Evolve

Evolution in the natural world is a slow process. But in the hyperconnected world in which we live and work, it’s
fast – and becoming faster all the time. As an example, twenty years ago, very few people had ever heard of the ‘Internet of Things’. Ten years ago, the term ‘Industry 4.0’ had not yet been coined. At the start of 2020, few people had paid attention to terms such as coronavirus, social distancing, lockdowns or infection waves. Yet today, these terms are part of our everyday vocabulary, showing just how fast the world around us is changing.

In response to our rapidly changing landscape, five years ago, we embarked on a strategy of intentional evolution, which involved diversifying our product portfolio in higher margin segments. By 2020, despite market challenges, we had essentially met and in many ways, exceeded this ambition.

Evolution is based on a series of events, processes and responses. Around the world, people are responding to natural resources constraints by seeking responsible alternatives to non-renewables and solutions that are truly sustainable from seed to final product.

We are responding to these needs by building on our success in intentional evolution to accelerate an enhanced journey of evolution aligned with our Thrive25 strategy. We are doing so from a foundation based on a coalition of diverse perspectives and expertise; as well as a history of seeking out and investing in breakthroughs that enable lasting outcomes for our partners and a lighter footprint on the world. We are building on these to ensure that every solution we create supports our goal of making everyday products more sustainable and that we accelerate meaningful change.

Reimagine

Stars form when celestial clouds collapse, feeding a rotating disc of gas and dust into a dense, hot central core. Amongst other things, pulsating stars give off carbon, a key ingredient for life as we know it. From chaos, something beautiful – and essential – is created.

We can view this as a metaphor for the coronavirus pandemic that infected and affected people regardless of nationality, class or wealth, leaving intense disruption in its wake. However, it also ushered in a global drive to reimagine our way of being on the planet. A new agenda for change is emerging, gaining traction and raising questions that will not go away.

Questions like: How do we reimagine a collective future where changed behaviours will allow us to live more in balance with nature than before? How do we

maintain and even intensify the sense of connection, caring and community that was one of the unexpected, but welcome, impacts of the pandemic? How do we deal with the uncertainty on the horizon when future surges of Covid-19 occur?

At Sappi we are taking bold, decisive action to respond to these challenges by extracting the full potential of trees and woodfibre to develop practical innovations for everyday impact and innovate what we should, not just what we can. We’re also establishing and maintaining proactive dialogue with all our stakeholders as well as working with and supporting local communities.

In doing so, we can not only create a more sustainable future, but also unlock significant long-term value for all our stakeholders.

Resilience

Rocks are the ultimate symbol of resilience. They are fused together over time from solid crystals of different minerals. These natural processes bind them all together, imparting strength and resilience. But even rocks are shaped and reshaped over time by natural forces like water, wind and sun.

They’re a reminder that none of us are impervious to the global forces shaping our world. Forces like climate change, urbanisation, social inequality and of course, the new reality brought about by the coronavirus pandemic and Covid-19.

We’ve proven our resilience to succeed in the ‘new normal’ and we will continue to do so as we work to accelerate our decarbonisation journey, meet the changing needs of rapidly urbanising populations while managing our environmental footprint and promoting a diverse, inclusive workforce.

At Sappi we operate across different geographies, meeting the needs of customers from New Zealand to New Mexico, but our common purpose makes us stronger and more resilient: Sappi exists to build a thriving world by unlocking the power of renewable resources to benefit people, communities, and the planet. This is our inspiration and our call to create a brighter future for the world and for our business.

Emerge

Collectively, the world is drawing a deep breath as we slowly emerge from the coronavirus pandemic and impact of Covid-19.

During the crisis, the safety of our people was our top priority. After which, like many enterprises across the world, our underlying goal was economic survival. To achieve this, we focused on the preservation of liquidity, lowering costs by deferring non-critical capex projects and postponing some annual maintenance shuts. We also took commercial downtime across all segments as required, in order to match supply to demand and prevent the build-up of inventory.

The verb ‘emerge’ is derived from the classical Latin ēmergere, meaning ‘to rise out or up’. We are proud

to say that we are rising from the impact of Covid-19 with strong growth in sales and profitability for the packaging and speciality papers segment, quickly recovering dissolving pulp market and steady month-on-month improvement for graphic papers.

As OneSappi we are steely in our determination to emerge from survival mode back onto a growth curve. A curve based on our strategy of diversifying our product portfolio into higher margin and growing segments – a strategy fully justified during the events of the past year.

Doing so is challenging, but we believe we can realise our vision of a thriving world by collaborating with all our stakeholders to create solutions for our collective needs and emerge stronger than ever before.

Momentum

Linear momentum is defined as the product of a system’s mass multiplied by its velocity. The greater an object’s mass or the greater its velocity, the greater its momentum. In other words, momentum is about both magnitude and direction.

It can be difficult to maintain momentum in times of profound change or crisis, but it’s important to do so. That’s because action creates movement which in turn can create unanticipated opportunities.

Recognising this, at Sappi we responded to the coronavirus pandemic and Covid-19 in order to keep our forward momentum. We swiftly implemented a comprehensive Covid-19 action plan that ensured the health and safety of our employees and enabled us to operate in a safe, uninterrupted manner where demand permitted. Working closely with our

customers and suppliers we systematically increased activity and output in response to improved market demand. Our support for local communities helped mitigate the impact of the pandemic and the ensuing socio-economic consequences on them.

Looking ahead, we are confident that we can accelerate our momentum to navigate forward: We have the mass in the form of wide-ranging expertise, extensive infrastructure, strong foundation of research and development, together with our range of sustainable solutions produced from renewable woodfibre. And we have the velocity in the form of our ambitious but achievable Thrive25 strategy, which allows us to take advantage of the changing dynamics between the environment, consumers and the products they require. Above all, our passionate, committed people provide the impetus to power us forward.

Corporate governance

Sappi is committed to the highest standards of corporate governance, which form the foundation for the long-term sustainability of our company and creation of value for our stakeholders.

Good governance at Sappi contributes to living our values through enhanced accountability, a transparent and ethical culture, strong risk management, a focus on effective control of the business, legitimacy and good performance. Governance is one of our key enablers to unlocking and protecting value, as we optimise the use of our capitals, address our key risks whilst taking advantage of exciting opportunities (refer to Risk management), whilst minimising the negative impacts of trade-offs that have to be made, as set out in the presentation of Our key material issues. The group endorses the recommendations contained in the King IV Code on Corporate Governance (King IV) and applies the various principles in the achievement of the following good governance outcomes.

An application register of how Sappi applies the King IV principles is provided on the group’s website (www.sappi.com).

The group is listed on the JSE Limited and complies in all material respects with the JSE listings requirements, regulations and codes.

The board of directors

The basis for good governance at Sappi is laid out in the board charter, which sets out the division of responsibilities between the board and executive management. The board creates and protects sustainable value by collectively determining strategies, approving major policies and plans, taking responsibility for risk management, and providing oversight as well as monitoring, to help to ensure accountability. The board is satisfied that it has fulfilled its responsibilities in accordance with its charter for the reporting period.

For further information about the board and the board charter please refer to www.sappi.com.

The Sappi board and diversity

Sappi operates globally and across a variety of markets, jurisdictions and cultures, requiring a diverse mix of experience, skills, gender, age and backgrounds. It is important that our board composition reflects this diversity, both in a South African context as well as globally. Diversity gives Sappi access to an increased range of talent, which helps to provide insight into the needs and motivations of a broader stakeholder base.

Directors’ independence (%)   Directors’ age (%)
 
Diversity (%)   Directors’ tenure (as at year end) (%)
 

Board experience (Sappi’s board members have experience across multiple industries and leadership roles) (%)

The composition of the board and attendance at board meetings and board committee meetings is set out in the table below for the year ended September 2020:

      Board       Board committees     AGM  
Name Appointed (Retiring) from board       Audit and Risk   Nomination and Governance   Human Resources and Compensation   SETS % attendance during tenure    
Independent non-executives                            
BR Beamish              
100
 
MA Fallon              
100
 
JM Lopez                  
100
 
NP Mageza              
82
 
ZN Malinga                  
100
 
JD McKenzie (31 Dec 2019)            
83
   
B Mehlomakulu                
100
 
MV Moosa            
100
 
KR Osar (31 Dec 2019)                
100
   
RJAM Renders                
100
 
Sir Nigel Rudd  
91
 
JE Stipp                
100
 
Executives                            
SR Binnie (CEO)      
100
 
GT Pearce (CFO)                
100
 
Lead director Committee member (present)
Chairman   Ex officio
Absent By invitation Indicates appointed to committee 01 August 2020

Strategic focus areas

In addition to the standard items on the board’s agenda, the 2020 focus areas included:

All the top risks as well as emerging risks have been focused on by the board during 2020.

The following specific areas will be added to the board’s agenda in 2021:

Induction and training of directors

Following appointment to the board, directors receive induction and all directors receive training tailored to their individual needs, when required.

Stakeholder communication

The board is responsible for presenting a balanced and understandable assessment of the group’s position in reporting to stakeholders. The group’s reporting addresses material matters of significant interest and is based on principles of openness and substance over form. The reporting includes information on key trade-offs that have to be made. Various policies have been developed to guide engagement with Sappi’s stakeholders such as the Group Stakeholder Engagement policy and Group Corporate Citizenship policy on www.sappi.com/policies. Sappi has a policy addressing Alternate Dispute Resolution (ADR) and relevant ADR clauses are generally included in contracts with customers and suppliers. There have been no requests for information for the period under review in terms of the Promotion of Access to Information Act (South African legislation).

Refer to Our key relationships for more information.

Sappi board and management committees

Board and management committees have been established and are discussed below.

Board committees

The board has established committees to assist it to discharge its duties. The committees operate within written terms of reference set by the board.

Audit and Risk Committee

CEO

NP Mageza
(Chairman)

Membership details at September 2020:

  • NP Mageza
  • RJAM Renders
  • ZN Malinga
  • JE Stipp
  • B Mehlomakulu

The Audit and Risk Committee confirms that it has received and considered sufficient and relevant information to fulfil its duties, as set out in the Audit and Risk Committee report.

The external and internal auditors attended Audit and Risk Committee meetings and had unrestricted access to the committee and chairman. The external and internal auditors met privately with the Audit and Risk Committee during 2020

Mr NP Mageza is the Chairman and designated financial expert of the Audit and Risk Committee. Although Mr Mageza was not able to present at the Annual General Meeting (AGM) on 05 February 2020, all the other Audit and Risk Committee members were present. Dr B Mehlomakulu, joined the Audit and Risk Committee with effect from 01 January 2020.

The committee is satisfied that it has fulfilled its responsibilities as set out in its terms of reference.

Key roles and responsibilities

The Audit and Risk Committee consists of five independent, non-executive directors.

The committee assists the board in discharging its duties relating to:

  • Safeguarding and efficient use of assets
  • Oversight of the risk management function
  • Oversight of IT risks, related controls and governance
  • Oversight of non-financial risks and controls, through a combined assurance model
  • Operation of adequate systems and control processes
  • Reviewing the integrity of financial information and the preparing of accurate financial reports in compliance with applicable regulations and accounting standards
  • Reviewing the quality and transparency of sustainability information included in the annual integrated report
  • Reviewing compliance with the group’s Code of Ethics and external regulatory requirements
  • Oversight of the external auditors’ qualifications, experience, independence and performance
  • Oversight of the performance of the internal audit function, this included review of the results of the External Quality Assurance Review performed during 2020
  • Oversight of the performance of the finance function
  • Oversight of taxation policies, congruent with responsible corporate citizenship
  • A formal review of the committee’s operating effectiveness and performance every two years by way of an assessment with feedback being provided to the board

Strategic focus areas

The Audit and Risk Committee helped to create and protect value by providing oversight and guidance for a wide range topics, including the following areas related to Sappi’s strategy:

  • Global Business Systems projects tasked with harmonising diverse systems and processes, in order to achieve streamlined, effective ways of working across the group and the associated cost advantages
  • Investment projects designed to rationalise declining businesses
  • Management’s efforts to maintain a healthy balance sheet
  • Projects to accelerate the group’s ability to take advantage of opportunities in higher margin growth segments, such as in DP, packaging and speciality papers, the biotech and renewable energy fields
  • Review of cyber security incidents impacting on specific outsourced service suppliers
  • Oversight of the establishment of a Control and Assurance Committee, which makes use of combined assurance to focus on risks facing the group
  • Regulatory compliance with global privacy legislation
  • Oversight of a revised approach to providing an overview of risks, including a new method of determining risk appetite and tolerance per risk

Areas of additional oversight for the committee in 2021 will be:

  • Operationalising of the revised approach developed for the risk framework and oversight of risks 
  • The risk topics and related assurance from Sappi’s combined assurance approach 
  • The impact of Covid-19 on the business and feedback on business recovery, liquidity, credit risks and financial reporting  
  • Emerging IT risks  
  • Capital, IT, and business projects governance 

For more information refer to the 2020 Audit and Risk Committee Report in our Annual Financial Statements on www.sappi.com/annual-reports.

Stakeholders

The Audit and Risk Committee has helped to create and protect value for the following stakeholders: employees, customers, shareholders and regulators.

Refer to Our key relationships for further details.

   

Risks

The Audit and Risk Committee has focused on the following top 10 risks:

Safety
Cyclical macro-economic context and competitive industry
Evolving technologies and consumer preferences
Liquidity
Sustainability expectations
Project implementation and execution
Uncertain and evolving regulatory landscape
Employee relations
Climate change
Cyber security

For further details refer to Risk management.

Nomination and Governance Committee

CEO

Sir Nigel Rudd
(Chairman)

Membership details at September 2020:

  • Sir Nigel Rudd
  • MV Moosa
  • MA Fallon

Key roles and responsibilities

The Nomination and Governance Committee consists of three independent directors. The committee considers the leadership and governance requirements of the company including a succession plan for the board. The committee identifies and nominates suitable candidates for appointment to the board in line with Sappi’s policy on the promotion of gender and race diversity at board level, for board and shareholders’ approval. The committee considers the independence of candidates as well as directors. The committee makes recommendations on corporate governance practices and disclosures, and reviews compliance with corporate governance requirements. The committee has oversight of appraising the performance of the board and all the board committees. The results of this process and recommended improvements are communicated to the chairman of each committee and the board. The functioning and performance of Sappi’s board and board committees were assessed externally in 2020 and established that the board and board committees functioned well.

JD McKenzie retired from the board and the Nomination and Governance Committee with effect from the 31 December 2019. MA Fallon was appointed to the Nomination and Governance Committee with effect from 01 January 2020.

Strategic focus areas

The Nomination and Governance Committee helped to protect value by providing oversight and guidance in 2020 over:  

  • Corporate governance
  • Tone at the top
  • Succession plans for senior executives and the board with a focus on board composition
  • Assessment of the board and board committee performance
  • Rotation and replacement of directors’
  • Reviewed the Sappi Limited directors’ shareholdings and dealings in securities
  • Oversight of the appointment of replacements for direct reports to the CEO

A focus area for 2021 will be executive succession planning and board committee chairmanships and memberships.

The committee is satisfied that it has fulfilled its responsibilities as set out in its terms of reference.

Stakeholders

The Nomination and Governance Committee has helped to protect value primarily for the following stakeholders: shareholders and regulators.

Refer to Our key relationships for further details.

   

Risks

The Nomination and Governance Committee focused on governance, independence, and composition of the board, board committees and executive management positions to effectively address all material risks facing the company including all the top ten risks.

For further details refer to Risk management.

Human Resources and Compensation Committee

CEO

MA Fallon
(Chairman)

Membership details at September 2020:

  • MA Fallon
  • NP Mageza
  • JD McKenzie
  • RJAM Renders
  • BR Beamish

Key roles and responsibilities

The Human Resources and Compensation Committee consists of four independent directors. The responsibilities of the Human Resources and Compensation Committee are, among others, to provide oversight of the group’s human capital, determine the group’s human resource policy and strategy, assist with the hiring, and setting of terms and conditions of employment of executives, the approval of retirement policies, and succession planning for the CEO and management. The committee ensures that the compensation philosophy and practices of the group are aligned to its strategy and performance goals, including the objectives of the CEO. It reviews and agrees the various compensation programmes and in particular the compensation of executive directors and senior executives as well as employee benefits. It also reviews and agrees to executive proposals on the compensation of non-executive directors for approval by the board and ultimately by shareholders. The committee is updated on the industrial relations climate, training initiatives and engagement survey results and action items.

JD McKenzie retired from the board and the Human Resources and Compensation Committee with effect from 31 December 2019.

Strategic focus areas

Covid-19 impacts on safety, the business and work from home arrangements were considered. A focus area in 2020 was to review Sappi’s compensation policy and practices to ensure alignment and compliance to the requirements of King IV. The Sappi Limited AGM was held on 05 February 2020 and the requisite ordinary resolutions endorsing the remuneration policy (80% majority) and the implementation reports (83% majority) were passed. This vote by our shareholders, although lower than the prior year, is an endorsement for our ongoing commitment to good governance and disclosure. A malus and clawback policy was developed, considered and approved in 2020. A comparison to peer group pay levels was completed.

The strategic focus areas for the committee in 2021 will be:

  • To maintain high standards of corporate governance in-line with King IV 
  • Feedback on the action points from the Employee Engagement Survey 
  • To review succession and retirement plans for key positions in Sappi 
  • To engage with key stakeholders to discuss areas of mutual concern, including feedback on the remuneration policy and implementation report 

The committee is satisfied that it has fulfilled its responsibilities as set out in its terms of reference.

For more information refer to the Remuneration Report.

Stakeholders

The Human Resources and Compensation Committee has helped to protect value primarily for the following stakeholders: employees, shareholders and regulators.

Refer to Our key relationships and to the Remuneration Report for further details.

   

Risks

The Human Resources and Compensation Committee has focused on the following of the top 10 risks:

Safety
Cyclical macro-economic context and competitive industry
Evolving technologies and consumer preferences
Sustainability expectations
Project implementation and execution
Uncertain and evolving regulatory landscape
Employee relations
Cyber security

Social, Ethics, Transformation and Sustainability Committee

CEO

MV Moosa
(Chairman)

Membership details at September 2020:

  • MV Moosa
  • SR Binnie
  • B Mehlomakulu
  • BR Beamish
  • JM Lopez

Key roles and responsibilities

The SETS Committee comprises four independent non-executive directors, and the CEO. A 100% attendance record was achieved by board committee members for 2020. Other executive and group management committee members attend SETS Committee meetings by invitation. It should be noted that a number of other non-executive directors attend SETS committee meetings ex offico. The Chairmen of the Audit and Risk Committee and SETS Committee attend each other’s committee meetings to avoid unnecessary repetition of discussions.

The committee’s mandate is to oversee the group’s sustainability strategies, ethics management, good corporate citizenship, labour and employment practices, as well as its contribution to social and economic development and, with regards to the group’s South African subsidiaries, the strategic business priority of transformation.

The SETS Committee is supported by the Global Sustainability Council as well as by Regional Sustainability Committees in dealing with day-to-day sustainability issues and helping to develop and entrench related initiatives in the business.

Strategic focus areas

In 2020 the committee:

  • Reviewed feedback from the implementation of a Supplier Code of Conduct intended to enable Sappi to manage our supply chain risks more closely
  • Provided oversight of safety initiatives as well as reviews of serious safety incidents
  • Oversight of progress on developing a group-wide approach for the TCFD
  • Oversight of the development of science-based targets for the group
  • Oversight of external assurance on lost-time injury frequency rate (LTIFR) and emissions data as well as environmental impact analyses for major investment projects
  • Considered trade-offs between:
    – Productivity and safety advantages of mechanisation and the social and human capital implications
    – Financial and natural capitals relating to the use of coal versus other renewable energy fuels for our heating requirements). This included further reductions in the group’s carbon footprint
  • Sappi Southern Africa’s performance against the applicable BBBEE legislation

The committee is satisfied that it has fulfilled its responsibilities as set out in its terms of reference.

The strategic focus areas for the committee in 2021 will be: 

  • Oversight of the TCFD developments
  • Oversight of the implementation of science-based targets and a climate change strategy
  • Development of new biodiversity targets
  • Consideration of feedback about the changes in the safety culture at operating units
  • Improved stakeholder engagement, making use of media developments and opportunities

For more information refer to the SETS Report and to Our global sustainability goals at www.sappi.com.

Stakeholders

Stakeholders: The SETS Committee has a broad spread of stakeholders for which it helps to protect (or create) value: suppliers, customers, employees, regulators, shareholders and society.

Refer to Our key relationships for further details.

   

Risks

The SETS Committee has focused on the following of the top 10 risks:

Safety
Cyclical macro-economic context and competitive industry
Evolving technologies and consumer preferences
Sustainability expectations
Project implementation and execution
Uncertain and evolving regulatory landscape
Employee Relations
Climate change

For further details refer to Risk management.

For more information on sustainability at Sappi refer to the SETS Committee Report and for a summary of the group’s sustainability initiatives at www.sappi.com.

Management committees

The board assigns responsibility for the day-to-day management of the group to the CEO. To assist the CEO in discharging his duties, a number of management committees have been formed. Some of these committees also provide support for specific board committees. The management committees are a key component of Sappi’s second line of defence and assurance. Refer below for additional details of Sappi’s approach to risk, controls and assurance.

Executive Committee

 

This committee comprises executive directors and senior management from Sappi Limited as well as the CEOs of the three main regional business operations, and the DP business. The CEO has assigned responsibility to the executive committee for a number of functional areas relating to the management of the group, including the development of policies and alignment of initiatives regarding strategic, operational, financial, governance, sustainability, social and risk processes. The executive committee meets at least five times per annum.

Disclosure Committee

 

The Disclosure Committee comprises members of the executive committee and senior management from various disciplines. Its objective is to review and discuss financial and other information prepared for public release. It is the ultimate decision-making body, apart from the board, with regards to disclosure.

Treasury Committee

 

The Treasury Committee meets monthly to assess financial risks on treasury-related matters. Specific focus areas in 2020 related to increased liquidity risks resulting from the impact of Covid-19. This is expected to remain a key area for 2021.

Taxation Committee

 

The Taxation Committee meets monthly to discuss and address global taxation matters.

Project Steering Committee

 

For key strategic projects, steering committees are established to oversee successful execution of the project.

Technical Committees

 

The Technical Committees focus on global technical alignment, performance and efficiency measurement as well as new product development.

Group Risk Management Committee

 

The committee is known as the Group Risk Management Team (GRMT) and is mandated by the board to establish, coordinate and drive the risk management process throughout Sappi. It has established a risk management system to identify and manage significant risks. The GRMT reports regularly on risks to the Audit and Risk Committee and the board. Risk management software is used to support the risk management process. During 2020 key initiatives included further development of the group’s risk appetite and tolerance framework, and introduction of a dashboard summarising group risks and trends as precursor for dynamic risk assessment.

Control and Assurance Committee

 

The CAC is supported by the Internal Control function and multi-disciplinary Combined Assurance Workgroups and provides regular oversight and guidance to the business on internal controls and combined assurance for financial, strategic and operational risks. The committee is accountable to the GRMT and the Audit and Risk Committee.

IT Steering Committee

 

The IT Steering Committee promotes IT governance throughout the group and is the highest authority responsible for this aspect of Sappi’s business, apart from the board. The committee has a charter approved by the Audit and Risk Committee and the board. An IT governance framework has been developed and IT feedback reports are presented to the Audit and Risk Committee and the board. Sappi IT has implemented a standardised approach to IT risk management through a group-wide risk framework supported by the use of risk management software. The committee has helped to create value for shareholders in 2020 by its oversight of:

  • Establishment of a digital IT domain comprising ebusiness, data science (advanced analytics) and robotics process automation components
  • Coordination with Group Internal Audit of reviews of the IT security arrangements for specific service providers who experienced or may have been at risk of cyber security attacks
  • Key IT vendor evaluations were completed
  • A third party global IT spend review was conducted
  • Development of a global operational technology (OT) security methodology
  • Established a dedicated global security function
  • Refinement of the IT risk and combined assurance assessment process

Oversight by the committee will continue in 2021 for these IT initiatives, as well as:

  • Integration of the Matane Pulp Mill’s IT system into Sappi’s SAP system
  • Oversight of the preparation for major IT projects including S4 HANA, Synergy (MES) and Pelati (Sales and Operations harmonisation)
  • Testing of a global (OT) security methodology at further sites across the group
  • O365 email security will be enhanced
  • An ISO 27001 maturity assessment will be undertaken
  • Development of a Group Information Security Charter (for use by Sappi’s stakeholders)
  • Expanding the group security function, making use of a cyber skills incubator
  • The continuation of reviews of IT security arrangements for key suppliers

Global Business Systems Council

 

This council meets monthly to provide direction for strategic business improvement projects, in particular, OneSappi harmonisation initiatives; and effective use of resources.

Sustainability Council

 

This council provides direction for Sappi’s efforts to achieve its sustainable value creation objectives.

Brand Council

 

This council coordinates Sappi’s brand communication programme, monitors brand performance and ensures effective brand management to enhance Sappi’s reputation.

Ensuring leadership through ethics and integrity

Sappi is committed to doing business the right way. Trust is created by operating from a commonly accepted set of values, enhancing and protecting our reputation. We require our directors and employees to act with integrity, to be courageous, to make smart decisions and to execute with speed, in all transactions and in their dealings with all business partners and stakeholders.

Code of ethics

Our values underpin the group’s Code of Ethics and commit the group and its employees to sound business practices and compliance with applicable legislation, which help to promote legitimacy.

All new employees receive training on the Code of Ethics and related topics, such as anti-bribery and corruption and anti-competitive practices, as part of onboarding. Refresher training was provided to all employees on the Code of Ethics in 2020.

A Group Supplier Code of Conduct has been developed to help ensure that Sappi’s values and ethical standards are clearly understood and supported by all our suppliers, their first-tier suppliers and other stakeholders.

Actions are taken against employees and suppliers who do not abide by the spirit and provisions of our code. This includes termination of contractual arrangements, and criminal actions.

Refer to www.sappi.com for the Code of Ethics.

Legal compliance programme

The programme is designed to increase awareness of, and enhance compliance with, applicable legislation is in place. The group compliance officer reports twice per annum to the Audit and Risk Committee.

Sappi’s legal compliance programme has been boosted by:

  • The implementation of legal compliance software including Exclaim for Sappi Southern Africa, GEORG Compliance Management for the German mills, and Policy Passport for Group policies and procedures
  • The provision of online training to employees across the group on relevant core legal compliance topics

The use of software tools and the related training and online learning is helping to create and protect value primarily for employees, customers, shareholders and regulators.

Conflict of interests

The group has a policy that obliges all employees to disclose any interest in contracts or business dealings with Sappi to assess any possible conflict of interest. The policy also dictates that directors and senior officers of the group must disclose any interest in contracts as well as other appointments to assess any conflict of interest that may affect their fiduciary duties.

During the year under review, apart from that disclosed in the financial statements, none of the directors had a significant interest in any material contract or arrangement entered into by the company or its subsidiaries.

For more information on how Sappi addresses conflict of interest please refer to the preventing fraud and corruption section of the Code of Ethics at www.sappi.com.

Insider trading

The company has a Code of Conduct for dealing in company securities and follows the JSE Limited listings requirements in this regard.

For further information refer to the Insider trading section of the Code of Ethics which can be found at www.sappi.com.

Reporting on compliance and ethics concerns

Sappi employees and stakeholders can report any potential illegal or non-compliant behaviour they observe directly to senior management, internal audit or legal counsel, or alternatively, report anonymously, via telephone or an online form. Whistle-blower ‘hotlines’ have been implemented in all the regions in which the group operates. The hotline service, operated by independent service providers, enables all stakeholders to anonymously report environmental, safety, ethics, accounting, auditing, control issues or other concerns. Retaliation against whistle-blowers is not tolerated. The follow up on all reported matters is coordinated either by legal counsel or internal audit and reported to the Audit and Risk Committee. The majority of calls and ethics reports received related to the Southern African region. Please refer to the whistle-blower hotline and ethics report graphs for information on the number of hotline calls per 1,000 employees, the categories of hotline calls and ethics reports, and the outcome of the investigations. The hotline report rates, categories of reports and outcomes of cases broadly align with international whistle-blower benchmark data. For more information, refer to the Reporting and whistle-blowing section of the Code of Ethics, at www.sappi.com

Hotline report rate per 1,000 employees per annum

Hotline and ethics cases by category (%)

Hotline and ethics case outcomes (%)

 

Financial statements

The directors are responsible for overseeing the preparation and final approval of the Group Annual Financial Statements, in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.

The group’s results are reviewed prior to submission to the board, as follows:

  • All quarterly results – by the Disclosure Committee as well as the Audit and Risk Committee, and
  • Interim and final results – by external audit.

Risk, controls and assurance at Sappi

Risks facing the group are identified, evaluated and managed by implementing risk mitigations, such as insurance, strategic actions or specific internal controls. Sappi maintains a robust framework of risks and controls which assists in the application of the King IV guidelines and the achievement of governance outcomes by helping to: create an ethical culture; establishing effective control; and promoting legitimacy, all of which help Sappi and its stakeholders to benefit from good performance. The framework includes controls addressing our material matters, by focusing on the main drivers of Sappi and comprises both financial and non-financial controls, which support the achievement of our strategy, within our risk appetite and tolerance levels, across the economic, social and environmental context in which the organisation operates as well as each of the six capitals set out in the IIRC’s model. More information on these capitals and Integrated thinking in the context of Sappi’s sustainable business model can be found on How we create value and Our business model, as well as Our global sustainability goals at www.sappi.com.

The group’s internal controls and systems are designed in accordance with the COSO control framework to support the achievement of the group’s objectives including strategic, operational and financial performance goals, effective and efficient use of resources, safeguarding assets against material loss, integrity and reliability of internal and external financial and non-financial reporting, and compliance with applicable laws and regulations.

Sappi operates a combined assurance framework, which aims to optimise the assurance coverage obtained from management, internal assurance providers and external assurance providers, on the risk areas affecting the group. Combined assurance is overseen by the CAC.

The committee and its Combined Assurance Workgroups (CAWs) provide holistic feedback to the GRMT and Audit and Risk Committee on the state of controls and the quality and coverage of assurance from the various assurance providers across Sappi’s three lines of assurance. The workgroups focused on cyber security risks, retirement fund risks, credit risks, treasury risks, safety, and environmental risks in 2020. In FY2021 the CAWs will assist the CAC to create and protect value by undertaking reviews of combined assurance, risks and controls relating to maintenance, human resources, cyber security, projects and taxation.

    First line of assurance   Second line of assurance   Third line of assurance   Oversight by the board
Risk areas and value drivers, capitals   Business management operations supported by appropriate controls and systems   Monitoring and oversight functions   Independent assurance provided by external audit, internal audit and other assurance providers   Board and sub-board committees

Governance, risk, and controls – general (core business cycles)

     

Control and Assurance Committee management self-assessments

 

Internal audit

 

Audit and Risk Committee

Strategy and vision, competition and markets, socio-political

     

Executive Committee, Group Head Strategy, Global Business Council, Control and Assurance Committee, management self-assessments

 

Internal audit

 

Nomination and Governance Committee

Financial, tax and treasury

     

Control and assurance, accounting standards, taxation, treasury and disclosure committees, management self-assessments

 

KPMG, tax authorities, internal audit

 

Audit and Risk Committee

Legal and compliance

     

Legal compliance programme, Group Compliance Manager

 

Legal compliance audits, internal audit

 

Audit and Risk, SETS, HR and Compensation Committees

IT

 

Day-to-day risk management
activity

Established risk and control environment

Executive, corporate and regional lead teams

Corporate and regional business functions, e.g. sales, finance, IT, HR, purchasing

Business units, e.g. forestry, mills, sales offices

Business unit operations, e.g. production, engineering, controlling, materials management

 

IT Steering Committee, group IT governance functions, management self-assessments

 

KPMG, ISA 3402s, penetration testing, internal audit

 

Audit and Risk Committee

Planet, environment, natural capital

   

Sustainability councils, Environmental and Energy (E4) Global Cluster, GRMT

 

ISO 14001, FSC, PEFC, EMAS, KPMG, Ecovadis Government reviews emissions effluent etc, internal audit

 

SETS Committee

Ethics

   

Group Compliance Manager, ethics surveys, management self-assessments

 

Internal audit

 

SETS Committee, Audit and Risk Committee

People, human resource and transformation

   

Global Human Resource Committee, regional labour forums, employee engagement surveys, management self-assessments

 

BBBEE audits, internal audit

 

Audit and Risk, SETS, HR and Compensation Committees

R&D, intellectual property

     

Group technical cluster, management self-assessments

 

ISO 17025, internal audit

 

SETS Committee

Manufacturing, supply chain management, quality, forestry

     

Technical clusters and platforms, regional safety, health, environment and quality (SHEQ) audits, supplier audits, management self-assessments

 

ISO 9001, ISO 50001, FSC PEFC, SFI®, Matrix, internal audit

 

SETS Committee

Stakeholders, communication, reputation, society

     

Group corporate affairs, sustainability and investor relations functions

 

Internal audit

 

SETS Committee

Safety

     

Group and regional risk management teams, safety audits

 

OHSAS 18000, ISO 22000 regulatory inspections, internal audit

 

SETS Committee

A key element of combined assurance at Sappi is derived from the annual control self-assessments completed by control owners, which helps to protect value for stakeholders by providing management and the board with assurance on the state of controls throughout the group. Control gaps identified through this process are recorded and remediation progress is monitored by management, relevant committees, auditors and the board.

The Audit and Risk Committee advises the board on the state of risk management and controls, as well as assurance, in Sappi’s operating environment. This information is used as the basis for the board’s review, sign-off and reporting to stakeholders, via the annual integrated report and Group Annual Financial Statements, on risk management and the effectiveness of internal controls and assurance within Sappi.

As part of combined assurance in respect of reported information, Sappi has obtained assurance on the data in the integrated report from the following sources:

Internal audit

The group has an effective, suitably resourced, risk-based internal audit department. The department operates in terms of a specific charter from the Audit and Risk Committee and independently appraises the adequacy and effectiveness of the group’s governance, risk management, systems, internal controls and accounting records. Internal audit coordinates combined assurance and reports the findings to local and divisional management, the external auditors, and the Audit and Risk Committee.

The head of internal audit reports to the Audit and Risk Committee, meets with board members, has direct access to executive management and is invited to attend certain management meetings. The role of internal audit at Sappi is set out in the following diagram.

Internal audit value proposition

During 2020, apart from the ongoing focus on financial controls, internal audit helped to create and protect value for Sappi and our stakeholders by completing reviews in support of the following strategic objectives:

The coverage plan for 2020 was substantially achieved despite the challenges presented by the Covid-19 pandemic and associated travel bans and lockdowns. We refocused our audit plan to address possible Covid-19 impacts: including raw materials supply chain, treasury (e.g. cash flow and liquidity), credit risks, financial reporting, cyber risk, and business continuity planning.

In 2021 internal audit will support the achievement of Sappi’s Thrive25 strategic objectives by completing advisory and assurance projects in the following areas:

Internal audit maintains an internal quality assurance programme. In 2020, an external quality assurance review was conducted by the Institute of Internal Auditors (IIA). A Generally Conforms rating was received, which is the highest of the three levels of conformance to the IIA’s standards. The 2020 internal quality assurance review highlighted a need for more attention to the documentation of effectiveness testing. This will be addressed in 2021.

Board assessment of the company’s risk management, compliance function and effectiveness of internal controls and combined assurance

The board is responsible for the group’s systems of internal financial and operational control. As part of an ongoing comprehensive evaluation process, control self-assessments, independent reviews by internal audit, external audit and other assurance providers, were undertaken across the group to test the effectiveness of various elements of the group’s financial, disclosure and other internal controls as well as procedures and systems. Identified areas of improvement are being addressed to strengthen the group’s controls further. The board has assessed the combined assurance provided in 2020. The results of the reviews did not indicate any material breakdown in the functioning of these controls, procedures and systems during the year. The internal controls in place, including the financial controls and financial control environment, are considered to be effective and provide a sound basis for the preparation of the financial statements, annual integrated report and other reports used internally for management decision making.

Company Secretary

The Company Secretary does not fulfil executive management functions outside of the duties of Company Secretary and is not a director. During the year, the board has assessed the independence, competence, qualifications and experience of the Company Secretary and has concluded that she is sufficiently independent (i.e. maintained an arm’s length relationship with the executive team, the board and individual directors), qualified, competent and experienced to hold this position. The Company Secretary is responsible for the duties set out in section 88 of the Companies Act, No 71 of 2008, as amended. Specific responsibilities include providing guidance to directors on discharging their duties in the best interests of the group, informing directors of new laws affecting the group, as well as arranging for the induction of new directors.