Diversity and inclusion

Gender pay.

In developing our Diversity and Inclusion Strategy, and publishing our first stand-alone sustainability report, we are measuring and reporting on our gender pay ratio for the first time. We have reported this broken down by significant locations of operation (countries where five percent or more of our employees are based) and by employee category.

Across our global workforce, our focus is on ensuring diversity and inclusion at all employee levels, with equal opportunities for all. Our approach is that no unexplainable pay gap exists across male and female employees for the same job role. Pay gaps within job roles may be explained by factors such as tenure, qualification levels and experience.

We internally monitor population for any pay gaps that may emerge. For waged employees, this principle is embedded in our collective employment agreements, with consistent remuneration for each employment category irrespective of who is employed.

For our other employees, Fonterra uses a range of independent external pay market data. This data is used to benchmark our competitive pay position relative to the market, and to ensure internal consistency. We use pay bands to determine the relative pay levels across the workforce. Our pay approach is governed internally by a transparent remuneration policy.

For our senior leaders and executive employees, we again use a range of independent and external third-party pay market data. We disclose our pay data externally to stakeholders as required by the various authorities in the jurisdictions in which we operate. In New Zealand, we disclose as required by the NZX reporting requirements and other agencies.

Across our five largest operating locations the ratio of the female to male base salary is 1.09 – meaning that on average female base salaries are higher. Not shown in the table but, breaking roles down by employment category shows that 67 percent of the men working in our five largest operating locations work as operators, technicians, drivers and farm workers – roles which typically have lower base salaries than the other categories. Only 39 percent of women work in these roles, with a greater proportion of women working in more senior roles.

In the breakdown of pay ratio by country, the pay ratio is most skewed towards women in the countries with the highest proportion of men in operators, technicians, drivers and farm worker roles, and the highest proportion of women in more senior roles. In New Zealand, where the largest number of employees are based, the ratio of the female to male base salary is 0.96 – meaning that, on average, female base salaries are lower

This compares well with the national average of 0.88 percent, but still leaves room for improvement. Across all of our global businesses, our focus is on ensuring equal opportunities and working to increase the proportion of women in senior leadership roles.

Hiring from local communities.

An understanding of and connection with local markets is vital to our success around the world. By hiring and developing local talent, we contribute towards the shared success of our Co-operative and to the countries where we operate.

In all of our significant locations of operation, ‘locals’ comprise a minimum of two-thirds of the senior management team–with the most senior employee and the senior managers reporting to them. ‘Locals’ are defined as either citizens, by birth or acquired, or permanent residents of the country.

1.09

Ratio of female/male base salaries across our five largest operation locations

PAY RATIO

Human rights.

Our management of human rights.

Historically, our approach to human rights has prioritised the rights and protections of our employees around the world. In 2014 we adopted ISO26000. This guidance standard for a socially responsible organisation has widened our focus, providing an emphasis on due diligence to consider our broader impacts on human rights.

We are applying the United Nations Guiding Principles on Business and Human Rights. These require that businesses should avoid causing or contributing to adverse human rights impacts through their business activities, and address such impacts should they occur. Organisations should seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts.

Human rights due diligence.

In the past year, we completed a targeted due diligence process on human rights. This process was designed using a best-practice approach and has built our understanding of our potential impacts so that we can now implement policies or actions to address them. We intend to include a more detailed disclosure on human rights in our next sustainability report.

Our due diligence process focused on those countries where we have a large operational footprint. Key employees in New Zealand, Australia, Brazil and Chile were surveyed and asked questions relating to how our own operations and our suppliers could affect people from a human rights risk perspective. The survey was completed by 244 people across the four countries. These four markets represent approximately three-quarters of our employees, and over 95 percent of raw milk collection.

In 2018 we will extend this due diligence process to those countries where we have smaller operational footprints and where the local protection of human rights may not be as strong.

Addressing family violence in New Zealand.

New Zealand has the highest reported rate of family violence in the developed world. This year we have been investigating ways in which we may be able to play our part and provide support services for our staff. In FY18, we intend to launch a support initiative for our New Zealand employees.

244

244 people across four countries completed the due diligence survey in 2017

DUE DILLIGENCE ON HUMAN RIGHTS

Ethics and compliance.

Our Code of Conduct.

A culture of honesty and integrity is vital to Fonterra’s commitment to become the world’s most trusted source of dairy nutrition. The Way We Work is Fonterra’s business code of conduct. It is underpinned by our set of Group Policies, in particular our Ethical Behaviour Group Policy which defines Fonterra’s expectations in regard to conflict of interest situations, corruption, business gifts and entertainment. Together with our Board Charter, these three documents comprise Fonterra’s code of ethics. All three documents are required to be reviewed and approved annually.

Fonterra does not allow corporate contributions of any kind to a candidate or political party in connection with political elections. No political contributions were made in the past year. We do not offer money or anything of material value to government officials, parties or candidates for the purposes of influencing the acts or decisions of officials.

Fonterra Code of Business Conduct - PDF, 9.5 MB

Awareness and training.

The Way We Work is included in employee induction programmes, and is made available in multiple languages. An online Ethics Portal supports employees to be aware of all potential conflicts of interest and, where these exist, put in place steps to manage conflicts appropriately. A Conflict of Interest e-learning module is also available on this portal. This e-learning module explains how to ‘Do What’s Right’ to maintain our culture of honesty and integrity.

We operate an annual process to ensure managers are familiar with requirements around ethics, compliance and corruption. This is completed through online training and evaluation, with participants required to pass an online test to ensure they have read and understood what is required by the policy.

These policies, in combination with the Board Charter, also set the expectation for Fonterra’s Board of Directors. Directors are expected to keep themselves abreast of trends in the economic, political, social and legal climate. As a group, the Board holds several workshops on relevant subjects each year, and Directors are also expected to keep up to date with governance issues.

Our approach to tax.

Fonterra has a clear set of principles which guide how we manage our tax obligations in New Zealand and around the world.

We pay our fair share of tax in all jurisdictions, and do not use tax havens to avoid our tax responsibilities. We are transparent and work with tax authorities to ensure we continue to act responsibly. In New Zealand, co-operatives and corporates are treated differently in tax law. Rather than being taxed directly, Fonterra passes our income on to our farmer shareholders, who pay the tax at their level.

Fonterra Tax Principles - PDF, 1.6 MB

Legal compliance.

Our Group Legal Policy requires all Fonterra’s business units to assign clear accountabilities to ensure compliance with all laws and regulations applying to our operations. It also stipulates that business units develop and implement effective processes, including training, to ensure our employees are familiar with, and comply with, appropriate laws.

We have not identified any incidents of non-compliance with laws and regulations in the social and economic area in the past year. There were also no fines or non-financial sanctions related to anti-competitive behaviour, anti-trust, and monopoly practices during this period. We are, however, involved in an ongoing case in the New Zealand Courts relating to supply terms for a small group of farmers, where one of the claims is that Fonterra discriminated against those farmers under section 106 of the Dairy Industry Restructuring Act 2001.

Compliance related to our operating sites, including environmental non-compliance, is reported in our Sustainable Operations section on page 57. Compliance related to our products and nutrition is reported in our Sustainable Consumption section on page 67.

The Way We Work Hotline.

It is important to provide employees with a safe and confidential channel to seek advice and raise concerns related to ethical and lawful behaviour. Fonterra provides an independent service, facilitated by Deloitte, available to all our employees around the world. The Hotline is promoted through communications to employees, and is displayed on staff notice boards at operational sites.

35

35 disclosures were made globally to The Way We Work Hotline - all were fully investigated and appropriate action was taken

IN THE 2017 FINANCIAL YEAR

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