In the second of two columns on Fonterra’s deficient climate strategy, Rod Oram argues the balance of power within the dairy cooperative still lies with those who deny or fear climate change

Climate is the only subject that “most strongly” unites all Fonterra’s stakeholders, says our nation’s largest emitter of greenhouse gases in its latest sustainability report.

All other topics, ranging from food safety and quality to incomes and soil health, only attract strong support from subsets of its stakeholders among farmers, employees, government, vendors, iwi and NGOs.

Given climate is so important to all its stakeholders, what does Fonterra say about it? Here are some key quotes from its Our Path to 2030 strategy document:

– “A farmer’s livelihood depends on producing good quality milk and that relies on a stable climate and healthy ecosystems.”

– “We aspire to be Net Zero carbon by 2050.”

– “The risk that failure to enact measures to mitigate the impact (or perceived impact) of Fonterra’s activities on the environment and/or mitigate the effects of climate change on Fonterra may result in impacts on milk production, operations and sales, increased costs associated with emissions unit prices, a declining perception of Fonterra and the premium character of Fonterra’s products, the dairy industry and/ or adverse policy settings, including water access, usage and quality, agricultural and operational emissions, discharges to land water and air and animal welfare.”

And here are some core examples from its 2021 sustainability report:

– “We are committed to the Paris Agreement target to keep warming below 2 degrees and to pursue efforts to limit the temperature increase to 1.5 degrees. This commitment reflects the latest science and is aligned with the New Zealand Government’s ambitions in the Zero Carbon Act.”

– “Agriculture is facing significant disruption from changes to climate and increased variability in weather patterns. Based on climate change scenario work we have completed, most of our milk comes from regions where impacts may be less severe. With some adaptation there is a great opportunity for us to continue to produce safe, world-class quality food products.”

– “Adapting to the effects of climate change, while mitigating our impacts” is the essence of the co-op’s climate response.

In summary, what Fonterra tells us in these two documents and others the co-op makes public is: climate is a risk to us and our stakeholders; we care about it; we are responding to it; we’re prioritising adaptation over mitigation; and we’re taking some actions.

That’s a climate story – but an inadequate one. More on that later. Is it, though, a climate strategy?

There’s a world of difference between the two. Presumably Fonterra believes its climate story. But if the co-op lacks a strategy to deliver it, the story will end very unhappily for all Fonterra’s stakeholders, including the population of New Zealand.

Climate strategy is the number one priority for all businesses globally, says McKinsey, the consultants. It is “an increasingly important way to create competitive advantage,” it says in this recent article.

Fonterra and McKinsey know each other well, going back more than 20 years. McKinsey’s blueprint for a mega co-op helped drive the consolidation of the NZ dairy industry that created Fonterra. From 2015 to 2017, McKinsey ran Fonterra’s cost-cutting and restructuring programme, reputedly earning it more than $100 million for its efforts.

If those experiences make Fonterra reluctant to re-engage McKinsey specifically, no end of other knowledgeable consultants would give it the same advice on the paramount importance of climate strategy.

The global gold standard of corporate climate strategies is set by the Science Based Targets initiative. It requires – and independently assesses – a company’s targets, programmes, investments, leadership and accountability.

SBTi is a collaboration between CDP (formerly the Carbon Disclosure Project), the United Nations Global Compact, the World Resources Institute and the World Wide Fund for Nature.

This year, SBTi has significantly tightened its criteria. All strategies have to be consistent with the science of limiting the rise in global temperature to 1.5C. Previously it allowed a goal of “less than 2C”; and strategies must cover the entire emissions of a company’s value chain from its suppliers to its customers – not just its own operations — by 2024.

More than 2,000 companies are working with SBTi. Among them are leading international dairy companies such as Nestlé, Danone, and Valio.

SBTi clients here in New Zealand include Fonterra and Synlait Milk. But the two companies produce completely opposite outcomes.

Fonterra has itself set a target of zero growth in on-farm emissions 2015-30. But that doesn’t qualify as an SBTi goal. Those require substantial actual reductions. Moreover, that’s all on-farm emissions. Fonterra doesn’t have a specific target for methane, which is by far its largest source.

It does have an SBTi target for CO2 emissions from energy, transport and other sources in its downstream operations. It’s a 30 percent absolute cut by 2030 from fiscal year 2018, although it won’t stop burning coal until 2037. But those off-farm emissions only account for 9 percent of its total emissions.

On-farm account for the remaining 91 per cent.

Fonterra has eked out a 3.1 percent reduction in on-farm methane from its 2014/15 baseline, its latest sustainability report shows. But that was only a reduction of 0.5 percent a year, half the NZ dairy sector’s methane reduction rate over the past 25 years.

In contrast, Synlait does have an SBTi-approved target for reducing on-farm emissions. It is a 30 percent cut per kilogram of milk solids, by FY28 from a FY20 base year. A carbon intensity target is crucial. It allows Synlait farmers to increase their milk production if they reduce the emissions from them.

Synlait’s on-farm emissions intensity fell 5 percent over the past year, and by 10 percent compared to its FY18 base year when it set its targets.

Its off-farm emissions are down 24 percent from its FY18 base level. Its goal for these is a 45 percent reduction in absolute terms by FY28 from a FY20 base year, despite a sizable increase in production.

Why is Fonterra’s climate performance so far behind the best in its industry at home and abroad? Because it fails on all five hallmarks of credible climate strategy.

Targets: Fonterra says: “We are committed to the Paris Agreement target to keep warming below 2 degrees and to pursue efforts to limit the temperature increase to 1.5 degrees. This commitment reflects the latest science and is aligned with the New Zealand Government’s ambitions in the Zero Carbon Act.”

Wrong. Science says the goal is 1.5C not 2C. As does our Zero Carbon Act and our climate pledge to the United Nations – our Nationally Determined Contribution. If Fonterra, our largest emitter, exporter and company, doesn’t deliver emission cuts consistent with 1.5C all New Zealanders, particularly taxpayers, will pay for its negligence.

Moreover, Fonterra is still refusing to set interim targets for on-farm emission cuts. A 30 percent reduction in methane by 2030 is the new global goal, made at COP26 in Glasgow. Synlait has a target to do so by 2028, and is currently on track to deliver.

Programmes: Fonterra describes a number of its climate activities in its sustainability report and its 2030 strategy documents. But it offers no over-arching structure to show how they fit together. Nor anywhere near enough detail on their scale, measurement, or performance to judge how effective they are.

Take, for example, Simply Milk, Fonterra’s brand of carbon neutral milk it launched last year. The emissions per 3 litre bottle of milk are 3.484 kg of CO2 equivalent, of which 2.811 kg are on farm, according to the validation documentation by Toitu Envirocare, a subsidiary of Manaaki Whenua, the CRI.

Those emissions are 100 percent offset by a mix of carbon credits from native forests and renewable energy projects. To retain the carbon neutral accreditation, Toitu requires Fonterra to reduce emissions per bottle by a mere 2.2 percent by 2024.

However, steep, fast cuts in emissions globally are overwhelmingly the main way humanity will get to 1.5C. Offsets have a minor role to play in that journey. But Simply Milk’s massive offsets, coupled with minuscule actual cuts in emissions, are a travesty. If that’s what Fonterra means by its goal of achieving net zero across all its milk then it and the country will have a serious climate credibility problem.

Investments: Fonterra says it will invest $1b in sustainability initiatives by 2030. But that’s across its diverse portfolio of sustainability activities which run from people and manufacturing plants, to cows, land, water and climate. Over the same period Fonterra will sell at least $180 billion of products, based on last year’s revenues and assuming no growth.

That means it will spend 0.5 percent of revenues on sustainability, even though it says such attributes are core to its products, brand and reputation. Worse, its spend on sustainability is dwarfed by its other investments.

Obviously, farmers will over time increase their investment in climate too. But Fonterra gives them very little direct support. Yes, it’s giving 10,000 of them Farm Environment Plans, for example. But it has only 40 staff to help them make the most of the plans.

Capital investment (NZD millions)

Leadership: Fonterra was one of the founders of the Climate Leaders Coalition initiated by the Sustainable Business Council in 2017. This is Fonterra’s page on the Coalition’s website. Fonterra’s latest entry about a new initiative is dated June 2018 – about saving water at its Pahiatua plant. Most of the rest of the entries are media reports of a range of specific Fonterra activities. It’s hardly a leadership showcase.

Likewise, Fonterra’s submissions on the likes of the Climate Change Commission’s reports or government climate policy are devoid of the vision, ambition, plans, commitments or other hallmarks of sectoral, let alone national or international, leadership New Zealand needs from its largest emitter, exporter and company.

Worse, climate leadership is lacking inside Fonterra too. Carolyn Mortland, a near-20-year veteran of the co-op, was its Director Global Sustainability. She was widely respected inside the company and externally. But she left in October. Her job was disbanded, according to reports from inside the co-op.

Instead, the co-op’s various sustainability functions now report to Fraser Whineray, the co-op’s chief operating officer. A former chief executive of Mercury Energy, he joined the co-op in March 2020.

According to his bio on Fonterra’s website “he is responsible for our New Zealand manufacturing site and global supply chain operations, sustainability, innovation and R&D, IT and safety, quality and regulatory teams.”

Yet, climate threats and opportunities are so great every organisation has to have complete buy-in from top to bottom, and among all its stakeholders too.

Accountability: Even though climate is so central to Fonterra’s future, the subject occupies only a small proportion of the co-op’s 71-page sustainability report and its 39-page Our Path to 2030 strategy document.

Worse, the tenor of those few pages is dour: It’s all very hard, we can’t do much, we need help, we need time. That’s the story Fonterra’s telling. That’s the ‘strategy’ Fonterra’s executing.

How can that be, given climate is the only subject that “most strongly” unites all Fonterra’s stakeholders?

Because the balance of power within Fonterra and its shareholders still lies with those who deny or fear the climate crisis. On climate, their strong determination is to fight a brutal rear-guard action to protect their coveted status quo.

Meanwhile, a growing number of Fonterra’s competitors are pushing ahead fast on the best business opportunity they and their farmers will ever have. Their goal is to make dairying climate-compatible and ecosystem-sustainable.

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