policy on the promotion of gender diversity at board level into its Board charter and reports in the Integrated Report how it has considered and applied the policy. The NGSE Committee assists with the process of identifying suitable candidates to be proposed for appointment to the Board and shareholders, taking into consideration the annual review of the Board’s effectiveness,
The issuer must confirm this be reporting to shareholders in its annual report on how the board or the nomination committee, as the case may be, have considered and 7
Chief Financial Officer 6
Governance principle
“apply or explain”
applied the policy of gender diversity in the nomination and appointment of directors. If applicable, the board or the nomination committee must further report progress in respect thereof on agreed voluntary targets.
application by Sasol
which includes, amongst others, its composition. All facets of diversity, also having due regard to the Board’s gender diversity policy, are considered in determining the optimal composition of the Board, which should be balanced appropriately and enable the Board to discharge its duties and responsibilities effectively. Measurable objectives for achieving diversity on the Board, appropriate for the company, were not determined for the financial year. Female representation reduced from 23% to 21,4%. Appropriate measures will be put in place for the following financial year to ensure balanced representation suitable for the company, should the opportunity arise.
Board appointment process JSE 3.84(a) (2.19)
There must be a policy detailing the procedure for the appointment to the board. Appointments must be formal and transparent and a matter for the board as a whole, assisted where appropriate by a nominations committee. The nominations committee must constitute only nonexecutive directors and the majority must be independent, and must be chaired by the chairman of the board or the lead independent director if required
complied
The process for appointment and election of directors is set out in the Company’s MOI which was adopted by shareholders on 30 November 2012. The NGSE Committee assists the Board with the process of appointment of directors. The Committee established a formal process for recruiting directors and makes appropriate recommendations to the Board when vacancies arise. All directors are elected by shareholders at the annual general meeting. The NGSE Committee comprises a majority of independent non-executive directors. The Committee is chaired by the Chairman of the Board who is considered independent. The lead independent director has also been appointed as member of the Committee.
JSE 3.84(e)
A brief CV for each director standing for election or re-election at a general meeting or the annual general meeting (which election or re-election may not take place at a meeting contemplated in section 60 of the Companies Act) should accompany the notice of the general meeting or annual general meeting
complied
Sasol complies with this provision and does not elect directors at meetings contemplated in section 60 of the Companies Act.
2.20
The induction of and ongoing training and development of directors should be conducted through formal processes
applied
Newly appointed directors are inducted in the Company’s business, Board matters, their duties and governance responsibilities as directors under the guidance of the Company Secretary, in accordance with each director’s specific needs. Directors are given the opportunity to visit Sasol’s plants and operations and receive briefings on new legal developments and changes in the risk and general business environment on an on-going basis. 7
Governance principle
“apply or explain”
application by Sasol
complied
As reported, Mr VD Kahla, the Executive Vice President: Advisory and Assurance, is the Company Secretary, duly appointed by the Board in accordance with the Companies Act. Mr Kahla is not a director of the Company. The Board annually considers the competence, qualifications and experience of the Company Secretary and is satisfied that he is competent and has the appropriate qualifications and experience to serve as the Company Secretary. Mr Kahla holds BA and LLB degrees and has a proven track record of more than 17 years as a legal advisor and governance practitioner in both the private and public sector. The Company Secretary has a direct channel of communication to the Chairman, while maintaining an arm’s-length relationship with the Board and the directors as far as reasonably possible. The role and responsibilities of the Company Secretary are described in the Board charter.
Company Secretary JSE 3.84(i) and (j) (2.21)
The board must consider and satisfy itself, on an annual basis, on the competence, qualifications and experience of the company secretary. The issuer must confirm this by reporting to shareholders in its annual report that the board has executed its responsibility. This communication must specifically include details of the steps which the board took to make this annual assessment as well as providing information which demonstrates the actual competence, qualifications and experience of the company secretary. The recommended practice of the King C o d e h i g h l i g h t s , inter alia, that the company secretary should maintain an arms-length relationship with the board of directors and that the company secretary should ideally not be a director. The board must specifically consider these two points and provide an explanation in the annual report as to why it believes that there is an arms-length relationship between itself and the company secretary. If the company secretary is a director of the company or if the board otherwise concludes that there is not an arms-length relationship between itself and the company secretary, the board must justify how the issuer is still able to ensure that the company secretary effectively performs the role as the gatekeeper of good governance in the issuer and how they have been able to adequately and effectively perform and carry out the roles and duties of a company secretary. Where the company secretary is a juristic person the board in its assessment must consider the individual/s who perform the company secretary role as well as the directors and shareholders of the juristic person. The imposition of a juristic person in itself does not create an arms-length relationship.
8
Governance principle
“apply or explain”
application by Sasol
Performance assessment 2.22
The evaluation of the board, its committees and the individual directors should be performed every year
applied
The NGSE Committee annually evaluates the effectiveness and performance of the Board, its committees and the individual directors. The Chairman of the Board, through the Committee and assisted by the Company Secretary, leads the evaluation process. After an evaluation of the self-assessment methodology and the value likely to be derived from an external assessment relative to its costs, the Committee decided not to commission an independent assessment in the 2016 financial year, and a self-assessment, by way of individual questionnaires and interviews by the Chairman, was performed. No major concerns were raised by any director in respect of the functioning of the Board or any of its committees. However, a concern was raised regarding the additional strain the IT mandate in terms of the King Code was placing on the Audit Committee. Two additional Audit Committee meetings will be scheduled per year to address this concern. Board and Committee meeting processes are continuously reviewed and enhanced to ensure the effective functioning of the Board and its Committees. Ever changing issues facing companies make it critical to look at the Board’s agenda to ensure that it meets current needs, stays aligned with good governance and best practice and prioritises to ensure contribution to the long-term health and prosperity of the business – the Board should remain focused on substantive issues. Committees’ performance is evaluated by way of individual questionnaires, and the consolidated responses reviewed by each Committee and the NGSE Committee. The NGSE Committee and the Board specifically consider the number of other commitments of directors such as other directorships in order to determine whether each director has sufficient time to discharge his or her duties effectively and is free from conflicts that cannot be managed satisfactorily. Should the Committee be of the view that a director is over committed or has an unmanageable conflict, the Chairman will meet with that director to discuss the resolution of the matter to the satisfaction of the Committee. The lead independent director is responsible for ensuring that the performance of the Chairman is evaluated annually.
Board committees 2.23
The board should delegate certain functions to wellstructured committees but without abdicating its own
complied
Committees have been established to assist the Board in discharging its responsibilities. The Committees of the Board comprise the Audit, NGSE, 9
Governance principle
“apply or explain”
responsibilities JSE 3.84(d)
application by Sasol
Remuneration, Risk and SHE and Capital Investment Committees respectively. The Committees are appropriately constituted and members are appointed by the Board. External advisors, executive directors and members of management attend Committee meetings by invitation. The Committees play an important role in enhancing high standards of governance and achieving increased effectiveness within the group. Formal terms of reference are established and approved for each Committee, which are reviewed annually. The terms of reference of the Committees form part of the Board charter and can be viewed on Sasol’s website. All Committees are empowered to obtain such external or other independent professional advice as they consider necessary to discharge their duties.
All issuers must, in compliance with the King Code, appoint an audit committee and a remuneration committee and if required, given the nature of the business and composition of the board, a risk and nomination committee. The composition of such committees, a brief description of their mandates, the number of meetings held and other relevant information must be disclosed in the annual report.
Group boards 2.24
A governance framework should be agreed between the group and its subsidiary boards
applied
A governance framework and the necessary policies and processes are in place to ensure all entities in the Sasol group adhere to essential group requirements and minimum governance standards. As a direct or indirect shareholder, the company exercises its rights and is involved in the decision-making of its subsidiaries on material matters.
Remuneration of directors and senior executives 2.25
Companies should remunerate directors and executives fairly and responsibly
applied
Sasol has an embedded rewards strategy and entrenched remuneration practices which are reported on in detail in the remuneration policy which is included in the remuneration report in the Integrated Report as well as the Annual Financial Statements..
2.26
Companies should disclose the remuneration of each individual director and prescribed officers
applied
Sasol discloses the remuneration of each individual executive and nonexecutive director in the Integrated Report as well as in the Annual Financial Statements.
2.27
Shareholders should approve the company’s remuneration policy
applied
The remuneration policy is published in the remuneration report and is subject to a non-binding advisory vote by shareholders at the annual general meeting.
10
Governance principle
3
Audit committees
3.1
The board should ensure that the company has an effective and independent audit committee
JSE 3.84(d)
Issuers must appoint an audit committee in compliance with the King Code. The composition of the committee, a brief description of its mandate, the number of meetings held and other relevant information must be disclosed in the annual report
“apply or explain”
application by Sasol
complied
The Board has an independent Audit Committee and its independence and effectiveness is reviewed on an annual basis. The Audit Committee is constituted as a statutory committee of Sasol Limited in respect of its statutory duties in terms of section 94(7) of the Companies Act and a committee of the Board in respect of all other duties assigned to it by the Board and US legislation. The Committee performs the functions as set out in the Companies Act. The terms of reference of the Committee are approved by the Board and annually reviewed. The terms of reference form part of the Board charter and can be viewed on Sasol’s website. Adequate processes and structures have been implemented to assist the Committee in providing oversight and ensuring the integrity of financial reporting, internal control and other governance matters relating to subsidiaries. Although only required to meet at least twice a year, the Committee has met 4 times during the financial year and has meetings with the internal and external auditors once every quarter without management being present.
Membership and resources of the audit committee 3.2
Audit committee members should be suitably skilled and experienced independent non-executive directors
applied
The Audit Committee consists of 5 independent, non-executive members. The Chairman of the Board is not a member of the Committee. Members of the Committee are elected by shareholders at the annual general meeting. All Committee members are financially literate and have extensive Audit Committee experience. Mr C Beggs is designated as the Committee’s financial expert in accordance with the SEC rules.
3.3
The audit committee should be chaired by an independent non-executive director
applied
The Chairman of the Audit Committee is an independent non-executive director.
applied
The Audit Committee oversees the integrated reporting process and reviews the audited financial statements. The Committee relies on the work of the Risk and SHE Committee, responsible for reviewing the disclosure of sustainability matters in the Integrated Report. The Risk and SHE Committee also ensured that external assurance providers were engaged as appropriate, on material sustainability matters.
Responsibilities of the audit committee 3.4
The audit committee should oversee integrated reporting
11
Governance principle
3.5
The audit committee should ensure that a combined assurance model is applied to provide a coordinated approach to all assurance activities
“apply or explain”
application by Sasol
applied
The group maintains a system of internal financial control that is designed to provide assurances on the maintenance of proper accounting records and the reliability of financial information used within the business and for publication. The system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. A combined assurance approach has been implemented that assists in addressing control over the key risks facing the group. Such risks and their mitigating controls are identified and controlled by management, within a risk framework determined by the Risk and SHE Committee, and the process is monitored and evaluated under the direction of internal audit. The Audit Committee has oversight and monitors (on a quarterly basis) the co-ordination of assurance activities ie, the combined assurance model.
applied
On an annual basis the Audit Committee satisfies itself of the expertise, resources and experience of the company’s finance function and this is reported on in the Audit Committee’s report.
Internal assurance providers 3.6
The audit committee should satisfy itself of the expertise, resources and experience of the company’s finance function
JSE 3.84(g) and (h)
All issuers must have an executive financial director. The JSE may, at its discretion, when requested to do so by the issuer and due to the existence of special circumstances, allow the financial director to be employed on a part time basis only. This request must be accompanied by a detailed motivation by the issuer and the audit committee.
complied
The Company employs an executive financial director on a full time basis (CFO). The Audit Committee annually satisfies itself of the appropriateness of the expertise and experience of the CFO.
applied
The Audit Committee is responsible for the appointment and dismissal of the Chief Assurance Officer as well as the performance assessment of the Chief Assurance Officer and internal audit. The internal audit plan is approved by the Committee.
The audit committee must consider on an annual basis and satisfy itself of the appropriateness of the expertise and experience of the financial director and report thereon in the annual report. The fact that the audit committee has executed this responsibility must be clearly stated in the annual report. 3.7
The audit committee should be responsible for overseeing of internal audit
12
Governance principle
3.8
The audit committee should be an integral component of the risk management process
“apply or explain”
application by Sasol
applied
The Risk and SHE Committee is responsible for the oversight of the risk management process, however the Audit Committee is an integral component of the risk management process in that it is within the Audit Committee’s mandate to specifically have oversight on: • financial reporting risks; • internal financial controls; • fraud risks as it relates to financial reporting; and • IT risk as it relates to financial reporting. The Chairman of the Audit Committee is also a member of the Risk and SHE Committee.
applied
The Audit Committee nominated the external auditor for appointment and applies the principle and recommendations pertaining to the external auditor as outlined.
applied
The Audit Committee reports to the Board on its activities each quarter and approves the Integrated Report as delegated by the Board. The Audit Committee report is included in the Annual Financial Statements.
External assurance providers 3.9
The audit committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process Reporting
3.10
The audit committee should report to the board and shareholders on how it has discharged its duties
4
The governance of risk The board’s responsibility for risk governance
4.1
The board should be responsible for the governance of risk
applied
The Board is ultimately accountable for risk and through the Risk and SHE Committee has oversight of the enterprise risk management process in Sasol. The Board is responsible for the governance of risk and delegates oversight of risk management to the Risk and SHE Committee. The Risk and SHE Committee and the Audit Committee work closely to ensure that risk management complies with the relevant governance requirements, standards and that it is working effectively.
4.2
The board should determine the levels of risk tolerance
applied
The enterprise risk management policy, process and methodology, as adopted by the Board and the Risk and SHE Committee, includes the 13
Governance principle
“apply or explain”
application by Sasol
determination of levels of financial risk appetite and tolerance and a process to ensure that risks are taken within the accepted appetite and tolerance levels. 4.3
The risk committee or audit committee should assist the board in carrying out its risk responsibilities
applied
See principle 4.1. The Risk and SHE Committee meets at least 4 times per year to assist the Board in carrying out its risk management responsibilities. The Committee comprises executive and non-executive directors and adheres to the minimum number of members proposed. The performance of the Committee is evaluated annually by the Board.
applied
Oversight of risk management at an operating model entity (OME) level takes place through the accountable executive and executive committees, supported by the Risk and SHE function headed by Sasol’s Senior Vice President: Risk and SHE, who has suitable experienced and is an attendee of the Risk and SHE Committee and is responsible for ensuring that an enterprise risk management process is in place.
Management’s responsibility for risk management 4.4
The board should delegate to management the responsibility to design, implement and monitor the risk management plan
Risk assessment 4.5
The board should ensure that risk assessments are performed on a continual basis
applied
Sasol’s enterprise risk management process entails the determination and development of OME risk profiles. Risks are considered at a group level through the management of top risks and emerging risks that impact Sasol’s ability to achieve its strategic objectives. Risks at OME level are considered in achieving business objectives that are aligned to the Sasol group strategy. Risks at the process level also include the management of operational, project, financial and legal compliance risks.
4.6
The board should ensure that frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks
applied
The Board and Risk and SHE Committee have approved the enterprise risk management process and methodology and are satisfied that it is in accordance with best practice and suitable to increasing the probability of anticipating unpredictable risks. Emerging risks are identified and tracked in Sasol.
applied
See principle 4.5.
Risk response 4.7
The board should ensure that management considers and implements appropriate risk responses
14
Governance principle
“apply or explain”
application by Sasol
Risk monitoring 4.8
The board should ensure continual risk monitoring by management
applied
See principle 4.5.
applied
The Board, through the Risk and SHE Committee receives assurance with regard to the effectiveness of the risk management process. Internal Audit undertakes an annual audit of the risk management process in Sasol.
applied
Adequate and effective disclosure is made in the Integrated Report and the Form 20F filed with the Securities Exchange Commission.
applied
The Board is ultimately accountable for the governance of IT and through the Risk and SHE Committee and Audit Committee, oversees and monitors the governance of IT in the group. The information management function is accountable for the operational governance of information management (IM), which includes IT, in the Sasol group. The IM strategy is aligned to Sasol business needs and sustainability objectives. The IM charter is in place and best practice frameworks have been adopted, including Information Technology Infrastructure Library (ITIL) and ISO17799. The Business and Functional Integration Committee and Combined Assurance and Disclosure Committee, subcommittees of the GEC provided oversight and executive direction in line with the group’s IM strategy, including IT investment, efficiency and effectiveness, ensuring an appropriate control environment over new and existing business processes and ensuring Sasol remains competitive in relation to technology. Going forward, the Investment Committee (also a subcommittee of the GEC), together with the Combined Assurance and Disclosure Committee, will provide the required oversight, taking into consideration that the Business and Functional Integration Committee was dissolved with effect from
Risk assurance 4.9
The board should receive assurance regarding the effectiveness of the risk management process
Risk disclosure 4.10
The board should ensure that there are processes in place enabling complete, timely, relevant, accurate and accessible risk disclosure to stakeholders
5
The governance of information technology
5.1
The board should be responsible for information technology (IT) governance
15
Governance principle
“apply or explain”
application by Sasol
1 July 2016. The Audit Committee and Risk and SHE Committee assist the Board in overseeing IM performance against an approved governance framework. Assurance is provided that IT controls in place are effective, IT risks are addressed and the return on major IT investments, aligned to Sasol’s strategy, is monitored. External auditors and internal audit perform assessments as part of their audit of IM and IT related controls. All significant IM and IT related audit findings are reported to the Audit Committee and the Board and managed accordingly. The IM risk management framework is aligned to the group risk management framework, including disaster recovery measures. All technology solutions impacting financial reporting are part of the internal and external auditing scope. 5.2
IT should be aligned with the performance and sustainability objectives of the company
applied
See principle 5.1.
5.3
The board should delegate to management the responsibility for the implementation of an IT governance framework
applied
See principle 5.1. A suitably qualified Chief Information Officer (Senior Vice President: Information Management) is appointed and reports to the CFO.
5.4
The board should monitor and evaluate significant IT investments and expenditure
applied
See principle 5.1.
5.5
IT should form an integral part of the company’s risk management
applied
See principle 5.1.
5.6
The board should ensure that information assets are managed effectively
applied
Measures to ensure information security and the protection of personal information are in place. Controls to ensure that information is protected have been established and responsible persons for information risk and security have been appointed. Non-disclosure agreements are signed by all employees and contractors working with Sasol information assets.
5.7
A risk committee and audit committee should assist the board in carrying out its IT responsibilities
applied
See principle 5.1.
6
Compliance with laws, rules, codes and standards
6.1
The board should ensure that the company complies with applicable laws and considers adherence to non-
applied
Sasol policy requires all group companies and their directors and employees to comply with all applicable laws. Legal compliance systems 16
Governance principle
“apply or explain”
binding rules, codes and standards
application by Sasol
and processes are in place and are continuously improved to mitigate the risk of non-compliance with the laws in the various jurisdictions in which Sasol does business. The NGSE Committee receives regular reports on compliance matters and to the extent that legal and regulatory matters have an impact on the financial statements, risk management or sustainability, reports are presented to the Risk and SHE Committee, as well as the Audit Committee, as appropriate.
6.2
The board and each individual director should have a working understanding of the effect of the applicable laws, rules, codes and standards on the company and its business
applied
Directors attend induction sessions and ongoing director development takes place.
6.3
Compliance risk should form an integral part of the company’s risk management process
applied
Specific areas of law have been identified as key group legal compliance risk areas and risk mitigation and control steps have been identified for each of these areas. Sasol has a compliance department headed by a suitably skilled and experienced Chief Compliance and Ethics Officer who reports directly to the Senior Vice President: Governance, Compliance and Ethics.
6.4
The board should delegate to management the implementation of an effective compliance framework and processes
applied
See principle 6.1 and 6.3. The Board and its committees continue to monitor the implementation of the company’s legal compliance policy and processes closely. The Combined Assurance and Disclosure Committee oversees the group’s legal compliance programme.
7
Internal audit
applied
The group has an internal audit function that covers its global operations. Internal audit is responsible for amongst others, assisting the Board and management in maintaining an effective internal control environment, ensuring the integration of assurance provided and monitoring the adequacy and effectiveness of combined assurance over Sasol’s risk management process. An internal audit charter is in place and outlines the responsibilities of the internal audit function.
The need for and role of internal audit 7.1
The board should ensure that there is an effective risk based internal audit
17
Governance principle
“apply or explain”
application by Sasol
Internal audit’s approach and plan 7.2
Internal audit should follow a risk-based approach to its plan
applied
The three year rolling audit plan, updated as appropriate to ensure it is responsive to change, is based on an assessment of risk areas identified by internal audit and management, as well as focus areas highlighted by the Audit Committee, GEC and management. The internal audit function reports directly to the Audit Committee in terms of the Committee’s mandate to evaluate the effectiveness of internal control. The charter of the internal audit function gives the Chief Assurance Officer direct access to the Joint CEOs, the CFO, the Chairman of the Audit Committee and the chairmen of the other Board committees. The Chief Assurance Officer reports administratively to the Executive Vice President responsible for Advisory and Assurance services and Company Secretary. The Chief Assurance Officer has unfettered access to Board and committee minutes and submissions and risk registers of Sasol’s businesses and functions and attends executive management meetings as and when required. Internal auditors may ask to attend an executive management meeting if required in the execution of their duties. The internal audit function is required to undergo an independent quality review at least every four years.
7.3
Internal audit should provide a written assessment of the effectiveness of the company’s system of internal controls and risk management
applied
Internal audit forms and integral part of the combined assurance model as internal assurance provider. Strategic, operating, financial reporting and compliance controls reviewed include: the information management environment; the reliability and integrity of financial and operating information; the safeguarding of assets, including economic crime prevention; the effective and efficient use of the company’s resources; and the completeness and accuracy of matters reported in the Integrated Report. Internal audit reports on and presents material findings and reports on the internal control environment to the Combined Assurance and Disclosure Committee and the Audit Committee quarterly.
7.4
The audit committee should be responsible for overseeing internal audit
applied
See principle 7.2. Internal audit was subjected to an external review in 2014 and it was concluded that Internal audit generally conforms to the International Standards for the Professional Practice of Internal Auditing of the Institute of Internal Auditors and using an internationally accepted maturity assessment model defined Internal Audit as a “Significantly 18
Governance principle
“apply or explain”
application by Sasol
Leading Edge” Internal Audit function. Internal audit’s status in the company applied
See principle 7.2.
The board should appreciate that stakeholders’ perceptions affect a company’s reputation
applied
The Board, assisted by the NGSE Committee, is responsible for monitoring the relationship between management and the stakeholders of the company. The Board, through the NGSE Committee, as part of its social and ethics mandate under the Companies Act considers issues around stakeholder perceptions. The NGSE Committee has oversight of stakeholder engagement and management. Stakeholder engagement programmes facilitate the planning, coordination and execution of stakeholder engagement more effectively. Sasol strives to ensure a systematic and integrated approach to stakeholder engagement across the group. Through regular reporting to the NGSE Committee, the Board is equipped with the necessary information to enable it to take the legitimate interests and expectations of stakeholders into account in its decision-making. It is a business imperative that Sasol understands and is responsive to the needs and interests of our key stakeholder groups which includes: employees and their representatives; government and regulators; shareholders; the communities around our operations; suppliers and customers; and business partners. The individual stakeholders within these groups are highly diverse, with sometimes competing interests. Sasol is therefore constantly seeking to improve the way in which we engage with our stakeholders to effectively respond to this complexity and diversity.
The board should delegate to management to proactively deal with stakeholder relationships
applied
See principle 8.1. As part of our efforts to continually improve, Sasol focused on further development of an integrated “One Sasol” approach to stakeholder engagement. This will ensure a more systematic and integrated approach to stakeholder engagement across the group and will enable increased assurance to the Board that all stakeholder issues have been identified, prioritised and appropriately addressed. Interaction with our stakeholders happens during the normal course of business at multiple levels across the Sasol group. The role of the Public Affairs Function, the custodian of the stakeholder engagement approach,
7.5
Internal audit should be strategically positioned to achieve its objectives
8
Governing stakeholder relationships
8.1
8.2
19
Governance principle
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application by Sasol
associated processes and standards, ensures a coordinated and consistent approach across the group. The Function acts as an enabler to the organisation with the goal to systematically embed and continuously improve how stakeholders are managed. We have fostered cordial and open relationships with local and international media with a strong focus on proactive reputation management. To ensure the company communicates with its smaller shareholders and those stakeholders who lack access to electronic media, the company publishes and reports on details of its corporate actions and performance (including its interim and final financial results) in the main South African daily newspapers. The company also publishes its most recent financial and operational performance and provides recent historical information, including its annual reports, on its website. 8 The SSR Committee , a subcommittee of the GEC, meets on a quarterly basis to provide strategic direction on group-wide stakeholder relations, to ensure the achievement of balanced and integrated economic, social and environment performance. The Joint CEOs, the CFO and Investor Relations function conduct regular presentations on the group’s performance and strategy to analysts, institutional investors and the media in South Africa, North America and Europe. Sasol’s investor relations function maintains regular contact with the investment community and analysts. Sasol invites all shareholders to attend its annual general meeting and also facilitates participation by way of focussed proxy solicitation. Electronic participation is available at shareholders meetings. Our analysis of the needs of our external stakeholders in each of the countries in which we operate is generally good. There are areas that require further attention in each region. 8.3
The board should strive to achieve the appropriate balance between its various stakeholder groupings, in the best interest of the company
applied
See principle 8.1.
8.4
Companies should ensure the equitable treatment of shareholders
applied
See principle 8.2.
8.5
Transparent and effective communication with stakeholders is essential for building and maintaining
applied
See principles 8.1 and 8.2.
8
Sustainability and Stakeholder Relations Committee 20
Governance principle
“apply or explain”
application by Sasol
their trust and confidence Dispute resolution 8.6
The board should ensure that disputes are resolved as effectively, efficiently and expeditiously as possible
9
Integrated reporting and disclosure
applied
Sasol strives to resolve disputes with its stakeholders effectively and expeditiously. The company investigates and implements alternative resolution mechanisms where possible, before instituting litigation.
Transparency and accountability 9.1
The board should ensure the integrity of the company’s integrated report
applied
The Board, through the Audit Committee, ensures that the necessary controls are in place to verify and safeguard the integrity of the Integrated Report. The Risk and SHE Committee, in support of the Audit Committee, evaluates the sustainability disclosures and ensure that material matters are independently assured as appropriate.
9.2
Sustainability reporting and disclosure should be integrated with the company’s financial reporting
applied
Sasol produces an Integrated Report annually, incorporating sustainability and financial reporting.
9.3
Sustainability reporting and disclosure should be independently assured
applied
See principle 9.1.
21
