Fonterra Climate-related Disclosure 2023

Kōrero Āhuarangi Te Mātāpuna

Karla Mae,
Northland

Forward looking statement

This is Fonterra’s first set of Climate-related Disclosures (CRD), produced on
a voluntary basis ahead of mandatory Climate-related Disclosure required
from FY24. These Climate-related Disclosures have been prepared to align as
far as possible with the content that will be required from FY24 with Aotearoa
New Zealand Climate Standard 1 (NZ CS 1), but some of the NZ CS 1 reporting
criteria are not yet met.

This CRD contains forward-looking statements, including climate-related

metrics, climate scenarios, estimated climate projections, targets, assumptions,
forecasts and statements of Fonterra’s future intentions. This CRD reflects
Fonterra’s best estimate and current understanding of future climate-related
events, risks, opportunities, impacts and strategies as at 9 November 2023,
the date of publication. Fonterra has sought to provide accurate disclosures
as at publication, but cautions reliance being placed on representations that
are necessarily subject to significant risks, uncertainties and/or assumptions,
including those described more fully at page 30. In particular, forward-looking
statements are not facts, but rather estimates and judgements regarding
future results that are based on current estimates and are necessarily subject
to risks, uncertainties and/or assumptions. These estimates may prove to be
incorrect due to unforeseen risks and general uncertainties of the business
and environment we operate in, as well as due to the inherent uncertainty in
the future impacts of climate change on our business and markets. Fonterra
has used its best efforts to provide a reasonable basis for forward-looking
statements but is constrained by the novel and developing nature of this
subject matter. Climate-related forward-looking statements may therefore be
less reliable than other statements Fonterra may make in its annual reporting.
Readers are cautioned to not place undue reliance on forward-looking
information contained in this document.

Descriptions of the qualitative and quantitative current and anticipated impacts

and financial impacts of climate change draw on and/or represent estimated
figures only. In particular, the risks and opportunities described in this CRD, and
the forecast emissions reductions, may not eventuate or may be more or less
significant than anticipated. There are many factors that could cause Fonterra’s
actual results, performance, or achievement of climate-related metrics
(including targets) to differ materially from that described, including economic
and technological viability, as well as climatic, government, consumer, and
market factors outside of Fonterra’s control.

Nothing in this report should be interpreted as capital growth, earnings or any

other legal, financial tax or other advice or guidance.

COVER
Loveridge Farm,
Southland
Contents
INTRODUCTION OUR 2023 SUITE
04
OF REPORTS
GOVERNANCE 06
Annual Review 2023
Fonterra Board of Directors 08 (Referenced as AR)
Fonterra Management Team 10 Financial Statements 2023
Group Climate Leaders 11 (Referenced as FS)

STRATEGY 12 Business Performance

Report 2023
Current business model and strategy 12 (Referenced as BP)
Climate-related risk and decision-making 14 Sustainability Report 2023
Current impacts of climate-related risks 15 (Referenced as SR)
and opportunities Governance & Statutory
Scenario analysis 17 Disclosures 2023
(Referenced as G&S)
Scenario narratives 18
Modern Slavery Statement
Climate-related risks 20 2023
Climate-related opportunities 23 (Referenced as MS)

RISK MANAGEMENT 24 Farmgate Milk Price

Statement 2023
Identification and assessment of climate-related risks 25 (Referenced as MP)
and opportunities
Integration of climate-related risk within Fonterra’s 27
overall Risk Management Framework
METRICS AND TARGETS 28
Setting our emissions reduction targets 30
Our performance metrics 32
How we measure and report 33
APPENDIX 36
OUR REPORTS ARE AVAILABLE
Governance: Frequency of meetings 36 FROM FONTERRA.COM/NZ/
EN/INVESTORS.HTML
Glossary 38
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 04

We want dairy farming in New Zealand to continue for generations to

come. This is why we have made a strategic choice to ‘be a leader in
sustainability’ – it’s all about how we build resilience in the Co-op for
future generations. We are aligned to the objective of keeping warming
As a dairy co-operative below 1.5˚C. We have committed to set 2030 emissions reduction
targets in line with the Science-based Targets initiative (SBTi)1 to help
owned and supplied by us toward our Net Zero 2050 ambition. We have taken some big steps
on our climate journey already.
farming families across We are already feeling the effects of climate change. Droughts, floods
New Zealand, we believe and extreme weather are becoming more common, proving the criticality
of building resilience in the Co-op to support farmer shareholders to
in the power of dairy to continue looking after the land and cows to keep milk flowing. We are
also exposed to the transition risks of climate change that come from
help meet global nutritional increasing pressure on the world to decarbonise. These risks include
shifting consumer preferences, changing regulations and trade and
needs now and in the future. market access. Whilst these may present challenges, there are also
New Zealand farmers are opportunities Fonterra can leverage in the transition to a net zero future.
This is Fonterra’s first climate-related disclosure and is an important
among the most emissions- part of understanding how climate change may impact the Co-operative.
efficient dairy producers in We acknowledge the importance of identifying, managing and disclosing
material climate-related risks and opportunities in a consistent and
the world, making Fonterra comparable way. This voluntary disclosure is part of our preparations
to disclose our first mandatory report (required from FY24), in line with
a supplier of choice for the Aotearoa New Zealand Climate Standards.

sustainable dairy. However, Using the Aotearoa Circle’s Agriculture Sector Climate Change
Scenarios2, we have developed three possible future scenarios to
our future depends on better understand our climate-related risks and opportunities.
These scenarios are not meant to be predictions of the future,
protecting the natural rather they challenge us to stress test our strategy and
business model under plausible socio-economic, technological,
environment and climate environmental and political futures. These insights can help us build
change is one of the biggest resilience, prepare for the risks and uncertainties we may encounter
and leverage opportunities to lead the way in innovation and
challenges we face. low-emissions sustainable dairy nutrition for generations to come.

1 As described at page 30, Fonterra has committed to set near-term company-wide science-
based emission targets with SBTi. We have used the SBTi Forest, Land and Agriculture
Guidance (FLAG) to develop our Scope 1 and Scope 3 FLAG target and are currently in the
process of submitting this target and our Scope 1 and 2 target to SBTi for accreditation.
2 Aotearoa Circle is a cross sector group of leaders committed to restoring New Zealand’s
natural capital. Aotearoa Circle is leading ‘sector scenario’ development for organisations
across New Zealand to leverage for scenario analysis. The scenarios are available here.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 05

Dave & Jess,

Manawatū-Whanganui
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 06

Governance

Brya,
Waikato
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 07

Climate Governance at Fonterra

Figure 1 - Climate Governance at Fonterra.

Fonterra Board of Directors Sustainability

Governance

Advisory
Panel
Body

Co-operative Sustainability & Audit, Finance People, Culture &

Relations Committee Innovation Committee & Risk Committee Safety Committee

Fonterra Management Team

Chief Chief Managing Director Chief Managing Director

Executive Operating Co-operative Financial Strategy &
Officer Officer Affairs Officer Optimisation

FMT members with specific climate responsibilities.

Management

Group Climate Leaders

Climate Risk Steering Committee

Director Group Director Global Director Director Director Director Director

Technical Director Sustainability, Sustainability Governance, Legal Group Strategy
Excellence Farm Source Stakeholder Risk & Audit First
Finance
Affairs & Trade Last name
Director
Group Finance

Sustainability Activation Steering Committee

Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 08

Fonterra Board of Directors

As part of their governance duties, Table 1 – Board committee responsibilities

our Board of Directors have visibility

The CRC provides oversight and monitoring of climate-related risk and strategy relevant
and oversight of sustainability and Co-operative for on-farm practices, associated change management and regional community initiatives.
Relations
climate-related risks and opportunities. Committee The CRC regularly considers on-farm greenhouse gas (GHG) emissions innovations
and investments, as well as overseeing engagement plans related to on-farm emissions
The Fonterra Board approves and is ultimately responsible for, (CRC) reduction.
our overall climate strategy, initiatives, frameworks, targets, metrics
and policies.
The Board monitors progress against and oversees achievement of
climate-related metrics and targets. Various Board committees take
The AFRC has responsibility for oversight and monitoring of climate risk, as well as
on governance responsibility for elements of climate-related risks Audit, Finance & publication of Fonterra’s Climate-related Disclosures.
and opportunities that align to particular areas of oversight, Risk Committee
as set out in Table 1.3 Group Risk Reporting is an agenda item at each meeting of the AFRC and includes
(AFRC) ‘Climate Change’ as a Group Risk, following a refresh of the Co-op’s Risk Appetite
The Board committees are accountable to the Board.
Statement by the AFRC earlier this year.
To support oversight of Board committee activities, all Board
members have access to Board committee meeting papers and are
provided with the minutes of meetings for their review, which are
then an agenda item at each full Board meeting.
More information on our Board and Board committees can be Sustainability The SIC was established in 2023 and oversees the innovation, sustainability and
climate aspects of Fonterra’s strategy. This includes:
found in our Corporate Governance Statement in the Governance & & Innovation
Statutory Disclosures 2023 and on our website. Committee – reviewing Fonterra’s climate-related initiatives and investments, frameworks,
targets, metrics and policies before recommending them to the Board for
(SIC)
approval; and
– once approved, monitoring their strategic integration into the business and
See the Appendix for examples of some Fonterra’s performance against them.
of the key climate-related activities
that were undertaken by relevant
committees during the reporting period People, Culture & The PCSC has responsibility for the remuneration of executives and other employees
related to climate risk.
Safety Committee
and the frequency of meetings of the
(PCSC) The PCSC is responsible for reviewing and approving Fonterra’s global remuneration
Board and sub-committees. strategy, including the measures and weightings of any incentive plan components in
respect of climate risk and sustainability.

3 For more detail, please see the charter for the Board and each Board committee as well as
the Governance & Statutory Disclosures 2023.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 09

Directors’ climate
capability and understanding

As part of our annual Fonterra Director election process,

the Board prepares a skills matrix that shows:
Sustainability Advisory Panel
– the aggregate skills of the current Board In 2018, Fonterra appointed an external Sustainability
Advisory Panel (SAP), to provide the Board and management
– the required and desired level of skills across the whole Board with independent sustainability insights. This includes
– the targeted skills based on the present composition perspectives on Fonterra’s climate strategy, targets
of the Board and the future strategic needs of the business. and initiatives.
Sustainability as a skill, which includes climate change expertise, The SAP meets twice a year to review and provide feedback
was identified by the Board as a targeted skill in three out of the on Fonterra’s strategy and sustainability performance.
last five years.
The evaluation of the Board’s skill level for the 2023 Director
election process showed that Fonterra Directors who were
not retiring by rotation had “Effective Leadership” as their top
aggregate skill out of eleven skills in total. This was followed
closely by “Sustainability” and “Risk Management”. We consider
these three skills essential for the effective governance of
climate-related risks and opportunities. To support continuous
improvement of these critical skills, we have engaged external
professional services firms with specific climate-related risk
expertise to advise on climate-related risk and opportunity
readiness. Our Board continues to expand climate capability
and further climate training sessions are planned for the next
reporting period.

Fonterra Centre,
Auckland
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 10

Fonterra
Management Team Table 2 - Fonterra Management Team

– Responsible for managing and delivering the Climate metrics

Chief Co-op’s strategy and performance. and remuneration
Day-to-day management of Executive
– Management of Fonterra’s strategic choice to
Officer be a leader in sustainability.
risks and opportunities within Executive remuneration
– Responsible for management of climate-related
the Co-operative is delegated risks and opportunities, including delivery of
is used to incentivise
management accountability
to members of Fonterra’s the Climate Roadmap. for the implementation
of climate strategies,
Management Team (FMT) policies and targets.
– Considers climate-related risks and opportunities as
and other senior leaders, as Chief part of Fonterra’s strategy and business planning. The PCSC is responsible
Operating for reviewing and
shown in Table 2 and Figure 2. – Responsible for delivery of our New Zealand approving Fonterra’s global
Officer ingredients manufacturing operations remuneration strategy,
decarbonisation programme. including the measures and
While the wider FMT monitors and – Attends relevant AFRC meetings. weightings of any incentive
discusses climate-related risks and plan components.
opportunities and endorses content to Our FMT and wider senior
– Responsible for Fonterra’s farmer facing services
go to the Board at monthly meetings, Managing level employees have a
and management of climate-related governance
the members identified in Table 2 have Director and risk, including oversight of risk reporting Group Short Term Incentive
significant responsibilities related to (STI) scorecard, which
Co-operative to the AFRC.
climate-related risks and opportunities. includes an annual 15 per
Affairs – Attends CRC and SIC meetings. cent measure on lowering
Fonterra’s environmental
The CEO provides a monthly report to footprint via a GHG emissions
the Board, which includes reporting – Aligns Fonterra’s reporting on climate-related risks
Chief and opportunities with standards.
intensity reduction and
against ‘Climate Change’ as a Group Risk. Financial water improvements at our
– Considers financial implications of climate-related manufacturing sites. The
Officer risks and opportunities in financial planning, capital sustainability weighting
The FMT reviews performance against allocation and financial reporting. was lifted from 10 to 15 per
climate-related targets monthly as cent in FY23, in line with
– Attends AFRC meetings.
part of an integrated scorecard. The our strategic choice to be a
scorecard considers GHG emissions, leader in sustainability.
Farm Environment Plans (FEPs) and – Considers climate-related risks and opportunities
water use, as well as a summary of key
Managing as part of Fonterra’s strategy and implementation.
workstreams relating to the delivery of Director Strategy
– Attends Board committee meetings for strategy,
Fonterra’s strategic aim to be a leader in & Optimisation budget and business planning.
sustainability. See Fonterra’s Remuneration
Report 2023 for more
These are the FMT members that have specific climate responsibilities. information.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 11

Group Climate Leaders

Figure 2 - Group Climate Leaders

Climate Risk
Steering Committee

Includes additional members of the

+ The Climate Risk Steering Committee
manages the strategic implementation of
Fonterra’s climate-related risk programme
and Climate-related Disclosures.
Steering Committee
This Steering Committee reports regularly
to the AFRC, the SIC and the Board on
Fonterra’s climate-related risk programme.
The FMT receive monthly risk updates that
include commentary on climate-related risks
and opportunities.

Director Technical Group Director Director Global Director Director Governance, Director Director Director
Excellence Farm Source Sustainability, Sustainability Risk & Audit Legal Group Finance Strategy
Stakeholder
Oversees Oversees Fonterra’s Affairs & Trade Strategic execution Identification and Oversees Oversees Develops and
decarbonisation farmer-facing of Fonterra’s assessment of sustainability climate-related oversees delivery
of manufacturing services and on- Overall global sustainability climate-related risks and climate-related performance of Fonterra’s
and supply chain farm emissions corporate value case and opportunities. legal risk and reporting strategy, including
emissions sustainability Governance our aspiration
and climate oversight of to be a leader in
risk management climate-related sustainability
risk and
opportunities

The Sustainability Activation Steering This Steering Committee provides updates

Committee provides oversight of key to the SIC and the wider Board on a quarterly
workstreams responsible for executing basis, including progress against Fonterra’s

sustainability initiatives across our Co-operative,
including climate change, animal wellbeing,
water quality and sustainable value.
+
emissions targets. The FMT receive updates from
this Steering Committee through an executive
monthly business review and a quarterly
report to the CEO. Includes additional members of the
Steering Committee

Sustainability Activation
Steering Committee See the Appendix for information on frequency of meetings
and examples of key decisions presented to the Board.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 12

Strategy
Current business
model and strategy
We launched our long-term
strategy in September 2021,
setting out clear financial and
non-financial value targets. The
strategy identifies three key
strategic choices that define the
Co-op’s path to 2030: focussing
on New Zealand milk, being a
leader in dairy innovation and
science and being a leader in
sustainability.

Karla Mae,
Northland
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 13

In the 2022/23 season we collected approximately

16,317
million litres of milk
from New Zealand farms which was processed into a wide
range of value-added dairy ingredients and products.

Climate-related opportunities are also built into the Co-op’s

Our choice to be a leader in sustainability
is based in the belief that sustainability
is key to a resilient, competitive and
valuable Co-op, now and in the future.
We are working to mitigate our impact
on the environment and manage the
impact of sustainability risks and
opportunities, especially in relation to
climate, for a future-ready Co-op.
In 2021, we announced our ambition to be Net Zero by 2050.
In 2023, we released 2030 emissions reduction targets across
Scopes 1, 2 and 3 in line with the Paris Agreement goal of limiting
global temperature increase to 1.5˚C. Our pathway to achieving
these targets is outlined in Fonterra’s Climate Roadmap.
Elements of our other strategic priorities also relate to climate.
long-term strategy and business plans. Capturing value from
Our products are taken to the world via three
channels: Ingredients, Consumer
our leading low-emissions dairy proposition, including through and Foodservice, generating
our low-emissions solutions and customer partnerships, is a key
$24.58
opportunity. The benefits of our low-emissions solutions and
customer partnerships are already beginning to be realised. Given
the size of methane in our on-farm footprint and our Co-op’s
history of innovation we have an opportunity to lead in research billion revenue in FY23
and development of solutions for methane emissions. We believe
there is a role for Fonterra’s sustainable dairy nutrition to help
We have
meet future nutritional needs with adaptive and resilient farming
systems delivering nutrition in the face of a changing climate.
In 2023, we assessed Fonterra’s climate-related risks and
opportunities over short (2026), medium (2030) and long
(2050) terms as part of a scenario analysis, which increased
48
Sustainable Dairying Advisors
the visibility of climate-related risks and opportunities across delivering bespoke Farm Environment Plans. We are
the Co-operative. Climate change was also established as a aiming for all farmer shareholders to have a Farm
Environment Plan by 2025.
standalone enterprise level risk within Fonterra’s Group Risk
Appetite Statement and validated the importance of considering
climate-related risks and opportunities in our strategic and We have

For example, as part of our choice to be a leader in dairy operational business planning.
innovation and science the Co-op is investing in developing
innovative solutions to reduce methane emissions from cows.
This work includes KowbuchaTM, where we’re looking at the use
We set out our material climate-related risks and opportunities
in more detail on pages 20 – 23. 36
manufacturing
of dairy cultures to reduce methane, and externally investing sites across New Zealand and Australia.
through AgriZeroNZ, a public-private partnership with industry
and Government.
The impact of some physical climate risks (e.g. adverse Our 2030 climate targets:
weather events and rising temperatures) and transition risks
(e.g. regulatory changes impacting farming practices) are Reduce absolute Scope 1 Reduce Scope 1 and 3 FLAG
and 2 GHG emissions by GHG emissions from dairy by
considered in the Co-op’s internal milk supply modelling.

50% 30%
As milk is the Co-op’s primary input, this modelling underpins
most strategic and business planning work.

between FY18 per tonne of fat-and protein-

and FY30 corrected milk (FPCM)
between FY18 and FY30
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 14

Climate-related risk
and decision-making

Fonterra’s largest input and driver of

value is its New Zealand milk supply.
Our regional internal milk supply
forecast is conducted annually and
informs the Co-op’s asset roadmap
and long-term demand outlook.
This in turn underpins budgeting, business planning and capital
decision-making. Our internal milk supply forecast considers
some of the potential physical impacts of climate change
(e.g. drought and rainfall) and some transition risks such as
domestic regulatory changes that could affect milk supply.
In addition, sustainability, including climate change, is considered
as part of our capital allocation planning process. When capital
is deployed, those submitting a business case are asked to assess
the sustainability impact of the project, including emissions.
As part of the internal capital funding and decision-making
processes there is opportunity to further develop assessment
of climate-related risks and opportunities as the approach to
scenario analysis evolves.

Durham Farm,
Northland
Fonterra Climate-related Disclosure 2023 Introduction
Current impacts of climate-related
risks and opportunities
While the effects of climate
change are expected to intensify
over the coming decades, a
number of impacts are already
being observed.
On-farm, supply chain and
manufacturing disruption
Cyclone Gabrielle was a severe tropical cyclone that
affected New Zealand’s North Island in February 2023
and is a recent example of an acute weather event
causing disruption to our supply chain and on-farm
operations. Over 600 Fonterra farms were disrupted due
to slips or flooding and other on-farm impacts, resulting
in the disposal of 4.6 million litres of milk with a direct
cost to Fonterra. Affected farmers received payment
for milk that the Co-op was unable to collect due to the
climate event under the terms and conditions on which
they supply milk to the Co-op.
Governance Strategy Risk Management Metrics & Targets Appendix Contents 15
Changing customer and consumer
preferences
In addition, more than 100 farms had their operations
Globally, many consumers are increasingly concerned about
significantly disrupted by factors like ongoing power
cuts and a small number had to dry off early. The net
the climate impacts of their food and beverage consumption.
We are seeing increasing consumer demand for low-emissions
impact was 1.5 million kilograms of milk solids (kgMS)
options flowing into demand from our business-to-business
lost, (0.1 per cent of total collections for the 2022-
customers. More than 30 Fonterra customers have committed
2023 season). There was no significant downtime
observed at any of our manufacturing sites. Although
to SBTi targets. Our customers look to their suppliers to help
them meet their targets and are therefore invested and eager
there were disruptions to consumer and foodservice
to engage in our climate plans.
product deliveries, the financial impact was managed
As one of the world’s lowest emission suppliers of dairy at
and business as usual operations resumed after three
scale with a Climate Roadmap to deliver on our 2030 targets,
days. Other disruptions were relatively minor, such as
approximately 2,475 Fonterra employees being advised we are well placed to benefit from this transition opportunity.
to work from home, in line with guidance from local NZD$24 million in revenue was earned from consumer and
authorities including Auckland Transport. foodservice products bearing the carbonzero™ mark in FY23
and NZD$1.6 million was derived from customer investment in
The 2022/23 season also presented drought conditions
low-emissions solutions and partnerships, an example of this is
in Southland and Otago for the third year in a row.
the net zero carbon dairy pilot project with Nestlé. This funding
The impact to the Co-op in terms of milk supply was
will help support on-farm emissions reduction initiatives.
not significant. However, farmers operating under
drought conditions were exposed to additional cost for
supplementary feed options to maintain production.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 16

Current impacts of
climate-related risks
and opportunities

Changing regulations and market access Access to capital

In line with our commitment to reduce Scope 1 and 2
There is increasing focus from banks
emissions by 50 per cent by 2030 (from a 2018 baseline) and
the New Zealand Government’s plans to phase out coal by and investors to align their lending and
2037, Fonterra has a forecast spend of NZD$790 million4 to investment portfolios with Net Zero
reduce operational Scope 1 and 2 emissions by 2030. Between 2050 targets alongside 2030 science-
FY18 to FY24, Fonterra is forecast to spend approximately based targets. Lenders and investors are
NZD$175 million on energy efficiency and fuel-switching expected to progressively require credible
projects that are estimated to reduce our Scope 1 and 2 transition plans that align with a 1.5˚C
emissions by approximately 177,800 tonnes of CO2-e per annum. future. We expect this has the potential
Fonterra recognises that new technologies will be required to to influence Fonterra and our farmer
reduce on-farm emissions in line with New Zealand Government shareholders’ ability to access finance in
methane targets and Fonterra’s Scope 1 and 3 FLAG target. the future.
Fonterra has committed to invest NZD$50 million over four Over the course of FY23, Fonterra worked
years into AgriZeroNZ, a joint venture with the New Zealand with key banking partners which has
Government and other New Zealand agribusinesses to develop
helped inform our Sustainable Finance
solutions to reduce agricultural emissions.
Framework.
Over the past four years we have also invested NZD$15.8 million
on research and development for GHG emissions reduction. Going forward, the Co-op is expecting
This includes development of our probiotic-based methane to be in a position to access sustainable
inhibition technology, Kowbucha™, along with partnerships finance. With a strategic choice to be a
linked to other potential methane inhibitor technologies. leader in sustainability alongside science-
This spend also includes development of life cycle analysis based emissions reduction targets across
methods for measuring emissions to support New Zealand all scopes and a roadmap to achieve
and international standards. targets, we believe the Co-op is well-
placed to meet the requirements of banks
and other financial institutions.

4 Up to $90m of this spend is co-funded by the Government from the Government

Investment in Decarbonising Industry (GIDI) Fund. The GIDI Fund is administered by
EECA, which is a New Zealand Government/Crown agency responsible for promoting Ruby,
energy efficiency, energy conservation and the use of renewable sources of energy. Southland
Fonterra Climate-related Disclosure 2023 Introduction
Scenario analysis
The Aotearoa Circle Agriculture Sector Scenarios
were used as the foundation for developing
Fonterra’s climate scenarios for this FY23 report.7
The sector scenario work programmes led by the
Aotearoa Circle have been influential in bringing
together sectors across New Zealand to support
climate reporting entities and encourage greater
comparability of reporting. Te Kāwai Ārahi
Pūrongo Mōwaho - External Reporting Board
(XRB) recognises the value of sector scenarios
and encourages sector collaboration.8
The Aotearoa Circle created three climate scenarios
for the sector, which help meet the prescribed
temperature scenarios mandated by the XRB:
– Orderly, temperature rise limited
to 1.5°C (mandated)
– Disorderly, temperature rise limited
to 2°C
– Hothouse, temperature rise increases
past 3°C (mandated)
Governance Strategy Risk Management Metrics & Targets Appendix Contents 17
Scenario analysis is the process of exploring how an Scenario narratives are determined by the interaction of
entity might perform under a range of plausible futures. key social, technological, economic, environmental and
In a world of uncertainty, scenario analysis is meant to political ‘drivers of change’ that may influence an
challenge ‘business as usual’ assumptions. entity’s operating environment. These narratives
include assumptions and logical relationships to help
Climate-related scenario analysis does not
identify potential impacts and severity of the impacts,
predict the future, but rather provides a range on operations, strategy and financial planning.
of hypothetical outcomes to enable an entity to
Fonterra worked with PwC to contextualise the Aotearoa
better assess how physical and transition risks
Circle scenarios to reflect the dairy industry specifically
and opportunities associated with climate
as well as Fonterra’s global operations and markets. This
change could impact its operations.
process involved workshops with Fonterra subject matter
It is a complex process that requires the convergence experts (SMEs) to iterate the drivers of change initially
of several tools and processes to adequately assess identified by Aotearoa Circle, and to revise the relevant
anticipated impacts.5 scenarios by incorporating macrotrends that are material
Fonterra’s AFRC and SIC, as well as FMT, were engaged to to Fonterra. These outputs were then integrated into
provide oversight of Fonterra’s scenario analysis process. Fonterra’s narratives to shape the scenario analysis.
The AFRC and SIC are responsible for providing oversight Key differences between Aotearoa Circle’s scenario
of how climate risk will affect Fonterra’s strategy.6 narratives and Fonterra’s scenario narratives are related
to changing consumer behaviour relevant to the global
Scenario narratives dairy sector and technology developments. Table 3,
on the following page, summarises the three scenario
Scenario narratives are plausible, challenging descriptions
of how the future may unfold and provide the parameters narratives, including the additions and adaptations made
in which an entity conducts scenario analysis to test by Fonterra to that of the Aotearoa Circle Agriculture
overall strategic resilience. Sector Scenarios. It is worth noting that scenarios are
designed intentionally to be challenging and are not
meant to be perceived as ‘most likely’ outcomes.
5 See Risk Management section for more detail on the end-to-end process for scenario analysis.
6 See the Governance section for more detail on the responsibilities and oversight of the Board.
7 The Aotearoa Circle is a voluntary initiative that brings together leaders from the public and private sectors to investigate the state of Aotearoa New Zealand’s natural resources
and helps to bring together sector scenarios for companies to begin their scenario analysis process for disclosure. The scenarios are available here.
8 XRB’s Sector-level Scenario Analysis Guidance released in July here: Sector-level scenario analysis » XRB
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 18

Scenario narratives
Table 3 - Scenario narratives

Orderly Disorderly Hot House

Scenarios Net Zero 2050 Delayed transition Hot house world

Limit temperature rise to 1.5°C (with overshoot) Limit temperature rise to 2°C Temperature rise >3°C

Key – Orderly represents a world defined by a smooth transition to net zero – Disruptive, costly transition as rapid and strong policy is implemented – Emissions rise unabated as fossil fuel use continues to increase
after 2030
assumptions – Climate policies and innovation are more immediate and gradually – The physical impacts of climate change are severe, adapting to climate
become more stringent – Physical climate worsens as critical tipping points are surpassed change is the priority
– Nationally determined contributions are not met – Fossil fuel continues to be heavily relied on for energy

Aotearoa – Capital is easily accessible for organisations that show strong – Access to capital and insurance is available at a higher cost, but hard to access – Access to capital is difficult with insurers and banks are unwilling to lend
Circle Agri sustainability credentials for those exposed to physical and transition risks to those highly exposed to physical climate risks
Sector – Insurance is costly to those exposed to physical risks – Countries not playing their part in the transition face higher trade barriers – No additional climate policies have been implemented since the 2020s
on global exports with mitigation policy centred around the emissions trading scheme
scenarios – Shift towards sustainable diets that include a diverse range of proteins,
summary but alternative sources predominate – Blunt policy interventions force rapid transition introduced in the 2030s, – Geopolitical tension and supply chain disruption increases, and cost of
– Consumers increasingly seek products with environmental labelling creating inequities across regions exporting has risen
points
and provenance stories that embed sustainability – There is still demand for animal protein, but most countries prefer to – Increase in urbanisation means food production suffers as rural
– Farmers and growers are incentivised to adopt sustainable practices source locally communities decline and cost of farming increases
and technology – Demand for low-footprint products increases from the 2030s – Food shortages and insecurity means New Zealand has lost its
– Agricultural emissions are priced at the farm level in the early 2020s – Progress on technology was slow until the 2030s, then accelerated low-emissions competitive advantage and there is increased demand
for cheap protein to feed growing populations
– Innovation is funded privately and publicly for on-farm technologies and
freight and technology advances quickly – Lack of investment in technology means traditional agriculture’s footprint
remains high with innovation focused on adaptation
– Growing methods such as vertical or indoor farming increase
– Vulnerable countries have become uninhabitable, leading to a
refugee crisis
– Biosecurity is tightened due to influx of pests and diseases

Fonterra’s – Customers put pressure on suppliers to drive emissions reduction – Reactive regulation results in cumbersome and inconsistent reporting – Agriculture emissions are not priced as food security is paramount
climate – Alternative and lab grown proteins are common but a market for sustainable requirements for New Zealand farmers – Consumer demand for dairy remains
scenarios dairy remains – Agriculture emissions are priced in the early 2030s – Differentiation in the dairy market can be achieved based on innovation,
summary – Dairy proteins produced through precision fermentation gain price parity – Low-emissions credentials win in the marketplace food safety and quality and traceability
points – Consumers increasingly seek local produce with labelling and stories – Diversified proteins emerge and become cheaper than dairy – Indoor dairying is prevalent in New Zealand as physical conditions
that embed sustainability – Failure to meet 2030 targets causes food and beverage companies make it hard to maintain pastoral models
– The development of energy-efficient and renewable process heat to put pressure on suppliers or risk losing supply contracts – Delayed investment in alternative feed, leading to feed shortages
technologies accelerates – Government supports implementation of effective methane inhibitors
– Methane inhibitors and gene editing innovations are developed to from 2035
reduce emissions – Gene editing policy emerges encouraging low-emission plant breeds and
– Precision technologies on farm help reduce methane and drive cow genetics
regenerative farming
Fonterra Climate-related Disclosure 2023
Scenario analysis insights
Fonterra used the scenario narratives
to explore potential climate-related
impacts over the short, medium and
long-term time horizons. The analysis
also took into consideration our long-
term strategy, current operating
context and our ability to adapt.
The analysis of climate-related risks
found varying degrees of impact on
the Co-op across the three scenarios
and time horizons.
Maunsell Farm,
Waiuku
Introduction Governance Strategy Risk Management
In an Orderly Scenario, Fonterra is particularly exposed
to transition risks given the scale and pace of change
required to reduce emissions in the short to medium term.
A Disorderly Scenario presents a more volatile and uncertain
operating context for Fonterra. In this scenario, a laggard
approach by others to reduce emissions would mean the
Co-operative’s ability to respond to transition risks would be
difficult, particularly as greater exposure to physical risks are
experienced with global temperature increase reaching 2˚C.
In a Hot House Scenario, Fonterra is particularly exposed
to the physical risks of climate change given its reliance on
a stable, temperate climate for dairy farming. Unfavourable
climate conditions under this scenario would challenge the
productivity of our pasture-based system and our ability to
process and distribute product.
Metrics & Targets Appendix Contents 19
Anticipated impacts of climate-related
risks and opportunities
We set out Fonterra’s material climate-related risks and
opportunities and their anticipated impacts that we
reasonably expect in Tables 4 and 5. As set out in Risk
Management, we identified these material risks and
opportunities through a series of workshops and prioritised
them using a vulnerability and exposure risk assessment.
We then identified anticipated impacts for each of these
risks and opportunities, using the insights gleaned from
scenario analysis as considerations. The anticipated impacts
are described in qualitative terms and linked to a series of
specific risk responses and strategic mitigations.
Our strategic mitigations to the anticipated impacts
are linked to our overarching long-term strategy and
business operations. Based on the outcomes of our
strategic monitoring processes (which incorporates climate
scenario analysis considerations), we remain confident that
the fundamentals that underpin our long-term strategy
remain sound.
In particular, our ongoing strategic analysis indicates that
global demand for dairy will continue to grow over the
long-term. The global population continues to increase with
a growing consumer class, especially in Asia. Increasing
westernisation of diets, combined with consumer interest
in health and wellbeing solutions and an increasing average
age, are also expected to contribute to increased demand
for dairy nutrition.
We intend to continue to build sophistication around
climate scenario analysis to help inform these ongoing
strategic processes over time.
Fonterra Climate-related Disclosure 2023 Introduction
Table 4 – Climate-related risks
Risk Description
Decrease in Increases in temperature, coastal inundation,
viability of water availability, soil quality and acute
weather events leading to a decrease in
dairy farming
critical farming inputs (e.g. feed and fertiliser)
and productivity of land to maintain viable
farming, which may result in reduced milk
supply and stranded assets in key regions.
Supply Increasing frequency and severity of
chain and extreme weather events impacting
Fonterra’s operational assets and/or
manufacturing
disruption supply chain, which may result in a major
business disruption, product quality failure,
increased operating costs and/or an inability
to meet customer requirements.
Changing Shift in customer and/or consumer
customer and preferences away from Fonterra products
consumer due to environmental credentials relative
preferences to competitors, which may result in
a decrease in demand, price impacts,
the ability to return sufficient value for
farmer shareholders and/or a decrease
in milk supply.
Governance Strategy Risk Management Metrics & Targets
Risk type Location Time Anticipated impacts
horizon
Physical New Medium We anticipate that farming regions will experience
Zealand increased frequency of climate-related events.
Long Chronic impacts of climate change may impact
Australia
pasture growth, water availability and prevalence of
pests and disease on farm. Acute events may lead
to increased heat stress events or damage on farm
from extreme weather. This could lead to loss of
productivity, decreased milk supply in some regions
and/or compromised milk quality.
Physical New Medium We anticipate some regions will face increased
Zealand acute weather events and flooding, where damage
Long to critical infrastructure could reduce our ability
Australia
to collect milk, distribute finished goods, or
access solid energy sources. Conversely, some
regions may face increased drought conditions
leading to water shortages affecting our ability
to process milk. These events could disrupt
business continuity leading to increased costs and
operating complexity.
Transition Global Long We anticipate there will be increased consumer
interest in dairy alternatives such as plant-based
or lab-derived options, but global demand for
sustainable dairy will continue. Our ability to
differentiate on sustainability will be critical. Our
leading low-emissions dairy position coupled
with our emissions reduction plans will help
protect our long-term customer relationships
and grow brand value. This will require ongoing
investment, resource and partnerships to deliver
our climate ambitions.
Appendix Contents 20
Strategic mitigations
– Support on-farm preparedness through Farm
Environment Plans
– Continue to consider climate hazards in milk
forecasting
– Continue to partner with local government and
industry groups for disaster response
– Continue to provide financial support
mechanisms for disrupted milk collection
– Ongoing review and testing of business
continuity plans and activation as required
– Continue to partner with freight and logistics
providers (e.g. Kotahi)
– Operate a dynamic asset footprint to allocate
milk effectively, maintaining business continuity
through disruption
– Deliver our Climate Roadmap
– Continue to develop sustainability solutions
for customers, including partnership and co-
investment opportunities
– Continue to deliver on-farm support (e.g. Farm
Environment Plans and Co-operative Difference)
Fonterra Climate-related Disclosure 2023 Introduction
Risk Description
Changing Changes in local and global regulations
regulations creating an inability for the Co-op and
farmers to meet compliance obligations,
and market
access customer requirements and/or access
markets, which may result in either a
reduction in demand or supply.
Limitations Reduced availability of financial and
on access to insurance products for the Co-op and
financial and farmers due to the inability to meet
insurance institutions’ increasing climate related
products requirements such as targets, performance
and standards. This may result in increased
operating costs, financial exposure and/or
land-use change.
Volatility in Implementation and expansion of regulatory
cost of carbon requirements relating to emissions pricing
results in an increase in emissions-linked
operating costs for Fonterra and our farmer
shareholders, which may result in a decrease
in the viability of dairy farming.
Governance Strategy Risk Management Metrics & Targets
Risk type Location Time Anticipated impacts
horizon
Transition Global Medium We anticipate the regulatory landscape will
continue to prioritise climate activities alongside
Long credible and transparent reporting. We also
anticipate the global regulatory landscape will
increasingly incorporate climate objectives, such as
carbon border adjustment mechanisms, which will
influence how we will access markets in the future.
This will require ongoing monitoring and resource
to effectively respond to regulatory changes.
Transition Global Long We anticipate financial institutions and insurance
providers will continue to consider sustainability
and climate in decision-making. We expect
continued demand for transparent reporting
and science-based targets to be influential in
unlocking access to capital. This would require
Fonterra to continue resourcing high standards
of reporting and engagement with lenders on
sustainability expectations .
We anticipate there will continue to be ongoing
Transition Global Long
developments with carbon pricing mechanisms
both on and off farm. This would require support
for farmers to help navigate emissions reduction
opportunities. Ongoing forecasting and budgeting to
manage carbon costs associated with manufacturing
and operation emissions relative to our emissions
reduction targets would also be required.
Appendix Contents 21
Strategic mitigations
– Monitor domestic and global regulatory
landscape
– Continue to participate in policy consultations
– Advocate for our sustainability credentials to
maintain market access
– Continue to deliver on-farm support (e.g.
Farm Environment Plans and the Co-operative
Difference)
– Continue to engage with financial institutions
on Fonterra’s Sustainable Finance Framework
– Deliver our Climate Roadmap
– Continue to report and share sustainability
performance
– Monitor carbon pricing developments
– Continue to participate in policy consultations
– Continue to participate and advocate through
sector collaboration efforts
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 22

Support farmer adaptation Consideration of climate-related risks into

We are actively working to support farmers in business planning
their adaptation journey. This includes Our internal milk supply forecasting aims to
integrating climate-related risks into Farm enhance our preparedness and support
Environment Plans, to help farmers manage uninterrupted flow of milk supply by taking
climate hazards effectively and enhance their into account physical and transition climate risks
own resilience. (e.g. temperature, regulation). This helps us
CO N S I D E R AT I O N O F
navigate potential disruptions and build resilience
C L I M AT E - R E L AT E D of milk supply.
Recognise sustainable on-farm practices SUPPORT
FA R M E R R I S K S I N TO
Our team of Sustainable Dairying Advisors BUSINESS
A D A P TAT I O N Collaborate for shared resilience
work with farmers, supporting them to PL ANNING
navigate changes that help us meet our climate We work closely with our distribution partners and
goals and market demands. In relation to critical port operators to collectively build
CO L L A B O R AT E resilience and develop strategies to address
broader sustainability objectives, Fonterra’s R E CO G N I S E
FOR SHARED
Co-operative Difference Framework recognises S U S TA I N A B L E climate-related supply chain challenges.
RESILIENCE
farmers by allocating up to 10 cents of each O N - FA R M
farm’s milk payment for achieving sustainability PR AC TICES
Climate Roadmap and Science-based targets
credentials, such as Farm Environment Plans, Fonterra has set emissions reduction targets in line
and milk quality. with limiting temperature increase to 1.5°C across
Strategic C L I M AT E Scopes 1, 2, and 3. We are investing in innovative
Government and trade advocacy GOVERNMENT mitigations ROADM AP AND emissions reduction solutions to maintain our
Fonterra maintains relationships with SCIENCE-BA SED status as a global leader in low-emissions dairy,
AND TRADE
government entities by actively engaging in ADVOC AC Y
TA R G E T S as outlined in Fonterra’s Climate Roadmap.
policy consultations to better support outcomes
for our farmer shareholders and deliver on our Customer solutions for emissions reduction
long-term strategy, including to be a leader in Our low-emissions dairy position coupled with
sustainability. We monitor changes to market C U S TO M E R our current climate ambition contributes to
entry requirements and new opportunities to EMISSIONS S O LU T I O N S our premium dairy offering and enables long
reduce market risk. PRICE FOR EMISSIONS
MODELLING term customer partnerships. By prioritising
REDUC TION
AND CARBON R APID M ARKET sustainability, we create opportunities for strong
Emissions price modelling and TR ADING REPOSITIONING brand positioning in a low-emissions economy.
carbon trading A N D DY N A M I C
We measure and model emissions pricing ASSET
U T I L I S AT I O N Rapid market repositioning and dynamic
outcomes for our direct operations to help asset utilisation
manage carbon pricing risks. By analysing Our ability to pivot between products,
potential pricing scenarios and market trends, channels and markets would enable us to
we are better able to proactively manage the re-position and optimise offerings in response to
financial implications of transitioning to a net climate-related disruptions as needed. For
zero future. We are also monitoring example, we can shift milk solids to meet market
developments in the New Zealand signals and serve markets as needed to maximise
Government’s pricing scheme for returns. This helps us optimise our product
agriculture emissions. offerings.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 23

Table 5 - Climate-related Opportunities

Opportunity Type Time horizon Description Strategic priorities

Our Transition Short Increasingly consumers are interested in where their food comes from and its associated – Continue to lead in low-emissions dairy at scale by reducing emissions
sustainable environmental impact. New Zealand farmers are already among the world’s most emissions- in line with our targets and Climate Roadmap
Medium efficient dairy producers.9 Our pasture-based system and focus on animal wellbeing are – Continue to offer sustainable solutions and work with customers on
dairy value
proposition Long sources of differentiation for Fonterra when it comes to consumers and customers seeking low-emission projects
sustainable dairy. This, coupled with our Climate Roadmap and targets can support our – Continue to collect bespoke environmental data on farm and
customers in meeting their climate ambitions. support farmers with emissions reduction activities through Farm
Environment Plans and The Co-operative Difference

The power of Transition Short Consumers are increasingly interested in plant-based alternatives, a trend driven by – Build on our 90+ years of research and expertise in dairy science,
dairy nutrition several factors including a perceived lower environmental impact. However, much nutrition and technology
Medium research shows there is variation in the nutritional composition amongst these products – Strengthen our dairy solutions to deliver world class products
Long and milk remains a key part of the diet for a large portion of the global population.10 – Support advocacy through established partnerships in science and
nutrition, such as the Global Dairy Platform
Cow’s milk and dairy products are nutrient dense foods, supplying energy and significant
– Work with our recently appointed External Nutrition Expert
amounts of protein and essential micronutrients. Dietary guidelines around the
Panel who provide independent expertise in relation to nutrition
world reflect the optimal nutrition dairy can provide, with the Food and Agriculture
Organization estimating most countries recommend at least one serve per day and to Fonterra
many recommend up to three serves per day.11
The nutrient density of dairy coupled with the world’s growing population creates
opportunity for Fonterra to help support nutritional needs with low-emissions,
sustainable dairy today and into the future. This is particularly true if future global milk
pools are exposed to more severe impacts of climate change.

A leading role Transition Short The way we produce dairy is efficient, but we know there is more to do. A high percentage of – Continue research and development in innovation for methane
in innovation Physical the GHG emissions in our footprint come from methane, which can be more challenging to emissions reduction:
Medium address in pasture-based systems.
to reduce • Kowbucha™
methane Long We have a rich history of innovation and are well positioned to invest in research and • Natural methane inhibitors from red seaweed
emissions breakthrough technologies that can be applied across our value chain for the benefit • Synthesised methane inhibitors
of farmers, customers, other stakeholders and our Co-op as a whole. This is in line with • Methane vaccines
our strategic choice to be a leader in dairy innovation and science. We are also an active
• Novel technologies
participant in global and domestic forums to help solve the methane challenge.
– Invest NZD$50 million in AgriZeroNZ, a joint partnership with Government
Our unique emissions profile and way of farming drives Fonterra to find methane solutions. and agribusiness to accelerate reduction of agricultural emissions
Our in-house intellectual property, such as Kowbucha™, as well as external collaboration – Continue to partner and invest in the Pastoral Greenhouse Gas Research
efforts to commercialise effective solutions supports our climate ambitions, while making a
Consortium (PGgRc) to address emissions from the agriculture sector
positive contribution to the wider agriculture sector.

9 Mapping the carbon footprint of milk production from cattle: A systematic review
10 Frontiers | Nutritional assessment of plant-based beverages in comparison to bovine milk (frontiersin.org)
11 Nutrition Hub – Factsheet Goodness of Dairy – Milk Composition RDAs and Health Benefits
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 24

Risk
Management
Fonterra’s approach to climate-related risk
is informed by the long-term investment the
Co-op has made in its manufacturing footprint,
its connection to the communities in which it
operates and the intergenerational focus of its
farmer shareholders.

Pahiatua,
Manawatū-Whanganui
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 25

Table 6 – Within Fonterra’s strategic planning cycles, time horizons used to identify and assess climate risk are as follows:

As a pasture-based dairy Co-op, Time  hort-term

S
horizons Risk over the next 3 years to 2026, in line with the Co-op’s Budget and Business Planning Cycle.
we have long recognised the
importance of identifying and  edium-term
M
Risk within the time horizon from 2027 to 2030, in line with the Co-op’s long-term strategy.
managing variabilities in weather
 ong-term
L
patterns and changes in climate Risk within the time horizon from 2031 to 2050, in line with the strategic outlook of the Co-op and farmers,
that have the potential to drive including our 2050 Net Zero ambition.
financial and strategic impacts on
our business. Regular assessment Identification and assessment of
of climate-related risk across climate-related risks and opportunities
Fonterra uses a wide range of integrated risk management increased degree of risk in areas where it is appropriate in pursuit
our value chain is integral to of strategic objectives.
tools and methodologies to address and monitor risk across its
informing strategic forecasting, strategic environment, including climate-related risks. Root cause Specific consideration of climate-related risk aligns with the time
resiliency planning on and off analysis and impact assessments are used at a group level and horizons of Fonterra’s strategic planning cycles. The extended
within individual business units to regularly assess and prioritise timeframes and interconnected nature of climate-related
farm and ongoing sustainability risk management activities, with specialist functions supporting a risks across Fonterra’s value chain means enterprise-level
of our operations. consistent cross-functional approach. scenario analysis is required alongside individual business units’
Fonterra’s Global Risk Management Framework sets out its management activities informing both short-term operational
approach to support risk-adjusted decision-making, allowing risks planning and long-term strategy development.
and opportunities across Fonterra to be managed effectively In 2023, Fonterra conducted its first global climate risk
in line with its risk appetite and strategic objectives. Once assessment across the Co-op’s value chain with an extended
identified, risks are monitored and allocated to be managed outlook through to 2050.
by appropriate business functions, with treatment plans
implemented at a group level with specific improvement or The scope of the assessment included climate-related risk across
investment actions owned and managed within business units our footprint and value chain, with a focus on New Zealand
and sites. and Australia. No specific components of the value chain were
excluded, meaning there was representation of approximately
This consistent global framework informs Fonterra’s overall 97 per cent of the Co-op’s milk supply and 97 per cent of global
approach of seeking to minimise risk to people and the natural, manufacturing capacity.
financial, intellectual, infrastructure and relationship capital
associated with the business, while accepting and managing an A range of tools and methodologies were used as part of the end-
to-end assessment process, including a scenario-based approach
that explored plausible future scenarios and potential impacts on
the Co-op over short, medium and long-time horizons. Refer to
the Strategy section for the outputs of this assessment.
Fonterra Climate-related Disclosure 2023
Scenario analysis process
Figure 3 – Scenario analysis tools and methodologies
Climate risk
identification
Climate risk identification
workshops were held with
subject matter experts to
understand the breadth
of risks across Fonterra’s
value chain. Once identified,
risks to Fonterra’s
activities and strategic
objectives were reviewed
and prioritised using a
vulnerability and exposure
assessment. This took
into consideration both
the inherent vulnerability
of Fonterra’s value chain
and the overall adaptive
capacity to respond to
identified risks over time.
Introduction Governance
Development of
climate scenario
narratives
Using the Aotearoa
Circle Agricultural Sector
Scenarios as a foundation,
workshops were held to
identify key drivers of
change (macrotrends)
for Fonterra. Fonterra’s
scenario narratives are
based on how these drivers
interact with each other
and our value chain under
each scenario. The detail
outlined in the scenarios
were used to explore a
range of possible impacts
and their severity.
Strategy Risk Management
Climate Impact
heatmaps pathways
We used regional Impact pathways were
climate data to seek to used to understand
understand the potential causality to help assess
severity and exposure each risk. They articulate
of physical climate risk how climate risks and
hazards in New Zealand drivers translate into
and Australia. business impacts across
operational, financial
and non-financial
categories and were
workshopped with
subject matter experts.
Metrics & Targets Appendix
Risk impact
assessment
We looked at the overlay
of our macrotrend
assumptions for each
scenario with regions
affected in the climate
heatmaps. We then applied
an impact score based on
our understanding of the
impact pathway. Fonterra’s
Risk Matrix was used to
provide relative scoring of
impacts. The output is a
consolidated qualitative
evaluation of the risk
impact for Fonterra across
the scenarios selected.
These impacts were stress
tested with experts from
across the Co-operative.
Contents 26
In coming years, our
annual assessment process
will expand in scope as
our underpinning data
improves, for example we
anticipate more regional
climate projection modelling
over time. We also intend
to evolve the process
around quantification
of climate-related
financial impacts. From
2024 onwards, in line
with New Zealand’s
climate-related disclosures
regime, we will conduct
an annual climate risk
assessment to maintain
relevance and to continue to
inform the development of
our strategy and resilience
building activities.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 27

Integration of climate-related risk within Fonterra’s

overall Risk Management Framework

Table 7 - Integration of climate risk

Fonterra’s climate-related risks form part of our

Fonterra The strategic direction of Fonterra is set by the Board and implemented by the Fonterra strategic group-level risks within our Global Risk
Strategy Management Team, including consideration and management of climate-related risks and Management Framework. Components of our
opportunities built into the Co-op’s 2030 long-term strategy and business plans. Framework are outlined in Table 7.
Fonterra’s Global Risk Management Framework
is aligned to the Australian/New Zealand Risk
Management Standard “AS/NZS ISO31000:2018
Risk management – Principles and Guidelines”.
Group Risk Alongside the Co-op’s strategy, the Board sets and monitors Fonterra’s Group Risk
Fonterra is working to embed this across the business
Appetite Appetite Statement, articulating its overall propensity to take and/or avoid risk in pursuit
to underpin a positive risk culture, cross-functional risk
of strategic objectives. This includes Fonterra’s low appetite for the interconnected impacts
Statement of climate-related risk and across Fonterra’s strategic risk profile.
management capabilities and effective execution of
the Co-op’s strategy.
The risk management principles and accountabilities
set out in the framework include Fonterra’s
Underpinning execution of Fonterra’s strategy and alignment of business activities to commitment to a consistent approach to identify,
Global Risk manage and communicate the potential impacts
Fonterra’s risk appetite, the Global Risk Management Framework embeds a consistent
Management approach to identification, management and cross-functional communication of strategic of strategic risks across the Co-operative’s
Framework and operational risks to business objectives. business functions.
Global key and emerging risks are monitored
on an ongoing basis as part of our integrated
business planning process. They are managed
Specialist Risk In key risk areas where specialist approaches to risk are required. Fonterra’s technical risk within the appropriate business functions, in line
functions establish specialist risk frameworks and methodologies in line with the Co-op’s with potential impacts.
Management consistent approach. In 2023, this included the establishment of Fonterra’s Global Climate
Frameworks Risk Assessment process and methodology.

Integrated In line with the Global Risk Management Framework, continuous monitoring of Fonterra’s
risk environment occurs via Fonterra’s integrated business planning process. Management
Business Planning
and the Board receive regular reports on the position of Fonterra’s operating activity against
Process the Co-op’s risk appetite and the measures in place to identify and manage the impact of
emerging risks.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 28

Metrics
and Targets

Maunsell Farm,
Waiuku
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 29

Each year, we use the operational control consolidation
approach to review, assess and report on emissions by scope
Fonterra reports on and by value chain segment. We include emissions attributed to
manufacturing our products, constituting 13 per cent of the total
sustainability with reference reported emissions. Farms supplying milk to Fonterra account
for 86 per cent of our reported emissions and are reported as
to the Global Reporting Scope 3. Emissions associated with distribution account for one
per cent of reported emissions and are also reported as Scope 3.
Outside these areas, we also operate a small number of farms
that fall into Scope 1 and 2 emissions. Our global third-party
manufacturing emissions fall into Scope 3. Approximately 90 per
cent of total reported emissions are attributed to New Zealand.
Please see the ‘How we measure and report’ section on page 33
for more information.

Initiative (GRI) Standards. Scope Proportion of total emissions Value chain segment FY23 GHG emissions (‘000 tCO2-e)

The Co-op has measured

On-farm 31
its greenhouse gas (GHG)
emissions since 2014 and 1 Manufacturing 1,316

follows the principles of the Distribution and other 0

7%
GHG Protocol Corporate On-farm 3
Accounting and Reporting
Standard (GHG Protocol) and 2 Manufacturing 496

the Corporate Value Chain Distribution and other 0

(Scope 3) Accounting and On-farm 22,138

Reporting Standards.
3 93% Manufacturing

Distribution
1,539

292
Other 7
Total 100% 25,823
Note: Adding the individual numbers together may not add up to the totals due to rounding.
Fonterra Climate-related Disclosure 2023 Introduction
Setting our emissions
reduction targets
As part of communicating our
long-term strategy in 2021, we
announced our ambition to be net
zero by 2050. The Co-op is also
committed to playing its part to
help limit global warming to 1.5˚C,
as outlined in its Climate Roadmap.
In 2023, we committed to set near-term company-
wide emissions reduction targets in line with climate
science. We are currently in the process of
submitting our targets to SBTi for accreditation.
— We have committed to reduce our absolute
Scope 1 and 2 GHG emissions by 50 per cent by
FY30 from a FY18 base year.
— We have committed to reduce our Scope 1 and
Scope 3 FLAG GHG emissions from dairy by
30 per cent per tonne of fat-and-protein-
corrected milk (FPCM) by FY30 from a FY18
base year.
This year, we purposefully lifted the ambition of our Scope 1
and 2 target, originally set in 2020, from a target of 30 per cent
absolute reductions to 50 per cent absolute reductions by
2030 to meet SBTi’s requirements for 1.5˚C aligned targets.
Governance Strategy Risk Management
Our 2030 FLAG target aligns with the SBTi Forest Land and
Agriculture Guidance. Fonterra has selected the “commodity
approach pathway” using the FLAG target setting tool, which
means the target is intensity-based and specific to dairy.
Aligning our targets to SBTi and SBTi FLAG means we are
consistent with the science to limit global temperature increase
to 1.5˚C. Achieving our interim targets and our net zero 2050
ambition is subject to uncertainties and risks and is likely to be
non-linear. The achievement of our 2030 Scope 1 and 2 emissions
reduction target depends on our ability to successfully transition
from coal via energy efficiency and fuel switching to renewable
sources. Along the way we will take forecast milk volume and
product mix into account along with the feasibility of transitioning
from road to rail, reducing energy use through measures such as
heat recovery, using biogas instead of natural gas where possible
as well as the decarbonisation of our milk collection fleet and
other decarbonisation activities. Achievement of our 2030
Scope 1 and 3 FLAG target will require our planned investment
and partnerships to come together with the right technological
developments, government policy support and the adoption of
on-farm practices.
We have separated our 2050 ambition from our 2030 targets
recognising that achieving net zero over the longer period to 2050
is inherently challenging for the global dairy sector and will require
significant action and coordination from Fonterra, government,
industry bodies, partners and our farmer shareholders.
Our emissions reduction journey to 2050 faces known limitations,
risks and uncertainties, particularly given our pasture-based
farming model. The ability to bridge our 2030 targets to our 2050
ambition will be significantly dependent on novel technology
developments that are proven effective, scalable, commercially
viable and supported by the regulatory environment both in
New Zealand and globally. The uncertainty related to novel
technology for on-farm emissions in particular, will likely result
in a non-linear path to achieving our net zero ambition.
Metrics & Targets Appendix Contents 30
Realising our net zero 2050 ambition is also dependent on working
in partnership and the success of those partnerships. We will
continue to work with global industries, academia, government,
customers, the community and our farmer shareholders to
collaborate on emissions reduction opportunities. We acknowledge
we are also dependent on farmers’ ability to adopt practical,
scalable and affordable solutions on farm and we will work with
them to support this.
For more information on our plans to achieve our climate
targets and ambitions and the assumptions and uncertainties
underpinning them, please refer to Fonterra’s Climate Roadmap.
As part of our journey to net zero 2050, we also have the
following targets:
– 100 per cent of Fonterra’s New Zealand farmers to have a Farm
Environment Plan by 2025
• In FY23, we reported that 85 per cent of Farm Environment
Plans were complete
– Zero deforestation across primary deforestation-linked
commodities by December 2025
• Primary-linked commodities for the Co-op include, but are
not limited to, palm oil, soy, and wood fibre. There is work
in progress to identify and establish the necessary policies,
procedures and standards to fulfil this commitment
– Eliminate the use of coal in our operations by 2037
• In 2021, Fonterra announced we will eliminate the
use of coal by 2037 aligning with the Climate Change
Commission proposed pathway for decarbonisation.
This is an ambitious and challenging pathway. Through
energy efficiency initiatives and successful transition
from coal to low-emission energy sources, since 2018
our New Zealand operations are projected to have a
40% reduction in the number of sites that use coal by
the end of FY24.
Fonterra Climate-related Disclosure 2023 Introduction
Offsets
We aim to prioritise emissions reduction within our own value
chain through direct abatement of emissions (e.g. reducing
gross emissions), and also ‘insetting’, such as investing in native
vegetation on farms. As such, we plan to avoid the use of third-
party offsets to achieve our 2030 emissions reduction targets.
We may revisit the potential role of third-party offsets and
their contribution to our net zero 2050 ambition for the period
after 2030. Further detail on how we will achieve our 2050
ambition will be presented as more information and technology
becomes available.
Third-party offsets are relevant in the context of our
carbonzero™ product range, which includes ‘Simply Milk’ and
our organic unsalted butters. Toitū Envirocare is an independent
organisation that verifies, audits and certifies the emissions that
are created by these products. Through Toitū, we have invested
in carbon credits sourced from both overseas renewable energy
projects and the regeneration of native forests in New Zealand
to achieve ‘carbon zero’ for this product range.
Craig & Stephanie,
Waiuku
Governance Strategy Risk Management Metrics & Targets Appendix Contents 31
Capital deployment Internal carbon pricing
Fonterra’s Sustainable Finance Framework (SFF) aligns Fonterra’s We use different scenarios to create a range of price paths for
funding strategy with its sustainability ambitions and reflects the potential carbon prices. For FY23 our price forecasts ranged
evolving preferences of lenders and debt investors in this area. from NZD$32.00 to NZD$62.00 per NZU. These price paths
The Framework outlines how the Co-op intends to issue and manage show increased price forecasts for 2030 and are informed by
green bonds and sustainability-linked bonds and loans. The Framework our carbon trading activity as well as other external parties’
has been developed with joint sustainability co-ordinators HSBC and future carbon projections. We use Fonterra’s base case price
Westpac NZ and has been independently verified by ISS Corporate path as inputs into our energy budgets across the business
Solutions confirming alignment with globally agreed sustainable and use the low-base-high price path scenarios within our
finance principles. business case analysis.
In line with our long-term strategy, Fonterra plans to spend NZD$700
million in decarbonisation by 2030. In July 2023, the Co-op received an
additional Government contribution of up to NZD$90 million through
the Government Investment in Decarbonising Industry (GIDI) fund
to support delivery of our Scope 1 and 2 reduction target. Of this,
a significant amount is allocated to transitioning our coal boilers to
biomass boilers as well as other upgrades to our sites to make them
more energy efficient and reduce emissions. We have also committed
to invest NZD$50 million in AgriZeroNZ, a joint venture consisting of
industry and Government stakeholders who together are committed
to spending up to NZD$170 million over four years. AgriZeroNZ is
focussed on accelerating the development and commercialisation
of novel technology solutions for agricultural emissions.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 32

Our climate-related
metrics

GHG emissions inventory (‘000 tCO2-e)

We report on our Emissions include those associated with business units for the period they fall under Fonterra’s ownership and management control.
gross GHG emissions
INDICATOR BASE YEAR PERFORMANCE COMMENTARY
across our Co-op’s
value chain. We also FY18 FY21 FY22 FY23
disclose annual global
Scope 1 Direct emissions from owned/controlled operations 1,728 1,547 1,369 1,347 For full details of our scope coverage,
consolidated emissions
please refer to the Data Reporting Notes
intensity, categorised by Scope 2 Indirect emissions from the use of purchased electricity 701 652 565 500 on page SR-94. All prior years have been
emissions intensity per restated to reflect the latest available on-
Total Scope 1 & 2 (Absolute) 2,429 2,200 1,934 1,847
tonne of finished goods, farm Lifecycle Assessment (LCA), reporting
by revenue and as an Scope 3 Absolute Category 1: Purchased goods and services 25,397 24,430 23,797 23,534 elements introduced (most significant are
on-farm footprint. (Global) additions to Scope 3 manufacturing and
distribution), and other minor updates
The following table Category 3: Fuel-and-energy-related activities (not 150 157 150 143
(see Data Reporting Notes on page SR-90).
details additional included in Scope 1 or Scope 2)
Category 1 includes emissions related
information in respect Category 4: Upstream transportation and distribution 296 297 281 292 to purchasing raw milk from supplying
of our emissions, farms and from other purchased goods
as reported in our Category 6: Business travel 12 3 3 7 and services. For full details on Scope 3
Sustainability inclusions and exclusions see SR-94.
Total Scope 3 25,854 24,887 24,230 23,976
Report 2023.
Total Scope 1, 2 & 3 28,283 27,086 26,164 25,823
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 33

Global consolidated emissions intensity

Emissions include those associated with business units for the period they fall under Fonterra’s ownership and management control.

INDICATOR BASE YEAR PERFORMANCE COMMENTARY

FY18 FY21 FY22 FY23 All prior years have been restated to reflect the latest available on-farm lifecycle
assessment, reporting elements introduced (most significant are additions to Scope 3
Scope 1 & 2 (Global) tCO2-e/t finished goods 0.61 0.55 0.49 0.49 manufacturing and distribution), and other minor updates (see Data Reporting Notes
tCO2-e/million NZD$ revenue 119 104 83 71 on page SR-90).

Scope 1, 2 & 3 (Global) tCO2-e/t finished goods 7.1 6.8 6.7 6.8

tCO2-e/million NZD$ revenue 1,384 1,282 1,117 991

Performance against targets

Baseline values and all subsequent years are adjusted to reflect acquisition and divestment activities to report progress on a like-for-like basis.

FY21 FY22 FY23 COMMENTARY

Reduction in absolute
Scope 1 & 2 emissions
Reduction in intensity
Scope 1 & 3 FLAG
emissions from dairy
6.5% 11.3% 14.1% For the second year in a row, progress against our target has been much better than
reduction reduction reduction planned and significantly exceeded target. A combination of increased volumes of
from FY18 from FY18 from FY18 low-emission products such as UHT and lactose and a reduced proportion of high
energy products from coal-reliant sites has positively contributed to this result.
Additionally, several countries have experienced reductions associated with grid
electricity emissions, driven by increased energy production from renewable sources.
In July 2023 we increased our Scope 1 & 2 reduction target to 50% by 2030 from
FY18 baseline (Global). We are in the process of seeking validation from SBTi for
this increase.
All prior years have been restated slightly (see Data Reporting Notes on page SR-98).
Emission intensity by fat-and-protein-corrected milk (tCO2-e/tFPCM) 2.1% Includes emissions from a small number of Fonterra-owned farms (Scope 1) and
reduction emissions from raw milk suppliers (Scope 3, which is a subset of Fonterra’s Scope
from FY18 3 emissions identified as Category 1: Purchased Goods and Services). This is a new
target introduced in FY24.
Fonterra Climate-related Disclosure 2023
How we measure
and report
Target
Reduce global absolute Scope 1
and 2 GHG emissions by 50 per
cent by FY30 from the FY18
base year
Reduce Scope 1 and Scope
3 FLAG GHG emissions by
30 per cent per tonne of FPCM
by FY30 from FY18 base year
Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 34
Measuring approach Exclusions
When calculating emissions, we use the most relevant emissions factors for energy sources and countries of GHG emissions and take a For more information on GHG
conservative approach where there is uncertainty. reporting, including exclusions
For countries with well-understood energy contents and emission factors supported by local regulations or reporting guidelines, we apply please see pages 90-96 of our
local emission factors to determine our emissions from manufacturing. For example, for emissions emitted within New Zealand, we apply the Sustainability Report 2023
latest emissions factors from the Ministry for the Environment and use the quarterly data released by the Ministry of Business, Innovation and
Employment to determine location-based Scope 2 emissions. In other countries, if officially sanctioned factors are available, we apply them;
otherwise, internationally accepted default factors are used.
Reporting Coverage
This year, we undertook a
re-screening exercise for our
We calculate on-farm emissions using a Lifecycle Assessment (LCA) methodology that considers the full on-farm carbon lifecycle, from Scope 3 emissions as part of
“cradle-to-farm gate”. This provides an estimated unit of carbon dioxide equivalent per unit of FPCM for the given country of supply. our preparation to submit our
To understand the full emissions life cycle of the milk we collect in different regions of the world, we consider the full life cycle from feed emissions reduction target to the
production (including purchased supplementary feed) to the farm gate and align with internationally recognised methodologies and tools. Science Based Target initiative. No
For the New Zealand LCA, we commissioned AgResearch, an independent New Zealand Government research agency, to complete the analysis. significant changes were identified.
We have obtained additional
data of sufficient accuracy to
improve the completeness of our
reporting. We now estimate that
our reported Scope 3 emissions
represent more than 95% of our
total Scope 3 emissions. The
remaining 5% of emissions are not
considered materially relevant to
the reported inventory.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 35

How we measure & report

How we measure We review changes to international and
local guidelines each time we commission
and report an update of our footprint. When changes
are material, we re-baseline and back-
calculate our performance data, so our
Emission factors and progress can be assessed on a like-for-like
GWP rates basis, using the latest available science.
Detailed reporting notes can be found in
For our on-farm Lifecycle Assessment (LCA),
our Sustainability Report 2023.
we have adopted the Intergovernmental
Panel on Climate Change (IPCC) Assessment Assurance
Report (AR) 6, with global warming potential
(GWP) factors of carbon dioxide (CO2) = 1, Our annual Sustainability Report receives
nitrous oxide (N2O) = 273, fossil methane independent limited assurance with reference
(CH4) = 29.8 and biogenic methane (CH4) = 27. to the GRI Standards including appropriate
This means our reported figures for consideration of the reporting principles and
New Zealand may be higher than figures requirements as listed in GRI 1: Foundation
reported in other publications that consider 2021. This includes source verification and
a New Zealand inventory which still uses a review of our process for identification,
IPCC AR4 or AR5. For the older LCA results aggregation, analysis of relevant information,
which had used an earlier version of IPCC, we report content and performance data,
have recalculated the overall footprint using including Scope 1, 2 and 3 GHG emissions.
the component gases so that all farm-related For our Assurance Statement, please visit
LCAs make use of IPCC AR6. Other page 105 of our Sustainability Report 2023.
calculations, such as manufacturing and
distribution emissions, use a mix of AR4 and
AR5 dependent on available information.
GHG accounting is an evolving science
and there are frequent updates to method
details and factors used, as well as changes
in underlying base data and assumptions.

Durham Farm,
Northland
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 36

Appendix
Governance body Frequency Examples
Governance – Annual review of Fonterra’s Long-term Strategy and approval of Budget and
Board The Board met 15 times during the reporting
period and had climate-related topics on the Business Plan
Frequency of agenda at eight of these meetings. – Oversight of FY23 CRD progress and scenario analysis process
meetings – Approved Fonterra’s sustainability value case
– Approved Fonterra’s emissions reduction targets
– Approved Fonterra’s Climate Roadmap
– Approved Fonterra’s refreshed Group Risk Appetite Statement
– External legal trainings on climate-related topics

The CRC met six times during the reporting – Oversight of He Wake Eke Noa advocacy
Co-operative Relations
Committee period. – Oversight of farmer engagement for Scope 3 emissions
– Approved the Farmer Emissions Booklet

The SIC met twice during the reporting period – Oversight of FY23 CRD progress and scenario analysis process
Sustainability and
Innovation Committee (noting it was formed in February 2023). – Endorsed the Climate Roadmap for Board approval

The AFRC met six times during the reporting – Oversight of FY23 CRD progress and scenario analysis process
Audit, Finance and Risk
Committee period. – Ongoing monitoring of risk reporting, including climate-related risk
– Oversight of the process for refreshing the Group Risk Appetite Statement

The PCSC met five times during the reporting – Approved the overall weighting of sustainability and management of
People, Culture and
period. climate-related risk in Fonterra’s global remuneration strategy
Safety Committee
– Endorsed the remuneration of the CEO, including any incentive plan components
relating to sustainability and climate change, for Board approval
– Approved the incentive/bonus opportunity of the FMT, including any components
relating to sustainability and climate change
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy Risk Management Metrics & Targets Appendix Contents 37

Appendix

Governance body Frequency Examples

Governance – Reviewed Fonterra’s Climate Roadmap
Disclosure Committee The Disclosure Committee met five times
during the reporting period. – Reviewed and approved the materials for release relating to the Interim and Annual
Frequency of Results and Quarterly Business Updates, including the Annual Review Report, the
meetings Business Performance Report and the Sustainability Report
– Oversaw Fonterra’s continuous disclosure obligations, including considering the
materiality of information around sustainability and climate change

The SAP met three times during the – Advised on the pace of change of climate-related issues and the importance of our
Sustainability Advisory
reporting period. ambition to be a leader in sustainability
Panel
– Advised on the development of our Scope 1 and 3 FLAG target
– Engaged in the process of setting up our joint venture on agricultural emissions with
the Government and other industry partners, AgriZeroNZ

The FMT formally met 11 times during the – Review the assumptions that underpin Fonterra’s long-term strategy at least annually
Fonterra Management
Team reporting period. – Oversight of FY23 CRD progress and scenario analysis process
– Oversight of development of our emissions reduction targets and Climate Roadmap

The Sustainability Activation Steering
Sustainability Activation
Committee met three times in the reporting
Steering Committee
period with a focus on driving collaboration
and monitoring performance across Fonterra’s
sustainability and climate goals.
– Oversight of the preparation of our Climate Roadmap and, together with the Managing
Director Co-operative Affairs, presented this to the Board for approval
– Oversight of Scope 1 and 3 FLAG target release engagements and material
– Substantiated Fonterra’s position on sustainability that supported material presented
to Management and Board

The Climate Risk Steering Committee met 18 In preparation of the FY23 voluntary CRD, this Steering Committee, together with the
Climate Risk Steering
times in the reporting period with a focus on Managing Director Co-operative Affairs, presented to the AFRC, the SIC and the Board
Committee
monitoring progress on Fonterra’s climate- on progress of the CRD, including the scenario analysis process.
related disclosure.
Fonterra Climate-related Disclosure 2023 Introduction Governance Strategy
Glossary
Term Definition
Aotearoa New Zealand Standards issued by the External Reporting Board that comprise the climate-
Climate Standards related disclosure framework.
Carbon dioxide In order to aggregate and compare the different types of GHGs that have
equivalent (CO2-e) different levels of global warming potential, emissions and removals are
largely expressed in tonnes of carbon dioxide. The carbon dioxide equivalent
is calculated by multiplying the quantity of a GHG by the relevant global
warming potential.
Climate-related Climate-related disclosure framework has the same meaning set out in section
disclosure framework 9AA of the Financial Reporting Act 2013.
Climate-related The potentially positive climate-related outcomes for an entity. Efforts to
opportunities mitigate and adapt to climate change can produce opportunities for entities,
such as through resource efficiency and cost savings, the adoption and
utilisation of low-emissions energy sources and building resilience along the
value chain.
The potential negative impacts of climate change on an entity. See also the
Climate-related risks
definitions of physical risks and transition risks.
Climate-related scenario A plausible, challenging description of how the future may develop based on a
coherent and internally consistent set of assumptions about key driving forces
and relationships covering both physical and transition risks in an integrated
manner. Climate-related scenarios are not intended to be probabilistic or
predictive, or to identify the ‘most likely’ outcome(s) of climate change. They
are intended to provide an opportunity for entities to develop their internal
capacity to better understand and prepare for the uncertain future impacts of
climate change.
Drivers of change Critical trends or influences that affect how the agriculture sector operates.
They are usually large-scale, external factors that impact how climate risks and
opportunities cascade through the agriculture sector. Drivers of change are a
key input into climate scenarios.
Fat-and-protein-corrected Fat-and-protein-corrected milk, often referred to as FPCM, is a standardised
milk (FPCM) measurement used in dairy farming and milk production to account for
variations in milk composition. Milk from different cows or at different times
can have varying levels of fat and protein content. To compare and evaluate
the milk produced by different cows or batches, it’s important to standardise
Durham Farm, Northland these values. The reference values for FPCM are often set at around 4% fat
and 3.3% protein, although these values may change.
Risk Management Metrics & Targets
Term
Global warming potential
(GWP)
Insetting vs offsetting
Land use change
Net zero emissions
Physical risks
Primary users
Transition plan
Transition risks
Appendix Contents 38
Definition
A factor describing the radiative forcing impact (degree of harm to the
atmosphere) of one unit of a given GHG relative to one unit of carbon
dioxide (CO2).
Offset programs aim to compensate for emissions produced by investing in
external projects, while insetting focuses on reducing emissions and improving
sustainability within a company’s own operations and supply chain.
Transfers of land use from one category to another can result in changes
in emissions or removals. International guidance for Land Use Change
(LUC) accounting involves the use of a ‘responsibility window’, which marks
the period of time where the responsibility for losses of carbon that have
happened in the past are accounted through the supply chain.
This is recommended to be 20 years, therefore if land was converted from
forestry into grazing in 2005, 5% of the carbon losses are attributed each year
from 2005 until 2025. At this point, the carbon losses are fully accounted for.
Net zero emissions refers to achieving an overall balance between GHG
emissions produced and GHG emissions taken out of the atmosphere. For
Fonterra, net zero emissions are inclusive of all GHG emissions.
Risks related to the physical impacts of climate change. Physical risks
emanating from climate change can be event-driven (acute) such as increased
severity of extreme weather events. They can also relate to longer-term shifts
(chronic) in precipitation and temperature and increased variability in weather
patterns, such as sea level rise.
Existing and potential investors, lenders and other creditors.
An aspect of an entity’s overall strategy that describes an entity’s targets,
including any interim targets, and actions for its transition towards a low-
emissions, climate-resilient future.
Risks related to the transition to a low-emissions, climate-resilient global and
domestic economy, such as policy, legal, technology, market and reputation
changes associated with the mitigation and adaptation requirements relating
to climate change.
 Drysdale Farm,
insightcreative.co.nz  FONTERRA123 Hawkes Bay
Fonterra Climate-related Disclosure 2023
Kōrero Āhuarangi Te Mātāpuna

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