Risks and potential impacts

Risks Physical Extreme weather events – flood, fire, drought, etc. Changing climatic conditions – desertification, sea level rise, changing rainfall, heat waves Diminishing access to natural resources		Potential impacts Impact on finance sector Lower productivity, less ability to use land as security, changes in credit worthiness, inability to repay loans following disasters, business disruption after disasters, loss of markets, supply chain interruptions and loss of productivity Less confidence in securitised loans, devaluation of property, concentration risk, portfolio losses, defaults, job losses Stranded assets – accelerated write-off, cost of replacement Damages claims and litigation costs
Transitional Changing regulations/consumer preferences – locally and in export markets Disruptive technologies Stranding of assets – accelerated obsolescence Liability Cost and availability of insurance Loss of access to funding due to poor or inaccurate disclosure Litigation and liability claims against governments and companies for loss and damage		Social, development and health impacts Health Impact on human health particularly outdoor workers, elderly and young in heat waves and prolonged higher temperatures. Changing disease patterns. Social Migration within and across countries driven by declining access to natural resources, e.g. water, food and fibre Water availability impacted and sea-level rise threat to coastal populations and infrastructure Development costs Post-catastrophic events, loss of livelihoods, welfare and infrastructure Community claims resulting from loss of amenities and damages

To ensure focused and impactful progress over the next reporting period(s), the primary immediate focus will be on:

1. Acknowledging long-term decarbonisation ambitions and setting goals. Remgro supports the Paris Agreement and the need to become carbon neutral and will strive to develop scientifically informed action plans and carbon reduction milestones over the next reporting period.
2. An increased focus on governance through (a) full disclosure of its climate change related actions using best practice frameworks (b) embedding the ESG Investment Framework that it developed in the past calendar year throughout the Company and across its investment portfolio (c) strengthening the Remgro and investee companies’ Board capacity on ESG matters and (d) participation in strategic ESG indices in order to benchmark performance and improve disclosure.
3. Intensifying the focus on social aspects with specific emphasis on (a) CSI initiatives impacting the communities where Remgro operates (b) developing a Responsible Sourcing Policy for Remgro and identified investee companies (c) combining efforts towards an improved BBBEE level and (d) specific objectives to foster a more diverse and inclusive culture within Remgro.
4. Continued focus on improving the measurement and reporting of the nine key ESG focus areas across the identified investee companies. These include climate change and energy management, water management, waste management, diversity and inclusion, social impact, employee relations, health and safety, supply chain and procurement and governance. The assessment focused on policies in place, targets, targets linked to incentives and also measurement and monitoring of relevant KPIs. Over the last two reporting periods we have seen progress and this momentum will be maintained over the next reporting period. Progress was demonstrated in the past year in Remgro’s carbon reporting where the integrity and scope of data reported was increased. The assessment also highlighted gaps in ESG management, which can now be addressed with suitable action plans.

Since 2020, Remgro has included ESG performance conditions in the Long-Term Incentive (LTI) awards to motivate and incentivise executives and management in driving this key strategic initiative. By incorporating specific ESG measures into the LTI, Remgro is demonstrating its public commitment to ESG and sustainability. In 2023, these ESG performance conditions will be revised in the form of a strategic balanced scorecard under the oversight of the Remuneration and Nomination Committee. This will identify and measure specific ESG outcomes to enable the Group to achieve its overall ESG and sustainability ambitions. These ESG measures will be further supported by Remgro-specific strategic performance measures.

Disclosure

As a Group, Remgro has reported its greenhouse gas (GHG) emissions to the CDP since 2010, receiving recognition for its disclosure and inclusion in the Climate Disclosure Leadership Index. Remgro’s disclosure has historically only included its head office performance and three of its investee companies (RCL Foods, Siqalo Foods and Wispeco).

The three companies’ GHG emissions were reported by Remgro in alignment with its equity shareholding in each. Although these three subsidiaries are either wholly or majority owned, the boards are autonomous and Remgro does not exercise operational control. These emissions are therefore now reported under Remgro’s Scope 3 investments category in accordance with the Partnership for Carbon Accounting Financials (PCAF) methodology.

PCAF’s mission is to enable financial institutions to assess and disclose GHG emissions associated with financial activities as the starting point for them to manage risk and identify opportunities associated with GHGs to begin the journey towards decarbonisation.

During the financial year ending 2022, Remgro reassessed its approach to carbon reporting. Remgro’s aim is to extend its own environmental reporting beyond those companies in which it maintains majority shareholding to ultimately include as much of its portfolio of investments as possible.

As an initial step, Remgro included its head office, Mediclinic, RCL Foods, Siqalo Foods, Wispeco, Air Products and OUTsurance Group. For the purposes of these reports the emissions are disclosed for the year to end of June 2023. Reporting to CDP lags the normal disclosure and was previously in accordance with the GHG Protocol’s Equity Share approach. Since 2021, Remgro has been reporting in accordance with the Financial Services questionnaire, which was introduced in that year.

Remgro’s 2022 carbon footprint was included in the latest CDP submission (submitted earlier in 2023), which included Remgro head office, Distell, Mediclinic, RCL Foods, Siqalo Foods and Wispeco in its environmental reporting boundary. For the second time, this was calculated according to the PCAF method.

Distell, which was previously included, will be excluded due to Remgro exchanging its interest in Distell for an interest in Heineken Beverages. Remgro’s portion of the carbon footprint of Heineken Beverages will be included in due course.

For the purposes of this report on Remgro’s 2023 carbon footprint, Distell is excluded from the emissions disclosures. OUTsurance Group and Air Products have been included for the first time, alongside Remgro head office, Mediclinic, RCL Foods, Siqalo Foods and Wispeco. To allow for comparability, the 2022 numbers have been restated to reflect these changes. This group represents approximately 59% of Remgro’s intrinsic net asset value (INAV) as of 30 June 2023. For Remgro’s next CDP submission (during 2024), Remgro will submit its 2023 carbon footprint, which will include Air Products and OUTsurance, but exclude Distell.

The change in boundaries for this report and the intended future incorporation of additional investee company data pose some challenges for long-term comparability. Maturity in carbon accounting within the investee companies is varied but improving. Siqalo Foods, Air Products and OUTsurance Group report notable reductions in Scope 1 and Scope 2 data for 2023. However, not all of these numbers have been externally verified. If the numbers change following verification, they will be restated.

As Remgro has identified decarbonisation as a long-term strategic goal and committed to enhancing its scorecard in this regard, it is anticipated that there will be ongoing improvements in the number, quality and verification of disclosures in future reports.

Energy efficiency initiatives

Group Power Initiative

During the 2022 and 2023 financial years, the Group Power Initiative facilitated the installation of seven solar photovoltaic (PV) systems at Wispeco, Distell (now Heineken Beverages) and MMI (Eris Properties). These systems resulted in an aggregated renewable power capacity of 3.3MW, with an associated cumulative CO₂ equivalent emissions reduction of 4.4 kilotons.

As part of this initiative, Kigeni Ventures, a Section 12J Venture Capital Company was created to house the investments and assist with the feasibility studies for the solar PV systems. Since 2017, Remgro has facilitated the installation of 34 solar PV systems at Wispeco, Distell (now Heineken Beverages), Mediclinic, RCL Foods, Old Mutual, Remgro head office and MMI (Eris Properties) through this initiative. These systems resulted in an aggregated renewable power capacity of 21.2MW with an associated cumulative CO₂ equivalent emissions reduction of 71.9 kilotons.

 

Green Star building benefits

Remgro’s reconstructed head office complex, Millennia Park, achieved a 5-Star As-Built Green Office rating in 2014. Key factors included reusing 96% of the existing major structure, thereby significantly reducing construction waste and contributing to the sustainability of the building.

Overall ecological value of the site was increased by more than an estimated 400%. Water efficient fixtures, storm water filtering and rehabilitation of rivers beyond the site were all features of this project. The building achieves energy savings in excess of 30% over a notional building of similar size through passive design, efficient lighting and air conditioning.

A rooftop solar photovoltaic (PV) system was installed in 2020. The building management system tracks performance with cumulative performance to end of June 2023 measured as:

Cumulative performance of solar PV

• R679 477 financial return
• 406 tonnes of CO₂e reduction
• 428MW energy production
• 82% energy yield performance
• 76% financial performance

Energy services and markets

Energy Exchange of Southern Africa

Remgro is a strategic shareholder in the Energy Exchange of Southern Africa (Energy Exchange), a National Energy Regulator of South Africa (NERSA) licensed green energy trader. It aggregates and facilitates the transfer of energy between independent generators of green electricity and consumer companies. It is a private utility which at its core aims to assist clients in securing green energy from diversified power sources, thereby reducing single technology risk and assisting in their decarbonisation journeys.

Energy Exchange’s business model allows customers to reduce their vulnerability to Eskom’s supply constraints and rotational blackouts to create a measure of price certainty. The model is based on wheeling electricity from the generation site to remote customers via the transmission grid. Power is charged on a kilowatt hour basis (c/kWh). Power Purchase Agreements (PPAs) are concluded with both generators and customers, with Energy Exchange handling the back-office reconciliation functions using metered data that enables efficient tracking and managing of energy costs.

The benefits of this model for the energy purchaser include continuity of supply, the ability to manage load outages without undertaking capital expenditure or running their own plants, shorter PPA terms than traditional bilateral agreements and savings in energy costs, as well as carbon tax payments where applicable. Energy Exchange undertakes the administration of the transactions and clients receive Renewable Energy Certificates.