Fonterra announces new Sustainable Finance Framework
17 October 2022
Fonterra announces new Sustainable Finance Framework
As part of Fonterra's commitment to sustainability and implementation of its strategy, the Co-operative has
today released its Sustainable Finance Framework (Framework). This Framework aligns Fonterra’s
funding strategy with its sustainability ambitions and reflects the evolving preferences of lenders and debt
investors in this area.
Fonterra’s Framework outlines how the Co-operative intends to issue and manage any sustainable debt,
which could include Green Bonds and Sustainability-Linked Bonds and Loans. The Framework has been
developed with Joint Sustainability Co-ordinators HSBC and Westpac NZ and has been independently
verified by ISS Corporate Solutions confirming alignment with globally agreed sustainable finance
principles.
“This new Framework is a step on our sustainable financing journey – aligning with our Co-operative's
broader sustainability ambitions,” says Simon Till, Fonterra Director Capital Markets.
“Over the next decade we intend to significantly increase our investment in sustainability-related activities
and assets throughout our supply chain to both mitigate environmental risks and continue to differentiate
our New Zealand milk. By FY30 we intend to invest around NZ$1 billion in reducing carbon emissions and
improving water efficiency and treatment at our manufacturing sites. In doing so, we will be taking
significant steps towards our aspiration to be Net Zero by 2050 and we plan to align our funding with this
approach.”
The Framework, the opinion issued by ISS Corporate Solutions and a presentation to update debt
investors are attached. This announcement comes off the back of strong annual sustainability
performance reported in September 2022.
Fonterra Chief Operating Officer Fraser Whineray says that the Co-operative is making solid progress
towards its sustainability targets.
“In our sixth year of independently assured reporting, we are pleased with progress. Fonterra’s GHG
emissions (Scope 1&2) are 11.2% lower than FY18 and well on their way to our goal of 30% by
2030. With our supplier owners, we are ahead of target for delivery of Farm Environment Plans (FEP),
with 71% of farmers now having plans, against a target of 67% for FY22 and on track for 100% by 2025.”
This year Fonterra has also seen close to double the number of farmers achieving the Co-operative
Difference to last year, with more than 70% achieving it at some level. From the 2021/22 season, farms
became eligible for The Co-operative Difference payment of up to 10 cents per kg for milk solids, based
on meeting specific criteria, covering milk quality and an on-farm demonstration of care for the
environment, animals, people and community.
Fonterra Co-operative Group
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The Co-operative is also working with partners and other stakeholders on a wide range of potential
solutions to help reduce biological emissions. Fonterra, along with other Agribusiness leaders, recently
entered into a joint venture with the Government, as part of the new Centre for Climate Action on
Agricultural Emissions. Under the MOU, industry partners have already made an indicative commitment
up to around $35 million. This could see around $172 million invested over the next four years to develop
and commercialise practical tools and technologies for farmers.
“Over the next four years we’re looking to scale up an investment in methane reduction of around $50
million through this Joint Venture.
“We know we can, with the Government, achieve more by partnering with others and are looking forward
to working together to find solutions that will benefit our farmer owners along with the rest of New
Zealand” says Whineray.
At the heart of our Co-operative are people. Whether that is on-farm, at one of our sites, or the customers
who can play a part in addressing food security and improve health and wellbeing. Across the Co-op
we’re committed to helping people reach their full potential.
Continued focus on training has seen New Zealand employees spend more than 500,000 hours upskilling,
an average of 45 hours per learner. To date more than 1,000 employees have taken part in the
Leadership Essentials Programme that develops current and future frontline leaders.
There has been a continued positive trend in regard to female representation in global senior leadership
from 32.4% to 34.8% in FY22. The beginning of Fonterra’s new financial year has seen two more women
promoted to key roles on our Fonterra Management Team with the appointment of Komal Mistry-Mehta to
Chief Innovation and Brand Officer and Emma Parsons as Managing Director Strategy and Optimisation.
This year we have set a new goal of 40:40:20 (40% female, 40% male, 20% any gender) which sends a
positive signal on direction. The 20% provides flexibility of female, male or non-binary gender.
Other progress includes (please see attached Sustainability Progress Against Targets table for further
information):
Planet
• Water use by our manufacturing sites in water-constrained regions decreased by 4.2%, taking us
to a 6.6% absolute reduction against our 2018 baseline. Going forward, we are broadening our
water target with our aim to reduce water use across manufacturing sites by 15% by 2030 from a
2018 baseline. Further, all sites will have refreshed bespoke water improvement plans by the end
of FY24.
• New Zealand’s first electric tanker, Milk-E, was launched as part of our fleet decarbonization plans.
The percentage of e-vehicles continue to increase. There are now 693 electric vehicles (cars,
forklifts, milk collection tanker) and the network of e-charging stations has expanded to 81.
• On a total tonnage of packaging basis, 89% of our packaging is now recycle-ready, up from 87%
last year.
People
• 87.7% of products meet our independently endorsed nutritional guidelines through further
improvements to the composition of everyday and advanced nutrition products.
• 50 million KickStart breakfasts have been served since the programme began.
• 100% of Fonterra’s manufacturing sites are certified to a leading food safety management system.
• We increased in on-the-job training and reskilling hours, ahead of our plan to double on-the-job
training and reskilling hours by 2025 from a 2020 baseline, in line with our Aotearoa New Zealand
Skills Pledge.
Animals
• Farmer insight reports have been extended to include key insights relating to animal wellbeing
including somatic cell count, milking efficiency, mastitis rates, lameness and the potential impact of
heat stress.
• 76% of farms in New Zealand agreed an Animal Wellbeing Plan with their vet this year.
Fonterra Co-operative Group
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Attachments
• Sustainable Finance Framework
• Investor Presentation
• ISS Corporate Solutions Second Party Opinion (SPO) – Use of Proceeds
• Sustainability Progress Against Targets Table
• Sustainability Scorecard
ENDS
For further information contact:
Fonterra Communications
24-hour media line
Phone: +64 21 507 072
---
Sustainable
Finance
Framework
FONTERRA CO-OPERATIVE
GROUP LIMITED
OCTOBER 2022
FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
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FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
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1. INTRODUCTION
4
2. ABOUT THIS FRAMEWORK
10
3. GOVERNANCE
10
4. USE OF PROCEEDS INSTRUMENTS
11
5. SUSTAINABILITY-LINKED INSTRUMENTS
16
6. CONTINUOUS IMPROVEMENT
19
7. IMPORTANT NOTICE
19
8. FURTHER INFORMATION
20
FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
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FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
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Fonterra Co-operative Group Limited (Fonterra or Co-
operative) is a New Zealand dairy co-operative owned
by New Zealand farmer shareholders and collects milk
from around 8,700 farms in New Zealand. Through
the spirit of co-operation and a can-do attitude,
Fonterra’s farmer owners, along with
approximately 20,000 employees
around the world, share the
goodness of New Zealand
milk.
We have a network of
manufacturing sites
throughout New Zealand
supported by others
around the world, which
allow us to produce
innovative consumer,
foodservice and ingredient
products that are delivered to over
130 countries around the world.
While this gives us scale in New Zealand and sees
us responsible for approximately 30% of the world’s
dairy exports, we remain small on the world stage with
approximately 2% of the total global milk supply. Our
Co-operative is a real case of New Zealand farmers
taking on the world.
We believe we have something special - people want
sustainably produced, high-quality, nutritious milk
and that’s what our Co-operative is all about. Due to
our pasture-based, grass-fed farming model, the good
management practices adopted by our farmers and
well-cared for animals, our milk has a carbon footprint
that is among the lowest in the world.
This, along with our heritage of dairy innovation, means
we can bring the goodness of New Zealand milk to the
world and in doing so seek to increase the value we
generate for New Zealand and our farmer owners.
Strategy
Our strategy aims to
enhance people’s lives through convenience, health and
wellbeing by unlocking the goodness of New Zealand
milk.
To achieve this, we have made three strategic choices
– to focus on Aotearoa New Zealand milk, be a leader
in sustainability and be a leader in dairy innovation and
science.
Focus on our Aotearoa New Zealand milk is about
leveraging our low-carbon footprint, pasture-based
model and animal welfare standards that make our milk
unique. We have an opportunity to be more selective
about what we do with our Co-operative’s New Zealand
milk, differentiate it further in the global market and, in
doing so, earn a premium.
As part of being a leader in sustainability, we aspire
to be net zero carbon by 2050 and intend to invest
around NZ$1 billion in sustainability initiatives by
2030. This is about caring for and doing what’s right
for the environment, but it also allows us to invest in
our brands to showcase our New Zealand sustainable
nutrition story and help customers meet their own
sustainability goals.
Being a leader in dairy innovation and science, we
will build on our long and proud heritage of dairy
innovation, which has seen us pioneer many world
firsts and, increasingly, new solutions that aim to solve
problems our customers face in their operations and
help people live healthier and longer lives.
Through these choices we’re aiming to prioritise the
Farmgate Milk Price (the average price paid by Fonterra
for each kilogram of milk solids supplied by farmer
suppliers in New Zealand), grow our Foodservice
channel, strengthen our Consumer channel and move
towards higher value products in Ingredients.
In doing so, we’re aiming to deliver on our purpose and
it’s this that motivates our people.
1. Introduction
FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
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FONTERRA CO-OPERATIVE GROUP LIMITED
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About Fonterra
OUR PURPOSE:
Our Co-operative,
Empowering people
To create goodness
for generations.
You, me, us together
Tātou, tātou
OUR VALUES:
Co-operative spirit
Do what’s right
Make it happen
Challenge boundaries
OUR PRINCIPLES:
Our principles are aligned with the Māori world view.
Manaakitanga is the care we show for others - it strengthens our relationships and communities.
Kaitiakitanga is how we care for our environment today, tomorrow, and for future generations.
Whanaungatanga is our Co-operative spirit - it sits at the heart of our values.
WE’VE MADE KEY STRATEGIC CHOICES:
Focus on Aotearoa
New Zealand Milk
Be a leader in
Dairy Innovation
& Science
Be a leader in
Sustainability
KEY ASPIRATIONS FOR 2030:
Group ROC
~9-10%
Operating Profit
40-50%
increase from FY21
Strong progress towards
2050 aspiration to be
Net Zero
Carbon
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People
& cultureNatureRelationships
Intellectual
Capital
Assets &
infrastructureFinancial
Able to retain,
develop and attract
the best talent
Demonstrating that
dairy can be net-
positive contributor
to nature
Trusted
relationships
through high-
quality, innovation
products and
services and
playing our part
for positive social,
environmental and
economic outcomes
Leveraging
intellectual property
to deliver additional
value
Operational assets
are resilient and
efficiently delivering
our most valuable
products
Consistently
attractive
performance for
providers of funding,
including our farmer
shareholders
PRIORITY
ACTIVITIES
• Providing a safe,
healthy and
inclusive place to
work
• Continuously
developing
people’s skills for
meaningful careers
within the ever-
changing nature of
work
PRIORITY
ACTIVITIES
• Leading the
transition to
net-zero GHG
emissions for dairy
nutrition
• Farmers are
adopting and
investing in leading
on-farm practices
• Using science
and innovation
skills to solve
environmental
challenges on and
off farm
PRIORITY
ACTIVITIES
• Understanding
the needs of our
customers and
being responsive to
these
• Partnering
with others to
help unlock the
full potential
of dairy and
deliver improved
sustainability
outcomes
• Being clear on what
we stand for and
demonstrating
the value we
bring to specific
relationships and
more broadly
PRIORITY
ACTIVITIES
• Converting our
specialised dairy
know-how into
value through the
products, solutions
and partnerships
we develop
PRIORITY
ACTIVITIES
• A mindset of
continuous
improvement
to protect and
enhance our scale/
cost advantage and
stay competitive on
a world stage
• Applying
innovation to our
assets so they are
able to respond to
future needs
PRIORITY
ACTIVITIES
• Using science
and innovation to
improve efficiency
and grow value
• Sustainability
credentials are
valued, building
preference and
premium for our
dairy
• Target to return
~$1 billion to
shareholders
through planned
divestments
Fonterra has established targets that underpin the
pillars of Fonterra’s Sustainability Strategy and we
publicly report on our annual progress. These are
outlined further in Section 5 (Sustainability-Linked
Instruments).
Fonterra supports the United Nations Sustainable
Development Goals (SDGs)
1
, and we are committed
to playing our part by working collaboratively to
deliver change at scale. We have analysed our business
activities, material topics and value chain in the context
of our strategy and have identified the 10 goals where
we can make the most material contribution. For further
information please refer to our Sustainability Report
2022 (page 59) on our website.
1
The SDGs were established in September 2015 to form an agenda to achieve sustainable development by the year 2030. The SDGs consist of 17 goals and 169 targets,
that were established to address the world’s most pressing environmental and social challenges including climate action, zero hunger and clean water and sanitation.
Fonterra’s approach to sustainability
New Zealand dairy farmers feed around 40 million
people globally today. But as the world grows,
food producers around the world will need to find
new ways to feed around 10 billion people by 2050.
We need to meet these demands while protecting
and restoring the environment by considering
the material environmental challenges in relation
to dairy production such as climate (methane
emissions), clean air and water (nitrogen leakage)
and land use (biodiversity).
As a co-operative, we’re deeply invested in New
Zealand’s success and take a long-term view. We’re
a business built from farms passed down from one
generation to the next, and that means aiming for
the land and natural bounty of our country to be
preserved for generations to come. Agriculture
depends upon a stable global climate and is
particularly impacted by environmental effects. Our
farmers are close to the land and the impacts of
climate change.
Our approach (Sustainability Strategy) considers
our environmental, social and economic performance
in an integrated way, expressed using the different
forms of capital that we rely on to create value and
that we must nurture.
A sustainable future
for our Co-operative is
core to our strategy - it’s
how we create long-
term value for future
generations.
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People and Culture
As a food company, we recognise the valuable
role nutrient-rich dairy products can play in
addressing food security and improving health
and wellbeing for people around the world.
To achieve this, we use our dairy innovation and
science expertise to support our customers and
improve our products while maintaining the
highest standards of food safety and quality.
Delivering this value to customers and society
requires a global team, performing at its best.
That means we are committed to providing a
safe, healthy and inclusive place to work and
continuously developing people’s skills for
meaningful careers. In this way, we aim to retain,
develop and attract the best people.
The Fonterra Research and Development
Centre is one of the largest of its kind in the
world, with around 280 science and technical
experts, including over 130 with PhDs. We
invest significantly in innovation to deliver
benefits from dairy that are supported by
science and help meet the nutritional needs and
expectations of society.
We are continuing to improve the composition
of our consumer products, taking into
consideration the levels of dairy protein and
calcium, while also minimising the addition of
free sugars, refined carbohydrates, non-nutritive
sweeteners, sodium and saturated fat. Our
nutrition guidelines also reflect our support for
the global public health objective to reduce the
intake of industrially-produced trans fats from
partially hydrogenated oils.
Our target is for 100% of our everyday and
advanced nutrition consumer products, such as
yoghurt and fortified milk powders, to meet our
independently endorsed nutrition guidelines by
2025. For the financial year ended 31 July 2022
(FY22), on a volume sold basis, we improved
from 86.5% in FY21 to 87.7%.
We are focused on building an inclusive
workforce where diversity flourishes and
teams can achieve their highest performance.
This involves the ongoing development of our
employees to help them respond to the ever-
changing nature of work.
In 2019, we signed the Aotearoa New Zealand
Skills Pledge, and by 2025 we are committed to
doubling on-the-job training and reskilling hours
in New Zealand from a 2020 baseline. The Skills
Pledge aligns with our focus on building the
right capabilities, preparing employees for their
roles today and for their future careers in New
Zealand and globally.
In FY22, our New Zealand employees spent
more than 501,879 hours upskilling, an increase
of 85.6% on FY20, and an average of 45
hours per learner. The main areas of growth
in FY22 have come in the areas of leadership
development (up 81,600 hours from FY20),
technical programmes such as DAIRYCRAFT (up
38,700 hours from FY20) and apprenticeship
training (up 40,000 hours from FY20).
Our Māori Development Team members have
engaged widely with Māori farmers, iwi (tribe)
partners and stakeholders, customers and
employees. They’re working to understand how
we can best recognise and acknowledge the
importance of having a connection with our
tangata whenua (people of the land) for the
benefit of everyone in Aotearoa New Zealand
and for the world. We published our Māori
Strategy, called Haea te ata (to draw a new
day), which is based on three pillars designed
to introduce and weave Te Ao Māori (the Māori
world view) through the Co-operative in a
genuine and authentic way:
• Tāngata (people and relationships) –
recognising the unique contribution of
Te Ao Māori in how we interact with
people;
• Taiao (natural environment) –
recognising the unique contribution of
Te Ao Māori in how we interact with our
natural environment; and
• Tuakiri (pride and identity) –
how we tell our unique Aotearoa New
Zealand provenance story.
Nature
Nature plays a vital role in supporting the
production of the valuable nutrition we
deliver. Communities value their surroundings
as a place to enjoy, and consumers are
increasingly interested in where their food
comes from and how it is produced.
We want to play our
part in protecting and
restoring nature so
that we can continue
producing nutrition
inter-generationally.
To achieve this, we are
using our science and
innovation skills to solve
environmental challenges
both on and off-farm.
We are committed to leading the transition
to net zero greenhouse gas emissions for
dairy nutrition, adopting and investing in
leading practices to improve land and water,
reducing waste, and protecting the wellbeing
of animals in our supply chain. In this way, we
aim to demonstrate that dairy can be a net-
positive contributor to nature.
We intend to invest around NZ$1 billion in
environmental sustainability initiatives by
2030. We aspire to be net zero carbon by
2050 and we’re targeting a science-based
reduction in scope 1 and 2 greenhouse gas
emissions of 30% by 2030. We expect to
do this through a combination of energy
efficiency initiatives and switching fuels at our
nine manufacturing sites that still use coal,
and aim to ultimately stop using coal by 2037.
We are also going further and developing
plans to transition our manufacturing sites
that use natural gas to other more sustainable
energy sources such as biomass, biogas and
electricity from renewable sources.
We are assessing low emission energy options
for our milk collection fleet – including
electric and hydrogen powered tankers – and
continuing to improve efficiency.
We also know that to maintain our relative
carbon footprint advantage against the
northern hemisphere farming system, we
must solve the methane challenge and will be
increasing our innovation efforts to look for
solutions to reduce our scope 3 greenhouse
gas emissions. We are investing in a wide
range of potential breakthrough technologies
to support this transition, including research
and development of methane vaccines,
Kowbucha
TM
, novel technologies, and both
natural and synthesised methane inhibitors.
Fonterra regularly commissions carbon
lifecycle assessments and, in New Zealand,
we provide farm-specific greenhouse gas
emissions reports so farmers can understand
their current performance and can prioritise
improvements.
To improve the health and biodiversity
of land and water, we are working at our
manufacturing sites, with our farmers and in
partnership with others. At our manufacturing
sites we are reducing our water use and
improving our water treatment, which will
help improve water availability and quality
around our sites. We are also working with
farmers to help them understand their current
areas of strength and opportunities for
improvement. In New Zealand, our team of
Sustainable Dairying Advisors are establishing
Farm Environment Plans (FEPs). Each FEP
is unique to the specific farm and builds on
regulatory requirements, and is guided by
industry-defined Good Farming Practices.
Topics covered include water, soil health,
biodiversity, and greenhouse gas emissions.
Our investment in sustainability helps us to
become an integral part of our customers’
supply chains and intrinsically linked to
the success of their public sustainability
targets. It sets us up to push further with our
development of sustainability brand claims
and positioning, so we can offer a greater
selection of sustainability attributes to our
customers.
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4. Use of Proceeds Instruments
3
ICMA Green Bond Principles 2021 (GBP).
4
ICMA Social Bond Principles 2021 (SBP).
5
ICMA Sustainability Bond Guidelines 2021 (SBG).
6
Climate Bond Standard and Certification Scheme has established sector criteria (including for Agriculture).
7
APLMA Green Loan Principles 2021 (GLP).
8
APLMA Social Loan Principles 2021 (SLP).
Use of Proceeds
Use of Proceeds Instruments raise funds for new and
existing projects with environmental and/or social
benefits.
Fonterra intends to notionally allocate the net proceeds
from its Use of Proceeds Instruments to finance or
refinance projects, assets and/or activities that are
Green Assets or Social Assets (together, Eligible
Assets), each as defined below. Use of Proceeds
Instruments can include but are not limited to bonds
and loans.
With respect to bonds, Use of Proceeds Instruments will
be aligned as appropriate for the type of bond issued,
with the: ICMA 2021 Green Bond Principles (GBP)
3
,
2021 Social Bond Principles (SBP)
4
, 2021 Sustainability
Bond Guidelines (SBG)
5
, and where applicable, the
Climate Bond Standard (CBS)
6
or as they may be
subsequently amended.
For loans, the Use of Proceeds Instruments will be
aligned with the APLMA and LMA 2021 Green Loan
Principles (GLP)
7
and 2021 Social Loan Principles (SLP)
8
or as they may be subsequently amended.
Eligible Assets may include projects delivered, or in
the process of being delivered, or assets owned by
Fonterra’s subsidiaries or another contracted party
and include the funding of capital expenditure,
operating expenditure and other related expenditure
for the projects, assets and/or activities. Fonterra will
endeavour to prioritise the financing of new Eligible
Assets when allocating net proceeds from Use of
Proceeds Instruments and will apply a look-back period
of no longer than three prior financial years when
refinancing existing Eligible Assets (excluding operating
expenditure, where no look-back period applies). This
Framework may be subsequently updated to reflect
further investments in Eligible Assets beyond what is
already included in this Framework.
Green Assets
Green Assets are outlined below and will comply with one or more of the GBP, GLP, or where applicable, the CBS.
Eligible Categories
(GBP/GLPs)
Eligibility Criteria
Renewable Energy
Environmental impact:
Climate change mitigation,
natural resource
conservation and pollution
prevention and control.
Investments in assets, activities, technology and research and development (R&D) to enable or increase
the use of renewable energy sources and production. Examples include, but are not limited to:
• Renewable energy boilers: Installation, conversion and maintenance of boilers that use renewable
energy fuel sources rather than fossil fuels (e.g. operate using sustainable materials such as wood pellets
rather than coal, or biomethane rather than natural gas).
• Investment in renewable energy generation: Installation of renewable energy (e.g. solar) at
manufacturing sites and investment or purchasing power agreements (with a minimum five-year
commitment for new renewable energy facilities) to stimulate the development of renewable energy
generation.
• Innovative processes and technologies: R&D and projects to support greater use of renewable energy,
such as research conducted to evaluate the potential of locally produced biomethane as a substitute for
natural gas.
• Biogas facilities: Installation and maintenance of biogas units at manufacturing sites.
2. About this Framework
2
The market standards are the voluntary sustainable finance principles and guidelines issued by the International Capital Market Association (ICMA), the Asia-Pacific
Loan Market Association (APLMA), the Loan Market Association (LMA) and the Loan Syndications and Trading Association (LSTA) as they may evolve over time
(together, the Market Standards).
To recognise Fonterra’s focus on sustainability and
to support Fonterra’s commitment to invest in
sustainable assets and outcomes in the future, Fonterra
has developed this Sustainable Finance Framework
(Framework). Through this Framework, Fonterra will
aim to achieve its net zero carbon emissions goal and
address social challenges for Fonterra and New Zealand,
while providing a mechanism for investors to contribute
capital to help achieve their own sustainability goals.
This Framework outlines the process by which Fonterra
intends to issue and manage bonds and loans that will
fund sustainable assets and outcomes to which Fonterra
is committed (Sustainable Debt), in alignment with the
relevant market standards (Market Standards)
2
.
Fonterra may issue or manage the following Sustainable
Debt instruments (such as bonds and loans) in
accordance with the applicable Market Standards:
• Use of Proceeds Instruments (see section 4),
where an amount equal to the net proceeds of the
Green, Social or Sustainability Bonds and/or Loans
are intended to be notionally allocated exclusively to
finance or refinance Eligible Assets (see below); and/
or
• Sustainability-Linked Instruments (see section 5),
where the economic terms of the applicable
financing instruments are linked to Fonterra’s
achievement of material sustainability performance
targets.
This Framework sets out the processes for these
Sustainable Debt instruments.
3. Governance
The Fonterra Board of Directors (the Board) has
ultimate oversight of strategy including sustainability,
which is developed and led by the Fonterra
Management Team. The Sustainability Advisory Panel is
currently made up of six external experts who provide
independent guidance on Fonterra’s strategy from
a sustainability perspective. The Audit, Finance and
Risk Committee (AFRC) is a Board sub-committee and
assists the Board in fulfilling its corporate governance
responsibilities, which includes Fonterra’s funding
activities and is responsible for approving this
Framework and other key funding documents.
In relation to this Framework, Fonterra’s Treasury Team
will be responsible for monitoring compliance with
the reporting and external review requirements of this
Framework and the applicable Market Standards.
• For Use of Proceeds Instruments, Fonterra’s Treasury
Team has oversight of Fonterra’s reporting
obligations and the notional allocation of the net
proceeds to Eligible Assets under this Framework.
• For Sustainability-Linked Instruments, Fonterra’s
Treasury Team has oversight of Fonterra’s
performance against the sustainability performance
targets.
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Eligible Categories
(SBP/SLPs)
Eligibility CriteriaTarget Populations
9
Employment Generation
Social Impact:
Increase decent work and economic
growth, reduce inequalities.
Investments in programmes and activities that support employment
generation, training and reskilling (beyond essential compliance
training) to support New Zealanders with capabilities required for
work and help reduce the risks of skilled labour shortages and/
or unemployment especially in rural areas. An example (without
limitation) would be Fonterra’s local community hiring initiatives
including apprenticeships.
Aging populations and/or
vulnerable youth
Excluded and/or
marginalised populations
and/or communities
Undereducated
Food Security and
Sustainable Food Systems
Social Impact:
Reduce hunger, responsible
consumption and production.
Investments in assets, activities, technology and R&D to support social
and economic access to safe, nutritious and sustainable food, including
in resilient agricultural practices that reduce food loss and waste and/
or improving access to affordable nutrition.
Aging populations and/or
vulnerable youth
Living below the poverty
line
Socioeconomic Advancement
and Empowerment
Social Impact:
Reduce poverty, reduce hunger,
increase decent work and economic
growth, reduce inequalities.
Investments in programmes and activities to support equitable
access to high quality and nutritious dairy products, as well as other
opportunities, services and resources. This also includes activities
aimed at supporting people from marginalised/underrepresented
groups to advance their socio-economic position. An example (without
limitation) would be programmes to provide free or subsidised
breakfasts to vulnerable children.
Excluded and/or
marginalised populations
and/or communities
Living below the poverty
line
Underserved populations
Vulnerable youth
Social Assets
Fonterra’s Social Assets aim to address a specific social issue and seek to achieve positive social outcomes primarily
for defined target populations.
Social Assets and target populations are outlined below and will comply with the SBP and/or the SLP.
9
Aging populations – include, but are not limited to, people aged 65 years and over. In considering this target population, we referenced Statistics NZ who give information
about the population by age group and refers to older people as those aged 65 and over.
Vulnerable youth – include, but are not limited to, the target population of 15 – 24 years identified as having one or more risk factor(s). In considering this target population,
we referenced the New Zealand Governments “ Youth At Risk” assessment.
Excluded and/or marginalised populations and/or communities – include, but are not limited to, people excluded from mainstream social, economic, educational, and/or
cultural life due to race, gender identity, sexual orientation, physical ability, language, and/or immigration status, for example, Māori or Pacific youth.
Undereducated – include, but are not limited to, those with limited if any school qualifications and no tertiary qualifications, for example undereducated youth in the New
Zealand Governments “Youth At Risk” assessment, or factory employees.
Living below the poverty line – include, but are not limited to, low-income households or those living under the poverty line measure as a proportion of the median income.
Underserved populations – include, but are not limited to, populations that face health, financial, educational or other service disparities due to their ethnicity or
geographical isolation, for example, Māori or Pacific people or remote rural communities.
Eligible Categories
(GBP/GLPs)
Eligibility Criteria
Sustainable Water and
Wastewater Management
Environmental impact:
Climate change adaption,
natural resource
conservation, biodiversity,
and pollution prevention
and control.
Investments in assets, activities, technology, and R&D that reduce water use, increase the amount of
water recycled, improve wastewater treatment or other water stewardship improvements. Examples
include, but are not limited to:
• Investments to upgrade wastewater treatment facilities: Installation and upgrades to wastewater
treatment facilities that reduce our impact on water catchments.
• Investments in resource-efficient wastewater equipment: Including installation of biological digestors
to process wastewater with greater nutrient recovery, as well as dissolved air floatation systems to treat
wastewater before being discharged into the ocean.
• Programmes to improve soil health and water quality: Including R&D and trials to reduce the risk of
nitrate leaching and improve freshwater quality.
Environmentally
Sustainable Management
of Living Natural
Resources and Land Use
Environmental impact:
Climate change mitigation,
climate change adaption,
biodiversity, natural
resource conservation and
pollution prevention and
control.
Investments in assets, activities, technology, and R&D that support the adoption of sustainable and
regenerative management of living natural resources and land use. Examples include, but are not limited
to:
• Investments in tools and systems to support improved farming practices: Including the development
and deployment of tools to support farm-specific FEPs that are guided by industry-defined Good Farming
Practices and integrate a broad range of topics and improvement actions for each farm including water,
soil health, biodiversity, greenhouse gas emissions and mahinga kai (value of natural resources). For
farms with irrigation systems, the FEPs also build on regulatory requirements for metering and support
water efficiency improvements.
Energy
Efficiency
Environmental impact:
Climate change mitigation.
Investments in assets, activities, technology and R&D to reduce the energy used to manufacture
products or the energy consumption of the underlying asset. Examples include, but are not limited to:
• Energy efficient equipment and appliances: Including energy efficient equipment utilised in
manufacturing processes and on site such as heat pumps in refrigeration systems or condensing
economisers to recover and reuse heat from boiler flues.
• Combined heat and power: Facilities that support more efficient heat and power usage in the production
process.
• Energy storage: Including batteries.
Pollution Prevention
and Control
Environmental impact:
Climate change mitigation,
pollution prevention and
control.
Investments in assets, activities, technology and R&D that reduce the level of waste, pollution and/or
emissions arising from Fonterra’s direct day-to-day operations and indirect on-farm footprint. Examples
include, but are not limited to:
• Waste management and recyclable packaging programmes and technology: Programmes to reduce
solid waste to landfill, including investigating new technologies and solutions to divert waste streams
from landfill and reduce the risk of plastic contamination of the environment (e.g. elimination of
packaging, changing packaging materials, facilitation of efficient plastic recovery from farm).
• Investments and infrastructure to reduce on-farm emissions: R&D into new technologies to reduce
methane emissions generated on-farm, such as methane vaccines, synthesised methane inhibitors,
Kowbucha™, natural cultures and fermentations, natural methane inhibitors from red seaweed and
other novel technologies. Expenditure to increase awareness, reporting, insights and support to farmers
to minimise emissions, including the development of farm-specific insight reports, which detail the
breakdown of greenhouse gas emissions for the farm, its performance relative to other farms and key
changes that could lead to reductions.
Clean
Transportation
Environmental impact:
Climate change mitigation,
pollution prevention and
control.
Investments in assets, activities, technology and R&D that reduce the greenhouse gas emissions arising
from transportation. Examples include, but are not limited to:
• Light vehicle fleet: Investments and infrastructure to transition light vehicle fleet to electric vehicles.
• Heavy fleet: Investments and infrastructure to transition heavy vehicle fleet to low carbon fuel sources.
• Efficiency: Investments that improve the efficiency of transportation such as software systems that
improve the efficiency of scheduling and dispatch of tankers to collect milk (e.g. less kms travelled); help
drivers operate vehicles more efficiently (e.g. less energy per km travelled); or optimise the loading of
vehicles (e.g. less journeys required).
New biomass boiler under construction at StirlingWeston & Dheeraj, Auckland
FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
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FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
15
Disclosure and Reporting
Fonterra recognises the importance investors place on transparency and disclosure relating to Use of Proceeds
Instruments. Reporting will be made available directly to lenders (at a minimum) for loans, and publicly available on
our website for bonds.
ItemFrequency
Framework
Published at (or prior to) the first issuance of a Use of Proceeds Instrument (and when this Framework is
materially amended).
Pre-Issuance External
Review
Sought prior to the first issuance of a Use of Proceeds Instrument under this Framework (and when this
Framework is materially amended or if an issuance requires it).
Annual Update ReportPublished annually for all outstanding Use of Proceeds Instruments.
Post-Issuance External
Review
Sought annually following issuance of a Use of Proceeds Instrument (or at a frequency deemed necessary
by Fonterra).
Following issuance, Fonterra intends to disclose Annual
Update Reports in line with the Market Standards that
include the following information:
• Allocation Reporting: A list and description of the
Eligible Assets financed or refinanced by the Use of
Proceeds Instruments, the amount of net proceeds
notionally allocated towards such Eligible Assets and
the amount of unallocated net proceeds.
• Eligibility Reporting: Confirmation that the
Eligible Assets meet the relevant eligibility
requirements included in this Framework and the
Market Standards and include information on the
characteristics and sustainability performance of the
Eligible Assets.
• Impact Reporting: Where applicable Fonterra
will seek to provide qualitative and/or quantitative
reporting on one or more of the environmental and/
or social impacts of the Eligible Assets resulting from
the Use of Proceeds Instruments, generally aligned
with recommended impact reporting guidelines
10
.
External Review
Prior to issuance of a Use of Proceeds Instrument,
Fonterra will obtain an external review report from an
appropriately qualified verifier demonstrating that this
Framework aligns to the relevant Market Standards. If
this Framework is materially amended, or if Fonterra
issues or manages a Use of Proceeds Instrument
more than two years after the date of this Framework,
Fonterra will obtain an external review report that this
Framework aligns to the Market Standards.
Post issuance of a Use of Proceeds Instrument, Fonterra
will obtain an external review report on the Annual
Update Report and the management of proceeds
from the Use of Proceeds Instruments aligning to this
Framework and the Market Standards.
10
ICMA Harmonised Framework for Impact Reporting (December 2020).
Excluded Categories
Fonterra is committed to not knowingly using the net
proceeds of its Use of Proceeds Instruments to finance
or refinance projects, assets and/or activities included in
the following exclusionary criteria:
1. New coal-fired or expansion of existing coal- fired
facilities;
2.Purchase of fossil fuel powered vehicles;
3. Purchase of carbon offsets; and
4.Product packaging equipment that does not
deliver recycle-ready packaging.
Project Evaluation and Selection
Fonterra’s Treasury Team will consider the Eligible Asset
selection process on each proposed asset or project
against the following factors:
• Alignment to Fonterra’s Sustainability Strategy as
outlined above;
• Conformance with the Market Standards (as
applicable);
• Conformance with the Green Asset and/or Social
Asset Eligibility Criteria as described in this section;
• Alignment to the SDGs, as well as contribution to
potential social or environmental outcomes arising
from the Eligible Assets;
• Fonterra’s own professional judgement, discretion
and sustainability knowledge;
• Assessment of any potential social and/or
environmental impacts from the Eligible Assets,
management of those impacts, and confirmation
that the Eligible Assets will not significantly harm
any of Fonterra’s social or environmental objectives;
and
• Conformance with any other applicable selected
principles, standards, or tools (such as the CBS) that
are or become both commonplace and respected in
the market.
Fonterra’s Treasury Team will be responsible for
periodically updating the pool of Eligible Assets. Eligible
Assets may be replenished if underlying Eligible Assets
are sold or disposed of, non-eligible assets are removed,
or additional Eligible Assets are identified and funded.
Eligible Assets that meet both the Green Asset and Social
Asset Eligibility Criteria will not be double counted.
Management of Proceeds
Fonterra will maintain a register of Eligible Assets
that outlines (among other things) the project cost
of the Eligible Assets, the notional allocation of net
proceeds from the Use of Proceeds Instruments against
each Eligible Asset, and disclosure of any unallocated
proceeds from the Use of Proceeds Instruments
(Register).
The Register will demonstrate that the Eligible Assets
have an aggregate project cost that is larger than the
sum of the net proceeds from the Use of Proceeds
Instruments. The Register will be included in annual
monitoring reports provided by Fonterra’s Treasury
Team.
On the issuance of a new Use of Proceeds Instrument,
Fonterra intends to notionally allocate net proceeds
to Eligible Assets within 24 months of issuance. In
the unlikely event that the net proceeds from Use
of Proceeds Instruments are unallocated to Eligible
Assets within this timeframe, Fonterra intends that any
unallocated proceeds shall be temporarily:
• Held in cash or cash equivalent instruments with a
Treasury function;
• Held in investment instruments that do not include
greenhouse gas intensive projects which are
inconsistent with the delivery of a low carbon and
climate resilient economy; or
• Applied to reduce indebtedness of a short term or
revolving nature before being redrawn for notional
allocation to Eligible Assets.
Fonterra will service its debt obligations under Use of
Proceeds Instruments out of its general cashflows and
not specifically from revenues generated by Eligible
Assets alone.
FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
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FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
17
Sustainability Performance Targets
To incentivise performance against the KPIs, Fonterra
will select one or more timebound sustainability
performance targets (Targets) that are:
• consistent with Fonterra’s Sustainability Strategy;
• represent a material improvement in the KPI over
the life of the Sustainability-Linked Instrument;
• are beyond a “business as usual” trajectory; and
• are set in accordance with the Market Standards.
Targets will be set at the inception of each new
issuance of a Sustainability-Linked Instrument, and with
reference to Fonterra’s historical performance, peer
performance and scientific data, for example science-
based scenarios, regional, national or international
targets, or other best-available technologies or
methodologies.
In the case of Sustainability-Linked Loans, the Targets
will be set prior to the Sustainability-Linked Loans
becoming effective and will be clearly communicated to
lenders as part of the transaction and embedded within
the loan documentation.
In the case of Sustainability-Linked Bonds, the Targets
will be set prior to the issuance of a new instrument
and will be clearly communicated to investors. Targets
which may be utilised by Fonterra for a Sustainability-
Linked Bond will be further detailed in the relevant
bond documentation. This may include the Target
Observation Date for which compliance against the
Target will be assessed and the Target Observation
Period which is expected to align with the fiscal annual
reporting period (i.e. 1 August to 31 July).
Recalculation of Targets
Future events, not directly related to Fonterra’s
sustainability performance, may result in the
recalculation of the Target, including with respect to
the baseline. Future events may include, but are not
limited to, mergers and acquisitions, divestitures and
disposal of assets. The future calculation methodology
for Targets may also be revised, resulting in a revised
baseline year. Any recalculations, revision to the
baseline year and/or changes in KPI/Target will be
stated in Fonterra’s annual Sustainability Report and
will be externally verified.
Loan and/or Bond Characteristics
The proceeds of Fonterra’s Sustainability-Linked
Instruments will be used for general corporate
purposes.
Any Sustainability-Linked Instruments Fonterra may
issue will have a financial or economic characteristic
linked to Fonterra’s performance against one or more
Targets.
This may include financial premium and/or discount
incentives (depending on the transaction), that are
commensurate and meaningful relative to Fonterra’s
original bond or loan structure and will reflect market
practice. The magnitude of the pricing adjustment,
as well as the effective trigger event date(s), will be
clearly detailed in the relevant documentation for each
transaction.
For any Sustainability-Linked Bond issued by Fonterra,
the financial or economic characteristic applicable
if Fonterra does not achieve the Target(s) by the
required date will be a coupon adjustment either
during the lifetime of the instrument or at its maturity,
the details for which will be specified in the relevant
documentation of each Sustainability-Linked Bond
issuance.
Sustainability-Linked Instruments link the issuer’s
cost of borrowing to its performance against material
sustainability Key Performance Indicators (KPIs) and
pre-defined targets.
With respect to loans, Sustainability-Linked Loans
will be structured in accordance with the 2022
Sustainability-Linked Loan Principles (SLLP)
11
, or as
they may be subsequently amended, while bonds will
be aligned to the 2020 Sustainability-Linked Bond
Principles (SLBP)
12
, or as they may be subsequently
amended.
When issuing and during the term of any Sustainability-
Linked Instruments, Fonterra will communicate how
the instrument, the KPIs and the targets are material to
Fonterra and aligned with its Sustainability Strategy.
In accordance with the most recent publications of the
SLLP (2022) and SLBP (2020), Fonterra’s Sustainability-
Linked Instruments will be in alignment with the
following core components:
• Selection of Key Performance Indicators;
• Calibration of Sustainability Performance Targets;
• Loan and/or Bond Characteristics;
• Reporting and Disclosure; and
• Review and Verification.
5. Sustainability-Linked Instruments
Environmental
Material Issue(s)
14
Sustainability KPI
Adapting to the effects of climate change, while mitigating our impacts.Reduction in greenhouse gas emissions (tCO
2
-e)
Adapting to the effects of climate change, while mitigating our impacts.
Using water responsibly, including water quality, availability and disposal.
Protecting soil health, including nutrient management.
Improve sustainable farming (percentage of
supplier farms with FEPs)
Using water responsibly, including water quality, availability, and disposal.Reduce water use (m
3
)
Social
Material Issue(s)Sustainability KPI
Supporting the livelihood of thousands of people through meaningful employment and
sustainable income creation.
Protecting the employment rights and working conditions of our people, including
learning and development.
Increase on-the-job training and reskilling hours
to prepare employees for changing nature of
work (Hrs)
Key Performance Indicators
Fonterra will select measurable and quantifiable sustainability KPIs, that are relevant, core and material
13
to the
business and of high strategic significance to Fonterra’s current and future operations.
When issuing or managing any Sustainability-Linked Instruments, Fonterra is likely to select one or more of the
following KPIs to apply to that Sustainability-Linked Instrument:
11
APLMA Sustainability-Linked Loan Principles 2022 (SLLP).
12
ICMA Sustainability-Linked Bond Principles 2020 (SLBP).
13
Material issues have been identified by Fonterra through its 2021 stakeholder engagement created in line with GRI principles.
14
Material issues cover the impact of our direct operations and our supplier farms.
FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
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FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
19
Fonterra will monitor how the Market Standards and
global sustainable finance markets continue to develop
and adapt their approach to sustainable finance as
relevant. As a consequence, Fonterra may update this
Framework from time to time in its discretion, including
its intention to remain in line with market practice and
the Market Standards.
In parallel, and as part of our ongoing stakeholder
engagement, we welcome feedback and input from
stakeholders on this Framework to support our
commitment to continuously adapt our approach
to sustainable finance as the markets and our own
Sustainability Strategy evolves. Contact information is
outlined below.
6. Continuous Improvement
This Framework does not form part of the contractual
terms of any Sustainable Debt. If Fonterra fails to
comply with this Framework (including its Sustainability
Strategy), or satisfy the applicable Market Standards,
then:
(1) this does not constitute an event of default, event
of review, or any other breach in relation to any
Sustainable Debt; and
(2) there is no requirement for Fonterra to repay
any Sustainable Debt early as a result of this non-
compliance.
This means there is no legal obligation on Fonterra to
comply with this Framework or the Market Standards
on an ongoing basis. However, in the event Fonterra
fails to comply with this Framework or satisfy the
Market Standards, any Sustainable Debt may cease
to be labelled as ‘Green’, ‘Social’, ‘Sustainability’ or
‘Sustainability-linked’ and Fonterra will disclose this
information within the reporting parameters set out in
this Framework.
This Framework contains some forward-looking
statements, targets and projections relating to Fonterra
that are based on the beliefs of Fonterra’s management
as well as assumptions made by and information
currently available to Fonterra’s management. There
can be no certainty of outcome in relation to the
matters to which the forward-looking statements,
targets and projections relate. This Framework does
not constitute investment advice, or an inducement,
recommendation, or offer to buy or sell any securities in
Fonterra or the Fonterra Shareholders’ Fund.
Information and statistics throughout this Framework
are reported as at the date of this Framework unless
otherwise stated.
7. Important Notice
Disclosure and Reporting
Fonterra is committed to transparency and will disclose
and report on its Sustainability-Linked Instruments as
follows.
Sustainability-Linked Loans
For Sustainability-Linked Loans, Fonterra and the
relevant lenders will agree on the appropriate reporting
parameters and the schedule for disclosing information.
This will most likely be provided directly to lenders
on an annual basis and align with Fonterra’s annual
reporting on sustainability performance.
Sustainability-Linked Bonds
Post issuance of any Sustainability-Linked Bond until
maturity, Fonterra will keep up-to-date and make
available to investors and the general public at least
annually (and at a date relevant for assessing the
Target(s) performance leading to a potential adjustment
of the financial and/or structural characteristics), the
following information:
• Fonterra’s performance against the relevant Target(s)
for the duration of the Sustainability-Linked Bond;
• Verification of the performance against the Target(s)
(as outlined below);
• Any other information Fonterra deems material to
enable investors to monitor the level of ambition of
the Target(s); and
• Any other requirements set out in the Market
Standards.
Review and Verification
To provide stakeholders with certainty that Fonterra’s
Sustainability-Linked Instrument is structured
and reported in alignment to the SLLP or SLBP (as
applicable), Fonterra will seek external review of the
following:
• Prior to issuance: Limited assurance or a Second
Party Opinion that the Sustainability-Linked
Instrument aligns to the SLLP or SLBP (as applicable),
with such assessment covering the relevance and
materiality of the selected KPIs, nature and ambition
of the Target(s), credibility of Fonterra’s stated plans
to achieve the Target(s) and verification of baseline
performance (as applicable).
• Post issuance: Ongoing limited assurance or
verification (at least annually, and at a date relevant
for assessing the Target(s) performance) on
Fonterra’s performance against the Target(s) for
each KPI. This may cover any material change to the
methodology used to monitor each KPI or for the
Target(s) calibration.
These reviews will be made available to lenders at a
minimum for Sustainability-Linked Loans and will be
made publicly available for Sustainability-Linked Bonds.
FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
20
FONTERRA CO-OPERATIVE GROUP LIMITED
SUSTAINABLE FINANCE FRAMEWORK
21
More information on Fonterra’s approach to
sustainability can be found on/in our
Website:
https://www.fonterra.com/
Annual Results:
https://view.publitas.com/fonterra/2022-annual-review/
page/1
Sustainability Report:
https://www.fonterra.com/content/dam/fonterra-
public-website/fonterra-new-zealand/documents/pdf/
sustainability/2022/fonterra-sustainability-report-2022.
pdf
Our Path to 2030 strategy:
https://www.fonterra.com/nz/en/our-co-operative/our-
path-to-2030.html
Contacts:
Fonterra Centre, 109 Fanshawe Street
Auckland Central, Auckland 1010,
New Zealand
T: +64 9 374 9000
E: investor.relations@fonterra.com
8. Further Information
---
O c t o b e r 2 0 2 2
Confidential to Fonterra Co-operative Group
•FY22 Annual Results
•Our Sustainability Strategy
•Sustainable Finance Framework
•Appendix
Confidential to Fonterra Co-operative Group
4
•Fonterra has delivered a higher Farmgate Milk Price and
strong earnings, total pay-out of $9.50 per kgMS
•Diversified and resilient earnings –top end of guidance
•Good progress on key drivers of our strategy, focusing on New
Zealand milk, sustainability, and dairy innovation and science
•Increased working capital has driven higher debt levels but will
improve as working capital returns to normal levels in FY23
•Continued strong dairy industry fundamentals
¹
¹
²
Note: Figures are Total Group, which includes continuing and discontinued operations
1.Includesamounts attributable to non-controlling interests
2.Attributable to equity holders of the Co-operative, excludes $23 million of normalised profit after tax
attributable to non-controlling interests
Reference product shipment price² ³
Non-reference product shipment price² ⁴
Monthly Milk Price 2020/2021 Season
Monthly Milk Price 2021/2022 Season
1.Source: GlobalDairyTrade
2.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month in which the sale would be deemed for financial reporting purposes to have been
completed, and will normally be the month in which the sale is invoiced and the product is shipped
3.Reference product shipment price is represented by a weighted average of the WMP, SMP, AMF and butterprices achieved on GDT
4.Non-reference product shipment price is represented by the cheddar prices achieved on GDT
•Consistently higher monthly milk price across
the 2021/22 season compared to prior season
•The average of the monthly milk prices are
equivalent to $7.54 and $9.30 for 2020/21 and the
2021/22 seasons, respectively
•Narrow price relativities in the first half; strong
increase in non-reference product prices improving
price relativities in second half
•More favourablethan expected price relativities
contributed to stronger fourth quarter earnings
6.00
10.00
(NZ$)
31 May31 Aug30 Nov28 Feb
8.00
Monthly Milk Prices
5
3,000
4,000
31 Jul 2131 Jan 22
Reference and non-reference
price relativities on GDT¹
(US$/MT)
31 Jul 22
,
,
H1 FY22H2 FY22
5,000
6,000
31 May
•Increased revenue from higher product prices, partially offset by
lower sales volumes reflecting lower milk collections in the first
nine months of the year and shipping disruptions
•Higher gross profit despite increased cost of milk, driven by
gross margin achieved in Ingredients, particularly in the
protein portfolio
•Operating expenses up due to inflationary pressures, supply
chain disruption and impairment of some of our Asia brands⁶
•‘Other’ includes $(80) million adverse revaluation of the
Sri Lankan business payables due to devaluation of the rupee
•Normalisedprofit after tax is up $3 million, due to higher
earnings and favourableinterest expense
million
¹
∆²
Sales volume (‘000 MT)
Revenue ($)
Cost of goods sold ($)
Gross profit ($)
Gross margin (%)
Operating expenses ($)
Other
³
($)
Normalised EBIT($)
Normalised profit after
tax
⁴
($)
Normalised EPS
⁵
(cents)
6
Note: Total Group figures are for the year ended 31 July. This includes continuing and discontinued
operations and are on a normalised basis unless otherwise stated
1.2021 performance includes Ying and YutianChina Farming hubs and China Farms joint venture,
which were sold during FY21
2.Percentages as shown in the table may not align to the calculation of percentages based on numbers
in the table due to rounding of figures
3.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity
accounted investees
4.Includesamounts attributable to non-controlling interests
5.Attributable to equity holders of the Co-operative, excludes $23 million of normalised profit after tax
attributable to non-controlling interests
6.The impairment includes a $22 million impairment of Anlene, an $11 million impairment of Anmumand a $1
million impairment of Chesdale, with the carrying amount of these brands now at $336 million as at 31 July
2022. Our Asia brands also include Anchor which was not impaired
7
¹
¹²
³
Q1Q2Q3Q4Q1Q2Q3Q4
Note: Figures are for the year ended 31 July
1.Prepared on a normalised continuing operations basis. Normalised EBIT contributions sum to $1,196 million, and does not aligntoreported continuing operations due to excluding unallocated costs and eliminations. Comparative
information includes re-presentations for consistency with the current period
2.Inclusive of Group Operations’ EBIT attribution
3.Includes $(80) million adverse revaluation of payables in Sri Lanka
¹²
6.6
6.0
5.2
4.3
5.3
20182019202020212022
Net Debt ($ billion)
50%50%44%39%42%
4.64.3
3.3
2.7
3.2
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
20182019202020212022
Gearing Ratio² (%)
Debt to EBITDA (x)
8
•Our ‘A band’ credit rating and key metrics
demonstrate our strong balance sheet position
•These metrics have increased but will improve as
working capital returns to normal levels
throughout FY23
oFY23 sales and shipping profile supports
inventory levels returning to normal
•Improved return on capital due to higher earnings
offsetting the impact of additional working capital on
our capital employed
Note: Figures are for the year ended 31 July except where otherwise stated
1.As at 31 July. Refer to Glossary for definition
2.Comparative figures are shown on a consistent basis with current year
82.7
82.8
84.8
90.6
95.7
20182019202020212022
Working Capital Days
6.2%
5.6%
6.6%
6.6%
6.8%
20182019202020212022
Return on Capital (%)
1.Excluding working capital
2.Includes supplier payables and other movements
9
FY21
net debt
Increase in
working
capital
Operating
cashflows
1
Interest,
dividend &
other
Net capex &
investments
FY22
net debt
Increase in working capital
Receivables
Payables
& other
2
Inventory
•Strong balance sheet enabled us to hold higher
working capital through year end
•Increase of $1.6 billion in working capital resulted in
an increase in year end net debt of $1.0 billion
o88% of total inventory was priced and
contracted but not shipped at year end
•Net debt position willimprove as working capital
returns to normal levels throughout the year
oFY23 sales and shipping profile supports
inventory levels returning to normal
20182019202020212022
Other capital investedBusiness growth capital expenditure
Essential capital expenditure
•Total capital invested was $617 million, comprised of
capital expenditure of $587 million and other capital
invested of $30million
•Of the $587 million capital expenditure:
o$534 million was allocated to essential projects
to maintain and improve existing assets
o$53 million was allocated to business growth
projects to drive future earnings growth
•The $30 million of other investments mainly
comprised of right-of-use assets and equity
investments, including investment in new
innovation opportunities
Note: Refer to Glossary for definition of capital invested and capital expenditure
10
•Reducing annual manufacturing emissions by
converting coal boilers to wood biomass:
ocompletion of Te Awamutu in FY21 reduced
our emissions from coal by more than 9%
3
.
The project cost $11 million
oStirling to be completed during FY23 will
reduce our emissions from coal by about 2%
3
.
The project is expected to cost $30 million
oone boiler at Waitoa to be completed in FY24.
Expected to reduce our emissions from coal
by more than 5%
3
. The project is expected to
cost $102 million
24,456
23,622
23,328
22,353
2,201
2,115
2,043
1,944
FY18 - baselineFY20FY21FY22
FarmingManufacturingDistribution and other
891
894
795
766
1,310
1,221
1,248
1,178
FY18 - baselineFY20FY21FY22
CoalOther
²
¹²
2,115
2,043
1,944
2,201
1.Farming and Manufacturing emissions do not add to Total GHG emissions. Distribution and other emissions are not displayed, theseare less than 1% of our total emissions
2.Measured in 000’s tC0
2
-e
3.Relative to FY18, the baseline year
26,867
25,931
25,572
11
24,480
²
1.Includes undrawn facilities and
commercialpaper. DCM is debt capital
markets
2.Excluding commercial paper
3. Undrawn facilities includes $0.4bn stepped
down during the year, reinstated from
1 Sept 2022
4. WATM is weighted average term to maturity
Note: As at 31 July 2022 and excludes
amounts attributable to disposal groups
held for sale
0.01.02.03.0
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
0.01.02.03.0
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
$ billion
WATM
4
: 3.5 years
$ billion
WATM
4
: 3.6 years
Undrawn
Facilities
3
$2.7bn
73%
Drawn Facilities
$1.0bn
27%
EUR/GBP
15%
AUD DCM
10%
CNY DCM
2%
NZD DCM
7%
USD DCM
16%
Bank
Facilities
50%
¹
12
12
EBIT increase
from FY21
Return on capital
PERFORMANCE TARGETS
in sustainability
invested in moving more
milk to higher value
products
INVESTMENT
DISTRIBUTION
OF FUNDS
Intended to be distributed to shareholders
after asset sales
Increase dividends to
cents per share
per annum in
R&D
for mix of investment in
further growth and return
to shareholders
Aspiration to be
Note: The figures in this slide are targets we are aiming to achieve only. They should not be taken as forecasts or as a guarantee of returns to shareholders. These targets are based on assumptions and risks that are set out in the Appendix to
the booklet Our Path to 2030, including the assumption of an average Farmgate Milk Price for the decade of $6.50 -$7.50 per kgMS, each of which could materially affect the actual outcomes.Please refer to the important cautions and
disclaimer at the back of this presentation and the key assumptions and risks in the Appendix of the booklet titled Our Path to 2030for further details
13
OUR STRATEGIC CHOICES
Confidential to Fonterra Co-operative Group
15
A copy of the 2022 Sustainability Report is available on Fonterra’s website here
Sustainable
packaging innovation
Farmer-owned
supportingrural
livelihoods
Nutrition R&D
that supports
health &
wellbeing
Milkquality
Low somatic cell
counts
World classfood
safety & quality
Efficient global
distribution
Pasture-fed
Non-GMO Project Verified
Audited sustainability
performance
Cared forcows
Low antibiotic use
No growth-promoting
hormones
CarbonZero™
certified
products
Partnering with others to
enable farming & nature to
thrive together
Certified environmental
management systems
Traceability
Leading transition to
a low-carbon future
16
Energy
efficiency in
our operations
Milk vat monitoring for
collection efficiency
Transition to
renewable
energy
Decarbonise
fleet
Freight
optimisation
New Zealand has a unique position as one of the lowest carbon dairy producers in
the world. But we can’t slow down now
We aspire to be net zero emissions
as we deliver sustainable nutrition
through the goodness of New
Zealand milk
No more coal in our operations
30% reduction in absolute
emissions from manufacturing
operations from FY18 baseline
Every Fonterra farmer has a tailored
Farm Environment Plan
Working with farmers to understand
their footprint while decarbonising
across our operations
Natural methane
inhibitors from Red
Seaweed
Kowbucha™natural
cultures & fermentations
Methane
vaccines
Synthesised
methane
inhibitors
Novel
technologies
17
18
Protecting New Zealand’s natural advantage
•New Zealand farmers are among the most efficient in the world, with an on-farm carbon footprint
(1.03 kgCO
2
-e/kgFPCM
1
) amongst the lowest in the world
•Natural advantages,such as climate and a pasture-based farming system, combined with the hard
work of our farmers to make their farms productive and efficient have delivered this
•We’re helping protect this advantage by supporting continuous improvement and research
Supporting continuous improvement
•Supplying farms in New Zealand already have a farm-specific emissions profileso farmers can
understand the footprint of their farm
•Our 40 Sustainable Dairying Advisors are helping establish farm-specific Farm Environment Plans
(FEPs), including a GHG module with prioritised actions
•Every supplying farm in New Zealand will have an FEP by the end of 2025
•The Co-operative Difference payment allows us to reward and recognise farmers who meet a specific
set of sustainability targets each year
Investing in research and development
•Significant investment is required to deliver practical steps that farmers can take
•We are collaborating on a range of potential methane solutions to help dairy farmers and more widely
•We are partnering with New Zealand Government and five other New Zealand agribusinesses through
the new Centre for Climate Action on Agricultural Emissions (combined investment ~ $172m in next
four years)
We intend to invest $1 billion in
environmental sustainability
initiatives by 2030
1.Kilogram of fat-and-protein-corrected milk
Confidential to Fonterra Co-operative Group
20
•Fonterra established a Sustainable Finance Framework (Framework) in
October 2022
oreflectsour commitment to sustainability and to align our financing with
our sustainability ambitions
•The Framework is aligned to the relevant market standards, including those
published by the International Capital Markets Association and the Asia Pacific
Loan Market Association
oindependent external review and confirmation of alignment with those
standards (Second Party Opinion) provided by ISS Corporate Solutions
•The Framework sets out how Fonterra intends to issue and manage
sustainable debt and includes issuance of both Use of Proceeds and
Sustainability-Linked instruments
•Our intention is to finance in a sustainable format going forward
owe intend to initially focus on Use of Proceeds issuance (e.g., Green
Bonds); and
owe intend to issue Sustainability-Linked instruments in the future. At the
time of such issuancespecific sustainability performance targets (Targets)
and external review of the Targets will be made available to
investors/lenders
A copy of the Sustainable Finance
Framework is available on
Fonterra’s website here
4. Reporting
21
1. Use of
Proceeds
3.
Management
of Proceeds
5. External
Review
•Proceeds will be notionally allocated to finance or refinance projects, assets and/or activities which meet the eligibility criteria
set out in the Framework and alignswith the Green Bond Principles (Eligible Assets)
•Supports investments towards renewable energy, clean transportation, pollution prevention and control, sustainable water and
wastewater management, environmentally sustainable management of living natural resources and land use, and energy
efficiency
•Look-back period of no longer than three prior financial years applied when refinancing existing Eligible Assets
•Exclusionary criteria applies
•Proceeds to be notionally allocated to Eligible Assets within 24 months of issuance
•Maintain an Eligible Assets Register that includes (amongst other things) their project cost, the notional allocation of proceeds
to that asset and compliance with the relevant Eligibility Criteria
•The total project cost of Eligible Assets will be at least equal to the aggregate amount of all outstanding green financing,
including Green Bonds (subject to temporary management of unallocated proceeds)
•Within one year of issuance (and annually thereafter), we will publish Annual Update Reports covering use of proceeds
(allocation and eligibility) and impact of the Green Bonds
•ISS Corporate Solutions has provided a pre-issuance Second Party Opinion (SPO) on the Framework
•On an annual basis post-issuance, Fonterra will obtain and publish an external review report on its Annual Update Report
(including verification of the Eligible Assets Register)
2. Process
for Project
Evaluation
and
Selection
•Overseen by Fonterra’s Treasury Team with responsibility to manage Eligible Asset selection and compliance with reporting
commitments and the relevant sustainable finance principles
•The Framework enables the issuance of Green, Social and Sustainability Bond/Loan instruments
•The intention is to initially focus on Green Bonds (as reflected inslides 21 to 23)
A copy of the Framework and ISS Corporate Solutions Second Party Opinion are available on Fonterra’s website here
22
Clean Transportation
•Expand light fleet
of EVs and the
network of EV
charging stations
•Conversion of heavy
goods fleet (including
milk tankers) to
electric and renewable
energy sources
Renewable Energy
•Conversion ofexisting
coal boilers at
manufacturing
sites to renewable
energy sources
•Infrastructure and
equipment to increase
theuseof solar and
renewable energy
Energy Efficiency
•Infrastructure and
equipment to improve
energy efficiency of
manufacturing
processes and sites
•Energy storage
(batteries)
Sustainable Water &
Wastewater
Management
•Infrastructure and
equipment to improve
our approach to water
intake by
manufacturing sites so
they contribute to
healthier water
catchments
•Infrastructure and
equipment to improve
treatment of
wastewater prior to
discharge so they
contribute to healthier
water catchments
Pollution Prevention
& Control
•Infrastructure and
equipment to reduce
solid waste to landfill
•Investment in
Research and
Development to
investigate and trial
methane mitigation
practices and
technologies
•Upgrade packaging
materials and
associated packaging
lines to improve reuse
and/or recyclability
Environmentally
Sustainable
Management of Living
Natural Resources
and Land Use
•Investment in tools
and systems to
support improved
farming practices
•Development and
deployment of
farm-specific farm
environment plans
Note: Refer to section 4 of the Framework for the full eligibility criteria independently reviewed by ISS Corporate Solutions
23
Eligible Category
Examples of existing Eligible Assets
(Projects in FY20–FY22)
Existing
project cost
(3-year look-
back)
1
(NZDm)
Estimated
future
project cost
(FY23-24)
2
(NZDm)
Total
Potential
Eligible
Assets
(NZDm)
Renewable Energy
•Installation of biomass boilers to replace existing coal boilers at three manufacturing sites
(Project Sites: Te Awamutu (completed), Stirling (in progress), Waitoa (in progress))
•Installation of solar panels
59110169
Sustainable Water
andWastewater
Management
•Infrastructure and equipment to improve the treatment of wastewater prior to discharge,
contributing to healthier water catchments (Project Sites: Te Awamutu, Tirau,
Clandeboye)
93145238
Energy Efficiency
•Equipment to improve energy efficiency in manufacturing sites including heat recovery
and improved heat exchange (Project Sites: Whareroa, Edendale)
243559
Pollution Prevention
and Control
•Waste reduction and recyclable packaging programmes
•Upgrade of refrigeration systems (Project Sites: TeAwamutu, Hautapu)
•Investments and infrastructure to reduce on-farm emissions
32528
Clean Transportation
•Light vehicle fleet –purchase of electric vehicles
459
Total Eligible Assets183320503
Note: This slide may contain forward looking statements or estimates. These statements or estimates should not be taken as forecasts. They are subject to successfully completing a number of business initiatives, and assumptions,
each of which could materially affect the actual outcomes. These were prepared by Fonterra and have not been independently reviewed
1. Existing project cost is for the 3-year period from 1 August 2019 to 31 July 2022
2. Estimated future project cost is for the 2-year period from 1 August 2022 to 31 July 2024 and could vary depending on final selection of actual projects
•The following table is an indicative pipeline of Eligible Assets.The intention is to notionally allocate the net proceeds of any future
Green Bonds to refinance existing Eligible Assets first, before being applied to finance future Eligible Assets
•Fonterra expects to have a total of $503 million of Eligible Assets by FY24 year end:
o$183 million relates to spend over the last three years (FY20-FY22)
o$320 million is estimated to be spent over the next two years (FY23-24)
Confidential to Fonterra Co-operative Group
¹
1.Total Group figures for the year ended 31 July. This includes continuing and discontinued operations, and are on a normalisedbasis unless stated otherwise
1,505
1,523
1,517
1,539
1,478
20182019202020212022
NZ Milk Collection (million kgMS)
2,496
2,282
2,323
2,242
2,397
20182019202020212022
Opex ($ million)
3,152
3,008
3,208
3,114
3,340
20182019202020212022
Gross Profit ($ million)
20.4
19.9
21.0
21.1
23.4
20182019202020212022
Revenue ($ billion)
4,123
4,152
4,069
4,102
3,924
20182019202020212022
Sales Volume ('000 MT)
$6.69$6.35$7.14$7.54$9.30
$0.10
$0.00
$0.05
$0.20
$0.20
20182019202020212022
Milk Price ($)Dividend ($)
$6.79
$6.35
$7.19
$7.74
$9. 50
25
1.Total Group figures for the year ended 31 July. This includes continuing and discontinued operations, and are on a normalised basis unless stated otherwise
2.Includes amounts attributable to non-controlling interests
3.Refer to Glossary for definition
4.Comparative figures are shown on a consistent basis with current year
²
³
²
¹
50.1%49.5%44.2%38.5%42.4%
4.6
4.3
3.3
2.7
3.2
20182019202020212022
Gearing Ratio⁴ (%)
Debt to EBITDA (x)
861
600
419
545
587
161
124
106
63
30
20182019202020212022
CapexOther
(196)
(610)
659
599
583
20182019202020212022
Reported NPAT ($ million)
407
275
398
588
591
20182019202020212022
Normalised NPAT ($ million)
262
(17)
1,147
959
976
20182019202020212022
Reported EBIT ($ million)
902
812
879
952
991
20182019202020212022
EBIT ($ million)
1,022
724
525
608
617
26
²
²
1.Total Group figures for the year ended 31 July. This includes continuing and discontinued operations, and are on a normalised basis unless stated otherwise
2.Refer to Glossary for definition
¹
6.2%
5.6%
6.6%
6.6%
6.8%
20182019202020212022
Return on Capital (%)
24
16
24
34
35
20182019202020212022
Normalised EPS (cents)
83
83
85
91
96
20182019202020212022
Working Capital Days
600
1,095
1,828
1,417
(324)
20182019202020212022
Free Cash Flow ($ million)
27
¹
²
Note: Figures are for the year ended 31 July and prepared on a normalised continuing operations basis. Comparative information includes re-presentations for consistency with the current period
1.Eliminations and unallocated costs
2.Includes $(80) million adverse revaluation of payables in Sri Lanka
28
Increase in
working capital
Inventory
Receivables
Payables &
other¹
FY21 inventory
value
FY22 inventory
value
Cost Volume
599
(‘000 MT)
725
(‘000 MT)
29
1. Includes supplier payables and other movements
•Significantly higher working capital throughout the year
and year end, up $1.6 billion, reflecting:
ohigher milk price –impacts both receivables and
inventory
ohigher levels of inventory throughout second half and
year end
•Higher year end inventory reflects late season milk
production coinciding with shipping constraints
o88% of total inventory was priced and contracted but
not shipped at year end
oFY23 sales profile and shipping schedule supports
inventory levels returning to normal levels
30
FY20
Actual
FY21
Actual
FY22
Forecast
FY22
Actual
FY24
Year 3Target
FY27
Year6Target
FY30
Year9Target
Improved performance
Milk Price per kgMS$7.14$7.54$9.30
Normalised EBIT$879m$952m
$875-
$975m
$991m$1,025-$1,125m
$1,150-
$1,250m
$1,325-
$1,425m
Earnings per share 24c34c25-40c35c45-55c50-60c55-65c
Return on capital6.6%6.6%6.5-7.0%6.8%7.0-8.0%7.5-8.5%9.0-10.0%
Financial position
Capital investment$525m$608m$650m$617m$980m$980m$980m
Debt toEBITDAratio3.3x2.7x2.4x*3.2x<2.5x<2.5x<2.5x
Gearing ratio44%39%35%*42%<35%<35%<35%
Dividendto shareholders
Dividends per share5c20c15-20c20c22-27c30-35c40-45c
*Calculated using an EPS of 35 cents
Note: The figures in this table which relate to dates in the future are targets we are aiming to achieve only. Theyshould not be taken as forecasts or as a guarantee of returns to shareholders.The target years assume long-term
average levels of price relativity and lag pricing impacts, and individual years are likely to vary from this assumption.Pleaserefer to the important cautions and disclaimer at the back of this presentation and the key assumptions and
risks in the Appendixof the booklet titled Our Path to 2030for further details
Represents the Ingredients, Foodservice and Consumer channels in New Zealand,
Australia, Pacific Islands, South East Asia and South Asia
Represents the Ingredients, Foodservice and Consumer channels in Africa, Middle
East, Europe, North Asia and Americas
Capital expenditure comprises purchases of property (less specific disposals where
there is an obligation to repurchase), plant and equipment and intangible assets
(excluding purchases of emissions units), net purchases of livestock, and includes
amounts relating to disposal groups held for sale
Comprises capital expenditure plus right-of-use asset additions and business
acquisitions, including equity contributions, long-term advances, and investments
Represents the channel of branded consumer products, such as powders, yoghurts,
milk, butter and cheese
Is adjusted net debt divided by Total Group normalised earnings before interest, tax,
depreciation and amortisation (Total Group normalised
EBITDA) excluding share of profit/loss of equity accounted investees and
net foreign exchange gains/losses
Is profit before net finance costs and tax
Means the average price paid by Fonterra for each kilogram of milk solids
(kgMS) supplied by Fonterra’s farmer shareholders under Fonterra’s standard
terms of supply. The season refers to the 12-month milk season of 1 June to
31 May. The Farmgate Milk Price is set by the Board, based on the
recommendation of the Milk Price Panel. In making that recommendation, the
Panel provides assurance to the Board that the Farmgate Milk Price has been
calculated in accordance with the Farmgate Milk Price Manual
Represents the channel selling to businesses that cater for out-of-home
consumption; restaurants, hotels, cafes, airports, catering companies etc. The
focus is on customers such as; bakeries, cafes, Italian restaurants, and global
quick-service restaurant chains. High performance dairy ingredients including
whipping creams, mozzarella, cream cheese and butter sheets, are sold in
alongside our business solutions under the Anchor Food Professionals brand
Is the total of net cash flows from operating activities and net cash flows from
investing activities
31
Is calculated as total borrowings, plus bank overdraft, less cash and cash
equivalents, plus a cash adjustment for 25% of cash and cash equivalents
held by the Group’s subsidiaries, adjusted for derivatives used to manage
changes in hedged risks on debt instruments. Amounts relating to disposal
groups held for sale are included in the calculation
Normalised earnings per share is calculated as normalised profit after tax
attributed to equity holders of the Co-operative divided by the weighted
average number of shares on issue for the period
Is Total Group normalised EBIT including finance income on long-term
advances less a notional tax charge, divided by average capital employed
New Zealand: A period of 12 months from 1 June to 31 May
Australia: A period of 12 months from 1 July to 30 June
Chile: A period of 12 months from 1 August to 31 July
Represents corporate costs including Co-operative Affairs and Group
Functions; and any other costs that are not directly associated to the
reporting segments; and eliminations of inter-segment transactions
Is adjusted net debt divided by total capital. Total capital is equity excluding hedge
reserves, plus adjusted net debt
Represents the Ingredients, Foodservice and Consumer channels in Greater
China, and the Falcon China Farms JV
Comprises functions under the Chief Operating Office (COO) including New
Zealand milk collection and processing operations and assets, supply chain,
Group IT, Sustainability and Innovation; Fonterra Farm Source™retail stores; and
the Central Portfolio Management function (CPM)
Represents the channel comprising bulk and specialty dairy products such as milk
powders, dairy fats, cheese and proteins manufactured in New Zealand, Australia,
Europe and Latin America, or sourced through our global network, and sold to
food producers and distributors
Means kilograms of milk solids, the measure of the amount of fat and
protein in the milk supplied to Fonterra
32
This presentation may contain forward-looking statements, financial targets and ambitions (“Forward Statements”), each of which is based on a range of
assumptions, including (in the case of our 2030 strategy) the assumptions noted in the Appendix of the booklet titled Our Path to 2030 which is available on our
website.None of the Forward Statements is intended as a forecast, estimate or projection of the outcome that will, or is likely to, eventuate.They should not
be taken as forecasts or a guarantee of returns to shareholders.
There can be no certainty of outcome in relation to the matters to which the Forward Statements relate. Our ability to achieve the outcomes described in the
Forward Statements is subject to a number of assumptions, each of which could cause the actual outcomes to be materially different from the events or results
expressed or implied by such Forward Statements.
The Forward Statements also involve known and unknown risks, uncertainties and other important factors that could cause the actual outcomes to be
materially different from the events or results expressed or implied by such Forward Statements.Those risks, uncertainties, assumptions and other important
factors are not all within the control of Fonterra Co-operative Group Limited (“Fonterra”) and its subsidiaries (the “Fonterra Group”) and cannot be predicted by
the Fonterra Group. The Forward Statements in this presentation reflect views held only at the date of this presentation.
While all reasonable care has been taken in the preparation of this presentation, none of Fonterra, the Fonterra Group, or any of their respective subsidiaries,
affiliates and associated companies (or any of their respective officers, employees or agents) (together “Relevant Persons”) makes any representation or gives
any assurance or guarantee as to the accuracy or completeness of any information in this presentation or the likelihood of fulfilment of any Forward Statement
or any outcomes expressed or implied in any Forward Statement.Accordingly, to the maximum extent permitted by law, none of the Relevant Persons accepts
any liability whether direct or indirect, express or implied, contractual, tortious, statutory or otherwise, in respect of any Forward Statements or for any loss,
howsoever arising, from the use of this presentation.
Statements about past performance are not necessarily indicative of future performance.
Except to the extent (if any) as required by applicable law or any applicable Listing Rules (including the Fonterra Shareholders’ Market Rules), the Relevant
Persons disclaim any obligation or undertaking to update any information in this presentation.
This presentation does not constitute investment advice or opinions, or an inducement, recommendation or offer to buy or sellany securities in Fonterra or the
Fonterra Shareholders’ Fund.
33
Fonterra uses several non-GAAP measures when discussing financial performance. Non-GAAP measures are not defined or specified byNZ IFRS.
Management believes that these measures provide useful information as they provide valuable insight on the underlying performance of the business. They
may be used internally to evaluate the underlying performance of business units and to analyse trends. These measures are notuniformly defined or utilised by
all companies. Accordingly, these measures may not be comparable with similarly titled measures used by other companies.
Non-GAAP financial measures should not be viewed in isolation nor considered as a substitute for measures reported in accordancewith NZ IFRS. Non-GAAP
measures are not subject to audit unless they are included in Fonterra’s audited annual financial statements.
Please refer to the Non-GAAP Measures section in Fonterra’s 2022 Annual Review for further information about non-GAAP measures used by Fonterra,
including reconciliations back to NZ IFRS measures. Definitions of non-GAAP measures used by Fonterra can be found in the Glossary.
34
---
© 2022 | Institutional Shareholder Services and/or its affiliates
INTERNAL
SECOND PARTY OPINION (SPO)
Sustainability Quality of the Issuer and Sustainable Finance
Framework
Fonterra Co-operative Group Limited
6 October 2022
VERIFICATION PARAMETERS
Type(s) of instruments
contemplated
Sustainable finance instruments, including Use of Proceeds’ Loans
and Bonds, (Green/Social/Sustainability Loans and Bonds)
Relevant standard(s)
Social Bond Principles, updated June 2021 (with June 2022
Appendix 1), as administered by ICMA
Green Bond Principles, updated June 2021 (with June 2022
Appendix 1), as administered by ICMA
Sustainability Bond Guidelines, as administered by ICMA (June
2021)
Social Loan Principles, as administered by LMA and APLMA (April
2021)
Green Loan Principles, as administered by LMA and APLMA
(February 2021)
Scope of verification
Fonterra’s Sustainable Finance Framework (as of October 3, 2022)
Fonterra’s Eligibility Criteria (as of October 3, 2022)
Lifecycle Pre-issuance verification
Validity
As long as Fonterra’s Sustainable Finance Framework remain
unchanged.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 2 o f 26
C O N T E N T S
SCOPE OF WORK ..................................................................................................................................... 3
FONTERRA BUSINESS OVERVIEW ............................................................................................................ 3
ASSESSMENT SUMMARY .................................................................................................................... 4
SPO ASSESSMENT .................................................................................................................................... 5
PART I: ALIGNMENT WITH THE GBP, SBP, SBG, GLP AND SLP ............................................................ 5
PART II: SUSTAINABILITY QUALITY OF THE ISSUANCE ........................................................................ 7
A. CONTRIBUTION OF THE USE OF PROCEEDS INSTRUMENTS TO THE UN SDGs ........................... 7
B. MANAGEMENT OF ENVIRONMENTAL & SOCIAL RISKS ASSOCIATED WITH THE ELIGIBILITY
CRITERIA ........................................................................................................................................ 13
PART III: SUSTAINABLE FINANCE INSTRUMENTS LINK TO FONTERRA’S SUSTAINABILITY STRATEGY
.......................................................................................................................................................... 17
A. FONTERRA’S BUSINESS EXPOSURE TO ESG RISKS ..................................................................... 17
B. CONSISTENCY OF SUSTAINABLE FINANCE INSTRUMENTS WITH FONTERRA’S SUSTAINABILITY
STRATEGY ...................................................................................................................................... 19
ANNEX 1: Methodology ........................................................................................................................ 23
ANNEX 2: ISS ESG Corporate Rating Methodology ............................................................................... 24
ANNEX 3: Quality management processes ........................................................................................... 25
About ISS ESG SPO ................................................................................................................................ 26
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 3 o f 26
SC OPE OF WORK
Fonterra Co-operative Group Limited (“the Issuer”, “the company”, or “Fonterra”) commissioned ISS
Corporate Solutions (ICS) to assist with the verification of its Sustainable Finance instruments by
assessing three core elements to determine the sustainability quality of the instrument:
1. Fonterra’s Use of Proceeds Instruments
1
and structural components of the transaction –
benchmarked against the International Capital Market Association's (ICMA) Green Bond Principles
(GBP), Social Bond Principles (SBP) and Sustainability Bond Guidelines (SBG), as well as the Loan
Market Association and Asian Pacific Loan Market Association’s Green Loan Principles (GLP) and
Social Loan Principles (SLP).
2. Fonterra’s Use of Proceeds Instruments – whether the categories contribute positively to the
UN SDGs and how they perform against proprietary issuance-specific key performance indicators
(KPIs) (See Annex 1).
3. Sustainable Finance instruments link to Fonterra’s sustainability strategy – drawing on
Fonterra’s overall sustainability profile and issuance-specific Use of Proceeds categories.
FONTERRA BUSI NESS OV ERVI EW
Fonterra is a global dairy nutrition company which is engaged in the collection, manufacture and sale
of milk and milk-derived products through its ingredients, consumer, and foodservice channels. It
operates through the following segments: Global Markets and Greater China. The Global Markets
segment represents the ingredients, foodservice and FMCG businesses in New Zealand, Australia,
Pacific Islands, South East Asia, South Asia, Africa, Middle East, Europe, North Asia, and Americas. The
Greater China segment represents the ingredients, foodservice and FMCG businesses in Greater
China. The company was founded on October 16, 2001, and is headquartered in Auckland, New
Zealand. According to ISS ESG industry and sector classification, Fonterra has been classified under
the food products industry based on its business activity and nature.
1
As defined in Fonterra’s Sustainable Finance Framework, reference to Use of Proceeds Instruments include the issuance of
Green, Social or Sustainability Bonds/Loans where an amount equal to the proceeds will be notionally allocated exclusively
to finance or refinance eligible assets.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 4 o f 26
ASSESSMENT SUMMARY
Part 3:
Sustainable
finance
instruments
link to issuer’s
sustainability
strategy
CONSISTENT WITH THE ISSUER’S SUSTAINABILITY STRATEGY
The environmental and/or social projects financed through the Use of Proceeds
Instruments are consistent with the issuer’s sustainability strategy and material ESG
topics for the issuer’s industry. The rationale for issuing Use of Proceeds Instruments is
clearly described by Fonterra.
2
ISS ESG’s evaluation is based on the Fonterra’s Sustainable Finance Framework (October 3, 2022), on the eligibility criteria as received on
the October 3, 2022, and on the ISS ESG Corporate Rating updated on the 30.09.2022 and applicable at the SPO delivery date.
SPO SECTION SUMMARY EVALUATION
2
Part 1:
Alignment
with the GBP,
SBP, SBG, GLP
and SLP
Fonterra has defined a formal concept for its Use of Proceeds
Instruments regarding use of proceeds, processes for project
evaluation and selection, management of proceeds and reporting. This
concept is in line with the GBP, SBP, SBG, GLP and SLP.
Aligned
Part 2:
Sustainability
quality of the
Eligibility
Criteria
The Use of Proceeds Instruments will (re-)finance eligible asset
categories, which include: Renewable Energy, Sustainable Water and
Wastewater Management, Environmentally Sustainable Management
Of Living Natural Resources and Land Use, Energy Efficiency, Pollution
Prevention And Control, Clean Transportation, Employment
Generation, Food Security And Sustainable Food Systems, and
Socioeconomic Advancement and Empowerment.
The Social use of proceeds categories have a significant contribution
to SDG 2 ’Zero Hunger’, SDG 4 ‘Quality Education’, SDG 8 ‘Decent work
and Economic Growth’ and limited contribution to SDG 10 ‘Reduced
Inequalities’.
The remaining use of proceed categories improve Fonterra’s
operational impacts and mitigate potential negative externalities
applicable to Fonterra’s sector for SDG 2 ‘Zero Hunger’, SDG 3 ‘Good
Health and Well-Being’, SDG 6 ‘Clean Water and Sanitation’, SDG 7
‘Affordable and clean energy’, SDG 10 ‘Reduced Inequalities’, SDG 12
‘Responsible consumption and production’, SDG 13 ‘Climate action’
and SDG 15 ‘Life on Land’.
The environmental and social risks associated with the use of proceeds
categories are well managed.
Positive
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 5 o f 26
SPO ASSESSMENT
PA R T I: A L IG NM E NT W IT H T H E G B P , SB P, SB G , G L P A ND SL P
This section evaluates the alignment of Fonterra’s Sustainable Finance Framework (dated October 3,
2022) with the GBP, SBP, SBG, GLP and SLP.
GBP, SBP, SBG, GLP
AND SLP
ALIGNMENT OPINION
1. Use of Proceeds
✓
The Use of Proceeds description provided by Fonterra’s
Sustainable Finance Framework is aligned with the GBP,
SBP, SBG, GLP and SLP.
Fonterra’s green and social categories align with the
project categories as proposed by the GBP, SBP, SBG, GLP
and SLP. Eligibility criteria is defined in a clear and
transparent manner. Environmental and social benefits
are described and quantified.
Fonterra defines a look-back period of no greater than 3
prior financial years when refinancing existing eligible
assets (excluding operating expenditure where no look-
back period applies), as well exclusionary criteria for
harmful project categories (e.g., new coal-fired or
expansion of existing coal fired facilities), in line with best
market practice.
2. Process for Project
Evaluation and
Selection
✓
The Process for Project Evaluation and Selection
description provided by Fonterra’s Sustainable Finance
Framework as aligned with the GBP, SBP, SBG, GLP and
SLP.
The project selection process is defined and structured in
a congruous manner. ESG risks associated with the project
categories are identified and managed through an
appropriate process. Moreover, the projects selected
show alignment with Fonterra’s sustainability strategy.
Fonterra explains that it’s Treasury Team is responsible in
the process for project evaluation and selection.
Responsibilities for the team are laid out.
3. Management of
Proceeds
✓
The Management of Proceeds proposed by Fonterra’s
Sustainable Finance Framework is aligned with the GBP,
SBP, SBG, GLP and SLP.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 6 o f 26
A register of eligible assets will be maintained that
includes an aggregate project cost that is larger than the
sum of net proceeds from the Use of Proceeds
Instruments. The net proceeds are tracked in an
appropriate manner and will be allocated within 24
months of issuance. Moreover, Fonterra discloses the
temporary investment instruments for any unallocated
proceeds (e.g., unallocated proceeds may be held in cash
or cash equivalent instruments, investment instruments
that don’t include greenhouse gas intensive projects, or
applied to reduce short term or revolving indebtedness).
Fonterra discloses ESG criteria and the nature of
temporary investments, in line with best market practice.
4. Reporting
✓
The allocation, eligibility, and impact reporting proposed
by Fonterra’s Sustainable Finance Framework is aligned
with the GBP, SBP, SBG, GLP and SLP.
Fonterra commits to disclose the allocation of net
proceeds transparently and to report annually (on an
ongoing basis). Fonterra explains the level of expected
reporting and the type of information that will be
reported. The reporting for bonds will be publicly available
on the Fonterra’s website, whereas reporting for loans will
be made directly available to lenders.
Fonterra is transparent on the level of impact reporting
with defined scope, duration, and reporting frequency of
the impact reporting, in line with best market practice.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 7 o f 26
PA R T II: SU ST A I N A B IL IT Y Q UA L IT Y OF T H E I SS UA NC E
A. CONTRIBUTION OF THE USE OF PROCEEDS INSTRUMENTS TO THE UN SDGs
Companies can contribute to the achievement of the SDGs by providing specific services/products
which help address global sustainability challenges, and by being responsible corporate actors,
working to minimise negative externalities in their operations along the entire value chain. The aim of
this section is to assess the SDG impact of the use of proceeds categories (UoP categories) that may
be allocated by Fonterra’s Use of Proceeds Instruments in two different ways, depending on whether
the proceeds are used to (re)finance:
- specific products/services,
- improvements of operational performance.
1. Products and services
The assessment of UoP categories for (re)financing products and services is based on a variety of
internal and external sources, such as the ISS ESG SDG Solutions Assessment (SDGA), a proprietary
methodology designed to assess the impact of an issuer's products or services on the UN SDGs, as well
as other ESG benchmarks (the EU Taxonomy Climate Delegated Acts, the ICMA Green and/or Social
Bond Principles and other regional taxonomies, standards and sustainability criteria).
The assessment of UoP categories for (re)financing specific products and services is displayed on a 5-
point scale (see Annex 1 for methodology):
Significant
Obstruction
Limited
Obstruction
No
Net Impact
Limited
Contribution
Significant
Contribution
Each of the UoP categories has been assessed for its contribution to, or obstruction of, the SDGs:
USE OF PROCEEDS (PRODUCTS/SERVICES)
CONTRIBUTION
OR OBSTRUCTION
SUSTAINABLE
DEVELOPMENT
GOALS
Employment Generation
Investments in programmes and activities that support
employment generation, training, and reskilling (beyond
essential compliance training) to support New Zealanders with
capabilities required for work and help reduce the risks of skilled
labour shortages and/or unemployment, especially in rural
areas (e.g., Fonterra’s local community hiring initiatives
including apprenticeships
3
.)
Significant
contribution
4
Food Security and Sustainable Food Systems
Investments in assets, activities, technology, and R&D to
support social and economic access to safe, nutritious, and
Significant
contribution
3
Fonterra Apprenticeship Careers https://www.fonterra.com/nz/en/careers/apprenticeship-careers.html
4
This project category is assessed as having a significant contribution to SDG 8, beyond the SDGA proprietary methodology.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 8 o f 26
sustainable food, including in resilient agricultural practices that
reduce food loss and waste and/or improving access to
affordable nutrition.
Limited
Contribution
Socioeconomic Advancement and Empowerment
Investments in programmes and activities to support equitable
access to high-quality and nutritious dairy products (e.g.,
Programmes to provide free or subsidised breakfasts to
vulnerable children
5
).
Limited
contribution
Investments in programmes and activities to support other
opportunities, services, and resources. This also includes
activities aimed at supporting people from
marginalised/underrepresented groups to advance their socio-
economic position.
Limited
contribution
Improvements of operational performance (processes)
The below assessment aims at qualifying the direction of change (or “operational impact
improvement”) resulting from the operational performance projects (re)financed by the UoP
categories, as well as related UN SDGs impacted. The assessment displays how the UoP categories are
mitigating the exposure to the negative externalities relevant to Fonterra’s business model and its
sector.
According to ISS ESG’s SDG Impact Rating methodology, potential impacts on the SDGs related to
negative operational externalities
6
in the Food Products industry (to which Fonterra belongs) are the
following:
5
KickStart Breakfast, https://www.kickstartbreakfast.co.nz/our-opportunities
6
Please, note that the impact of the Issuer’s products and services resulting from operations and processes is displayed in section 1 of the
SPO.
Low exposure to
negative externalities
Medium exposure to
negative externalities
High exposure to
negative externalities
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 9 o f 26
The table below aims at displaying the direction of change resulting from the operational performance
improvement projects. The outcome displayed does not correspond to an absolute or net assessment
of the operational performance.
USE OF PROCEEDS (Processes)
OPERATIONAL
IMPACT
IMPROVEMENT
7
SUSTAINABLE
DEVELOPMENT
GOALS
Renewable Energy
Issuer’s own renewable energy boilers: Installation,
conversion and maintenance of boilers that use
renewable energy fuel sources rather than fossil fuels
(e.g., operate using sustainable materials such as FSC
certified/sourced wood pellets rather than coal, or
biomethane rather than natural gas).
Investment in issuer’s own renewable energy generation:
Installation of renewable energy (e.g., solar) at
manufacturing sites and investment or purchasing power
agreements (with a minimum five-year commitment for
new renewable energy facilities) to stimulate the
development of renewable energy generation.
Innovative processes and technologies: R&D and projects
to support issuer’s greater use of renewable energy, such
as research conducted to evaluate the potential of locally
produced biomethane as a substitute for natural gas.
Biogas facilities: Installation and maintenance of biogas
units at issuer’s manufacturing sites.
Sustainable Water and Wastewater Management
Investments in assets, activities, technology, and R&D
that reduces water use, increases the amount of water
recycled, improves wastewater treatment or other water
stewardship improvements. Examples include, but are
not limited to:
7
Limited information is available on the scale of the improvement as no threshold is provided. ISS ESG only displays the direction of change.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 10 o f 26
Investments to upgrade wastewater treatment facilities:
Installation and upgrades to wastewater treatment
facilities that reduce the impact on water catchments.
Investments in resource-efficient wastewater equipment:
Including installation of biological digestors to process
wastewater with greater nutrient recovery, as well as
dissolved air floatation system to treat wastewater
before being discharged into the ocean.
Programmes to improve soil health and water quality:
Including R&D and trials to reduce the risk of nitrate
leaching and improve freshwater quality.
Environmentally Sustainable Management of Living
Natural Resources and Land Use
Investments in assets, technology, and R&D that support
the adoption of sustainable and regenerative
management of living natural resources and land use.
Examples include, but are not limited to:
Investments in tools and systems to support improved
farming practices in company’s supply chain: Including
the development and deployment of tools to support
farm-specific Farm Environmental Plans (FEPs) that are
guided by industry-defined Good Farming Practices and
integrate a broad range of topics and improvement
actions for each farm, including water, soil health,
biodiversity, greenhouse gas emissions, mahinga kai
(value of natural resources).
For farms with irrigation systems, the FEPs also build on
regulatory requirements for metering and support water
efficiency improvements.
Energy Efficiency
Investments in assets, activities, technology, and R&D to
reduce the energy used to manufacture products or the
energy consumption of the underlying asset. Examples
include, but are not limited to:
Energy efficient equipment and appliances: Including
energy efficient equipment utilised in manufacturing
processes and onsite such as heat pumps in refrigeration
systems or condensing economisers to recover and reuse
heat from boiler flues.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 11 o f 26
Combined heat and power: Facilities that support more
efficient heat and power usage in the production process
8
Energy Efficiency
Energy storage: Including batteries
9
Pollution Prevention and Control
Investments in assets, activities, technology, and R&D
that reduce the level of waste, pollution and/or emissions
arising from Fonterra’s direct day-to-day operations and
indirect on-farm footprint. Examples include, but are not
limited to:
Waste management and recyclable packaging
programmes and technology: Programmes to reduce
solid waste to landfill, including investigating new
technologies and solutions to divert waste streams from
landfill and reduce the risk of plastic contamination of the
environment (e.g. elimination of packaging, changing
packaging materials, facilitation of efficient plastic
recovery from farm).
Investments and infrastructure to reduce on-farm
emissions in company’s supply chain: R&D into new
technologies to reduce methane emissions generated on-
farm, such as methane vaccines, synthesised methane
inhibitors, Kowbucha™ natural cultures and
fermentations, natural methane inhibitors from red
seaweed and other novel technologies
Expenditure to increase awareness, reporting, insights,
and support to farmers in the issuer’s supply chain to
minimise emissions, including the development of farm-
specific insights reports which detail the breakdown of
GHG emissions for the farm, its performance relative to
8
Facilities that support more efficient heat and power usage in the production process not majority powered by the fossil fuels, otherwise
it will be assessed as No Net Impact
9
Energy storage assessed with connected renewable energy, otherwise it will be assessed as No Net Impact
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 12 o f 26
other farms and key changes which could lead to
reduction.
Clean Transportation
Investments in assets, activities, technology and R&D
that reduce the greenhouse gas emissions arising from
the issuer’s transportation fleet. Examples include, but
are not limited to:
Light vehicle fleet: Investments and infrastructure to
transition light vehicle fleet to electric vehicles.
Heavy fleet: Investments and infrastructure to transition
heavy vehicle fleet to low carbon fuel sources.
Efficiency: Investments that improve the efficiency of
transportation such as software systems that improve
the efficiency of scheduling and dispatch of tankers to
collect milk (i.e., less kms travelled); help drivers operate
vehicles more efficiently (e.g., less energy per km
travelled); or optimise the loading of vehicles (e.g., less
journeys required).
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 13 o f 26
B. MANAGEMENT OF ENVIRONMENTAL & SOCIAL RISKS ASSOCIATED WITH THE
ELIGIBILITY CRITERIA
Key performance indicators (KPIs) covering both green and social activities
The table below evaluates the Eligibility Criteria against issuance-specific KPIs. All of the assets are/or
will be located in New Zealand, Australia and South East Asia.
A S S E S S M E N T A G A I N S T K P Is
Community Dialogue
✓
In New Zealand, most investments require engagement with community stakeholders as part
of the planning process in respecting local regulations. Besides that, ISO 14001 environmental
management system certification is a prerequisite requirement for Fonterra to manufacturing
sites investment, which requires the certification to identify and engage with stakeholders
(including the local community) on an annual basis.
Site selection
✓
All manufacturing sites being considered for investment have an environmental management
system that has been independently certified to ISO14001:2015, which requires carrying out
the environmental impact assessments at the planning stage.
Labour, health, and safety
✓
Fonterra's Code of Business Conduct and a Sustainability Code of Practice (SCOP), in line with
the International Union of Food (IUF), advocated safety hazard identification and control
approach to protecting workers (in line with the international standards provided in ILO
convention 155)
10
for high labour and health and safety standards for own employees and
volunteers.
✓
For onsite safety, Fonterra has a Health Safety and Wellbeing Policy
11
and working safety
procedures in place, which apply to all Fonterra staff (including capital projects and
contractors involved).
10
International Union of Food (IUF) - Health and Safety, https://www.iuf.org/what-we-do/health-and-safety/
11
Fonterra, December 2017, Group Health Safety and Wellbeing Policy, , https://www.fonterra.com/content/dam/fonterra-public-
website/fonterra-new-zealand/documents/pdf/policies-and-
statements/Fonterra%20Group%20Health%20Safety%20and%20Wellbeing%20Policy_.pdf
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 14 o f 26
Key performance indicators (KPIs) specific to green activities
The table below evaluates the Eligibility Criteria against issuance-specific KPIs. All of the assets are/or
will be located in New Zealand, Australia and South East Asia.
A S S E S S M E N T A G A I N S T K P I s
Environmental aspects of energy efficiency equipment, solar energy, and waste management
✓
✓
Fonterra is committed to being 100% reusable, recyclable, or compostable packaging by 2025
and zero waste to landfill by 2025.
Fonterra has a Sustainability Code of Practice (SCOP) in place with a risk-based approach to
vetting vendors and ensuring they meet Fonterra’s environmental standards expectations.
Environmental aspects of Bioenergy/Biomass
✓
Fonterra has assessed combined heat and power solutions as uneconomic (in terms of capital
and operational costs and efficiency losses). Therefore, at this stage, Fonterra prefers
dedicated steam raising assets or conversion of existing assets in conjunction with renewable
electricity from the grid and power purchase agreements.
✓
All manufacturing sites being considered for investment have an environmental management
system that has been independently certified to ISO14001:2015 to ensure they are meeting
high environmental standards and requirements during the construction phase (e.g., noise
mitigation and minimisation of environmental impact during construction).
✓
All manufacturing sites being considered for investment have an environmental management
system that has been independently certified to ISO14001:2015 to ensure they have high
standards regarding the environmentally safe operation of plants (e.g., air emissions, and
disposal of residues).
✓
Fonterra has a Health and Safety Policy and procedures in place which cover all Fonterra staff
(including capital projects and contractors involved) and all sites in order to ensure high safety
standards (e.g., regarding fire and explosions).
Environmental aspects of wastewater management
✓
All manufacturing sites being considered for investment have an environmental management
system that has been independently certified to ISO14001:2015 to prevent leakage of
sewerage systems (e.g., monitoring systems, adequate maintenance, and repair).
Besides that, Fonterra has a central Asset Leadership team who provides direction and
guidance and support to its business for the maintenance of its assets to manage and prevent
leaks from its wastewater systems. Fonterra has an asset care programme called ACAP (Asset
Condition Assessment and Planning Process), which is used to understand the condition of its
assets.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 15 o f 26
✓
For the quality of treated water discharges, Fonterra has an environmental policy in place and
an environmental data monitoring system (EDMS) to help manage and report on the effects
of authorised discharges into the environment that comply with regulatory requirements.
Fonterra has set specific conditions and parameters limits for the wastewater that ensure that
the discharge is treated to a sufficiently high standard to minimise the impacts on land and
water.
Environmental aspects of electric and alternative drive vehicles
✓
✓
Fonterra has committed that all vehicles financed under its Sustainable Finance Framework
will require the full life cycle assessment. The vehicles will be sold if the vehicles reach 300,000
km distance or the ownership up to 7 years.
Fonterra is committed that all vehicles financed under its Sustainable Finance Framework shall
comply with the safety rating threshold of 4 stars or higher at the time of purchase.
Environmental aspects of Sustainable Agriculture
✓
Fonterra has a Farmers Terms of Supply in place, which require farmers to meet all relevant
regulatory standards. In addition, Fonterra has established a Global Animal Wellbeing
Standard to ensure animal wellbeing with animal health records; besides that, key practices
are audited by a third-party annually.
✓
According to Fonterra’s Farmers Terms of Supply, all farmers are required to meet all relevant
regulatory obligations, including the Climate Change Response (Zero Carbon) Act
12
. Individual
on-farm emissions are accounted for and reported on an annual basis (this includes non-
biological emissions, e.g., fertilizer feed and energy). Farm-level inputs are audited on an
annual basis.
✓
Fonterra has a procurement process that requires suppliers to be committed to no
deforestation, peatland development or exploitation. Also, Farmers are subject to national
and regional regulatory frameworks to protect soil, water, and biodiversity, e.g., National
Policy Statement for Indigenous biodiversity. Furthermore, the use of pesticides and
herbicides are subject to Agricultural Compounds and Veterinary medicines Act; Farmers are
required to meet these regulatory requirements according to the According to Fonterra’s
Farmers Terms of Supply.
✓
Currently, no genetically modified products manufactured in New Zealand are commercially
available. All use of GM techniques must have approval under the Hazardous Substances and
New Organisms Act.
13
Fonterra states its commitment to Striving to protect the value of New
Zealand’s global reputation for its position on genetic modification
14
.
12
New Zealand Government, November 2019, Climate Change Response (Zero Carbon) Amendment Act 2019 Climate Change Response
(Zero Carbon) Act - https://www.legislation.govt.nz/act/public/2019/0061/latest/LMS183736.html
13
BIOTECHNZ, April 2022, NZ needs genetic modification in the world of climate changehttps://biotechnz.org.nz/2022/04/26/nz-needs-
genetic-modification-in-the-world-of-climate-change/
14
Fonterra, July 2021, Food Safety and Quality System, https://www.fonterra.com/content/dam/fonterra-public-website/fonterra-new-
zealand/documents/pdf/food-quality-and-safety/fonterra-food-safety-and-quality-system.pdf
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 16 o f 26
✓
In New Zealand, all agricultural developments (new dairy farms) are subject to both national
and regional planning processes that require an environmental impact assessment (including
water) which ensures the assets do not locate in regions with high levels of water stressors.
✓
In New Zealand, all agricultural developments (new dairy farms) are subject to both national
and regional planning processes that require an environmental impact assessment (including
water). Terms of Supply also require farmers to meet these regulatory obligations (Resource
Management Act), and an assessment is undertaken before the supply of milk to the Co-
operative. Farmers also take measures to reduce water use. For example, for farmers with
irrigation systems in NZ it is Good Farming Practice to design, calibrate and operate irrigation
systems to minimize the amount of water needed to meet production objectives.
Key performance indicators (KPIs) specific to social activities
The table below evaluates the Eligibility Criteria against issuance-specific KPIs. All of the assets are/or
will be located in New Zealand, Australia, South East Asia.
A S S E S S M E N T A G A I N S T K P I s
Inclusion
✓
Fonterra has a non-discrimination policy with a whistleblowing hotline and an investigation
process. It is reflected in the Sustainability Code of Practice (SCOP) for vendors to prohibit
discrimination in the workplace (e.g., recruitment, job assignment, remuneration, training,
and benefits). Fonterra provides for employees returning from parental leave and introduces
a diversity and inclusion aspect to its short-term incentive scheme to improve gender and
ethnicity representation in global leadership.
Quality Management
✓
All manufacturing sites which will host assets financed by this Framework are independently
certified with Food Safety and Quality Management System FSSC22000 (currently 100% of
Fonterra’s manufacturing sites are independently certified to a leading food safety
management system (e.g., FSSC22000, BRC), and their standard operating procedures are also
independently audited by MPI (Ministry of Primary Industries) to ensure the quality.
Fonterra has full traceability in place, which, back to milk collected from farms, food-contact
packaging, and other ingredients. It also allows Fonterra to demonstrate the provenance of
the product from a social perspective. Currently, 93% of its global manufacturing plants are
electronically connected to its integrated Global Traceability System.
Policy of facility for socioeconomic projects
✓
Fonterra has a code of business conduct (or named as “The way we work”) in place. Fonterra
does not allow discrimination against any employee or by any employee. Fonterra treat people
of all ages, races, ethnicities, religious affiliations, genders, sexual orientations or nationalities
equally, whether they are employees, farmers, shareholders, suppliers, or customers.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 17 o f 26
PA R T II I: S UST A IN A B L E F INA NC E INS T R UMENT S L INK T O
F ONT ER R A’S SUSTAINABILITY STRATEGY
A. FONTERRA’S BUSINESS EXPOSURE TO ESG RISKS
This section aims to provide an overall level of information on the ESG risks to which the issuer is
exposed through its business activities, providing additional context to the issuance assessed in the
present report.
ESG risks associated with the Issuer’s industry
The issuer is classified in the food products industry, as per ISS ESG’s sector classification. Key
challenges faced by companies in terms of sustainability management in this industry are displayed in
the table below. Please note, that this is not a company-specific assessment but areas that are of
particular relevance for companies within that industry.
ESG KEY ISSUES IN THE INDUSTRY
Labour standards and working conditions
Customer health and safety
Impacts on soil and biodiversity along the value chain
Mitigation of direct and indirect climate impacts
Conservation of aquatic ecosystems and water along the value chain
ESG performance of the Issuer
Leveraging ISS ESG’s Corporate Rating research, further information about the issuer’s ESG
performance can be found on ISS ESG Gateway at: https://www.issgovernance.com/esg/iss-esg-
gateway/.
Please note that the consistency between the issuance subject to this report and the issuer’s
sustainability strategy is further detailed in Part III.B of the report.
Sustainability impact of products and services portfolio
Leveraging ISS ESG’s Sustainability Solutions Assessment methodology, ISS ESG assessed the
contribution of the issuer’s current products and services portfolio to the Sustainable Development
Goals defined by the United Nations (UN SDGs). This analysis is limited to the evaluation of final
product characteristics and does not include practices along the issuer’s production process.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 18 o f 26
PRODUCT/SERVICES
PORTFOLIO
ASSOCIATED
PERCENTAGE OF
REVENUE
15
DIRECTION OF
IMPACT
UN SDGS
Dairy-based
products (with
limited processing)
15% CONTRIBUTION
Food products
(highly processed
and/or critical
nutrient level)
2.5% OBSTRUCTION
Breaches of international norms and ESG controversies
At issuer level
At the date of publication and leveraging ISS ESG Research, no severe controversy in which the issuer
would be involved has been identified.
At industry level
Based on a review of controversies over a 2-year period, the top three issues that have been
reported against companies within the Food Products industry are as follows: Failure to prevent
deforestation/illegal logging, Failure to respect the right and healthy working conditions, and
Failure to mitigate climate changes impacts.
Please note, that this is not a company specific assessment but areas that can be of particular
relevance for companies within that industry.
15
Percentages presented in this table are not cumulative.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 19 o f 26
B. CONSISTENCY OF SUSTAINABLE FINANCE INSTRUMENTS WITH FONTERRA’S
SUSTAINABILITY STRATEGY
Key sustainability objectives and priorities defined by the issuer
Fonterra’s key sustainability objectives are to enhance people’s lives through convenience, health and
wellbeing. To achieve this, the company has identified three priorities – to focus on New Zealand milk,
be a leader in sustainability and be a leader in dairy innovation and science.
Fonterra states that focusing on New Zealand milk is about leveraging its low-carbon footprint,
pasture-based model and animal welfare standards which make its milk unique. The company is also
being more selective about what it does with its New Zealand milk, differentiate it further in the global
market and, in doing so, earn a premium. The company also aspires to be net zero carbon by 2050 and
intends to invest around NZ$1 billion in sustainability initiatives by 2030.
Aiming to be a leader in dairy innovation and science, the company is looking to build on its long and
proud heritage of dairy innovation which has seen it pioneer many world firsts and, increasingly, new
solutions which aim to solve problems its customers face in their operations and help people live
healthier and longer lives. The company is also aiming to prioritize the Farmgate Milk Price (the
average price paid by Fonterra for each kilogram of milk solids supplied by farmer shareholders), grow
its Foodservice channel, strengthen its Consumer channel and move towards higher value products in
Ingredients.
Nature
Fonterra commits to net zero greenhouse gas emissions for dairy nutrition, adopting and investing in
leading practices to improve land use and water quality, reducing waste, and ensuring the wellbeing of
animals in its supply chain.
Fonterra aspires to be net zero carbon by 2050 and the company is targeting a science-based reduction
in Scope 1 and 2 greenhouse gas emissions of 30% by 2030. Fonterra expects to do this through a
combination of energy efficiency initiatives and switching fuels at its nine manufacturing sites that still
use coal and aim to ultimately stop using coal by 2037. It is also developing plans to transition its
manufacturing sites which use natural gas to other more sustainable energy sources such as biomass,
biogas and electricity from renewable sources. It is assessing low emission energy options for its milk
collection fleet – including electric and hydrogen powered tankers – and continuing to improve efficiency.
It also hopes to solve the methane challenge and will be increasing its innovation efforts to look for
solutions to reduce its Scope 3 greenhouse gas emissions. It is investing in a wide range of potential
breakthrough technologies to support this transition, including research and development of methane
vaccines, Kowbucha
TM
, novel technologies and both natural and synthesized methane inhibitors. Fonterra
regularly commissions carbon lifecycle assessments and, in New Zealand, it provides farm-specific
greenhouse gas emissions reports so farmers can understand their current performance and can prioritize
improvements.
To improve the health and biodiversity of land and waters, Fonterra is working at its manufacturing sites,
with its farmers and in partnership with others. At its manufacturing sites it is reducing its water use and
improving its water treatment to improve water availability and quality around its sites. The company is
also working with farmers to help them understand their current areas of strength and opportunities for
improvement. In New Zealand, its team of Sustainable Dairying Advisors are establishing Farm
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 20 o f 26
Environment Plans (FEPs). Each FEP is unique to the specific farm and build on regulatory requirements
and is guided by industry-defined Good Farming Practices. Topics covered include water, soil health,
biodiversity and greenhouse gas emissions.
People and Culture
As a food company, Fonterra recognizes the valuable role nutrient-rich dairy products can play in
addressing food security and improving health and wellbeing for people around the world.
Fonterra is continuing to improve the composition of its consumer products, taking into consideration
the levels of dairy protein and calcium, while also minimizing the addition of free sugars, refined
carbohydrates, non-nutritive sweeteners, sodium and saturated fat. Its nutrition guidelines also reflect its
support for the global public health objective to reduce the intake of industrially-produced trans fats from
partially hydrogenated oils. Its target is for 100% of its everyday and advanced nutrition consumer
products, such as yoghurt and fortified milk powders, to meet its independently endorsed nutrition
guidelines by 2025.
Fonterra is also focused on building an inclusive workforce. In 2019, Fonterra signed the Aotearoa New
Zealand Skills Pledge, and by 2025, it is committed to doubling on-the-job training and reskilling hours in
New Zealand from a 2020 baseline. The Skills Pledge aligns with its focus on building the right capabilities,
preparing employees for their roles today and for their future careers in New Zealand and globally. In
FY22, its New Zealand employees spent more than 501,879 hours upskilling, an increase of 85.6% on FY20,
and an average of 45 hours per learner.
Its Māori Development Team members have engaged widely with Māori farmers, iwi (tribe) partners and
stakeholders, customers and employees. They’re working to understand how Fonterra can best recognize
and acknowledge the importance of having a connection with tangata whenua (people of the land) for
the benefit of everyone in Aotearoa New Zealand and for the world. Fonterra has also published its Māori
Strategy.
Rationale for issuance
Through Use of Proceeds Instruments, the raised capital supports Fonterra’s commitment to invest in
sustainable assets and outcomes in the future, as well as helping Fonterra and New Zealand achieve
their net-zero emissions goals and address social challenges.
Contribution of Use of Proceeds categories to sustainability objectives and key ESG industry
challenges
The Use of Proceeds categories financed under the Use of Proceeds Instruments with the sustainability
objectives defined by the issuer and with the key ESG industry challenges as defined in the ISS ESG
Corporate Rating methodology for the Food Products industry. Key ESG industry challenges are key
issues that are highly relevant for a respective industry to tackle when it comes to sustainability, e.g.,
climate change and energy efficiency in the buildings industry. From this mapping, a level of
contribution to the strategy of each Use of Proceeds category.
USE OF PROCEEDS
CATEGORY
SUSTAINABILITY OBJECTIVES
FOR THE ISSUER
KEY ESG
INDUSTRY
CHALLENGES
CONTRIBUTION
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 21 o f 26
Renewable
Energy
✓ ✓
Contribution to a
material objective
Clean
Transportation
✓ ✓
Contribution to a
material objective
Sustainable Water
and Wastewater
Management
✓ ✓
Contribution to a
material objective
Environmentally
Sustainable
Management of
Living Natural
Resources and Land
Use
✓ ✓
Contribution to a
material objective
Energy Efficiency
✓ ✓
Contribution to a
material objective
Pollution
Prevention and
Control
✓ ✓
Contribution to a
material objective
Employment
Generation
✓
–
Contribution to a non-
material objective
Food Security and
Sustainable Food
Systems
✓ ✓
Contribution to a
material objective
Socioeconomic
Advancement and
Empowerment
✓
–
Contribution to a non-
material objective
Opinion: The Use of Proceeds categories financed through the Use of Proceeds Instruments are broadly
consistent with the Fonterra’s sustainability strategy and are material ESG topics for the Fonterra’s
industry. The rationale for issuing Use of Proceeds Instruments is clearly described by Fonterra.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 22 o f 26
DISCLAIMER
1. Validity of the SPO: As long as Fonterra’s Sustainable Finance Framework remain unchanged.
2. ISS Corporate Solutions, Inc. (“ICS”), a wholly-owned subsidiary of Institutional Shareholder
Services Inc. (“ISS”), sells/distributes SPOs which are prepared and issued by ISS ESG, the
responsible investment arm of ISS, on the basis of ISS ESG’s proprietary methodology. In doing so,
ISS adheres to standardized procedures to ensure consistent quality of responsibility research
worldwide.
3. SPOs are based on data provided by the issuer/borrower and ISS does not warrant that the
information presented in this SPO is complete, accurate or up to date. Neither ISS or ICS will have
any liability in connection with the use of these SPOs, or any information provided therein.
4. Statements of opinion and value judgments given by ISS are not investment recommendations
and do not in any way constitute a recommendation for the purchase or sale of any financial
instrument or asset. In particular, the SPO is not an assessment of the economic profitability and
creditworthiness of a financial instrument, but refers exclusively to the social and environmental
criteria mentioned above.
5. This SPO, certain images, text and graphics contained therein, and the layout and company logo
of ICS, ISS ESG, and ISS are the property of ISS and are protected under copyright and trademark
law. Any use of such ISS property shall require the express prior written consent of ISS. The use
shall be deemed to refer in particular to the copying or duplication of the SPO wholly or in part,
the distribution of the SPO, either free of charge or against payment, or the exploitation of this
SPO in any other conceivable manner.
The issuer/borrower that is the subject of this report may have purchased self-assessment tools and
publications from ICS or ICS may have provided advisory or analytical services to the issuer/borrower.
No employee of ICS played a role in the preparation of this report. If you are an ISS institutional client,
you may inquire about any issuer/borrower's use of products and services from ICS by emailing
disclosure@issgovernance.com.
This report has not been submitted to, nor received approval from, the United States Securities and
Exchange Commission or any other regulatory body. While ISS exercised due care in compiling this
report, it makes no warranty, express or implied, regarding the accuracy, completeness or usefulness
of this information and assumes no liability with respect to the consequences of relying on this
information for investment or other purposes. In particular, the research and scores provided are not
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policies is available at https://www.issgovernance.com/compliance/due-diligence-materials.
© 2022 | Institutional Shareholder Services and/or its affiliates
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 23 o f 26
ANNEX 1: Met h od olog y
ISS ESG Green and Social KPIs
The Green and Social Bond KPIs serve as a structure for evaluating the sustainability quality – i.e. the
social and environmental added value – of the use of proceeds of Fonterra’s Sustainable Finance
Framework.
It comprises firstly the definition of the use of proceeds category offering added social and/or
environmental value, and secondly the specific sustainability criteria by means of which this added
value and therefore the sustainability performance of the assets can be clearly identified and
described.
The sustainability criteria are complemented by specific indicators, which enable quantitative
measurement of the sustainability performance of the assets and which can also be used for reporting.
If a majority of assets fulfill the requirement of an indicator, this indicator is then assessed positively.
Those indicators may be tailor-made to capture the context-specific environmental and social risks.
Environmental and social risks assessment methodology
The Environmental and social risks assessment evaluates whether the assets included in the asset pool
match the eligible project category and criteria listed in the Green and Social Bond KPIs.
All percentages refer to the amount of assets within one category (e.g. wind power). Additionally, the
assessment “no or limited information is available” either indicates that no information was made
available or that the information provided did not fulfil the requirements of the Green and Social Bond
KPIs.
The evaluation was carried out using information and documents provided on a confidential basis by
Fonterra (e.g. Due Diligence Reports). Further, national legislation and standards, depending on the
asset location, were drawn on to complement the information provided by the issuer.
Assessment of the contribution and association to the SDGs
The 17 Sustainable Development Goals (SDGs) were endorsed in September 2015 by the United
Nations and provide a benchmark for key opportunities and challenges toward a more sustainable
future. Using a proprietary method, the extent to which Fonterra’s Sustainable Finance Instruments
contributes to related SDGs has been identified.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 24 o f 26
ANNEX 2: I SS ESG C orp orat e Rat ing M eth od ol og y
ISS ESG Corporate Rating provides relevant and forward-looking environmental, social, and
governance (ESG) data and performance assessments.
For more information, please visit:
https://www.issgovernance.com/file/publications/methodology/Corporate-Rating-
Methodology.pdf
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 25 o f 26
ANNEX 3: Q ualit y ma nag ement processes
SCOPE
Fonterra commissioned ISS ESG to compile a Use of Proceeds SPO. The Second Party Opinion process
includes verifying whether the Sustainable Finance Framework aligns with the GBP, SBP, SBG, GLP and
SLP and to assess the sustainability credentials of its Use of Proceeds Instruments, as well as the
issuer’s sustainability strategy.
CRITERIA
Relevant Standards for this Second Party Opinion
▪ GBP, SBP, SBG, GLP and SLP
▪ ISS ESG Key Performance Indicators relevant for Use of Proceeds categories selected by the Issuer
ISSUER’S RESPONSIBILITY
Fonterra’s responsibility was to provide information and documentation on:
▪ Sustainable Finance Framework
▪ Eligibility criteria
▪ Documentation of ESG risks management at the asset level
ISS ESG’s VERIFICATION PROCESS
ISS ESG is one of the world’s leading independent environmental, social and governance (ESG)
research, analysis and rating houses. The company has been actively involved in the sustainable capital
markets for over 25 years. Since 2014, ISS ESG has built up a reputation as a highly-reputed thought
leader in the green and social bond market and has become one of the first CBI approved verifiers.
ISS ESG has conducted this independent Second Party Opinion of the Use of Proceeds Instruments to
be issued by Fonterra based on ISS ESG methodology and in line with the ICMA GBP, SBP, SBG, GLP,
SLP.
The engagement with Fonterra took place from June to October 2022.
ISS ESG’s BUSINESS PRACTICES
ISS has conducted this verification in strict compliance with the ISS Code of Ethics, which lays out
detailed requirements in integrity, transparency, professional competence and due care, professional
behaviour and objectivity for the ISS business and team members. It is designed to ensure that the
verification is conducted independently and without any conflicts of interest with other parts of the
ISS Group.
S E C O N D P A R T Y O P I N I O N
S u s t a i n a b i l it y Q u a l i t y o f t h e I s s u e r
a n d S u s t a i n a b l e F i n a n c e F r a m e w o r k
I S SC O R P O R A T E S O L U T I O N S. C O M/ E S G 26 o f 26
Ab out I SS ESG SPO
ISS ESG is one of the world’s leading rating agencies in the field of sustainable investment. The agency
analyses companies and countries regarding their environmental and social performance.
We assess alignment with external principles (e.g. the ICMA Green / Social Bond Principles), analyse
the sustainability quality of the assets and review the sustainability performance of the issuer
themselves. Following these three steps, we draw up an independent SPO so that investors are as well
informed as possible about the quality of the bond / loan from a sustainability perspective.
Learn more: https://www.isscorporatesolutions.com/solutions/esg-solutions/green-bond-services/
For more information on SPO services, please contact: SPOsales@isscorporatesolutions.com
For more information on this specific Sustainable Finance instruments SPO, please contact:
SPOOperations@iss-esg.com
Project team
Project lead
Adams Wong
AVP
ESG Consultant
Project support
Cecily Liu
Associate
ESG Consultant
Project supervision
Marie-Bénédicte Beaudoin
Associate Director
Head of ISS ESG SPO Operations
---
Fonterra - Sustainability Progress Against Targets Table
Category Target Performance
FY22 FY21
Nutrition 100% of everyday and
advanced nutrition products
meet independently endorsed
nutrition guidelines by 2025
87.7% 86.5%
Work related fatalities Zero Harm 1
0
Serious harm injuries Zero Harm 8
9
Total recordable injury
frequency rate
(TRIFR per million
work hours)
Less than 5 6.7
5.7
Employee
Engagement
World-class (top quartile) Engagement
continues to be
monitored, but no
global assessment
has been completed.
To measure impact
over time we are
implementing a new
culturing diagnostic
tool.
4.09
(2nd highest
quartile)
Female
representation in
senior leadership*
50% by 2022 34.8%
32.4%
On-the-job training
and re-skilling hours
(NZ)
Double by 2025 from a FY20
baseline
85.6% increase since
FY20, to 501,879
hours
346,417 hours
Farms with Farm
Environment Plans
(NZ)
100% by 2025 71%
53%
Water reduction at
manufacturing sites in
water constrained
regions
30% reduction by 2030 from
FY18 baseline
6.6% reduction on
FY18
2.6% reduction on
FY18
Reduction in absolute
scope 1&2 emissions
(Global)
30% reduction by 2030 from
FY18 baseline
11.2% reduction on
FY18
6.6% reduction on
FY18
Net change in GHG
emissions from dairy
farming since 14/15
(NZ)
Neutral to 2030 8.2% reduction from a
2014/15 baseline
4.3% reduction
from 2014/15
baseline
Solid waste sent to
landfill (tonnes)
Zero waste 11,994 tonnes (a
further 6.5% reduction
in FY22 and more
than 30% lower than
FY19)
12,883 tonnes
---
Sustainability Scorecard
People & culture
Nature
water
reduction at
manufacturing sites
in water constrained
regions by
from FY baseline:
6.6%
female
representation in
senior leadership
by :
34.8%
ethnic
representation in
senior leadership
by :
15%
Net changes in GHG
emissions from dairy
farming since
(NZ):
8.2%
reduction from a
2014/15 baseline
reduction in
absolute scope &
emissions (Global)
by
from FY baseline:
11.2%
on FY18
of Farms with
Farm Environment
Plans by :
71%
Double training
skills hours (NZ)
by
from a FY baseline:
85.6%
increase to
501,879 hours
Gender
pay gap
in NZ:
5.1%
on a median basis
compared to the
national average of
9.2%
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
Other issuers discussed similar conditions around this time
Matched by meaning across NZX announcement text, not keywords — based on our semantic index of announcement bodies.
- FSF — Fonterra Shareholders' Fund: Fonterra announces new Sustainable Finance Framework2022-10-16
“17 October 2022 Fonterra announces new Sustainable Finance Framework As part of Fonterra's commitment to sustainability and implementation of its strategy, the Co-operative has today released its Sustainable Finance Framework (Framework). This Framework aligns Fonterra’s…”
- FSF — Fonterra Shareholders' Fund: Global Dairy Update October 20222022-10-30
“7 For the Framework, the opinion issued by ISS Corporate Solutions and a presentation to update debt investors – To view the 2022 Fonterra Sustainability Report – Fonterra announces sustainable finance framework As part of Fonterra's commitment to sustainability and i…”
- FSF — Fonterra Shareholders' Fund: Fonterra lifts earnings guidance, posts strong Q12022-12-07
“Fonterra Co-operative Group Page 2 Progress against strategy Mr Hurrell said the Co-op was making good progress against its 2030 strategic ambitions. “As we focus on our New Zealand milk pool, we’ve agreed the sale of our Chilean business. We continue to target a sign…”