Fonterra’s Latest Sustainability Report Shows Most Encouraging Progress To Date

Fonterra has achieved its most encouraging sustainability results since starting its annual reporting four years ago, but the Co-op is staying focused on what still needs to be done to reach its long-term targets.

“The progress we’ve made this year towards our three interconnected goals of healthy people, a healthy environment and a healthy business show that our strategy and customer-led operating model are delivering,” says CEO Miles Hurrell, following the release of Fonterra’s 2020 Sustainability Report today.

“We’re proud of what our people have achieved, especially in the face of COVID-19, and want to thank farmers and employees for their support and hard work.”

The report shows that Fonterra improved all three of its core environmental metrics around greenhouse gas (GHG) emissions, water use and solid waste to landfill for the first time since launching its first stand-alone Sustainability Report in 2017, as well as lifting its financial performance and continuing to support communities.

Among other highlights in the report, Fonterra has become the first dairy company in New Zealand to have its emission reduction targets endorsed by the UN-backed Science Based Target initiative. This means that the Co-op’s 2030 target of 30% reduction in Scope 1 and 2 GHG emissions, which are the emissions it directly creates and those from the energy it uses, has been approved as being in line with what the latest climate science says is needed to limit global warming to well below 2°C.

“We take the best of what New Zealand has to offer to consumers around the world through the unique quality of our milk, so of course we want to play our part in helping the country meet its climate commitments,” says Hurrell.

“Our farmer owners have a carbon footprint of about one third of the world average, and we’re continuing to support them to adapt to change. Setting science-based targets is important and so is the concrete action we’re taking today – like providing farmers with farm-specific emissions profiles, which will help them identify opportunities for improvements, and switching our Te Awamutu site to wood pellets, which will reduce our coal use by almost 10%.”

Increasing the energy efficiency of existing assets is also key. This year, the Co-op hit its longest running target of 20% reduction in energy intensity across its New Zealand manufacturing sites between 2003 and 2020, which is enough energy saved to power all the households in Aotearoa for 1.5 years. As part of the plan to reach a 30% reduction in emissions by 2030, and ultimately net zero emissions by 2050, Fonterra is developing site-specific ‘Greenprints’ that outline the roadmap to decarbonisation.

The report also highlights areas for improvement including the need to achieve better gender and ethnic diversity at leadership level and accelerate progress towards key 2025 targets such as having 100% reusable, recyclable or compostable packaging.

Global Sustainability Director Carolyn Mortland says the Sustainability Advisory Panel provides a valuable external lens as Fonterra works towards these goals.

“Our Co-op’s focus is on adopting regenerative principles across the business so that we’re restoring and replenishing rather than just protecting and conserving. This will take time, and we can’t do it alone, but we need to get it right to ensure a better future for our business, people, animals, natural resources and taonga,” says Mortland.

Read the full 2020 Sustainability Report at www.fonterra.com/sustainability

Attached: Infographic on 2020 key achievements

Key highlights from the 2020 Report (figures are to July 2020)

Healthy People:

• Celebrated 10 years of serving up KickStart breakfasts to Kiwi kids
• 2 million litres of ethanol supplied for hand sanitiser during COVID-19
• Hit target of 100% of manufacturing sites being independently certified to leading food safety management system
• Introduced ‘Good Chat’ wellbeing calls for employees
• Reduced gender pay gap in all countries where we have significant operations

Healthy Environment:

• First New Zealand dairy company to have emission reduction goals endorsed by the Science Based Targets initiative
• Hit target of 20% reduction in energy intensity from 2003 to 2020
• Switched to wood pellets at Te Awamutu, which will reduce coal use by almost 10%
• Farm-specific GHG emissions profiles made available to all New Zealand farmers
• 34% of farms supplying us in New Zealand have a tailored Farm Environment Plan
• Invested in GHG mitigation solutions including new seaweed trial and Kowbucha™ project

Healthy Business:

• $11 billion into regional New Zealand for 2019/20 season
• Final cash payout for 2019/20 season: $7.19 per kgMS
  • Final 2019/20 Farmgate Milk Price: $7.14 per kgMS
  • 2019/20 dividend: 5 cents per share
• Reduced Net Debt by $1.1 billion
• Improved ratio of Debt to EBITDA from 4.4 times to 3.4 times
• Brought forward payment to farmers as well as small and medium-sized vendors in New Zealand
• Developed sustainability solutions based on market demand, including New Zealand’s first carbonzero™ milk and first plant-based milk bottle
• Collaborated with Provenance.org using blockchain to give consumers access to verified sustainability information

Non-GAAP financial information

Fonterra uses several non-GAAP measures when discussing financial performance. These measures include normalised segment earnings, normalised EBIT, EBIT, normalised earnings per share, normalisation adjustments and payout. This reporting period Fonterra has introduced Total group earnings before tax and Total group normalised earnings before interest and tax non-GAAP performance measures that present the combined financial performance of the group’s continuing and discontinued operations.

These are non-GAAP financial measures and are not defined by NZ IFRS. Management believes that these measures provide useful information as they provide valuable insight on the underlying performance of the business. They are used internally to evaluate the underlying performance of business units and to analyse trends.

These measures are not uniformly defined or utilised by all companies. Accordingly, these measures may not be comparable with similarly titled measures used by other companies. Non-GAAP financial measures should not be viewed in isolation nor considered as a substitute for measures reported in accordance with NZ IFRS. These non-GAAP measures are not subject to audit unless they are included in Fonterra’s annual financial statements.

Definitions of the non-GAAP measures used by Fonterra, and reconciliations of the NZ IFRS measures to the non-GAAP measures can be found on pages 45 and 46 and pages 149 to 151 of Fonterra’s Annual Report 2020 that is available on Fonterra’s website.

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