ENERGY MANAGEMENT

Energy risks and opportunities

Electricity supply interruptions and/or non-supply pose a risk to the uninterrupted operation of our businesses. It also has the potential to affect our ability to attract talent to outlying areas where we have significant operations, and the quality of life of our employees.

Additionally, Sasol notified the industry that the supply of natural gas will cease around 2028 as its gas reserves in Mozambique will run out, although it announced that it plans to supply methane-rich gas as an alternative to industry until mid-2030.

The main users of natural gas in the group are Safripol (Durban site) and PG Bison (Boksburg site). Both sites’ energy plants can be converted to use alternative fuel sources. However, it will require investment and will be more expensive to operate than natural gas.

By addressing energy supply interruptions and non-supply, we can ensure the continued operation of our businesses and entrench our position with customers. Energy self-generation, using renewable sources, also provides us with an attractive capital allocation opportunity and contributes to climate change mitigation.

Energy mix and consumption

Energy mix

The group uses various energy sources for heat, steam or in processes. Twenty-two per cent of its energy consumption is renewable (biomass and PV), with Unitrans the biggest energy user in the group due to its use of diesel in vehicles.

Diesel consumption

Diesel consumption was 101 ML, a 9% reduction from the prior year, mainly due to lower volumes and kilometres travelled by Unitrans, and a 4% improvement in the division’s fuel efficiency. The lower diesel consumption since FY21 is largely attributable to a continued decline in volumes at Unitrans and a reduction in its fleet size. The restructuring of the division resulted in the closure of low-margin, low-return activities and improved asset utilisation, thus lowering diesel consumption.

Biomass consumption

PG Bison uses biomass to generate energy (heat and steam) for its processes. It typically uses offcuts or shavings from the timber it processes. PG Bison’s biomass used for energy was 115 639 tonnes, a 31% increase from FY24 due to the increased MDF production.

Electricity consumption

Our electricity consumption for the year was 432 601 MWh, a 12% increase compared with last year. Approximately 7% (FY24: 6%) of our electricity was supplied by our PV plants. The increase in electricity consumption was mostly due to the ramp-up of PG Bison’s new MDF line. PG Bison and Safripol account for most of the electricity consumption in the group.

Gas consumption

Our gas consumption amounted to 639 515 GJ (FY24: 631 488 GJ), of which natural gas made up 17%, with the remainder comprising methane-rich gas.

Safripol’s PET plant in Durban is the largest consumer of gas in the group and uses the gas to generate heat for its processes.

CLIMATE CHANGE AND GHG EMISSIONS

Climate change

We recognise the impact of climate change on the planet and support the global climate change goals outlined in the United Nations Framework Convention on Climate Change and the Paris Agreement, which aim to stabilise GHG concentration at a level that would significantly reduce the risks and impact of climate change.

Climate change risks and opportunities

Based on a high-level assessment by a climate change consulting group during FY24, we have deduced the potential impact of climate change on our operations. The framework used for the assessment is one developed by the Task Force on Climate-related Financial Disclosures, which has now been embedded into IFRS S2, which defines two main categories of exposure:

• Transition: risks and opportunities associated with the low-carbon economy transition; and
• Physical: risks and opportunities associated with changing physical climate.

All transition risks and opportunities were assessed against the most ambitious transition scenario developed by the International Energy Agency, called Net Zero Emissions by 2050. The results showed that the highest transition risks for the group were in the areas of policy and legal, specifically in the areas of enhanced reporting obligations and increased pricing of GHG emissions.

From a carbon tax perspective, this risk is currently not material for the group. In FY25, the group’s carbon tax amounted to approximately R11 million. We estimate that this could increase to approximately R10 million in 2035 and R12 million in 2050, based on our assumptions of how the carbon tax rate and allowances may evolve. This includes the continuation of sequestration allowances and excludes potential penalties that may arise from possibly exceeding carbon tax budgets.

For the initial physical risk assessment, 10 key group production sites were selected. The basis for selection was the materiality to group revenue and/or the location of the site in an area known to be affected by climate change dynamics. The risk was measured against the worst of the five scenarios used by the Intergovernmental Panel on Climate Change (IPCC), called Shared Socioeconomic Pathway 5-8.5, for future annual carbon emissions. The following physical risks were considered: fire, water stress and drought, rainfall-induced landslides, extreme rainfall and flooding, river flooding, and extreme cold and heat. The assessment indicated that the overall physical risk at key sites was low to moderate.

From an opportunity perspective, self-generated/internally generated renewable energy provides us with an attractive capital allocation opportunity and mitigates potential interruptions in energy supply, which would enhance our position as a reliable local supplier.

GHG emissions

Our carbon footprint is determined in line with the GHG Protocol Corporate Accounting and Reporting Standard. We continue to follow the operational control approach when consolidating our carbon footprint. We use emission factors from the 2006 IPCC Guidelines. We have aligned with the latest Global Warming Potentials available, as per the IPCC 6th Assessment Report.

We have made the following changes to our assumptions used to calculate GHG emissions:

• We use the DFFE’s emission factor for purchased electricity, which was published in 2023. In prior years, we used the emission factor published by Eskom. Although the DFFE’s most recent emission factor is not aligned with FY25, this emission factor more accurately reflects the increasing renewable energy generation by Independent Power Producers (IPPs) within the electricity grid. IPPs are not considered in Eskom’s emission factor. We have also adjusted our FY23 and FY24 emission factors for purchased electricity to align with the DFFE factors to ensure more meaningful comparisons, which resulted in a restatement of Scope 2 emissions for these years. The DFFE did not publish emission factors before 2022; hence we did not restate prior year emissions.
• We have adjusted the CH₄ and N₂O emission factors for mobile diesel to align with the on-road vehicle emission factors from the IPCC 2006 Guidelines, which resulted in a restatement of Scope 1 emissions for prior years.

Our Scope 1 and 2 GHG emissions for the year were 800 735 tCO₂e, a 4% increase from the prior year. The increased emissions are largely a result of higher production at PG Bison and Safripol, which were partly offset by lower kilometres travelled by Unitrans and increased use of self-generated renewable energy in the group. Increased incremental use of renewable energy resulted in a 1% reduction in emissions from the prior year.

Scope 1 emissions make up 45% of our carbon footprint, with Unitrans the main contributor due to the diesel used in its transport fleet. Scope 2 emissions make up 55% of our carbon footprint, with PG Bison and Safripol the biggest contributors due to the electricity consumption at their plants.

Our Scope 1 and 2 GHG emissions for the year are 8% lower than our FY23 baseline, mostly due to the following:

• the 19 MWp PV capacity installed in FY23 and FY24, which offset 26 081 tCO₂e during the year;
• the completion of the HDPE conversion and extruder project in FY24, which resulted in enhanced energy efficiencies for the plant; and
• lower diesel consumption in Unitrans due to lower volumes and thus kilometres travelled, a reduction in its fleet size following the restructuring, and improved fuel efficiencies.

Carbon absorption

PG Bison’s plantations continue to play a significant role as carbon sinks, and its wood products store carbon long term. The amount of carbon absorbed by the plantations and stored in PG Bison’s wood products is quantified and submitted to the DFFE for validation. This amount of carbon assists in reducing PG Bison’s carbon tax liability annually. The DFFE has approved the 238 344 tCO₂e of carbon absorbed for the 2024 calendar year compared with 205 772 tCO₂e in the 2023 calendar year. In addition to this, the carbon permanently stored in our wood-based decorative panels produced at our operations as well as harvested products in the 2024 calendar year was 526 396 tCO₂e compared with 526 396 in the 2023 calendar year. PG Bison’s carbon emissions during the year were therefore mostly offset by the carbon absorbed through its own operations.

PG Bison applies sustainable forestry management practices, in line with global certification standards as set out by the Forest Stewardship Council (FSC), with only a portion of trees harvested each year in line with the sustainable yield of the plantation. The harvested areas are replanted with young trees every year.

WATER MANAGEMENT

We withdraw most of our water from municipal supply with some water supply from third parties and groundwater/boreholes. In our manufacturing operations, we use water predominantly for our manufacturing processes and cooling, while our logistics operations use water mainly for the washing of vehicles in dedicated wash bays.

Our water risks and opportunities

Potential water interruptions or restrictions may therefore impact our ability to operate continuously. We believe that the near-term risk related to water supply is failing infrastructure rather than availability. During the year, PG Bison’s Boksburg operations were affected by water disruptions due to municipal supply issues, although this was not material on a group level.

There are also several communities around our major operations. Service delivery failures, including water, may affect our employees who live in these communities. Service delivery failures may also result in community unrest, which may impact our operations. We believe that, by proactively mitigating the risks associated with potential water disruptions, we can entrench our position as a reliable local supplier.

Our water management practices

We use a combination of water meters, utility bills and, in some instances, estimations to determine water withdrawals and discharges. We are in the process of moving all water measurements to MOLs.

Our plantations are not irrigated and their water consumption is thus of ground and rainwater. In the case of plantation fires, water is withdrawn from major water bodies, e.g., dams, which we do not measure. PG Bison invests in several initiatives to mitigate the risk of plantation fires.

We adhere to regulatory requirements in terms of water use licences for all our operations, including our plantations.

Where possible, water used in our manufacturing processes is treated on-site and reused. Water used for cooling runs in a circular system to ensure efficient utilisation. In our logistics operations, water used in the wash bays is treated on-site. Effluent is treated to adhere to minimum requirements and sent to third-party wastewater treatment sites or, in some instances, discharged in stormwater drains, where minimum legal requirements are met. The water quality of effluent is tested regularly to ensure compliance with legal requirements.

Water used for general consumption is discharged as a municipal wastewater stream. Because our manufacturing operations are carried out within factories or in covered areas, the impact on groundwater is limited.

Water consumption

Our water consumption increased by 14% during the year, mostly due to the increased production at PG Bison. PG Bison and Safripol account for the largest proportion of water consumption in the group, at 44% and 42% respectively. Approximately 14% of the water withdrawn is reused in our processes.

WASTE MANAGEMENT

Our operations generate waste, mostly through their production processes, of which a significant portion is recycled internally or externally. The bulk of the waste generated in the group is not hazardous in nature.

Our waste risks and opportunities

We are not yet in a position where all our waste is recycled. Although not financially material on a group level, a portion ends up in landfill. There is a risk that, with the reduction of landfill space, we may need to transport waste, at a cost, to landfill sites situated further from our operations, with landfill fees also increasing. Regulations may also reduce the amount of waste companies send to landfills.

We actively pursue the recycling or reprocessing of internally generated waste, saving costs and reducing our environmental footprint, as well as recycling or reprocessing externally generated waste into usable products. This not only reduces raw material costs in some instances, but also delivers on customers’ growing demand for products made responsibly and using recycled materials.

Our waste management practices

Our divisions have waste reporting standard operating procedures at site with data obtained either directly on site or from accredited waste disposal service providers.

Given the diversity of our operations and the different types of waste generated and reused in the group, waste management is site-specific. Our sites have policies in place that detail how waste should be managed on site. Some of our sites have general waste licences, issued by local authorities, for on-site sorting, grinding and shredding. Some of our sites also have hazardous waste licences for the storage of hazardous waste. Some of our sites have active waste recycling programmes, where waste is sorted and removed for recycling.

Hazardous and non-hazardous waste is removed by accredited waste disposal service providers and disposed of at accredited facilities, with safe disposal certificates issued.

Waste recycling and disposal

A significant proportion of the non-hazardous waste generated is reused internally, with the remainder sent to third-party recyclers or disposed of at accredited landfills or other facilities.

During the year, we generated 34 900 tonnes of waste, of which 19 611 tonnes (56%) was reused/recycled. Sleep Group has the highest reuse/recycling rate in the group at 86%. The remaining 15 289 tonnes was sent to accredited landfills or other facilities. Safripol also purchased 1 240 tonnes (FY24: 2 010 tonnes) of PCR PET used to produce recycled PET.

The amount of waste reused/recycled internally reduced by 28% and that by third parties by 7%, mostly due to lower production at Feltex and the reclassification of PET chips and polyolefin solids as product instead of waste in Safripol.

BIODIVERSITY

PG Bison operates commercial forestry plantations in the northeastern and southern Cape areas of South Africa. The forestry businesses consist of North East Cape Forests (‘NECF’), which operates in the Ugie area of the northeastern Cape, and South Cape Forests (‘SCF’), which operates in the George area of the southern Cape. In total, these businesses operate across an area of 96 157 hectares, of which 44 725 hectares comprises commercially afforested plantations. The remainder consists of indigenous vegetation such as grassland, fynbos, wetlands, riparian zones and a limited number of indigenous forests. NECF also operates a commercial herd of cattle as part of a multiple land use approach.

The management of both NECF and SCF is certified by the FSC. The FSC is an international, non-profit organisation that supports environmentally appropriate, socially beneficial and economically viable management of the world’s forests.

Commercial forestry has a potentially negative environmental impact on water, soil and biodiversity. PG Bison recognises the potential impact, and the division’s forestry operational procedures aim to minimise it through detailed operational planning processes that determine the mitigating measures which minimise negative environmental and social impacts.

The management of natural areas is facilitated by a dedicated Conservation Management Plan (‘CMP’) for each plantation. Central to the CMP is the mapping and categorisation of all non-commercial areas on the plantations, using the forestry industry’s Environmental Conservation Database Standards and Methodology. Periodic field visits are used to verify the mapping and classification, as well as the levels of alien weed invasion of conservation areas.

The general objectives of all CMPs are to provide:

• Land cover classification of all areas not planted to commercial plantation compartments.
• Identification of management units.
  Identification of areas with high biodiversity and cultural importance requiring specific management programmes.
• Scheduling of conservation operations for all conservation areas, including weeding, burning and special protection of areas of importance.
• Long-term protection of biodiversity values and attributes throughout the forestry/conservation landscape.

For NECF, a total of 34 Priority Conservation Areas (‘PCAs’) have been identified, totalling more than 18 000 hectares. These include nesting sites of endangered bird species, habitats of rare bird species, significant wetland systems and rare plant communities. For SCF, a total of eight PCAs have been identified, totalling 6 100 hectares. These include indigenous forests, wetland, fynbos and a peat bog.

Numerous rare, threatened and endangered bird, plant, mammal and fish species have been recorded in PG Bison’s plantations and, wherever necessary and feasible, forest management planning and practices consider and mitigate the potential negative impact of operations on such species and populations.

Environmental monitoring is conducted periodically to provide valuable management information on the effect of forest management on the natural environment. Monitoring includes aquatic biomonitoring, water quality monitoring, grassland monitoring, indigenous forest monitoring, observations of rare, threatened and endangered species, and monitoring of cultural heritage sites. Monitoring results and management recommendations from specialists indicate where management practices need to be reviewed and revised to achieve conservation objectives.