Fonterra Co-operative Group Ltd

The company has committed to reducing absolute Scope 1 and 2 GHG emissions by 30% by FY2030 from an FY2018 base year. The targets are approved by SBTi and are consistent with reductions required to keep warming well below the 2°C Target. 92% of the company's total emissions are Scope 3 emissions. The company's SBTi-approved target includes a commitment that 70% of its suppliers by emissions covering purchased goods and services will have science-based targets by 2024. It invests in technologies and processes to help reduce the enteric methane component, as farm-related activities account for 90% of the company's reported GHG emissions. However, it has not explicitly stated that it is in the process of setting a specific methane emission reduction target related to animal farming.

The company has a Scope 1, 2 and 3 emissions reduction target to reduce absolute Scope 1 and 2 GHG emissions by 30% by FY2030 from an FY2018 base year. It also commits that 70% of its suppliers by emissions covering purchased goods and services will have science-based targets by 2024, validated by SBTi and aligned with a well below 2C scenario. It is committed to net-zero GHG emissions for manufacturing sites by 2050. However, the company provides no evidence of whether or not SBTi validates the Net Zero Target.

The company issues Farm Insight Reports, including farm-specific GHG reports, for its farmers in New Zealand, which account for 90% of Fonterra's milk. Across its global operations, it continues to roll out Farm Environmental Plans, containing a GHG emissions module. The Insights Reports help farmers understand where emissions are produced on their farms, their performance against peers, and improvement opportunities. Farm Environmental Plans are produced for each specific farm by Fonterra's Sustainable Dairy Advisors, who assess farms' current activities against industry-defined Good Farming Practices and provide farmers with improvement actions.

The company states that 96% of the animals' diet comprises natural green grass. Therefore, other feed ingredients account for a mere 4% of their diet. However, it does not describe any innovative projects that mitigate emissions from farming the remaining 4% of its feed.

The company discloses that around 90% of its emissions are farm-related. It has 18 methane reduction projects underway and 30 active trials of potential solutions, which include probiotic cultures ('Kowbucha'), seaweed and methane-reducing additives (DSM's Bovaer). It is also in the research stages with innovations to reduce methane emissions. These trials are still in the early stages; however, with the company's announcement to invest $50 million in a public-private partnership JV to solve biogenic methane, it is expected to run broader trials in the coming year(s).

The company discloses its Scope 1 emissions (1,366,000 tco2e), Scope 2 emissions (565,000 tco2e) and Scope 3 emissions (22,549,000 tco2e).

The company discloses emissions from animal farming (raw milk from supplying farms) in New Zealand, Australia and Latin America, which it estimates to be its largest source of animal farming/Scope 3 emissions. It also provides a breakdown of total gross global Scope 1 emissions into On-farm emissions and Manufacturing emissions. It has included emissions from the feed in reporting the GHG intensity of the product produced. It discloses that feed represents a small proportion of New Zealand emissions as its cows mainly graze on pasture and use little supplementary feed. It discloses that Life Cycle Analysis (LCA) considers animal and other farm emissions, brought-in feeds, and land-use changes. However, the company does not disclose emissions from land-use change.

The company responded to the CDP Climate questionnaire in 2022. A 3rd party audits the company's GHG inventory data per ISAE3000 standards.

The company's Scope 1, 2, and 3 emissions disclosure in its Sustainability Report was analysed. GHG emissions decreased from 25,572 (000 tCO2e) in FY21 to 24,480 (000 tCO2e) in FY22, representing a decrease of 4.27%. In the CDP questionnaire, emissions increased by just 2.09% between 2021 and 2022. However, the data from the Sustainability Report shall be used since the 2022 CDP questionnaire contains data from the fiscal year ending 31/7/2021, and the Sustainability Report 2022 uses data from the FY ending 31/7/2022. It states that the emissions data reported in its Sustainability Report 2022 reflects the latest methodology details (e.g. use of AR6 for lifecycle assessment on farms). It discloses a reduction in Scope 3 emissions related to the production of the sourced milk from 23,119 to 22,314 thousand tonnes of CO2e. However, it is unclear if the reduction arose from manure management and/or enteric fermentation, as the emissions include land-use change, energy and fertilisers.

Fonterra has conducted a climate scenario analysis using two scenarios, RCP 4.5 and RCP 8.5, to 2050 and 2100.

The company's dairy cattle are primarily pasture-raised. Hence, its cooperative farmers only purchase supplementary feed. It found that growing seasons could change, and there could be an increase in pasture pest challenges due to warmer weather. It does not specify how it will respond to this risk. Since the company's dairy cattle are primarily pasture-raised, they are exposed to extreme weather risks. It did assess animal health effects due to increased weather variability, which may alter the milk supply. It also discloses that mitigation practices for heat stress are a minimum requirement for its farmer incentive programme. It mentions that the conflict in Ukraine, the economic crisis in Sri Lanka, and Covid-19 are pushing food and energy prices up. However, the company does not mention the impact of increased energy costs. It discusses the incoming carbon price in New Zealand, recognising this as a risk and its effects on its dairy suppliers. It plans to manage this risk by providing guidance and support to its farmers and investing in R&D to reduce emissions.

The company mentioned in the previous reporting period that it plans to invest around $1 billion in reducing carbon emissions and improving water efficiency and treatment at its manufacturing sites to achieve its net zero targets by 2050. However, the current year has not reported quantitative data on capital investment towards GHG targets. It also discloses that it has developed a capital planning roadmap to forecast the capital costs required to achieve its Scope 1 and 2 emissions reduction targets.

The company conducted a risk assessment for its processing facilities and identified six facilities in water-constrained regions. It states in its CDP Water Security Report 2022 that it has one farm in China located in a high-water stress area, which will soon be held for sale. The company has conducted a water risk assessment and it discloses that in FY2022, six sites in New Zealand and some in Australia were identified as in water-constrained regions and named these locations. It further mentions that the proportion of milk produced in water-stressed areas will likely decrease in the future because the one farm left in China is being held for sale. It states that it focuses on water efficiency at its manufacturing sites and provides examples of water savings at its sites. Overall, there was a 6.4% reduction in water use compared to last year. The total global water consumption is reported for FY22.

The company has set a target to reduce water used at sites in water-stressed regions by 30% by 2030 from the FY2018 baseline and reduce absolute water use across all manufacturing sites by 15% by 2030. The company discloses a reduction of 4.2% in water-constrained regions during FY2022, equating to a 6.6% absolute reduction against its 2018 baseline. The company discloses it has a target to reduce water withdrawal by 30% by 2030 from a 2018 baseline at high-risk sites. The target was established in FY2020 to focus on water efficiency improvements.

The company discloses its water withdrawals by source for FY2022. It reports that 6% of water withdrawn and 35% of water consumed comes from areas of significant water stress. The company reports water-related CAPEX, showing a change of 178 % in the reporting period. Water-related OPEX was reduced by 8% for the reporting year. The company anticipates a 4% increase in OPEX going forward. A third party verifies water-related data, Bureau Veritas. The company responded to the CDP Water questionnaire in 2022. Overall, it has experienced a decrease in water withdrawal and water consumption decreased in FY2022.

The company has not addressed water scarcity in its feed supply chain since most of its dairy cattle are pasture-raised, and supplementary feed (soy) represents less than 2%. The company is part of Living Water, a partnership with New Zealand's Department of Conservation. Through this partnership, tools, methods and approaches are trialled with the aim of enabling farming alongside maintaining freshwater and ecosystem health.

The company discloses that it does not know the water intensity figures for the soy it sources but intends to have this data in the next two years. The company states that it has prioritised assessments of other commodities that account for a more significant proportion of procurement spend to maximise its impact. Similiarly, it discloses that it does not know the proportion of soy produced/sourced from areas with water stress but intends to report this data in the next two years.

The company discloses that 76-99% of milk is produced in areas with significant water stress. However, only 1.0% of milk is produced from its own farms. Moreover, the company discloses that 1-10% of milk is sourced from areas with significant water stress. The company discusses that its farmers use Farm Environmental Plans, which currently apply to 71% of New Zealand farms. The plans help farmers prioritise ways to reduce water use to meet regional environmental limits on water withdrawals in New Zealand. The company only discusses detailed targets and evaluations from a water quality perspective and not water scarcity in its Farm Evaluation Plans. Additionally, the company does not discuss water scarcity plans in the regions it has identified as water-stressed outside of New Zealand.

The company discusses its partnership with the New Zealand Department of Conservation which is focused on five catchments to identify scalable solutions to a number of environmental factors, including improving water use.

The company discloses that it received zero fines in FY2022 for non-compliance with environmental laws or regulations. The company did, however, receive one abatement notice relating to pollution in New Zealand, where a malfunction resulted in wastewater being discharged to a nearby stream, but this did not result in a monetary fine. It identifies three operating locations with significant water stress concerning depletion and quality risks. Further, the company discloses that In FY22, six New Zealand sites: Edendale, Clandeboye, Darfield, Lichfield, Kauri and Maungat≈´roto; and one Australian site, Stanhope, were identified as being in water-constrained regions. The company has a target for more than 80% of its global manufacturing sites to treat wastewater to leading industry standards by 2030. However, it does not disclose specific targets by pollutant.

The company discloses the quality of wastewater discharged by destination from FY2019 to FY2022. It discloses the total volume of wastewater discharged by destination for the reporting year and reports that it does not discharge any wastewater directly into groundwater without treatment. A third party verifies the company's wastewater-related data, and it responded to the CDP Water questionnaire in 2022.

The company discloses it recovers the nutrients captured from the wastewater from the processing facilities to use them as fertilisers for growing feed, such as grass and maize. The company also produces biogas from its processing facility in Tirau and Darfield from the methane produced from the site's anaerobic wastewater treatment pond. The COD disclosed by the company has decreased from 943 mg/L in 2020 to 939 mg/L in 2021. Fonterra also reports a decrease in the volume of wastewater discharged by the company from in FY2022.

The company has a sustainable dairy programme for its farmers, which covers issues including nutrient budgets, nitrogen reports, and effluent management. It conducts supplier assessments against a detailed protocol covering effluent management, stock exclusion from waterways, and nitrogen management, among others. It mentions that it suspended the collection of milk from 78 farms owing to the non-completion of fencing to exclude stock from waterways. It also mentions that its farmers maintain proper fencing across 98.4% of the entire length of the waterways to prevent cows from directly excreting into the waterways. Moreover, FAIRR acknowledges that for pasture-based systems, most manure produced while on pasture becomes fertiliser. Nonetheless, the company is encouraged to state this information explicitly for investor transparency.

The farmers are required to have a nutrient management plan in place. Therefore, the company provides a nitrogen report, including benchmarks, to farmers. In the current reporting period, 95% of suppliers submitted their nutrient budgets and received a nitrogen report. It discloses that through Farm Source, which is a package of tools and services to assist farmers in managing their business, it provides greater levels of service, information, support, financial options, and discounts to help improve on-farm profitability and business management.

The company discloses a program which allows farmers in New Zealand to be paid more for meeting certain sustainability criteria, including reducing purchased nitrogen surplus and having no dairy farm effluent discharged to water. Fonterra has an extensive programme to address water impacts and risks. It has six commitments on water, the fourth of which is to build partnerships to improve waterway health. Actions include working with others to improve wetlands and working with regional councils. The company also discloses that it supports farmers and community action in other catchments across New Zealand.

The company commits to a stringent antibiotics policy, mandating suppliers to restrict antibiotic usage solely to therapeutic or curative treatments following infection diagnosis, thereby prohibiting use for growth promotion and prophylactic purposes across all antibiotic categories and dairy suppliers in its supply chain. Additionally, it promotes animal wellbeing plans crafted with veterinarians, offers animal welfare training, and manages biosecurity risks to minimise disease incidence. However, it has not explicitly detailed the incorporation of vaccines, nutritional supplements, reduced stocking density, or diminished routine mutilation in its disease reduction strategy.

The company does not disclose the quantity of antibiotics used.

The company commits to animal welfare through adherence to the Five Freedoms. A specialised team ensures animal welfare training and compliance in operations and supply chains. It suspends milk collection from non-compliant suppliers, evidenced by nine suspension notices issued in New Zealand in 2022. Development programmes have increased Animal Wellbeing Plans (AWPs) on New Zealand farms from 53% to 76%. However, it is unclear whether AWPs are globally implemented.

The company commits to prohibiting close confinement across its operations and supply chain, emphasising pasture-based farming with 90% of cow time on pasture. It also forbids routine tail shortening and mandates pain relief for disbudding, dehorning, and castration. The company limits long-distance transport, reporting average travel times of 2-3 hours within its global supply chain. It commits to humane slaughter practices and discloses that it provides enriched environments for dairy cattle, including diet variety and unrestricted movement.

The company adheres to globally recognised standards set by the World Organisation for Animal Health and maintains internal auditing and compliance processes for animal welfare. However, it does not specify any certification by a recognised farm assurance programme.

The company discloses somatic cell counts (SCC) as an indicator of animal welfare.

The company commits to prohibiting permanent tethering and aims to provide suitable environments for animals supplying milk to Fonterra . However, it has not disclosed data on mastitis for 2022 and lacks information on rates of lameness.

The company commits in writing to uphold human rights per the International Bill of Human Rights and the principles concerning fundamental rights set out in the International Labour Organisation Declaration on Fundamental Principles and Rights at Work.

The company conducts a due diligence process whereby it monitors and reviews human rights risks. It has evaluated its workforce and found concerns about bullying, harassment, long hours, and potential human rights risks in the non-milk supply chain. Furthermore, the company has identified forced/bonded labour and deceptive recruitment as two main modern slavery risks. It further mentions that as of 31 July 2022, it has not identified any specific instances of modern slavery across its value chain. It states that it is responding to human rights concerns in supply chains and its operations and has taken various initiatives to reduce risk, such as supplier audits that include labour practices. To mitigate risk, the company provides specific training to employees and has developed a global standard on bullying and harassment. In the current year, the company has also extended the rollout of e-learning on Modern Slavery. Moreover, the company conducts internal and third-party audits against its manufacturing sites' Sedex Member Ethical Trade Audit (SMETA) standards.

During its workforce evaluation, it identified concerns about bullying, harassment, long hours, and potential human rights risks in the non-milk supply chain. However, it does not provide further details of the risks found or the locations affected. In response to these concerns, the company has provided over 10,000 employees with training on bullying and harassment awareness.

The company commits in writing to prohibit child and forced labour, discrimination, and abuse. It also requires suppliers to ban child labour, forced labour and discrimination. The company carries out independent audits against the SMETA standard, which covers the selected policies. Furthermore, some of the company's customers require the company to undertake an annual assessment by EcoVadis. For FY2022, it retained a Gold rating. In addition, The company provides up to 10 days of sick pay per year. However, this is only said to apply to permanent workers. Furthermore, the company does not commit to ensuring all employees in its operations and supply chain receive a fair wage or have a clear statement requiring suppliers to prohibit abuse, harassment and inhumane treatment.

The company reports that supplier compliance is monitored via audits. However, it does not explicitly state which areas are audited. The company has a whistleblowing mechanism for all its employees and stakeholders to report violations anonymously related to human rights. In FY2022, the company received 20 reports through the agency. The company disclosed fourteen formal complaints in New Zealand, four in Australia, one in Sri Lanka, and one in Japan; however, while it states that several reports concerned discrimination, it does not categorise all the grievances it received.

The company has a global health and safety management system covering operational and employee safety, overseen by the Global Director of Quality and Safety. However, it does not disclose having a health and safety management system certification. Also, the company has a global health and safety management system but does not disclose whether its facilities/sites have health and safety committees with worker representatives.

The company discloses its total recordable injury frequency rate (TRIFR) as 6.7 per million work hours for FY2022. This is an increase compared to FY2021 when the company had a TRIFR of 5.7. The company also discloses one work-related fatality in the reporting year, compared to zero in the prior year. The company has reported an overall turnover rate of 11.9% for FY2022 but does not disaggregate this by seniority level. The turnover rate excludes employees in the company's Brazillian operation.

The company commits in writing to respect its employees' rights to organise and bargain collectively freely but does not disclose unionisation rates. The company also states that its suppliers must respect their employees' rights to freedom of association and to be represented by trade unions in negotiations. That said, the company does not provide evidence of actions to support collective bargaining and freedom of association.

The company states that collective bargaining agreements cover 61% of employees in New Zealand but does not discuss the percentage for other regions where it operates. The company also reports data on full-time and part-time employees by gender and by region.

The company has achieved FSSC22000 and BRC certification for 100% of its sites. Both of these certifications are GFSI-recognised. The company has its own Raw Milk Harvesting Standard, which includes food safety, and conducts on-farm supplier audits against it in the different sourcing countries/regions. The audits are performed by a combination of its staff and third parties. Therefore, it expects its suppliers to comply with FSSC / GFSI systems. However, it does not disclose the proportion of suppliers that are GFSI-certified.

The company discloses that its sites are subject to regular internal and third-party food safety audits by regulators, key account customers, and certification bodies. It also states that milk pick-up samples are taken and tested at every farm by an independent provider. Further, it conducts regular farm testing on food safety and quality. However, it does not disclose the number or frequency of audits in its or supplier operations. Nor does it disclose the corrective action rate. The company states that 93% of its global supply chain is electronically traceable. It continues to expand the use of QR labelling technology to deliver additional value to customers by enabling them to track and trace the product from the point of origin.

The company does not disclose a description of how it approaches product recalls. However, it had zero product identifies for safety reasons and zero legal or regulatory non-compliances related to food safety and quality in FY2022.

The company discloses it did not receive any fine or market bans for breach of marketing regulations, and none of its products are banned from sale in any country.

The company's board charter states that it is responsible for approving its sustainability strategy, initiatives, targets and policies and monitoring its sustainability performance. The company has also disclosed the process of its materiality assessment in detail and publicly reports the evaluation outcomes. The company identifies food safety and quality, effects of climate change, water issues, employee health and safety, animal health, and responsible procurement, among other topics, as material to the business. It needs to be clarified if the board is involved in the oversight of the assessment. The company has board-level expertise in sustainability and innovation but not food safety.

The company states that short-term incentives for the CEO are calculated based on achievement against a company scorecard, aligning with its sustainability agenda. However, the company does not disclose the percentage of variable compensation linked to sustainability KPIs. The company discloses engaging with The New Zealand Veterinary Association and DairyNZ to work on animal welfare practices. In FY2022, the company joined a new collaboration with the Ruminant Greenhouse Gas Partnership. It has also partnered with the Department of Corrections to reuse waste wood from pallets to make pest trap boxes. Further, the company discloses its engagements and partnerships to reduce greenhouse gas emissions and improve animal welfare. In addition, since 2013, the company has partnered with the New Zealand Department of Conservation on scaling solutions for freshwater. It has also aligned its messaging and co-branding on prudent antibiotic use with the New Zealand Veterinary Association. The company also disclosed its trade association and coalition memberships. However, the company does not explicitly mention aligning its policy-engagement activities to restrict global temperature rise to 1.5C.

In FY2022, the group launched an innovative new range of Anchor Probiotic+ yoghurts in New Zealand. It is also investing in packaging innovation to make it 100% reusable, recyclable or compostable by 2025. Furthermore, it has invested in Motif Foodworks, which uses biotechnology and fermentation to develop novel ingredients, including alternative proteins. It also works with DSM to develop speciality ingredients using precision fermentation and methane-reducing additives. The company also has a partnership with Professor Ian Hunter (Massachusetts Institute of Technology), which involves investigating solutions to sustainability challenges and renewables. However, the company does not disclose how it benchmarks itself against peers in sustainability and innovation.

The company publicly states that to feed the future global population, it is necessary to combine traditional and complementary nutrition sources, which include plant-based and algae products, among others, and therefore, acknowledges the need to explore alternative protein sources. However, it does not explicitly discuss alternative protein diversification as a strategy to reduce material risk impacts this reporting year. Further, it does not disclose a timebound target to diversify protein sources or report sales/revenue linked to alternative protein sources.

The company is involved in complementary nutrition to diversify and assess longer-term opportunities. This includes a minor investment in Motif made in 2019, which uses biotechnology and fermentation to develop ingredients for animal-free foods. In the reporting period, the company discloses it has been preparing to launch a new startup with DSM that will help accelerate the development of advanced speciality ingredients using precision fermentation technology. However, needs to berther information is provided about the investment in this product category this reporting year.