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.

Our key material issues

The issues set out on the following pages are those that we believe underpin our strategic risks and opportunities and have the highest potential impact – negative and positive – on stakeholder value. Further information on each of these issues can be found in our 2020 Sappi Group Sustainability Report available at www.sappi.com

How we determine materiality



Principles

Sourcing responsibly

Why it’s material

As a responsible corporate citizen, sourcing ethically is not only the right thing to do, it’s important for value creation and a thriving world. Visibility into the supply chain helps identify issues and risks early and address consumer concerns about issues like child labour, illegal logging, bribery and corruption, among others.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Evolving technologies and consumer preferences

 

Sustainability expectations

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Resource scarcity and growing concern for natural capital
  • Continued erosion of trust in business, coupled with increasing social activism

Key developments in 2020

We continued to move forward with the implementation of the Supplier Code of Conduct. In SEU, 61% total spend is currently covered by agreements into which the provisions of the code are embedded, 10% in SNA and 1% in SSA.

Maintaining ethical behaviour and compliance

Why it’s material

Our reputation as an ethical company – largely determined by the ethical behaviour of our employees and representatives – underpins our ability to unlock further growth opportunities. Accordingly, we view ethics as the foundation of our business. Values and ethics are not only critical to maintain a licence to operate but also for developing stakeholder trust and for driving performance. We place a high premium on adherence to ethical behaviour as encapsulated in our Code of Ethics. The latter creates clear boundaries and a consistent framework across cultures and geographies as to what constitutes ethical behaviour

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Uncertain and evolving regulatory landscape

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Continued erosion of trust in business, coupled with increasing social activism

Key developments in 2020

In line with our emphasis on ethical behaviour, we implemented a comprehensive training programme across all regions in 2020. Topics covered ranged from environmental law to anti-fraud and corruption. These training initiatives – incorporating relevant and practical examples – have been implemented to inculcate the correct ethical behaviour and responses to avoid a tick-box approach to ethics.

Prosperity

Containing costs and ensuring appropriate capital allocation

Why it’s material

Unless we grow profitably, we cannot achieve our vision of being a sustainable business with an exciting future in woodfibre that provides relevant solutions, delivers enhanced value and is a trusted partner to all our stakeholders.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Cyclical macro-economic context

  Liquidity
 

Project implementation and execution

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Changing consumer and employee profiles
  • Growing populations with increasing rates of urbanisation

Key developments in 2020

During Covid-19, all our production, warehousing and distribution facilities were designated as essential throughout our operating geographies. Other than the temporary closure of our Condino Mill in Italy for 10 days, all facilities were operational in alignment with lockdown and social distancing guidelines. However, the actions taken by governments across the world to reduce the spread of the virus created significant uncertainty in our markets and in general reduced demand or made it difficult for product to reach its destination. This necessitated the implementation of various cost saving measures across our operations to preserve liquidity and cash flow.

These measures included furloughing a number of employees in Europe and North America on temporary unemployment; curtailing excess production including temporarily shutting Paper Machine 7 (PM7) at our Lanaken Mill and applying measures to optimise working capital. Where possible, we deferred non-essential capital expenditure. Due to government lockdown regulations which stopped all construction projects, we declared force majeure at Saiccor Mill (discussed further in the Covid-19 impacts and our response and Meeting long-term demand growth for cellulosic-based fibres). We also shifted annual maintenance shutdowns at Ngodwana, Saicccor and Tugela Mills to as late as possible and postponed other material discretionary projects including Ngodwana Energy, our sugar extraction plant at Ngodwana Mill, the fuel rod plant at Tugela Mill and the planned furfural pilot plant at Saiccor Mill.

In line with our focus on taking decisive action to reduce costs and respond to market demand and disclosure in 2019 that we would review our assets in Europe and North America, we permanently shut PM9 and major components of the energy complex at our Westbrook Mill. We shifted PM9’s base paper production to Cloquet and Somerset mills, thereby leveraging our premium papermaking assets in the region and continuing to provide an integrated solution to our global casting and release paper customer base. The restructuring has allowed us to compete more effectively and enabled Westbrook Mill to focus on its core competencies of specialty coating, texture application and customised product designs, restoring the site as a healthy financial contributor.

In addition, following a thorough consultation process, we reached an agreement with mill employees to permanently close PM2 at Stockstadt Mill (coated woodfree paper production capacity of 240,000 tpa). The mill will now focus on its growing uncoated woodfree offering.

The actions taken mean that both mills are now better placed to compete in the marketplace and deliver increased returns.

Enhancing efficiency through machine learning and digitisation

Why it’s material

According to McKinsey, companies that are digital leaders in their sectors have faster revenue growth and higher productivity than their less digitised peers. They improve profit margins three times more rapidly than average and, more often than not, have been the fastest innovators and the disruptors and transformers of their sectors.1

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Industry 4.0

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Globalisation and high levels of connectivity
  • The rapid pace of technological innovation, including AI

Key developments in 2020

We continued to promote our data driven culture to drive productivity and profitability. This involves standardising and consolidating regional data science platforms and digital transformation strategies to support our global Industry 4.0 initiatives, including machine learning and advanced analytics technologies. We are making extensive use of digital twins to promote discovery, interpretation, and communication of meaningful patterns in data.

In the Sappi context, a digital twin is a virtual model of a process, or semi-finished or finished product. By pairing the virtual and physical worlds, we can analyse data and monitor systems, thereby anticipating and avoiding problems before they occur, preventing downtime, developing new opportunities and planning for the future through the use of simulations.

As an example: we have created a digital twin for every DP batch produced at Saiccor Mill. Each batch contains information relating to all the upstream processes that contributed to that batch, including timber, liquor and digester cook, washing and bleaching. This digital twin data ensures that process engineers have all the necessary data available in context to analyse issues in the plant.

Other workstreams include testing the suitability of using microdots for tracking and timber tracing from felling to the chip pile at the mill.

1 The McKinsey Global Institute: Digitization, AI, and the future of work: imperatives for Europe.

Meeting long-term demand growth for cellulosic-based fibres

Why it’s material

Our extensive capacity in the DP sector is aligned with our strategy of diversifying into higher margin segments and positioning ourselves for future growth. This is highlighted by the completion of DP debottlenecking projects at Cloquet, Saiccor and Ngodwana Mills in recent years, thereby expanding our capacity to offer consumers fibres manufactured from a natural, renewable resource rather than from fossil fuels.

Global quarantine measures in 2020 negatively impacted textile and apparel markets, with our DP sales falling 18% year-on-year. However, Hawkins Wright1 expect global textile markets to have recovered fully by 2022. This is partly due to the fact that while demand for office and formal wear remains subdued, many retailers are reporting strong demand growth for casual clothing and leisure wear, items which typically comprise a higher proportion of wood-based textile fibre than in the office wear segment.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Evolving technologies and consumer preferences

  Liquidity
 

Project implementation and execution

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Changing consumer and employee profiles
  • Growing populations with increasing rates of urbanisation

Key developments in 2020

We continued with our combined ZAR7.7 billion Vulindlela capacity expansion and upgrade project at Saiccor Mill in KwaZulu-Natal in the first six months of FY2020. However, because of the coronavirus outbreak and nationwide lockdown, we declared force majeure at the end of March, at which stage the project was 65% complete. Work on the expansion recommenced fully in July and completion is now anticipated in Q3 FY2021.

In 2020, in view of our decarbonisation plans (discussed below in the plant tab), the decision was made to switch to magnesium sulphite technology, which is significantly more environmentally friendly than the calcium sulphite process currently in place at Saiccor Mill. As the current calcium sulphite pulp line is the source of lignin raw material, this switch will result in the permanent closure of LignoTech South Africa (SA), a joint venture between Borregaard and Sappi. Following the conversion, pulping chemicals will be recovered and reused resulting in a more efficient and environmentally friendly plant. The conversion of the pulp line will be completed mid-2021. In the interim, the calcium sulphite pulp line will be operated to some extent, resulting in limited production of liquid lignin by LignoTech SA until the permanent closure comes into effect – this will take place when the conversion of the calcium line is completed.

1 Hawkins Wright: The outlook for DP: Demand, supply, costs and prices, September 2020.

Increasing the sustainability of our products through circular design and adjacent markets

Why it’s material

Natural resources are the life force of our planet. Without many of these resources, life as we know it would not exist. Against this backdrop, we use renewable woodfibre and strive to use the full potential of each tree we harvest to contribute to a biobased circular economy. Our bioproducts are sustainable alternatives extracted from woodfibre to reduce the need for fossil-based materials used in everyday products.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Evolving technologies and consumer preferences

  Sustainability expectations
 

Climate change

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • The move towards a circular economy
  • Climate change continuing to impact businesses and reshape societies
  • Resource scarcity and growing concern for natural capital

Key developments in 2020

Symbio, our bio-composite cellulose fibre, brings the haptics of nature, strength and reduced environmental footprint to plastic composite materials. This product is present in various components of large scale production automobiles and has been chosen as feedstock for the development of lightweight bio-composite materials, for the European Life Biobcompo project. The project, which includes leading vehicle and automotive parts manufacturers, aims to reduce vehicle carbon emissions by 8% through the replacement of conventional mineral fillers with biobased fibres, promote the use of more sustainable resources and demonstrate these technologies at industrial scale. Symbio is also being successfully used in kitchen and homeware products, bringing natural content to daily use items.

The commercialisation of our Valida nanocellulose gained traction with many repeat orders. As the use of sanitiser became more widespread during Covid-19, Valida was used as an opacifier and thickener in sanitising gels, providing a natural alternative for acrylate-based polymers and microplastics. When suspended in water, Valida cellulose fibrils form an insoluble 3D network based on hydrogen bonding and mechanical entanglement. Valida’s other unique benefits include:

  • Derived from renewable resources – sustainable alternative to fossil-fuel based polymers and microplastics
  • Superior skin feel and moisturising qualities
  • Unique texture
  • High safety standards in terms of skin irritation, sensitisation, blockage and penetration – the product has passed cosmetics ingredient safety studies including those by SGS, a leading inspection, verification, testing and certification company

Other areas of use include:

  • Personal care products and cosmetics
  • Decorative paints and coatings
  • Construction applications
  • Paper – we have been successfully developing our own advanced paper products, using our Valida technology, on various paper machines in all regions. This holds potential for a next generation of packaging, graphics and functional papers

Sappi is becoming increasingly recognised as a key player in lignosulphonate markets – we continue to target higher value markets, many of which use lignin to replace oil-derived products. This particularly in view of the fact that

  • Lignin-based intermediates as substitution for phenols which are widely used in resins and polyols used in rigid foams
  • Lignin-based intermediates for use in glues
  • Lignin-based animal feed binders with natural antimicrobial and antifungal functionality to improve animal performance (gut health)
  • Granulation aids for agricultural products
  • Fuel pellet binders
  • Replacement for starch in the manufacture of recycled paper

We have successfully illustrated the ability to extract xylose sugars as co-product from DP production at Ngodwana Mill, the technology is now ready for deployment; the 25 MW biomass power plant at Ngodwana Mill in which we have a 30% stake is under construction and our technologies to produce furfural as co-product at our DP mills is ready for industrial scale illustration with plans to do so well advanced.

Developing and commercialising innovations in addition to adjacent businesses

Why it’s material

Innovation is at the heart of Sappi’s strategy. No growth is possible without innovation. We view innovation not as an end in itself, but as an avenue for the provision of sustainable, competitive advantage that will make a significant difference. We make ongoing investments into R&D (US$39 million in FY20) and promote a culture of innovation through the annual Technical Innovation Awards. Together with the wide-ranging, significant expertise of our people, these factors mean we are well positioned to collaborate with our stakeholders and offer relevant solutions, thereby generating meaningful revenue. Our focus is on understanding what our customers – and potential customers – need, and adapting to that need.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Evolving technologies and consumer preferences

  Sustainability expectations
 

Climate change

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • The move towards a circular economy
  • Climate change continuing to impact businesses and reshape societies
  • Resource scarcity and growing concern for natural capital

Key developments in 2020

Ongoing legislative edicts and consumer concern mean companies are rethinking their packaging needs. Governments, retailers and brand owners all over the world are seeking paper-based packaging solutions for their products, and eco-conscious consumers and shoppers are pressuring brand owners for more biodegradable, recyclable and compostable packaging, all reflecting a more circular economy. Against this backdrop, we continued to develop our packaging paper solutions with integrated functionality. For example, we recently added a 91 g/m² version to our high-barrier paper range, opening up additional applications for manufacturers of branded goods. All high-barrier papers from Sappi ensure that the product quality of foods and other goods is preserved. They feature barriers against oxygen, water vapour, grease and mineral oil as well as outstanding print results, a wide range of finishing options, complete recyclability and integrated heat sealability.

Sappi Rockwell Solutions launched a new r-PET lidding film to give our customers a greater choice of options to meet their own sustainability goals. This makes Sappi Rockwell one of only two suppliers in this industry to provide recycled peelable coatings. These films combine the high performance of Rockwell’s heat-seal, anti-fog and barrier coatings with base polyester film made from food-contact-approved r-PET, delivering environmental, waste and cost benefits to food manufacturers and retailers.

There is a global movement to limit or eliminate solvent-based casting systems to reduce chemical waste and pollution. We invested in chemistry and technology to create the industry’s first premium high-fidelity casting paper compatible with solvent-free systems – Ultracast Viva, which we launched in 2020. Performance improvements include reduced curl, increased reusability and easier handling with expanded temperature limits for polyvinyl chloride (PVC), semi-polyurethane (PU) and 100% PU including aqueous PU chemistry.

With the world rapidly moving to adopt the internet of senses, one of printed paper’s unique selling propositions, touch, is becoming increasingly important. Developed by SEU, our latest graphic paper, Raw, takes this to a new level. Raw offers a true uncoated feel with a coated print performance, while also delivering high bulk and natural whiteness. We expect the product to be used in high-value commercial print products, such as books, coffee-table journals and lifestyle catalogues.

In Europe, we collaborated with a machine manufacturer on a project for a well-known cereal manufacturer that switched its fully automated production to paper-based, sealable barrier pouches. Two further application projects focused on confectionery and snacks are already in the development stage. The project has given us and our collaboration partner a strong position to successfully implement paper-based packaging solutions for future customer demands.

High demand for low grammages

Sappi’s considerable expertise in functional paper packaging is evident in low grammages with an integrated mineral oil and grease barrier. The light papers with grammages of 75 g/m² and higher are particularly popular. This keeps products such as rice, cereals, tea and chocolate free of mineral oil saturated hydrocarbons (MOSH) and mineral oil aromatic hydrocarbons (MOAH) residue and prevents any mineral oil from getting into the final product during production and transportation. Sappi offers these packaging papers in several other grammages, which are ideally suited to primary and secondary packaging. Papers like Sappi Guard MS also offer impressive heat sealability, resulting in a reduction in production steps as additional sealing media are not required.

People

Ensuring the safety of our employees and contractors

Why it’s material

In terms of our safety-first culture, we believe that nothing is so important that it cannot be done safely and that every individual has the power to have a positive impact. We do not accept that injuries and accidents are inevitable and remain committed to zero harm. We aim to achieve this through the continuance of improved personal behaviour and making safe choices underpinned by risk assessments, group sharing of all incidents and root cause investigations, enforcement of compliance and leadership engagement with our people.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Safety

 

Employee relations

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Continued erosion of trust in business, coupled with increasing social activism

Key developments in 2020

In response to the Covid-19 pandemic, all operations and sites established the required sanitising and hygiene protocols, social distancing, temperature checks, self-declaration health check requirements with ongoing engagement and communications for the necessity of self-awareness at work and at home. On the positive side, the pandemic appears to have heightened adherence to safe attitudes and behaviours amongst our people.

Despite a concerted focus on safety, tragically, there was one transport-related contracter fatality in the Sappi Forests division in South Africa. All regions, however, showed an overall improvement in injury and severity rates. SEU completed the year with an improved lost-time injury frequency rate (LTIFR), underpinned by the ongoing successful integration of operations acquired in recent years into the Sappi safety culture. SNA established their best LTIFR on record, completing the year with an LTIFR for own employees of 0.20 compared with 0.25 for FY2019 and 0.35 for FY2018. Safety performance also improved in SSA. We undertook a complete review of all risk assessments in manufacturing areas to ensure that all risks are identified and assessed correctly for potential severity. The findings of the survey were addressed and the completed actions as well as the effectiveness of the closeout will be audited during FY2021.

Group LTIFR

Engaging more closely with our employees

Why it’s material

The days of employees simply collecting a pay check are over. In fact, research suggests that they’re willing to earn less if doing so translates into more meaningful work1. Given the amount of time spent at work, it makes sense to look to the workplace as a source of meaning. People want to come to work, understand their job and know how their work contributes to the overall purpose and success of the organisation. When they do, there are positive implications for productivity and profitability.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Safety

 

Employee relations

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Continued erosion of trust in business, coupled with increasing social activism
  • Changing consumer and employee profiles
  • Globalisation and high levels of connectivity

Key developments in 2020

We conduct employee engagement surveys every two years, with the previous one taking place in 2019. This survey indicated that employee engagement was high, with 42% of employees fully engaged, 39% unsupported or detached and 19% fully disengaged. The key themes identified for action were talent and recognition; teamwork and communication; development and empowerment and leadership and direction. We are on track to close out all the actions which are monitored quarterly. The 2021 survey, due to begin in March 2021, will be undertaken by a new survey provider that will provide faster and more granular reporting, as well as prioritisation of focus areas and mobile (cellphone and tablet) solutions.

As we look to the future, we recognise that society in general and our people, in particular, expect us to play a role beyond making and selling. Teams from all regions and product segments spent a year developing our 2020-2025 Thrive25 strategy which focuses strongly on the power of purpose: Sappi exists to build a thriving world by unlocking the power of renewable resources to benefit people, communities, and the planet. We embarked on an extensive roll out of our Thrive25 strategy to familiarise our people with the strategy, our purpose and refreshed brand. We communicated through newsletters, posters, presentations and detailed engagement with staff by management and leadership.

1 https://hbr.org/2018/11/9-out-of-10-people-are-willing-to-earn-less-money-to-do-more-meaningful-work

Supporting sound labour relations

Why it’s material

We believe open lines of communication between ourselves and organised labour are vital to achieving our ambitious growth and value creation objectives. We continue to endorse the principles of fair labour practice as entrenched in the United Nations Global Compact (UNGC) and the Universal Declaration of Human Rights. At a minimum, we conform to and often exceed, the labour legislation requirements in countries in which we operate. Sappi promotes freedom of association and engages extensively with representative trade unions. Globally, approximately 57% of our workforce is unionised, with 75% belonging to a bargaining unit.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Safety

  Cyclical macro-economic context
 

Employee relations

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Continued erosion of trust in business, coupled with increasing social activism
  • Changing consumer and employee profiles

Key developments in 2020

In SEU, there was an industry-wide strike in Finland which affected Kirkniemi Mill, and that lasted 15 days for blue-collar employees and 24 days for white-collar employees. To resolve this strike, an industry-wide collective bargaining agreement was entered into, requiring us to waive three extra days of work per annum that were negotiated years ago in exchange for shortening the summer stop and cutting other Collective Labour Agreement (CLA)-related benefits to achieve a cost-neutral outcome.

The consultation process related to the closure of the PM1 at Stockstadt Mill and impact on 170 positions was completed with the assistance of the employee representatives and facilitator at the mill. The machine was closed from October 2020.

In SNA, the overall industrial relations climate in SNA was satisfactory despite furloughs due to Covid-19, the decision to close PM9 and certain biomass energy operations at Westbrook Mill and some contract negotiations with the Westbrook United Steelworkers’ (USW) union regarding proposed changes in the union medical plan. The membership ratified the package shortly after year end.

In terms of the asset closures at Westbrook Mill, we entered into ‘effects bargaining’ with the USW and other trade unions whereby a voluntary severance package, equal to that which was bargained for union employees who were involuntarily retrenched, was made available to employees who accepted voluntary retrenchment. This was offered to encourage those union members who were close to retirement to consider the benefits of taking the package, thereby enabling employees with less seniority to remain with Sappi. Due to voluntary resignations and other attritions prior to the discontinuation of these operations, the number of active employees losing their positions was significantly lower than originally anticipated.

In SSA, collective bargaining was extremely tough. The Pulp and Paper Sector was unable to reach an industry settlement as parties deadlocked and unions issued a notice to strike following a balloting process. The strike was generally peaceful except at Saiccor Mill where the company experienced sporadic incidents of violence, largely driven by the various community groups. SSA reached a settlement of 3% increase on basic wage with labour at company level backdated to 01 July 2020, and a further 1% with effect from 01 January 2021. This represents an overall increase of 3.5%. Shift allowances remained at 10.5%, which is still 0.5% ahead of the industry.

At year end, sawmilling wage negotiations were still underway at industry level with forestry negotiating at company level.

Our forestry and sawmilling sector wage negotiations were concluded without a strike. For forestry, we settled on a 3% wage increase backdated to 01 July 2020, with a further 1% increase coming into effect from 01 January 2021. Regarding sawmilling, we settled on a 3% increase backdated to 01 July 2020.

Attracting, developing and retaining key skills

Why it’s material

People play a critical role in the delivery of operational excellence and our culture, as well as the manner in which we lead, manage and develop our people contribute significantly to our success.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Employee relations

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Continued erosion of trust in business, coupled with increasing social activism
  • Globalisation and high levels of connectivity
  • Changing consumer and employee profiles

Key developments in 2020

The attraction, development and retention of skills are all interlinked. As discussed under employee engagement, we recognise that current and future employees, in particular Generation Z-ers, want companies to have a positive purpose that improves the world in some way. We believe that the fact that we offer true circular economy solutions and that sustainability underpins everything we do, plays a key role in attracting and retaining key skills.

In terms of training and development, our focus is to invest in current and future talent and develop the competencies of our people in three categories; namely leadership, behavioural and technical competencies. Our emphasis on providing learning solutions aligned with an increasingly tech-savvy workforce is important in retention, as are our compensation programmes. These are designed to achieve our goals of building trust and attracting, motivating and retaining employees who can help to deliver value. The primary components of pay include base salary, benefits e.g. medical and retirement, annual incentive awards and long-term incentives. Compensation levels are set to reflect competitive market practices, internal equity as well as company and individual performance, including sustainability aspects of performance.

A key development was reshaping our people strategy to align with our Thrive25 to focus on leadership and culture that enhances OneSappi; builds capability for current and future requirements; strengthens employee engagement and experience and builds a world class human resources team.

Sharing value with our communities

Why it’s material

While Covid-19 has highlighted the interconnected nature of our being, as a responsible corporate citizen we recognised many years ago that our well-being and financial prosperity are inextricably linked to the communities in which we operate. Our corporate citizenship initiatives and programmes are in line with, and supportive of, our business strategy and are developed with input from key stakeholder groups. We have prioritised community support projects with a particular focus on education, environment, health and welfare. Our preference is for multi-year programmes which create sustained impact in our communities. The majority of our spend is allocated to South Africa, given the development needs of the country.

How this issue links to other aspects of our business

Our global priority SDGs

Our additional SSA priority SDGs

   
  Our top ten risks
  • Social unrest
  • Land restitution
   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Rising social inequality
  • Continued erosion of trust in business, coupled with increasing social activism

Key developments in 2020

Our social impact strategy rests on two pillars: shared value and corporate social investment. Our aim is to create positive, meaningful and sustainable systems change for the benefit of our communities, particularly for those at disadvantage as a result of complex, long-term systemic issues. In doing so, we enhance our social licence to operate, become a more attractive employer and build trust with customers and other stakeholders. The coronavirus pandemic impacted our regular corporate citizenship programmes as regular activities were suspended. We responded swiftly to protect the safety of our stakeholders and meet community needs.

Spend in 2020

  • Sappi Europe: €100,000
  • Sappi North America: US$362,173
  • Sappi Southern Africa: ZAR40 million

Creating community-focused solutions during Covid-19

The coronavirus pandemic highlighted the plight of many vulnerable people situated in the rural areas of South Africa and in our neighbouring communities. In line with our Thrive25 focus on partnering with our stakeholders to create solutions, we entered into a partnership with the Southern Lodestar Foundation (https://lodestar.org.za/), a non-profit organisation which provides innovative food solutions for children. Their highly nutritious instant porridge – known as A+ – is being used in school breakfast programmes. Together, Sappi, the Southern Lodestar Foundation and the Spar Group spearheaded a collaborative effort in terms of which 130,000 kg of A+ instant porridge was distributed to vulnerable communities in KwaZulu-Natal and Mpumalanga. We used our knowledge and access to rural community health networks to ensure that the porridge was reaching those that needed it most in many peri-urban and rural areas adjacent to our mills and plantations.

In addition, in an effort to ease the shortage of masks, Sappi procured thousands of surgical masks for community clinics and health care centres in KwaZulu-Natal and Mpumalanga. However, there was also a need for thousands more reusable cloth masks for our own employees who were continuing to deliver essential services during the national lockdown. We installed sewing machines at the Saiccor and Ngodwana Skills Centres, which meant that apprentices who were not able to continue with their normal training schedule due to the restrictions, sprang into action making cloth masks. These were distributed to own and contractor employees as well as to neighbouring schools. At year end, apprentices had produced just under 73,000 masks. The mask venture has progressed further into the manufacture of overalls.

To heighten awareness of the pandemic and promote understanding we created and distributed easy-to-understand illustrated infographics in English and Zulu within our own operations, the employees and families of our contractors and the broader public via the Abashintshi. The latter are a group of Sappi-sponsored young people who act as change agents within their communities.

Planet

Sourcing woodfibre responsibly

Why it’s material

In August 2020, the Financial Times reported that forests were razed at an alarming rate across Asia, Africa and Latin America during the coronavirus pandemic, as environmental law enforcement was sidelined and villagers in parts of the tropical world turned to logging for income. One of consumers’ sustainability expectations is that their shopping baskets should not drive the destruction of the world’s tropical forests. Forests and forestry play an important role in mitigating climate change reducing deforestation and forest degradation lowers GHG emissions. In addition, sustainable forest management can maintain or enhance forest carbon stocks and sinks, while wood products can store carbon over the long term and substitute for emissions-intensive materials reducing emissions.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Evolving technologies and consumer preferences

  Sustainability expectations
 

Climate change

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Climate change continuing to impact businesses and reshape societies
  • Resource scarcity and growing concern for natural capital

Key developments in 2020

We continued to offer consumers an alternative to fossil-based packaging, based on wood from sustainably managed forests. We neither harvest nor buy woodfibre which originates from tropical natural forests and our wood sourcing causes zero deforestation. Our commitment to zero deforestation means knowing the source of woodfibre; ensuring that suppliers implement practices to promptly regenerate forests post-harvest, which is required under the global forest certification standards that Sappi is committed to upholding. It also means implementing our Supplier Code of Conduct to continually assess supply-chain, ethical and legal risk; and not sourcing from suppliers associated with deforestation.

In 2020, globally 73% of the woodfibre supplied to our mills was sourced from certified forests with the rest procured from known and controlled sources. All our owned and leased plantations in South Africa are FSC-certified. The 100% coverage of the FSC, PEFC (including SFI®) Chain of Custody systems ascertains that all the woodfibre we purchase and process is traceable to its origin, and is sourced from legal, controlled, non-controversial sources. In accordance with the FSC Controlled Wood Standard, as well as PEFC (and SFI® in the United States of America) risk-based due diligence systems.

Sappi has actively participated in the development of Sustainable African Forestry Assurance Scheme (SAFAS), which was endorsed by PEFC International in 2019. Following a two-stage audit process, Sappi Forests’ plantations expect to be PEFC-certified by December 2020, thereby supplementing the FSC certification already achieved. Our South African mills will soon be able to apply for PEFC CoC certification.

Prioritising renewable and clean energy

Why it’s material

Prioritising renewable and clean energy is strongly linked to the need to mitigate climate change. To meet the ambitions of the Paris Agreement, there is growing consensus around the world that CO2 emissions will need to fall to net zero by 2050. In certain regions where we operate, we are experiencing strong regulatory pressures to decarbonise our operations. Additionally, within our markets, we want to support our customers as they pursue their own ambitious targets

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Evolving technologies and consumer preferences

  Sustainability expectations
 

Climate change

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Climate change continuing to impact businesses and reshape societies

Key developments in 2020

Globally, our use of renewable energy stood at 54.4%, of which 68.3% was own black liquor. We took extensive steps to increase this in 2020 by developing detailed decarbonisation plans in each region. This was in line with our commitment, in June 2020, to set science-based targets through the Science Based Targets initiative (SBTi).

Within the context of our 2025 sustainability targets, we have established a global specific GHG emissions target of 17% reduction in combined Scope 1 and 2 emissions under the UN SDG13: Climate Action. In support of this, there are regional targets in each region.

While these are not yet science-based targets, they will catalyse an ambitious emissions reduction trajectory. We now have two years to work with the SBTi on setting and validating our science-based targets. This will give us precision for our longer-term 2030 and 2050 targets, will help our customers on their sustainability journeys and is an important milestone of our own.

We established cluster 1.5 – so called because of the identified global need to limit global warming to 1.5 oC above pre-industrial levels. The cluster has prioritised novel technologies for fuel switching and deep decarbonisation in terms of Scope 1 and 2 emissions across energy, pulping, papermaking and bleaching.

We also took the decision to move forward with our fuel rod project: Some 150 years of intensive coal mining in South Africa have produced about a billion tons of discarded thermal-grade coal fines. Once discarded, these sulphur-containing ultra-fines cause health problems. They can also contribute to several environmental problems, emitting GHG as they decompose. To utilise this energy source, we constructed a small-scale plant to manufacture fuel rods which comprise a mixture of coal slurry, biomass and Sappi’s lignin-based binder, which can be used as a coal replacement, thereby reducing GHG emissions. Following positive test results at Tugela Mill, we plan to construct a plant at the mill. This was delayed because of Covid-19, but will be progressed in FY2021.

Similarly, construction of the 25 MW biomass power plant at Ngodwana Mill in which we have a 30% stake and which will use biomass from the surrounding plantations, was delayed because of the pandemic, but is now moving forward.

Renewable energy (%)

Progressing decarbonisation at Gratkorn Mill

Under a regional-specific Thrive25 target, SEU aims to deliver a 25% specific GHG reduction by 2025. The complete modernisation of boiler 11 at Gratkorn Mill plays an important role in achieving this ambition. The investment into state-of-the-art technology will see a shift from a coal boiler to a multi-fuel boiler in two phases with the goal to finally use only sustainable and renewable fuels. The rebuild will enable the mill to reduce carbon emissions by 30%. In addition, the chosen technology for the project will additionally allow us to sharply reduce dust and nitrous oxide (NOx) emissions.

The largest production site within Sappi Europe, Gratkorn Mill manufactures high quality coated woodfree paper for the global printing and writing market. Ongoing investments have kept the site technologically ahead, with its facilities housing one of the largest and most advanced coated fine paper production lines in the world.

This further investment proves our steadfast commitment to not only maintaining and improving our production sites but to progressing our sustainability journey – and that of our customers. The rebuild is expected to be complete in late 2021.

Helping to mitigate climate change

Why it’s material

Concentrations of GHG in the Earth’s atmosphere are at record levels, and emissions that saw a temporary decline due to the pandemic are heading towards pre-Covid-19 levels, while global temperatures continue to hit new highs. Climate change is already affecting every country on every continent through changing weather patterns, rising sea levels, and more extreme weather events. Recent reports of methane leaking from the sea floor in Antarctica and unprecedented wildfires in the Arctic in 2019 and 2020 highlight the seriousness of the situation.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks

Evolving technologies and consumer preferences

  Sustainability expectations
 

Climate change

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Climate change continuing to impact businesses and reshape societies

Key developments in 2020

We are currently developing a climate change strategy that will be published in FY2021. In addition, following the establishment of a working group to implement the recommendations of the Task Force on Climate-Related Financial Disclosure, Sappi is taking a purposeful phased approach to the use of climate scenarios in our climate change-related risk assessment and strategic planning processes. Currently we are involved in two projects using climate scenarios.

The first scenario was modelled at Saiccor Mill. We retained an independent consultant who used publicly available regional models. This work builds on earlier flood risk assessment work conducted in 2010 and again in 2017. We used Representative Concentration Pathways (RCPs) 2.6, 4.5 and 8.6. For the middle of the road projection (RCP 6.0) we intend to upgrade the water model with the work being done by the Global Change Institute (GCI) at the University of the Witwatersrand (further described on this page) when it is complete. The scenario planning process used at Saiccor Mill could be replicated at our other mills in South Africa.

For our mills in SNA and SEU we will be using climate data to assess physical risk consistent with RCP8.5 values. For our two primary upstream considerations, water and woodfibre sources, in both North America and Europe we will be relying on available government and academic reports which generally use a combination of RCP values.

The second climate scenario project is with other industry members and the GCI in South Africa. Phase 1: 2020: Generation of raster climate surfaces for the entire forestry domain of South Africa, at 8 km resolution, with monthly time resolution, for the years 2020, 2030 and 2040 to 2100. Phase 2: 2021 onward: A second iteration of the variables generated for the one-year product, refining the indicators and making them more specific for species or issues; and/or including more ensemble members or scenarios to broaden the robustness of the evaluation; and/or 1 km data for selected parts of the country.

Our plantations and Saiccor Mill have been prioritised because South Africa is already experiencing climate-related physical and transitional risks whereas the risk in North America and Europe is not as profound. The overarching time horizons for our assessments to ensure a more consistent approach in all three regions are short: one to two years; medium: three to five years (2025); and long: five to 30 years (2050), consistent with our five-year goal setting process as well as our commitment to the SBTi.

Focusing on water stewardship

Why it’s material

Globally, water withdrawal rates have tripled over the last 50 years, a trend that is expected to continue, doubling by 2050. While water is a renewable resource, with the expected rate of groundwater withdrawal over the next few decades, we run the risk of removing more water from our aquifers than can be replenished by nature. In addition, demands and competition for water are expected to increase even further as the global climate changes, putting more pressure on water supplies.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks
Sustainability expectations
 

Climate change

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • Climate change continuing to impact businesses and reshape societies
  • Resource scarcity and growing concern for natural capital

Key developments in 2020

Water is a significant input for Sappi. In 2020, globally we extracted 277 million3 of water for all purposes. The impact of Covid-19 on our specific water consumption was significant, with production curtailment and downtime taking their toll. At half year (the end of March 2020) consumption was 33.36 m3/adt (FY2019: 34.17 m3/adt, while at year end (30 September)), it was 41.51 m3/adt – an increase of 24.4%, giving a total average of 36.82 m3/adt.

Throughout our operations, we continue to focus on the responsible use of water. For example, in addition to the other environmental benefits, our Vulindlela expansion project at Saiccor Mill will result in water consumption being reduced by around 5% and water use efficiency increasing by approximately 17%.

In South Africa, which is classified as a water-scarce country in terms of the World Resources Institute criteria, climate change has meant we are increasingly focusing on water availability and cost. As discussed under Helping to mitigate climate change, we have engaged a third party service provider to run water-related scenarios on Saiccor Mill. We have also established a water stewardship working group which is currently assessing the water risk and mitigation actions related to all our mills and forestry operations, as well as to our neighbouring communities.

Specific process water returned to extracted (m3/adt)

Accelerating circular business models

Why it’s material

There is a growing recognition among designers, businesses and consumers that we must move away from a linear ‘take, make, waste’ model of consumption where we extract raw materials, manufacture products and discard them to landfills. The pulp and paper industry is circular by nature, producing recyclable products made from renewable resources that are manufactured using a high proportion of renewable energy. We approach the environmental impact of our operations from a holistic perspective grounded in lifecycle thinking, from procurement of raw materials and energy through manufacturing, use and the next life of our products. The benefits of this holistic approach include less waste, lower costs and reduced environmental impact.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks
Sustainability expectations
 

Climate change

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • The move towards a circular economy
  • Climate change continuing to impact businesses and reshape societies
  • Resource scarcity and growing concern for natural capital

Key developments in 2020

In keeping with our focus on circular economy principles, we are working to increase our use of renewable energy and eliminate waste through superior product and process design. As an example, we increased the percentage of solid waste beneficiated from 72.08% in 2019 to 75.3%. This meant that waste sent to landfill decreased by 7.6% year-on-year – a positive environmental benefit as landfills generate methane, a powerful GHG associated with global warming.

Recognising that our sphere of influence extends beyond our mill gates, we work collaboratively across the supply chain to share best practices and drive meaningful change. As examples, we worked with members of the textile value chain to assess the use of recovered textiles in pulping and also continued work as the co-lead of the committee operating under the auspices of the Alliance for Pulp and Paper Technology Innovation (APPTI), based in North America, to demonstrate and deploy membrane-based technology for black liquor. Other members of the committee include the Georgia Institute of Technology (Georgia Tech), members of the US forest products industry, and membrane system/process developers.

Beneficial use of solid waste (%)

Sappi North America honoured with the SEAL Business Sustainability Award

In 2020, Cloquet Mill was named a winner in the 2019 SEAL Business Sustainability Awards for Environmental Leadership. The award celebrates companies for their leadership, transparency, and commitment to sustainable business, and honours specific environmental and sustainability initiatives.

The mill received the award for its land application programme, initiated in 2004 with the Minnesota Department of Agriculture’s ag-lime programme and the Minnesota Pollution Control Agency as a solution to an impending challenge with landfill space. Essentially, the programme repurposes boiler ash and lime mud byproducts into sustainable agricultural fertiliser which is accessible to the local community at a minimal cost. This reduces the commercial chemical products needed for high-quality growing conditions in the region.

To date, SNA has provided 200 tons of materials to 300 sites per year, with some farmers seeing a 30% increase in crop yield.

Safeguarding and restoring biodiversity

Why it’s material

Science tells us that about 25% of our assessed plant and animal species are threatened by human actions, with a million species facing extinction, many within decades. In addition, US$44 trillion of economic value generation – over half the world’s total gross domestic product (GDP) – is moderately or highly dependent on nature and its services and, as a result, exposed to risks from nature loss. As our primary input, woodfibre is a renewable natural resource, Sappi depends on ecosystem services such as healthy soils, clean water, pollination and a stable climate.

Accordingly, biodiversity is a key focus area.

How this issue links to other aspects of our business

Our global priority SDGs

   
  Our top ten risks
Sustainability expectations
 

Climate change

   

Our strategic fundamentals

   

The global forces shaping our Thrive25 strategy

  • The move towards a circular economy
  • Climate change continuing to impact businesses and reshape societies
  • Resource scarcity and growing concern for natural capital

Key developments in 2020

We signed up to Business for Nature’s call to action, a global coalition of non-governmental organisations (NGOs) and business groups. Their campaign, ‘Nature Is Everyone’s Business’, has particular relevance for Sappi, given that our business is dependent on sustainably sourced woodfibre.

We made progress in terms of our Thrive25 target by addressing our first biodiversity objective underpinning this task – understanding what types of vegetation are present on our plantations, as well as their conservation value. This enables managers to develop appropriate management plans for implementation. It is also important, from a conservation management perspective, to identify those vegetation types that are least protected, to prioritise efforts to safeguard the vegetation type from possible extinction.