2017 Our Responsibility CORPORATE RESPONSIBILITY REPORT is a global dairy company owned by more than 11,200 dairy farmers in seven European countries. Our products are sold on 120 markets globally.

Foreword. Åke Hantoft, Chairman, and Peder 02 Tuborgh, CEO, share their views on corporate responsibility. Arla’s foundation for sustainability. Starting with 04 our Code of Conduct, we will achieve our vision through our strategy. UN Sustainable Development Goals. We focus 06 our efforts on the goals on which we can have the biggest positive impact. Our contribution to society. We engage in 08 stakeholder dialogue and actively contribute to society.

480,000 In , , the UK and Germany, consumers can visit Arla farms to learn more about dairy production and to enjoy Open Farm and cows out to pasture events. More than 480,000 consumers visited farms through these events. 93 % 93 per cent of Arla® branded products fulfill our Nutrition Criteria. No. 1 Arla is the world’s largest producer of organic dairy products. 100 % 100 per cent of our production volume is manufactured at sites with GFSI (Global Food Safety Initiative) certification or similar. We believe sustainability and profitability go hand in hand, and that our dedication to being responsible will benefit our business.

Health. We offer a wide range of tasty 10 dairy products and help consumers live healthier lives. Inspiration. We see inspiration in all 16 parts of Arla, from our farmer owners sharing experiences to consumers exploring our products. Natural. We maintain high animal 22 welfare and reduce climate and environmental impact all the way from cow to consumer.

18,973 Arla has 18,973 colleagues worldwide. -18 % Since 2005, Arla’s total climate impact has decreased by 18 per cent, despite increased production.

Human rights. We have strengthened our 28 commitment to respect human rights in all business areas and processes. About Arla. 32 Key facts about Arla. Development and results 2017. Key figures 35 relating to our sustainability performance. Materiality analysis. Our stakeholders and 40 management have prioritised Arla’s material aspects. 2 Peder Tuborgh CEO In Arla we are committed to Åke Hantoft Chairman Being a farmer-owned cooperative following our principles of mutual allows us to build trust with both respect and understanding consumers and customers by, for wherever we operate, whether it example, sharing our stories and Feeding the growing population is creating an inclusive workplace, Looking back at 2017 we opening our farms to the public with sustainable food is one providing better nutrition for have continued our focus on and by sharing our cooperative of the big challenges the low-income consumers, tackling developing more sustainable mindset in all markets, supporting world faces going forward, modern slavery or market driven dairy production, while at the local farmers, sustainable farming and I believe Arla is part of the sustainable growth. We have same time increasing the and local production in all markets. solution. strengthened our focus on human price to farmer owners. With more than 480,000 visitors to rights in business processes as part our farms, we help create a stronger These years we see the signs of the of our responsibility, especially in Arla farmers will undoubtedly link between food production and pressure on the Earth’s boundaries. emerging markets, but also in more describe 2017 as being one of consumers. The growing world population is mature markets. the good years for dairy farming leading to changing consumption and dairy products. The milk price While the daily focus for each patterns and increasing climate In the years to come, we will recovered after a difficult 2016, individual dairy farmer lies in change, challenging our planet. As a continue to strengthen Arla’s which was crucial for many dairy managing the farm, optimising big dairy company, we work actively business even further and we will farmers. production and delivering the together with our farmer owners also initiate discussions about the best possible raw milk, focus for to address some of the challenges strategy beyond 2020, and how we Ensuring the best possible milk us as Arla owners being part of the related to the production of milk can do good for both our business quality for our dairy products cooperative involves much more. and dairy products. and the world in support of the UN is at the core of our business, During the year we saw a further Sustainable Development Goals. together with continuous work development of our farmer owner In 2017, we took an important with animal welfare and sustainable democracy as we aligned our work step towards more sustainable and Ten years ago, Arla signed up to the production methods. In 2017, across borders even more, and transparent dairy production with United Nations’ Global Compact. we introduced Arlagården® Plus, strengthened the farmer owners’ the introduction of Arlagården® This means we are committed to a tool that enables us to be even roles. Plus. We also saw clear progress adapting the way we conduct our more transparent about the animal towards our targets on decreasing activities to the 10 basic principles welfare and sustainable production Consumer demand for more the environmental impact of farms, of the Global Compact, and to on our farms. At the end of the year, sustainable production methods production and logistics. communicate these principles only a few months after the launch will continue and I’m proud that we to our stakeholders and the of the tool, 75 per cent of all farmer are leaning in and adopting new We opened our global Innovation surrounding world. This report is owners had signed up, representing practices and more transparency. Centre in , Denmark, which part of that work, just as it is part of 88 per cent of the Arla milk pool. As a global farmer-owned dairy is now the heart of innovation in Arla’s Annual Report 2017, which company, we are measured not Arla. Developing new products is can be downloaded from arla.com. The mid-term review of our only on our products and financial naturally in focus, but innovation is sustainable dairy farming strategy performance, but also on how we also about developing packaging I invite you to read through this 2020 concludes that Arla farms are operate and govern our business. and technologies to help us achieve report, and I’m looking forward to on track to achieving our strategic our ambitious goals, for example, for sharing more about our work in the targets. Regardless of where we do Please take the opportunity to learn reducing climate impact and food future. business, we need to understand more about how we in Arla commit waste. This will enable us to deliver that we operate in a highly ourselves to the future through safe, healthy, tasty, and sustainable consumer driven market, where examples that demonstrate how dairy products, inspire better consumers expect transparency we seek to grow our business in a food habits, and meet the needs in the value chain. They want to responsible way all over the world. and expectations of tomorrow’s know more about the origin of global consumer. We have seen dairy products, how we treat our a significant improvement in cows and how we maintain a high our market reputation this year, Aarhus, Denmark, March 2018 biodiversity. Ösarp, Sweden, March 2018 a position we will work hard to develop. Peder Tuborgh, CEO Åke Hantoft, Chairman

3 Arla’s foundation for sustainability …

Arla’s Code of Conduct – Our Responsibility – is our foundation for sustainable development. It covers all aspects of our business and is at the heart of every decision made in our company.

We are dedicated to developing our business in a responsible manner. We know that long-term success is only achieved if we add value to people’s lives – whether they are consumers, customers, business partners, colleagues or owners.

We take the lead in areas close to our core. As a farmer-owned cooperative, it is in our nature to work together to develop the business and improve the efficiency and sustainability of our production. As a major food provider, we inspire good food habits and make it easier for people to live healthier lives.

S AND TION GUID UC EL TR IN S DS AND ES IN DAR COD How we work N E A S ST O , OLICIE F S P S P E R S responsibly A S C E T C I

O C

R E All managers are responsible for embedding our

P

Code of Conduct in Arla’s culture, and each and every

Code of

colleague plays an important role in daily business.

Conduct

Our Code of Conduct is further operationalised in policies, processes, standards and codes of practice throughout our value chain. Our overall due diligence process, which we apply before entering a new partnership or joint venture, covers economic, social, and environmental concerns.

4 … and how we go forward

Vision

Our vision includes great ambitions for our farmer owners, our business and our consumers all over the world.

This year’s responsibility report focuses on the following keywords in our vision: HEALTH, INSPIRATION and NATURAL. We want to explain how our responsibility and sustainability work connects to our vision. Arla’s vision Creating the future of dairy to bring health and inspiration to the world, naturally.

Good Growth strategy 2020

Our strategy to reach our vision is called Good Growth. It is at the heart of everyone at Arla that we grow the business in a good way.

Arla’s strategy is to grow the value of our farmer owners’ milk by developing our position as a leading global dairy company.

In order to succeed, we will: ■■Excel in eight dairy categories ■■Focus on six geographical regions ■■Win as one united and efficient Arla

In this report, you will find examples of how we work to grow our business, while acting responsibly in every step.

Read more about Good Growth on arla.com.

5 UN Sustainable Development Goals

The 17 Sustainable Development Goals (SDG) that UN adopted in 2015 Arla supports all SDGs, and focus our efforts towards the goals on which we take a broad perspective and are relevant for all countries. For these goals to can have the biggest positive impact – goals number 2, 8 and 12. become reality, all countries, businesses and organisations should embrace necessary changes. Goal 2 End hunger, achieve food security and improved The pressure on the Earth’s resources, the impact of climate change, and nutrition and promote sustainable the quickly growing population, increase the need for healthy food and We help feed the world with healthy, sustainable change the conditions for food production, and thereby for our business and affordable dairy products, and further developing going forward. a resilient agricultural sector.

For Arla the journey has already begun – for many years we have worked systematically with sustainability in our full value chain. Our business Goal 8 activities positively impact several SDGs either directly or indirectly. Promote sustained, inclusive and sustainable economic growth, full and productive employment Arla plays an important part of societies around the world through the and decent work for all local anchoring of our farmer owners, through our operations and not least We create livelihoods and support sustainable economic growth for farmers. We attract and retain people with through the dairy products consumed by millions of people every day. good, decent jobs, and provide equal opportunities for Through our operations, we are able to contribute to the goals. development.

Goal 12 Ensure sustainable consumption and production patterns We promote sustainable production methods, we work actively to minimise waste throughout our value chain, including food waste among consumers.

6 All the goals are closely linked, and we appreciate that we have a positive impact on some of the other goals and individually related targets as well. We will therefore also refer to goals number 3, 5, 6, 7, 13, 15 and 17 in this report.

Goal 3 Ensure healthy lives and promote well-being for all at all ages We provide nutritious products and support well-being for all.

Goal 5 Achieve gender equality and empower all women and girls We focus on non-discrimination and equal opportunities.

Goal 6 Ensure availability and sustainable management of water and sanitation for all We minimise the use of water and chemicals, and ensure all waste water is safely treated.

Goal 7 Ensure access to affordable, reliable, sustainable and modern energy for all We continue to increase the share of renewable energy used within our operations, we increase energy efficiency internally and in collaboration with neighbouring communities.

Goal 13 Take urgent action to combat climate change and its impacts We work according to our ambitious climate strategy, to combat climate change.

Goal 15 Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss We promote sustainable land use, and increase biodiversity.

Goal 17 Strengthen the means of implementation and revitalize the global partnership for sustainable development We engage actively in public, public-private and civil society partnerships.

7 Our contribution to society

Arla Foods is a global dairy cooperative, and with farmer owners in seven European countries and consumers in 120 countries worldwide, we know our business impacts society in various ways. Through our collaborative business model, we promote development and good citizenship, wherever we operate. We create jobs around the world, ensure livelihoods for farmers, and run a transparent and resource efficient business.

Consumers Farmer owners and customers

Our farmer owners are at the core We use our knowledge and of our business, and they drive the dedication to meet the needs of sustainable dairy farming practices. consumers and customers around Resource efficient milk production the world for safe, healthy, nutritious with well-kept animals lays the and natural products. We inspire foundation for meeting consumer good food habits, support our expectations for natural and safe consumers in making informed products. choices and share knowledge about the origin of food.

People, production and logistics Value creation We provide a safe and healthy Being a responsible dairy company, workplace for our almost 19,000 we create sustainable growth engaged colleagues who work opportunities for our farmer owners. to develop our business – from We source responsibly, creating ensuring world-class food safety livelihoods for farmers and workers standards in our production, to Innovation in many countries, and we create resource efficient and sustainable value for consumers by offering production and transportation. Creating the future of dairy, we products to fulfill their demands. collaborate with many different stakeholders throughout our value chain. With a strong innovative approach, we respond to the growing demand for more healthy, affordable and sustainable products. We develop, use and share our knowledge about dairy farming, nutrition and production technologies.

8 About this report

WELCOME TO OUR WORLD OF RESPONSIBILITY!

IN THE MINDS OF This report summarises how we drive our sustainability activities and progress our business. Just as our Code of Conduct applies to all Arla colleagues and all OUR STAKEHOLDERS companies where we have management control, so does this report unless otherwise stated. This English master version has been translated to several languages.

During 2017, we updated our materiality analysis, see page 40. HOW DO WE STAY We invited main stakeholders to prioritise the importance of 22 aspects related to our sustainability activities. In addition, they ON TRACK? could add comments. This was an opportunity that consumers in particular took advantage of. We present our answers to three of the most frequent consumer concerns in this report, see page 15, 21 and 27.

As a responsible business it is important to work with the identification, prevention and mitigation of different kinds of risks in all areas of the business. In a sustainability context, risk takes on two meanings; the risk business activities pose to societies and the people that inhabit them, and the risk sustainability issues pose to our business objectives. In this report we focus on WE SUPPORT the risks associated with the following five areas: social and employee issues, GLOBAL COMPACT corruption, environment, climate and human rights. We have worked for years with many of these areas, and have well-established methods for mitigation, follow-up and reporting. This approach is now applied in our increased focus on avoiding negative human rights impacts.

This report serves as our annual communication of progress towards the UN Global Compact. Arla also adheres to the United Nations Guiding Principles on Business and Human Rights.

RESULTS 2017

WANT TO KNOW MORE?

Demonstrating progress towards our vision and strategy is essential in our work. Please find our follow-up on development and results on page 35–39.

Please visit arla.com and read Arla’s Annual Report 2017.

9 HEALTH

Milk naturally contains one of the richest combinations of nutrients you can find in a single food source. Across the world, dairy products are recommended as part of a daily diet from childhood to old age.

10 Dairy – part of a healthy life

As one of the world’s largest dairy companies, Arla has the opportunity to HIGHLIGHTS 2017 influence millions of consumers’ food habits. We make dairy available in a ■■ Responsible marketing variety of tasty products, and enable consumers to live healthier lives. commitment ■■ Affordable products developed ■■ 93 per cent of Arla® branded products comply with Nutrition Criteria

Strategy for health production and delivery to n Confidence: deliver consistently dairy calcium in products, while Our health strategy is built on collaboration with our customers. in order to be a trusted partner with limiting the amount of fat, added our responsibility to promote and This also includes having the same customers and consumers. sugar and salt. offer healthy and affordable dairy high quality mindset across Arla. products around the world. To date, New markets require new Specific examples of how the three years after the health strategy Part of the work in 2017 has been processes Nutrition Criteria are applied to our was launched, we are delivering on to improve our management of The key demand driver for imported existing and future product portfolio the strategy, as we are introducing incidents associated with product products in some growth markets is the focus on sugar content in fruit healthier products, inspiring quality. One of the focus areas has is safe food. One of the issues yogurts, protein and fat balance in good food habits, collaborating been to improve global reporting often faced in these markets is cheese spreads and salt content in in research, and supporting local of structured problem solving maintaining a refrigerated supply some cheeses. When reformulating health initiatives for our colleagues. for each incident and how that chain. In response to this we have products there is often a challenge secures better prevention of developed a long-life yogurt which to keep taste, and it can also have an Improved food safety standards future incidents. This work leads retains its flavour, taste and texture impact on affordability and shelf-life. We want to help people eat to both internal improvements during its shelf life even when it is healthily, but first and foremost, and closer collaboration with not kept refrigerated throughout A result of applying the nutrition we are determined to ensure that suppliers and with joint ventures. the distribution chain. We have criteria is that we, only on Arla® eating or drinking our products is Our commitment to quality and achieved this by applying a different branded products fulfilling the always safe. During 2016 and 2017, food safety ensures we actively manufacturing process compared criteria, communicate about we have merged all national quality drive competence development to regular yogurt. health. Transparent labelling of the functions into one global function, and improved ways of working for nutritional content of our  to continuously maintain our high our existing and new suppliers as Nutrition Criteria for Arla® level of quality and food safety. We trusted partners in our value chain. branded products have seen the benefits of this in Arla® Nutrition Criteria were 2017 as we are more aligned and As we continue to develop new, safe introduced in 2016, and are an have placed even greater attention and high-quality products, we have extension of our health strategy. Food safety on quality and food safety in the now targeted our initiatives on three Milk naturally contains many organisation. main areas: beneficial nutrients, such as

n Commitment: our internal calcium, vitamine B2 and B12, iodine, Some of the essential elements in mindset to deliver quality and food a high content of protein and a % our development are to drive strong safety in Arla broad range of other vitamins and 100 100 per cent of our production volume is quality management through our n Consistency: quality and food minerals, see page 15. The principle manufactured at sites with GFSI (Global full value chain, from farmers and safety all the way from farmers and of our criteria is to ensure the Food Safety Initiative) certification or suppliers through to transportation, other suppliers to consumers content of milk protein and natural similar.

11 Products fulfilling Arla® Nutrition Criteria

93 per cent of Arla® branded products in the milk, yogurt and everyday cheeses categories comply with the Arla® Nutrition Criteria.

products is a way of informing relation to processing technologies Responsible marketing n No communication related consumers and enabling them to (recombination) and packaging Inspiring people to develop better to products in primary schools, make conscious choices. (portion size) to facilitate access food habits is not only about except where specifically requested to dairy goodness and health offering good products, it is also by, or agreed with, the school We do not want to guide the benefits to consumers in lower about marketing them correctly, administration for educational consumers to consume large income groups. These measures and during the year, we published purposes.  quantities of cheese with high fat will support the local food sector our first corporate marketing policy. content as a source of protein and and could lead to reduced import calcium, and have, for example, tax, when applied in non-European The policy states that we always removed the claims of ‘high in markets. present nutrition and health claims protein and calcium’ from the in compliance with international packaging of two yellow cheeses, At the beginning of 2018, we will standards, that we neither encourage due to the relatively high fat content. launch a product with improved nor condone overeating, and that we nutritional composition, to address never present products as substitutes Number of lactose free products Affordable dairy the need for better nutrition in for meals when they are not intended We want to provide healthy and the lower income groups and as such. The restrictions become 46–136 affordable foods in emerging the most vulnerable consumers stricter the younger the audience. markets. 155 million under-fives in Bangladesh. Read more about are stunted, and 52 million children Bangladesh on page 29. Furthermore, Arla has joined 35–56 worldwide are defined as wasted, 21 other major food companies meaning they don’t weigh enough Collaboration for better nutrition in signing up to the voluntary EU 8–29 for their height, according to the Arla Foods Ingredients is engaged in Pledge initiative on responsible food Global Nutrition Report published a project with NGOs to increase the marketing to children. 13–25 in 2017. general health of Ethiopia’s children by making better use of the milk The EU Pledge membership 4–10 To find solutions, we are from the country’s 11 million cows. requires companies to commit to: investigating how we can make The aim of the project is to develop n No food and beverage 5–6 more dairy products affordable in a locally produced, safe and fortified advertising to children under From 2013 to 2017 (in black) the various ways. For example, by using yogurt to be sold at a price families 12 years, except for products demand for lactose free products ingredients complementing the can afford. Read more about fulfilling the EU Pledge common has risen sharply in Finland, nutrient content of dairy, and also in Ethiopia on page 28. nutrition criteria. Sweden and Denmark.

12 13 Collaborative research n Can milk protein and/or dairy friends and family to healthy eating. Arla is an active member of global minerals improve growth in Read more on page 20. networks and organisations, such undernourished children? Risks as Global Dairy Platform and the n Can a diet high in protein/high in Safe colleagues As a food producer, food safety International Dairy Federation. dairy and reduced in carbohydrate For many years, we have worked is of utmost importance. Unsafe We initiate research together with be beneficial for people with type-2 systematically to prevent products can have a negative other dairy companies, to be able to diabetes? accidents. All colleagues should impact on consumer health and a contribute with products to address n How can the effects of dairy feel confident that they are safe serious impact on our reputation challenges and opportunities. protein on energy metabolism help at work. We are aiming for zero and business. To support our weight management? work accidents. To ramp up this promise to supply safe products The public-private partnership work, and to further step change we have policies and processes in in nutrition research – Arla Food Healthy colleagues health and safety at all Arla sites, place, and we continue to build and for Health – in cooperation With almost 19,000 Arla colleagues we have introduced a global plan share competencies. The risk of with Copenhagen and Aarhus around the world, we have plenty of to significantly reduce workplace accidents, injuries or other negative universities has continued its ambassadors for the Arla message accidents. The new behaviour health impacts at the workplace studies to better understand the about healthy living and cooking. As safety programme is built on the must always be minimised. We health benefits of dairy, dairy healthy products are an important work many sites already have continue to work with our safety ingredients and a balanced diet. part of our strategy, we want our begun. During 2019, all 62 sites culture to make sure all colleagues In current research we are studying, colleagues to act as spokespersons will have started working with the stay safe and healthy, while working. for example: and empower them with knowledge new programme, which proactively to be able to confidently discuss monitors and targets safety culture n Does the dairy matrix, especially topics such as health and healthy improvements. See page 35. PRIORITIES 2018 cheese, have any influence on fat food choices. digestion? Furthermore, we have developed ■■ Increase the number of products ® n Which milk ingredients could be In Denmark, we have educated our health and safety work complying with Arla Nutrition used to optimise clinical nutrition 225 of our colleagues from different in Bangladesh, Criteria by 1 per cent products in order to prevent muscle functions and departments during and Nigeria, by strengthening ■■ Launch more new health wastage during hospitalisation and a two-day course to become food management systems and concepts/products targeted acute illness? ambassadors to inspire colleagues, increasing colleague involvement. towards consumer needs

14 First, it is important to discuss what is mimicked by artificial processes. To include healthy eating. The importance of healthy milk and dairy products in your daily diet is CONSUMER CONCERN eating has been established globally as a simple, tasty and resource efficient way one of the most important factors in living to constitute to a healthy diet for people of a healthy life and ranked even higher than, all ages. for example, high blood pressure and being overweight. Healthy eating, as defined So, all in all, we believe that milk and dairy “As a conscious by dietary guidelines across the globe, products constitute a natural part of a consumer, searching is generally characterized as a diet that healthy diet, and should be enjoyed with a contains a diversity of foods, with special variety of different foods. for healthy choices emphasis on vegetables, fruit, nuts, whole grains, fish and low-fat dairy products. for me and my family, An easy way for you to build a healthy why should we eat diet is to include dairy on a daily basis. We describe milk as ‘naturally nutrient dense’, dairy products?” as milk naturally contains many nutrients,

e.g. protein, calcium, vitamin B2 and B12, iodine, phosphorous and potassium in relation to how much energy (calories) it contains. However, no food should be eaten in isolation and dairy’s health potential is only released if consumed in combination with a variety of other natural and healthy foods.

Milk products, forming important parts of food cultures around the world, have Elin Boll unique and complex tastes that cannot be Nutrition Specialist, Arla

15 INSPIRATION

Every day milk and dairy products take centre stage on the kitchen tables of millions of consumers around the world. Milk is not only recognised as nutritious food, the dairy industry also creates job opportunities and partnerships worldwide, supporting local development for farmers and businesses.

16 Sharing creates engagement

When we talk, discuss and share knowledge, we inspire new ideas and HIGHLIGHTS 2017 creative solutions. Inspiration is evident in all parts of Arla, from our farmer ■■ 148 million consumers engaged owners sharing experiences on new farming practices to consumers online feeling inspired to try new recipes or products in their cooking. We also ■■ 70,000 school children on farms want to inspire future generations, so we invite school children to visit ■■ Strengthening of owner democracy Arla farms to learn where milk comes from.

Knowledge about farming with at school before and after the Cooking inspiration to cook and make good food choices Today, more people than ever live in visit. In 2017, Denmark, Sweden and We believe inspiration and in their everyday lives. cities. We know from research that Germany hosted 70,000 children knowledge about cooking is the urban children and their parents are on farm. best way to develop good food Consumer contact and disconnected from where their food habits. We provide recipes on our inspiration comes from. Nearly three quarters Embracing our role as a global national websites, in brochures and Having a strong reputation among of parents in Northern European food company, Arla is now via online apps. With the increased the millions of consumers who cities say that if they knew more broadening this kind of inspiration possibilities to distribute videos consume our products every day is about food, it would enable them to and knowledge sharing to other on social media, cooking videos crucial for our business. In an annual make better food choices. markets. In 2017, we launched have become a format with which survey, conducted in Denmark, an initiative aimed at children in we inspire home cooking and Sweden, Germany, Finland, and the We provide insight into the origin Dubai, where they are given the explain the benefits of our different UK we monitor the development of our products and the work that opportunity to learn more about products. In many countries, we of our reputation. A significant takes place at the farms of our dairy farming through an interactive collaborate with chefs and bloggers increase was seen during 2017 and owners. We do this by showcasing virtual dairy farm. Many of them to encourage people to cook Arla’s reputation is considered high owners in external communications have never visited a farm and the more and adopt better food habits. on all markets. Please see page 37. and by inviting members of the initiative is providing a possibility to We are also sponsoring national public to visit their farms. In connect the organic milk products and international chef and food In markets where Arla® is a well- Denmark, Sweden, Germany and they consume with the production. competitions. known brand, social media is now the UK, we arrange events like open the main platform for consumers  farm days and organic days. When Other ways of providing information Our independent body, Arla cows are put out to pasture in the about farmers’ work and sharing Foundation, arranges food camps spring in Denmark and Sweden it is knowledge about food is in Denmark. At the camps, school Visitors to cows out to pasture a big event with more than 300,000 communication on milk cartons and children 13–14 years old learn about visitors and 1.8 million followers in social media channels. In several food, nature and raw materials. 92,000 online. European countries, milk cartons During 2017, 1,600 children 135,000 are used to provide information in attended the camps, and since the Over the years, our ‘little farmer an easily comprehensible manner. beginning in 2014, a total of 5,250 programmes’, where we invite A new way to showcase life at a students and 250 teachers have 150,000 school children to our owners’ dairy farm is a 360-degree film participated. In line with this, and 180,000 farms, have educated more than distributed on Swedish social media, developed in cooperation with Arla In the last five years, from2013 to 2017 one million children about life on where the viewer can move around Foundation, we also provide study (in black), increasing numbers of farm. This is usually combined with to see how cows live. material for students in sixth grade. consumers have visited events when study material for children to work The purpose is to empower students cows are let out to pasture.

17 to post questions and opinions, future farmer representatives. With level is crucial to uphold a dynamic completed 125 projects with the which were earlier directed to the training programme, Arla Next, cooperative. At Arla Seminars, ambition to reduce and optimise our consumer relations service we want to inspire more Arla farmers farmer owners meet in smaller detergent product waste and other in e-mails and telephone calls. In to become elected representatives, groups to discuss current topics. environmental optimisations. Denmark and Sweden, consumers and we offer an international Our target is that a third of our During the year we have reduced are very active on our Facebook network within the cooperative. The farmer owners attend at least one our consumption of water by pages and it’s our ambition to first training programme involved meeting during 2017–2018. 700,000 m3. In addition we have answer questions or concerns on 60 participants from Denmark, reduced our energy consumption, social media within one working day. Sweden, the UK and Central Europe In addition to the Arla farmers’ chemical usage and product waste. and concluded in 2017. With 53 per website and newsletter, an More than 200 projects are in the An experiment to engage with cent of the participants elected to information channel with pipeline to deliver further savings. consumers online was a live district councils and the Board of immediate access to news and data streaming of an organic themed Representatives in the elections in relating to quality and payments Colleagues at our procurement show in China. It was aired on a March, it greatly exceeded the target has been introduced in a mobile office in Hong Kong have popular e-commerce platform. of 20 per cent after two election application to farmers in Denmark, conducted supplier development Celebrities shared organic stories periods. Sweden, and the UK. training. The purpose was to from different lifestyle perspectives, enhance problem-solving combined with interviews, recipes, We have farmer owners in seven Cooperation with external through a systematic approach, and a live cooking demo. Similarly, countries, so we want to increase suppliers strengthening the understanding ‘Vardagspuls’, a digital health integration, cultural understanding As a cooperative, we naturally of our audit process, or increasing concept owned by Arla Sweden, and knowledge about area specific prioritise initiatives which enable understanding about food fraud. operates as an independent conditions between them. In us to work together with others In 2017, we visited palm oil editorial office providing (online) our mentoring programme, to develop our businesses. In plantations and mills in Indonesia. inspiration and tips for both healthy elected members of the Board of collaboration with suppliers we As a result, Arla, in collaboration eating and a healthy lifestyle. Representatives pair with newly can improve both their and our with the main supplier of palm oil elected representatives from processes and contribute to and together with other palm oil Engaging farmers in the another country. goals on quality, efficiency and customers, supports the training of cooperative environmental performance. managers at palm oil plantations As a strong and visionary With 11,262 farmer owners, having Together with a supplier of in Indonesia with the ambition to cooperative, Arla needs a pool of a continuous dialogue on a local cleaning detergents we have improve the working conditions. 

Inspiration around the world

In our focus regions around the world we have inspired people to better food habits through activities and programmes.

18 19 International cooperation in provided input to the work in the active in two working groups in the To energize participants and industry networks DSF to expand the number of FReSH initiative during 2017. These encourage a healthy, active lifestyle, In dialogue with customers and indicators to assess sustainability focused on sustainable diets and Arla’s sales teams have introduced competitors, we can actively performance of the dairy value sustainable food systems. exercise as part of their major address the challenges of producing chain. conferences. dairy in a sustainable way. We Inspiring colleagues to be prioritise initiatives that enable us to n Sustainable Agriculture healthy Training programmes contribute to leading the industry in Initiative. Arla is an active member We want our colleagues to be Just as a healthy mind and body is areas that are mutually beneficial. in the Dairy Working Group of healthy and feel inspired, both at important, continuous learning and the Initiative. In 2017, the group work and in their free time. As we development of colleagues is crucial n Dairy Sustainability Framework focused on developing a business- are living longer and working for to running a successful business. (DSF). Arla is an implementing to-business approach to assess longer, we continue to educate This includes training programmes in member of the DSF and has company implementation of the and train colleagues to enable a leadership, competence and personal DSF. The business-to-business longer and healthy work life, both development, to ensuring necessary approach aims to capture the physically and mentally. skills. As an example, 1,500 blue Farm visits by school children DSF’s continuous improvement collar colleagues in Denmark have principle and will hopefully result in In the UK, we have approximately been trained in subjects such as basic 11,600 a robust yet rational way to assess 50 dedicated health heroes across Danish and mathematics, logistics 30,000 sustainability performance, reducing the country acting as health (transport and production) as well the number of customer audits. ambassadors at sites. All colleagues as soft skills including cooperation, in Sweden are invited to participate communication and how to plan 50,000 n Food Reform for Sustainability in the ArlaGo programme with tasks. 29,000 and Health (FReSH), an initiative various training and health activities by World Business Council for and dedicated health inspirers at Sustainable Development and every site. PRIORITIES 2018 12,000 EAT, offers a forum to discuss 11,000 across sectors and to join forces At most of our dairies and offices ■■ Continued focus on in developing approaches to there are local initiatives to inspire inspiring good food habits Many farmer owners welcome school address common challenges colleagues to be active, for example, ■■ children to their farms to learn more about Further engage farmers in where food comes from. Figures show within sustainable production step counting competitions, the cooperative visitors in 2013 and 2017 (in black). and consumption. Arla has been yoga classes and running clubs.

20 It is important that every product we offer collaboration. If there are breaches of the is safe, is of high quality and is produced requirements we terminate the contract. CONSUMER CONCERN in an environmentally as well as socially sustainable way. To be proactive, we have regular dialogues with suppliers, customers and colleagues All new suppliers are audited and approved at our sites. We stay updated through by the supplier assurance team before we NGO and authority reports, trainings, “How do you ensure sign a contract with them. Our team also newsletters and media. Based on this we focuses on addressing food safety and prioritise our actions towards a country that the ingredients sustainability risks and issues related to or region, a product or an entire category ingredients we buy from our suppliers. or specific suppliers. These dialogues you use are produced Furthermore, we have monitoring are often a good opportunity to share in a safe and programmes to verify the safety and quality experiences, practices and elaborate our of purchased raw materials. expectations towards the suppliers. sustainable way?” We evaluate our suppliers on an ongoing basis, and take actions based on the outcome of the assessments. These actions can include dialogue about sensitive topics, and visits or audits to verify how the suppliers manage and control their production and supply chain.

We follow up on necessary improvements and if the supplier has an unresolved issue we stop trading until it is safe to use ingredients from that supplier again. Our code of conduct for suppliers is included as a mandatory demand in supplier Elif Dayioglu Davidsen contracts and a foundation for dialogue and Supplier Assurance Specialist, Arla

21 NATURAL

In the production of milk and dairy products nature plays a key role. With focus on sustainable dairy production, future generations of a growing world population will be able to enjoy the benefits of nutritious dairy products.

22 Towards a circular business

We depend on nature, and we take our planet’s challenges seriously. HIGHLIGHTS 2017 Together with our farmer owners, we are in the unique position of being ■■ Increased use of biogas at able to work with every step in the whole value chain, to make a positive our dairies contribution to a more sustainable future. This includes aspects from ■■ Fossil free transportation what Arla cows eat, the types of energy we use at our dairies to how we ■■ Ecosystem services on farms transport our products.

Continuing the sustainable where nutrients from manure many stakeholders, in Sweden we We have had the midterm review dairy journey contribute to soil fertility are have communicated about these of our sustainable dairy farming Arla strives to minimise its negative all valuable elements in milk on the back of milk cartons and strategy 2020 and can conclude that environmental impact, contributing production. These elements introduced an app for children, Arla farms are on track to achieve to the SDGs and improving are referred to as ecosystem to increase general knowledge. the targets within this, see tables on conditions for future generations. services. They are services of vital Furthermore, Arla has initiated page 24 and 38. As part of the review We have a clear value chain importance for society that nature a project to stimulate increased we have increased our ambitions. perspective, and can implement provides. An expert report produced pollination, engaging 30 farms to activities to deliver on the goals in Sweden has identified which sow bee-feed-crops that provide We have added ‘Interaction with in the sustainable dairy farming ecosystem services our farms food for pollinators throughout nature’ in the strategy to stress that strategy and the environmental contribute to and what more could the season. The learnings from we see biodiversity and ecosystem strategy, from cow to consumer. be done at farm level to support the ecosystem services report services as important assets for dairy resilient ecosystem services. and experiences gained from local farming and future productivity.  Raising ambitions on farms projects on biodiversity are now Grassland, hedgerows, grazing As ecosystem services are key to incorporated into the sustainable animals, pollination and a cycle our societies, yet still unknown to dairy farming strategy.

Number of cows per farm 2017

150

120

90

60

30

0

The number of cows per farm is an average, which includes all dairy farmers in each country. Source: National trade associations

23 Climate and energy progress

Goal Status 2017 Comment to performance

Reduction of greenhouse gas emissions from farms by 30 per cent per kilo milk, Carbon assessments enable farmers to receive recommendations on from 1990 to 2020. 23% how to further reduce greenhouse gas emissions. Reduction of greenhouse gas emissions from operations, packaging and transport Achieving the goal for transportation is the most challenging part of by 25 per cent, from 2005 to 2020. 18% our environmental strategy. By the end of 2020, half of the energy we use must originate from renewable The availability of renewables differs between countries. Sweden is energy. leading the way with a share of 73 per cent followed by Denmark with 24% 22 per cent.

Increased transparency with to the 2005 level. Since 2005, Arla’s requirement. Now, a third-party more common. In Arla Netherlands, Arlagården® Plus total climate impact has decreased company has built a food waste 100 per cent of the electricity is To further understand and create by 18 per cent, despite increased digester adjacent to the dairy. renewable, most of it is generated transparency in every step in our production. Effluent from the dairy, together from windmills on Dutch farms. In value chain, we introduced a digital with sorted external food waste, is Sweden, wood chips and district documentation centre, Arlagården® Our environmental strategy also fed to the new digester which in heating from the incineration of Plus, in October. Detailed information includes efficiency targets of a turn produces biogas for the dairy, waste are common sources. about the farm, sustainability and three per cent annual reduction covering 100 per cent of its energy animal welfare is collected in this in water and energy consumption requirement. An even bigger circular Arla transports are moving database. towards 2020. By 2020, half of the loop will be created when digestate forward energy we use must originate from from the biogas plant is used by Reducing the climate impact The database was developed in renewable energy sources such farmers to grow more food crops. of Arla’s transportation by 25 close collaboration with farmer as biomass, wind, and water. See per cent by 2020 remains the owners from different countries. above and page 38. A true circular example comes most challenging goal in our We expect Arlagården® Plus will from Rødkærsbro dairy in Denmark, environmental strategy due to be an asset for farmer owners as Energy from renewable sources which buys biogas produced from business growth. Not only do our well as our business, enabling us Our ambition is to use as much manure from a neighbouring Arla transport requirements differ across to increase transparency at both renewable energy as possible, farm. The biogas is transported markets, the availability of bio fuels, farm and individual cow level. For globally, taking into account national through a 3.5 km long pipe. The as well as incentives from national our farmer owners, Arlagården® legislation and the availability of surplus heat from the dairy is then governments, also vary leading to Plus is a systematic way to analyse renewables. sold to local district heating systems very different opportunities and the status at farm, as each cow and used for heating households. challenges.  and her condition is assessed. The Biogas is becoming more available statistics will play an important part in Denmark, and an increasing We took a step towards using even in improving animal welfare. Within number of Danish Arla sites are more biogas, when the construction the first months, 75 per cent of using biogas to produce electricity of a new biogas plant was initiated the farmer owners submitted data, and heat. Within Arla, the use of in Videbæk, Denmark. This is a Return of Danish milk crates representing 88 per cent of the Arla biogas has increased by 80 per cent collaboration between Arla and member milk pool. compared to 2016. In 2017, 5.7 per external partners and the plant will cent of Arla’s total use of energy supply one major production site Green operations, packaging came from biogas, and 24 per cent when it is finalised in late 2018. This 100,000 and transport from renewable sources. As a result, means that almost 12 per cent of In Denmark, milk is distributed from For Arla’s own operations, our we are close to halfway to achieving Arla’s gas consumption in Denmark dairies in green crates that have become popular for other purposes. Every year, environmental strategy 2020 our goal. will be converted to biogas. Arla Denmark must produce 300,000 new sets the objectives for our crates to replace the ones that haven’t environmental and climate work. Until this year, our dairy in Aylesbury, In other owner countries, national been returned. To encourage consumers We have committed to reducing UK, has partly been powered by initiatives favour other types of to return the crates we initiated a project in cooperation with the Danish Society for greenhouse gas emissions by 25 biogas generated at its on-site renewable energy. In Germany Nature Conservation, resulting in 100,000 per cent by 2020 within operations, biogas plant, which covered around and the Netherlands, for example, crates being returned during the year and packaging and transport, compared five per cent of the dairy’s energy windmills and solar panels are cost savings of 0.3 MEUR.

24 25 In Sweden, the 25 per cent goal has New packaging reduces climate to amount to a decrease of 1,000 food banks where possible. During already been exceeded, as a result impact tons of greenhouse gas emissions 2017, we have signed a partnership of determined work, availability We continuously reduce our annually. agreement with the European and tax reduction of bio fuels. In impact from packaging material Federation of Food Banks (FEBA), 2017, Arla Sweden set a goal to by decreasing the weight of Reducing food waste which will enable us to donate have fossil free transportation by individual packaging formats Food waste is an important issue surplus products in a structured 2020, which is ten years ahead of without impacting functionality. and is addressed in several of the way, making use of the FEBA national ambitious targets for the Arla Sweden has launched two new UN Sustainable Development network partners in Europe. The transportation sector. packaging innovations that lower Goals. Arla has an ambition to halve partnership agreement with FEBA the climate impact and increase food waste in production and at strengthens the partnerships In milk collection we continuously the percentage of renewable and consumer level. In production, the already in place between Arla and optimise logistic routes and recycled packaging material. One demand for a more diverse portfolio local food banks such as Fairshare educate drivers in eco-driving, and is a new carton used for organic can lead to more food waste at in the UK, Fødevarebanken in we invest in larger milk collecting products, made from unbleached Arla’s sites as the production Denmark, the Dutch food bank and tankers to reduce the amount of paperboard where one material becomes more complex. Products Matcentralen in Sweden. fuel per tonne of milk transported. layer has been removed. As before, with extended shelf life can reduce Furthermore, we want to reduce the plastic in the packaging comes food waste at consumer level, In our non-European markets, we empty weight on trailers. In from renewable sources, both in the but the production requires more continue our collaboration with cooperation with suppliers, we carton and in the cap and neck. The energy. At Pronsfeld in Germany, local partners. have worked with the development other is a new crème fraiche carton. we have worked to reduce the load of tankers, resulting in weight The plastic cup has been replaced to the waste water plant, over a Recyclable packaging savings that reduce greenhouse with a carboard equivalent, the two-year period, resulting in 40 per Our goal is that 100 per cent of our gas emissions. Emissions per aluminium foil has been replaced cent less dairy products and raw packaging is recyclable by 2020. kilogramme of transported milk, with paper and the plastic lid is now materials now being flushed out. 91 per cent of Arla’s packaging is combined with quality and price, are recycled PET. The changes deliver a now recyclable, based on the EU now the criteria for our investments calculated reduction in the climate In the event we have products, definition (Directives 2008/98/EC in new tankers. impact from the packaging of 50 which for any reason cannot be sold and 94/62/EC). per cent. The total impact of the through our usual sales channels, two improvements is estimated we donate them to charitable

Risks Throughout our full value chain Dairy food waste in the value chain, FAO 2011 there is a risk of negative impact on environment and climate. Our DISTRIBUTION sustainable dairy farming strategy AND RETAIL CONSUMER and environmental strategy PRODUCTION AND describe our mitigation measures, PACKAGING 4% and define targets and actions. We 55% are committed to reducing our 9% impact and fulfill present and future demands.

FARM 32% PRIORITIES 2018 ■■ Reaching 2020 targets ■■ Reducing food waste The dairy food waste has been calculated ■■ Promote circular solutions in the FAO study “Global Food Losses and Food Waste” published in 2011.

26 When we talk about animal welfare or the Animal-based indicators are actual well-being of cows, we acknowledge that observations of what constitutes a good life. CONSUMER CONCERN we do not know for sure what a good life is Examples include that the cows are clean, for a cow. We base our quality programme free from injuries, have a good mobility by on science and the general answer includes walking with even weight-bearing rhythm access to fresh water and feed to maintain on all four feet, and that their bodies are in a health, appropriate living conditions good condition. These real-life observations “Cows can’t speak. including shelter and a comfortable resting are, in our view, essential and why they are area and that the animals are free to express part of Arlagården® Plus, which requires How do you know normal behaviour. We also include that they farmers to assess all their cows every quarter. are free from pain, injury and disease and live they have a good life?” in conditions that avoid fear and distress. We believe that by sharing our ideas on how to assess animal welfare, we can stimulate For a cow to have good life, it is, of course, initiatives and further improve a cow’s daily necessary to have a good living environment life. on the farm, good management practices and daily care and attention. The welfare of cows is key to ensuring the quality of milk, which means high standards are very important to our farmer owners.

The continuous development of our work with animal welfare also emphasises the necessity of meeting interests of dairy farmers, the industry and consumers. That is why, among other things, we include animal-based indicators as a tool for farmer owners to measure and show progress, for Arla to be transparent and as a basis for Peter Stamp Enemark further development of animal welfare. Animal Welfare Specialist, Arla

27 HUMAN RIGHTS

Arla has strengthened its focus on human rights during recent years, especially in emerging markets, but also in more mature markets. We believe that as a dairy business we contribute to the UN Sustainable Development Goals through job creation and responsible sourcing, as well as through competencies on quality, food safety and product innovation. We are committed to meeting international human rights principles.

Governance and policies with representatives covering legal, Live our values on human rights To further develop our human Arla respects human rights, and we merger and acquisition, human To continue embedding human rights competencies, we entered continuously embed our human rights, security and commercial rights in Arla, we have integrated into a formal partnership agreement rights policy commitments in our competences. human rights as part of the with the Danish Institute of business processes and plans. This on-boarding programmes of Human Rights. The Institute is is part of our compliance with the Strengthened focus on human managers in Arla’s non-European also facilitating a Nordic business UN Guiding Principles on Business rights impacts business. Supported by e-learning and human rights network for and Human Rights. Human rights During 2017, we have conducted courses, we ensure that colleagues multinational companies, in which is a reoccurring topic on our top human rights due diligences in in Arla are trained in human rights. we have become an active member management’s agenda as it is Indonesia and Ghana, both in terms In addition, a number of internal of the steering committee. Arla’s priority to stay focused and of country assessments to evaluate presentations, courses and training continuously raise competencies the context, as well as a partner sessions have been conducted Better nutrition for low-income within the area. assessment. A key learning is that for business units and functions consumers every market presents dilemmas, globally. Arla Foods Ingredients has further Human rights in business which we can only address through expanded its engagement in the processes concrete actions together with local Strengthened stakeholder GAIN (Global Alliance for Improved During the year, we have aligned management, business partners involvement Nutrition) Nordic partnership, which our tools and processes for human and organisations. When we enter new markets, brings together businesses, NGOs rights assessment of business we face complexity in mitigating and other organisations with a partners and suppliers. Using the From the number of human rights negative human rights impacts. common goal to provide safe and same approach and eliminating assessments we have conducted, Consequently, we have gradually better nutrition for low-income overlaps, we now have leaner we have learned that the risk of strengthened our systematic consumers in developing countries. processes which will improve adverse human rights impact involvement, collaboration Achieving this goal means efficiency, optimise resources and on working conditions in the and consultation with NGOs, supporting the development of create better results in how we agricultural value chain is prevalent government bodies, embassies, local supply chains. mitigate or resolve human rights and that we must continue to UN organisations and experts and business risks. Human rights address our potential adverse on human rights issues. This has During the year, Arla Foods assessments of new joint venture impact on local farmers as we grow particularly been the case in our Ingredients has been the lead partners are now also an integrated our business in developing countries approach to addressing human business partner in a GAIN project, part of our overall business due where the local dairy sector is still rights issues such as the working supported by Danida, to develop diligence process. Please see fragile. Although we have robust conditions amongst colleagues in a sustainable dairy supply chain illustration to the right. processes in place to prevent the Middle East, Arla’s impact on in Ethiopia in cooperation with negative human rights impacts local farmers in West Africa, and Ethiopian dairy companies and dairy We estimate that the highest within own operations it is of utmost access to affordable nutrition for farmers. risk of having a negative impact importance to collaborate closely lower income segments in Asia and on human rights is when we with suppliers, business partners and Africa. Read more about affordable Furthermore, addressing enter new markets in developing organisations to promote human nutrition on the following pages. malnutrition in Zambia, Arla Foods countries. To evaluate such risks, rights along the entire value chain Ingredients, together with UK Aid, a coordinating unit is established and in the industry. is involved in a project with the

28 objective to develop a sustainable supporting job creation and market organisation and Care Denmark. The objective is to increase access model for producing and selling an driven sustainable growth in the The project builds on the results to Arla’s affordable dairy product affordable and nutritious long-life country’s dairy value chain. Arla from our comprehensive human Dano® Daily Pushti, by developing drink with milk ingredients. will source fresh milk from local rights assessments in 2015, alternative sales and distribution pastoralist farmers, process the milk an agreement with the Federal channels managed by female In Senegal, Arla Foods Ingredients locally and market it to consumers. Ministry of Agriculture and Rural micro-entrepreneurs who reach supplies whey permeate as well as The purpose is to increase capacity Development in 2016, followed out to rural non-milk producing application knowledge to a local amongst some 1,000 Nigerian by a social impact assessment in locations, far-to-reach areas and dairy. This has made it possible for farmers and to increase milk 2017 to ensure that the project will urban slums including the millions the dairy to supply low-income quality and milk quantity so that have no unforeseen adverse human of garment workers living in Dhaka. consumers with yogurts that have they are able to deliver raw milk to rights impact on the dairy farmers The female sales force will improve been rated as creamier and tastier be processed and sold by an Arla and their families. food and nutrition security in their than previously. An Arla farmer owned brand in Nigeria. own respective communities. also supported local dairy farmers Improving access to affordable in Senegal to increase the daily Our view is that we can contribute nutrition in Bangladesh By entering into a pilot project milk yield, by advising farmers on with knowledge about how farmers In Bangladesh, Arla has partnered with BRAC, we will collect data growing the right feed for their and dairies can organise themselves with BRAC, Building Resources to evaluate a future sustainable animals. and what it takes to ensure the Across Communities, the world’s business model and an efficient sustainability of the local dairy largest NGO, in a pilot project to partnership in scaling-up. Market driven sustainable sector. The Nigerian model has improve access to affordable dairy, growth been developed in cooperation with enhance female empowerment Parallel to the project, Arla In Nigeria, Arla is the lead business the Danish Agricultural and Food and create more and better jobs conducted a comprehensive partner in a project, supported Council as the lead non-commercial in Bangladesh through a market human rights impact assessment in by Danida, with the purpose of partner, Coret, a Nigerian pastoralist driven inclusive business model. Bangladesh to ensure that scaling 

Human rights due diligence process

Public communication on web Communication country by country Human Rights High level Business Partner Prevention and of how human Country risk assessment Assessment Mitigation Plan rights impact are Assessment addressed Annual Reporting

By enhancing our tools and streamlining our approach, aligning it with relevant and responsible functions in the business, we are developing a more comprehensive, efficient and integrated approach to assessing human rights risks.

29 up Dano® Daily Pushti would have and location sensitive, we have made progress with a number to share our experience in how to no negative side-effects on small initiated a pilot project to assess of locations being renovated, or address human rights challenges holder dairy farmers as well as the risks related to recruitment colleagues being relocated to new related to the working situation of vulnerable consumers, as this would agencies and subcontractors facilities. We will continue our efforts migrant workers. undermine the aim of helping to providing blue collar and part-time in the coming years to ensure address malnutrition amongst lower workers in the Middle East. The the continuation and standard of Diversified workplaces income segments in the country. learnings form the pilot will help the accommodation. Please see We believe a diversified workforce us develop a more robust process illustration to the right. benefits productivity and By the end of 2017, more than to prevent employees from falling innovation, no matter where in the 40 female entrepreneurs have been into bondage through hidden fees. Passport withholding world. At our packaging facility in recruited with an outreach of over Through a screening process of Traditionally in the Middle East, Lekki, Nigeria, nearly one fourth of 65,000 potential consumers in our recruitment agencies we can migrant worker colleagues’ the machine operators are women, three major districts of Bangladesh. ensure transparency from countries passports were safekept by the with equal pay for equal work. of origin to employment in Arla. The employer, which could imply a Among Lekki colleagues, 65 per Decent work and fair process will also include training restriction of freedom of movement. cent are from the local community. recruitment in human rights and access to a In Arla, we also followed this Furthermore, in Bangladesh we Understanding that recruiting is a grievance mechanism. practice, but during 2017, we have focused on diversity and complex issue due to it being time have returned all passports to Arla additional recruitment of women Employer provided housing colleagues in the Middle East. has begun. At the end of 2015, we initiated Human rights impact Project Basic, which governs our However, many colleagues prefer Collaboration with worker assessments minimum standard for Arla provided that Arla continues to safekeep their representatives accommodation, and is based passports, whilst having free access The European Works Council (EWC) is on ILO’s (International Labour to them upon request. Therefore, Arla’s forum for trade union dialogue Organization) standard. Since then we have introduced a letter of at European level. When Arla we have conducted assessments consent. This means that if a establishes business outside Europe, of all our housing facilities at our colleague wants us to safekeep their we bring our experience, mindset and markets in the Middle East. Having passport, we do so when we receive ways of collaborating. 8Human rights impact assessments have identified gaps and areas for a signed letter of consent. We have been conducted in Bangladesh, Egypt, Ghana, Indonesia, Kuwait, Qatar, Saudi improvement, we started a project continued our dialogue with NGOs Furthermore, we now have a Arabia and UAE. for raising the standard. We have and participated in roundtables dialogue with the IUF (International

30 Union of Food, Agricultural, Hotel, our corporate activities and supply globally (see page 14), the diversity Restaurant, Catering, Tobacco and chains are free from slavery and in our business, and our continued Allied Workers’ Associations) which is human trafficking. efforts towards a workplace without an international federation of trade discrimination and harassment. unions in 130 countries representing During 2017, we have adapted our over 10 million workers. At the procurement tendering process to bi-annual meetings with IUF, where secure that suppliers comply with EWC representatives also participate, the Modern Slavery Act. we discuss matters related to countries outside our core markets.

Modern Slavery statement Risks During 2017, we published a To support our Human Rights policy Modern Slavery statement, commitment, we have established which outlines our commitment processes to ensure that we to tackling modern slavery and continuously work with preventing human trafficking. We recognise and mitigating any negative impact that modern slavery may occur our business activities may have in all areas of the value chain, so on the human rights of societies we have set up a cross-functional and external stakeholders as well steering group to drive and support as on our colleagues and business. our actions to reduce the risk of We have primarily directed our Raised housing standard modern slavery, and to ensure efforts towards markets outside that decisions and activities are of Europe, and this has also been Arla provides accomodation for about 650 migrant workers in Saudi Arabia. All 23 coordinated and effective. In the primary focus for our reporting villas have been assessed. The conclusion addition to our continuous work of potential risks, actions and was that seven were satisfactory, workers on implementing our human rights outcomes. However, we are fully from five of them were relocated to new due diligence processes, we also aware that these risks exist globally, villas, and a total of eleven villas had to work with awareness raising in our and we also work systematically be renovated. By the end of 2017, seven were still to be renovated to an acceptable business and with our partners, and with improving, for example, the standard. Similar processes are ongoing in reviewing our practices to ensure health and safety of colleagues UAE, Oman and Qatar.

31 About Arla

Company performance Arla Foods is a global dairy company and a cooperative owned by dairy farmers in seven European countries. Our products are sold under well- known brands in 120 countries.

Results 2017 Market development supply of raw milk combined with Preparing for Brexit Arla’s net revenue in 2017 Arla is the world’s fourth largest a higher demand for dairy products The UK is Arla’s largest market and amounted to EUR 10.3 billion, dairy company in terms of volume in Europe, the US and in growth following the country’s decision to which is an increase of 8.1 per cent of milk intake. The global dairy markets. Demand for products such leave the European Union, Arla is over the previous year. The profit market is increasingly competitive as butter and cream has also helped focusing on minimising the negative for the year was EUR 299 million, and fast-moving. We maintain to increase the farm gate price. effect this may have on our business compared to EUR 356 million in our strong position by focusing and maintaining free trade. 2016. on consumer demands and Value added milk continous innovation of products Arla is the world’s largest producer New subsidiaries To maintain the company’s and packaging, a more diversified of organic milk, and consumers’ In September 2017, a new profitability and long-term product portfolio and product demand is increasing in most Arla subsidiary in Ghana began competitive payment to our farmer launches in new markets. Arla is markets. Growing product segments packaging and selling Arla® owners, we are continuing our expanding sales in South East Asia are, for example, lactose free, branded products in response to efficiency programmes, relating to and in Sub-Saharan markets. organic and pasture milk from growing demand for nutritious both dairy sites and the collection specific regions. Furthermore, and affordable dairy products. In of milk from Arla farms. To further Milk price customer and consumer demands December, an agreement was increase efficiency and value After nearly three years with low milk for milk based on non-GM signed for a new subsidiary in creation, weDiagram invest in Revenueproductp32 digitalisation prices, the recoveryDiagram5 of Revenuemarketp32 prices paid to (Genetically Modified) cow feed Indonesia. of e.g. operations, marketing and farmers which began in the second have increased. As a result, milk from Diagram4 Colleaguesp32 e-commerce. half of 2016 continued during 2017. non-GM feed has been introduced Diagram1 Shareoffemalecolleaguesp32 This was the result of a lower global on several markets.

Revenue by product group Revenue by segment Colleagues per country Gender balance, share women

Denmark 7,09 % Sweden 3,028 Fresh products and 30 UK 3,574 milk powder 44% Europe 3% 25 Germany 2,02 Cheese 2% International 1% Saudi Arabia 1,037 20 Butter and Arla Foods spreads 15% Ingredients % Poland 478 15 Ingredients, whey Trading Finland 353 10 products and and other 15% Netherlands 343 2015 201 2017 non dairy 15% North America 321 Total Director and above Other countries 1,010 Vice president and above

The revenue by product category was Arla’s total revenue has increased by The average number of full time There are significantly fewer women than Top50 similar to 2016. 8.1 per cent since 2016. For further employees (FTEs) in Arla was 18,973 in men among our top managers. Out of 77 information, see Arla’s annual report. 2017. The diagram shows the distribution senior vice presidents and vice presidents per country at year-end 2017. 12 per cent are female, which is far from the 28 per cent among all colleagues. The female representation of our director and above level, stays at 22 per cent, which is the same level as in 2016. For information about diversity at Board level, see Arla’s CEO Annual Report.

HR & Corporate Affairs Finance, IT & Legal Changed organisation At the end of 2017, Arla’s Vice CEO and supply chain EVP Povl Krogsgaard announced his retirement, effective January 2018. The new supply chain Milk, Members Marketing & Arla Foods EVP, will be part of Arla’s Executive Supply Chain Europe International & Trading Innovation Ingredients Management Team. Going forward, the Executive Board will consist of Arla’s Chairman and CEO.

32 Democratic organisation Arla’s mission is to create value for its farmer owners. All farmer owners have the opportunity to influence important decisions through the democratically governed farmer cooperative.

Arla’s owners in the different owner countries. countries. The price for organic is not paid by a farmer who takes Arla has 11,262 owners in seven The new governance structure milk is set separately and as before ownership of an existing Arla farm. countries: Denmark, Sweden, UK, means the same democratic set according to local market and Germany, Belgium, Luxembourg and governing body and rules for all availability of organic milk. The Merger with Gefleortens the Netherlands. All elections and individual farmer owners in Arla, price may differ between owner Following the approval of the polls are held according to the ‘one taking into account local variations countries. Swedish Competition Authority, owner, one vote’ principle. in the four geographical areas the Swedish dairy association (Denmark, Sweden, the UK and Entrance fee Gefleortens merged with Arla, Owner strategy Central Europe). The ambition Since 1 July 2017, farmers on December 1, bringing 59 new In March 2017, the Board of is that all farmer owners will be joining Arla pay an entry fee of members with 30 million kilos of Representatives approved a members of one area, one region 7.5 eurocents per kilo of milk milk to Arla. development of the owner strategy and one district. produced during the first year. The ensuring a well-functioning and fee reflects the value new farmer transparent democratic structure. Common settlement model owners get access to from being The strategy includes a new Since January 2017, the payment a member of the cooperative with governance structure and common for milk quality has been aligned its capital, products, brands, dairy calendar for elections and meetings for all Arla’s farmer owners in all facilities etc. However, the entry fee Diagram14 Rawmilkintakep33 Diagram3 Rawmilkp33

Raw milk intake, million kilos

15,000

12,000

Denmark 4,827 9,000 UK 3,203 The steady increase in collected raw milk Sweden 1,855 ,000 was during 2016 turned to a decrease due Germany 1,759 to the low milk prices. The 2017 recovery Belgium 524 Arla’s total milk intake amounted to 3,000 of the milk price on the world market and Luxembourg 151 13,937 million kilos in 2017, an increase to our farmer owners resulted in a slight Netherlands 54 of 0.4 per cent since 2016. Owners’ milk 0 increase in volumes. Non-owner milk 1,54 represents 89 per cent of total milk intake. 2013 2014 2015 201 2017

Number of owners Germany, Belgium, Denmark Sweden UK Luxembourg and the Netherlands 2,675 owners 2,780 owners 2,395 owners 3,412 owners 11,262 Denmark and Sweden The number of owners has decreased by 40 district councils 5.5 per cent since last year. Germany, Belgium, UK Luxembourg and the Netherlands Local organisations Local organisations Denmark and Sweden 6 regions

Board of Representatives Owner democracy 175 owners and 12 employee representatives The chart shows the number of owners/ members as of December 31, 2017. All Area Council DK Area Council CE elections and polls are held according to Board of Directors the ‘one owner, one vote’ principle. The 15 owners and 3 employee representatives Board of Representatives is Arla’s top Area Council SE Area Council UK decision-making body.

33 Arla’s Code of Conduct In Arla we believe that sustainability and profitability go hand in hand. Arla’s Code of Conduct – Our Responsibility – contains our principles for ethics and sustainable development.

Responsible culture The Code is divided business conduct, supporting all Our Responsibility is approved into eleven areas: colleagues in acting responsibly by Arla’s Board of Directors. Arla’s n Business principles and with integrity. We continuously Executive Management Team n Operational principles evaluate the need for new policies, approves strategies, prioritises areas, n Market conduct or the updating of existing ones. ensures progress, annual follow up n Procurement and supplier and sets direction for necessary relations Furthermore we encourage all improvements, and further update n Food safety employees to speak up if they of the Code. n Food and health have any concerns in relation to n Environment and climate violations to the Code of Conduct, A holistic approach n Dairy farming legislation or corporate policies, The Code of Conduct is at the core n Workplace either through our well-established of all we do, and serves as both n Human rights internal channels or through the a tool and a compass, guiding us n Society and community whistleblower service. on how we should behave and relations. take responsibility throughout the entire value chain, from the work The commitments in each area are at the farms through to operations further operationalised in a number and distribution, even including of corporate policies, addressing Our Responsibility can be recycling of packaging material. important aspects of individual or downloaded from www.arla.com.

Our Responsibility Arla Foods’ Code of Conduct

34 Development and results 2017

2016! Diagram19 Milk price changesAp11 Milk price development Arla’s aim is to maximise the price paid to its Milk price development farmer owners for their milk. This year’s milk price EUR has increased due to lower global production and 0.5 higher demand on the world market.

0.4 Milk price in 2016, and did not recover as The milk price improved throughout fast as expected in 2017, which 0.3 all of 2017, which meant that the contributed to the increase. At on account price for farmer owners the same time, the demand for in December was 10.9 per cent butter and cream was strong, 0.2 higher than in January. The world’s which further drove the dairy prices 2013 2014 2015 201 2017 total milk production declined upwards. The Arla performance price (payment to the farmer owners plus retainment) for 2017 was 38.1 eurocent/kg milk, which is an 23 per cent increase compared to 2016.

The graph shows the prepaid price, and the dots the average performance price. The performance price is communicated once a year, at the time of the Board of Representatives meeting in February/March, when profits are distributed.

Working at Arla We strive to continually improve our work environment, company culture and organisation. Diagram13 Accidentsatworkp35

Colleague engagement survey engagement. Our focus on Work accidents* The annual engagement survey, leadership, good management and Barometer, was conducted in culture is essential to be able to 20 October and sent to 18,074 attract and retain the best, most The total number of accidents has decreased year on year, since 2007. After 15 colleagues in 40 countries and qualified and inspired workforce. a few years at almost the same level, we in 15 different languages. The have again this year seen a significant response rate was 93 per cent, Diversity in talent programmes 10 decrease. The result varies from site to site four per cent more than last year. We strive to have diversified and country to country. Engagement and focus from colleagues and leaders, and The Barometer result continues to teams. In our Talent Acceleration 5 a further development of our Behaviour be strong and shows a consistent Programme we have nearly as Based Safety programme is key to the improvement in all areas. Three many women as men, and 17 0 continued positive development. important categories have, from different nationalities. In our trainee 2013 2014 2015 201 2017 an already high level, increased programme, Future 15, we have * Number of workplace accidents involving more than one day’s absence per million working hours. Numbers do not include by two per cent since last year: participants from 12 different recently established joint ventures. Employee engagement (84 per countries, and 40 per cent are cent), Strategic alignment (83 per women, and finally two thirds of cent) and Agility (82 per cent). the graduates in our Production Nevertheless, we need to continue Management Programme are our work towards an even more safe women. also includes the ‘train the trainer have taken part in Arla’s leadership and inspiring place to work, free approach’. 15 colleagues have development programmes during from harassment. Training at all levels participated in the special training 2017. Continuous training of colleagues programme ‘Guldkalven’ in Sweden Colleagues – developing our at all levels is important. During the for colleagues with a drive to business year, we have continued our focus develop, which can qualify them Our sustainable business on training in work environment, for new tasks and responsibilities. development depends on our dairy technology and local training Furthermore, 504 colleagues colleagues’ competences and within functions and roles, which (171 females and 333 males)

35 Responsible business Arla complies with local legislation in all the countries in which we operate, and we are committed to the principles contained within our Code of Conduct. We expect all colleagues to act credibly and with integrity, and set a good example of responsible business conduct.

Empower responsible business policy, when beginning in Arla. taken. Eight reports could not cases have been closed with only conduct Further to this they all have to go be handled in the whistleblower minor losses primarily related to To mitigate the risk of financial through our mandatory e-learning system due to legal reasons. investigation costs. and reputational damage due to on our set of corporate policies. Instead, the reporter is informed corruption and non-compliant of which person to contact within New data protection regulation business conduct, we have our Reports of misconduct the HR organisation. A new internal The new General Data Protection corporate policies and regular Since its inception in 2012, Arla system has been established Regulation (GDPR) will come into training in place to guide us to has received 78 reports from its to handle incidents related to force in May 2018, imposing new act responsibly and with integrity. whistleblowing function. Reports harassment and discrimination. and much stricter obligations on It is imperative for us to support have come from most parts of the all companies in Europe, when social and economic development organisation and include areas We have only had a few allegations processing personal data. A project through our business, and work such as auditing, accounting, of corruption, they have been has been initiated to ensure the against corruption, as societies theft, bribery, entertainment and investigated and closed without protection of data relating to Arla cannot grow and prosper when fair health and safety. In 2017, the indictments. During the year, Arla colleagues, members, business business is impeded. whistleblowing function received has been exposed to a number partners and consumers fulfilling 26 reports of which 18 led to of fraud attempts including asset the demands from the new GDPR. Throughout the year we have further investigation. Depending on misappropriation and cyber crimes. ensured that all new employees the outcome of the investigation, Due to robust internal controls and read and sign the anti-corruption appropriate measures have been investigation/mitigation efforts, all

Competition law training Number of colleagues trained face-to-face 493

Number of colleagues used e-learning module 257

Corporate policy awareness training Share of white collar colleagues in core countries having completed the mandatory ONE Behavior Policy 90 %

Number of incidents of non-compliance with regulations and/or voluntary codes resulting in fines Incidents regarding health and safety impact from products 2

Incidents regarding product information and labelling 0

Decisions regarding marketing 0

Substantiated complaints concerning breaches of customer privacy 0

Significant fines and non-monetary sanctions for non-compliance with laws and/or regulations in the social and economic area 0

Significant fines and non-monetary sanctions for non-compliance with laws and/or regulations in the environmental area 0

Food safety

Diagram10 Antibioticsp3 As a responsible food manufacturer we are Securing raw milk quality The diagram shows the volume of dedicated to ensuring that eating and drinking discarded milk at our dairies in our owner Tonnes countries. our products does not cause illness or injury. ,000 Cows are sometimes treated with antibiotics when they are ill. We have 5,000 procedures to prevent milk from treated Product recalls 4,000 cows to reach the consumer. Milk from treated cows is discarded at the farm 2013 2014 2015 2016 2017 3,000 during the period of treatment and for a period of time afterwards. Recalls 7 6 7 6 10 2,000 As an extra precaution, all milk is tested If we have to recall a product from with yeasts. Most of the recalls were at 1,000 before taken into use at the dairy. If it consumers or stop a product that has the Danish market, and a few affected the 0 contains antibiotic residues it is discarded. been delivered to a retailer or another Swedish and Central European markets. 2013 2014 2015 201 2017 customer, we have procedures in place Central Europe Sweden In 2017, the volume of discarded to ensure that we can act immediately. Incidents like these always activate UK Denmark milk at our dairies has decreased by Despite our strict quality and food safety analyses of root causes and initiate approximately 22 per cent. Since January routines, we have recalled products on 10 improvement activities securing the 2017, farmers have been liable for the occasions during the year, as the products product quality. During 2017, we have value of a full tanker of milk if it needs did not meet required standards. cooperated closely with ingredient to be discarded, which has driven even suppliers and improved internal processes more awareness. In total 2,987 tonnes of In 2017, we had a higher number of recalls at production sites. milk were discarded during 2017, which of yogurt and skyr products containing corresponds to 0,02 per cent of the total fruit due to contamination associated milk in Arla.

36 Responsible sourcing Diagram9 Globalcontractsp37 We source goods and services across the world. Our ambition is for all suppliers to follow our code of conduct for suppliers, which governs environmental, social and human rights aspects.

Procurement Supplier audits across the world one per cent was covered by RSPO Global contracts The procurement department Every year, we carry out audits credits. Packaging 2% has overall responsibility for based on risk evaluation, during Logistics 22% procurement in Arla, the exception which we visit suppliers and All cocoa used by Arla® and Cocio® Business services 20% being the purchase of milk. Our inspect relevant areas. In 2017, our for branded products is UTZ Ingredients 19% Maintenance, repair, globally managed external spend supplier assurance team conducted certified. operations 7% represented around 75 per cent of 63 audits globally, focusing on Energy % the total spend in 2017, compared GFSI non-conforming suppliers, All soy fed to cows at Arla farms is to 77 per cent in the previous year. packaging suppliers, allergen either organic, ProTerra-certified, The diagram shows the external spend handled by Arla’s procurement management, traceability, food RTRS-certified (Round Table department, divided across product and Preferred suppliers are Arla’s first fraud risk management, contract Responsible Soy) or covered by service categories. Our 10 largest suppliers choice suppliers selected by the manufacturing and new suppliers. RTRS-credits. account for 19 per cent (21 per cent in procurement department, and 2016) of our total external spend. for product related categories Sourcing of palm oil, cocoa and In 2017, the following companies were approved by our supplier assurance soy our five largest suppliers in order of size of team. Written purchase agreements 99 per cent of palm oil purchased spend: Tetra Pak (packaging materials and control the commercial and legal during 2017 has been segregated machinery), PCL Transport (distribution), Elopak (packaging materials and and certified according to RSPO terms. Arla now has approximately Diagram8 Consumersviewp09 machinery), Dentsu Aegis London (media) 1,500 preferred suppliers. Currently (Round table for Sustainable and Moran Logistics (distribution). 87 per cent have signed the code of Palm Oil) criteria. Due to lack of conduct for suppliers. availability of segregated oil mixes,

Responsible relations Market reputation 2016! We value the relationships we have with people. Sweden Finland Denmark Germany UK 80 No matter what the nature of the relationship, we are committed to maintaining mutual respect and understanding. 70 2017 Consumer awareness 0 2012 2013 2014 2015 201 2017 In markets where we have the majority of our farmer owners, we see a positive development in the awareness level among the consumers with The diagram shows the overall score on a scale of 0–100, with 100 being the highest and more people knowing that Arla is farmer-owned. Furthermore, in most key above 70 considered strong, awarded to Arla by consumers in a survey conducted by European markets, more and more consumers perceive Arla as being the Reputation Institute in 2017. brand that ‘helps them to eat healthily’.

Consumer contacts In Northern Europe, our consumer relations services received more than 87,000 enquiries in 2017. Our digital sites on eleven markets had 148 million visits resulting in interaction. Diagram19 Openfarmsvisitp37 Diagram18 Schoolvisitsp37 Diagram17 Visitorspasturep37

Visitors to Open farm days School children visiting farms Visitors to cows out to pasture

80,000 2017 40,000 2017 180,000 2017 70,000 201 201 201 150,000 2017 0,000 30,000 2015 2017 2015 120,000 50,000 201 201 20,000 40,000 2015 2015 90,000 30,000 0,000 We see great consumer interest in visiting 10,000 20,000 farms and gaining insight into the origin 30,000 10,000 of dairy products and the work that takes 0 0 0 place at the farm. DK SE UK DE Denmark Sweden Germany* Denmark Sweden

* Figures include Luxembourg and the Netherlands.

37 Dairy farming We want to ensure that farms supplying milk to Arla operate in a way that shows respect for the milk, the animals and the environment.

Sustainable dairy farming Arlagården® assessments The model was developed in a All Arla farms are audited according democratic process within the Carbon Energy Farm assessments assessments workshops to our quality assurance programme cooperative. Fairness and the Arlagården® a minimum of once aim of promoting the best milk UK 2010–2016 2,435 – 496 in every three-year period. In the quality have been the drivers for its Sweden 2013–2016 546 348 55 UK, our farmer owners also adhere development. Denmark 2013–2016 1,011 22 39 to the UK industry standard, the Red Tractor Farm Assurance Dairy Under the new model, milk now has Central Europe* 2013–2016 4 – – Scheme, and are assessed every the same value in all geographic Total 2010–16 3,996 370 590 18 months to ensure compliance areas and good milk quality is to both standards. In total, 5,318 rewarded. Another achievement is audits were carried out during 2017 the harmonisation of our system UK 2017 312 – 59 across all seven owner countries, for offering milk quality advisory Sweden 2017 38 24 – compared to 4,050 audits in 2016. services for farmer owners. An Denmark 2017 179 – – advisory service is offered when * Common model for milk quality milk quality analyses indicate that Central Europe 2017 8 – 12 From 1st January 2017, a common the farmer would benefit from an Total 2010–17 4,533 394 661 milk quality model has been advisory visit. The table shows the number of activities carried out in line with our sustainable dairy operating in all member countries. farming strategy.

* Germany, Luxembourg, the Netherlands and Belgium.

Climate and environment Our ambition is to minimise emissions and continually reduce our environmental impact within the entire supply chain.

EnergyDiagram11 consumption, Energyconsumptionp38 TWh Arla’s goal is to reduce energy ClimateDiagram12 impact, Climateimpactp38 million consumption by three per cent annually. tonnes of CO -e The increase in energy consumption 2 3.5 since 2011 is closely connected to the 2.0 growth of Arla with more sites, higher 3.0 production volumes and a changed mix of Arla’s goal is to reduce greenhouse gas 1.5 2.5 products. The share of renewable energy emissions from operations, transportation has increased continuously and reached and packaging by 25 per cent by 2020, 2.0 24 per cent 2017. The energy used per 1.0 compared to the 2005 levels (scope 1.5 ton of processed milk was reduced by 1+2+3, see page 39). Since 2005, Arla’s 1.0 22 per cent between 2005 and 2017. total climate impact has decreased by The diagram includes all Arla facilities at 0.5 18 per cent, despite increased production. 0.5 the end of 2017. Previous years’ data has Most challenging is to reach targets for 0 been updated. 0 transportation. 2005 2008 2011 2014 2017 2005 2008 2011 2014 2017 Oil Bioenergy Packaging Operations Gas District heating Transport Electricity

Diagram15 Waterp38 Waste, tonnes Diagram8 Wastep38 Water, million m3 Million m Arla’s goal is to reduce water consumption 40,000 25 by three per cent annually. Total water 35,000 consumption has increased over the last 20 10 years. Water saving initiatives and 30,000 investments have not fully compensated 25,000 Arla’s goal is zero waste to landfill by 15 for the increase in production volume and 20,000 2020. The development of total waste changes in product mix. The water used 15,000 from 2005–2014 is directly connected 10 per ton of processed milk was reduced to the increase in number of sites. The by 27 per cent between 2005 and 2017. 10,000 proportion of waste that is recycled and 5 The diagram includes all Arla facilities at 5,000 incinerated is increasing and waste to the end of 2017. Previous years’ data has 0 landfill has decreased by 77 per cent. 0 been updated. 2005 2008 2011 2014 2017 2005 2008 2011 2014 2017 Hazardous Incineration Water from wells on site Landfill Recycling External mains water

38 Responsibility key performance indicators Arla uses a range of performance indicators to measure its sustainable and responsible business development. The indicators are inspired by the Global Reporting Initiative (GRI) and are in line with the material issues we need to address.

This table presents 10 indicators of special interests and their connection to the Sustainable Developments Goals and the GRI indicators.

Area Arla definition 2017 result SDG GRI Page

Food safety Number of recalls 10 36 Animal welfare Top level in udder health1 56 % 12 27 Nutrition critera Arla® branded products fulfilling Arla® Nutritional Criteria (fresh dairy products and cheese) 93 % 2 12 Transparency Fraud or bribery cases (convictions) 0 205-3 36 Responsible sourcing Signed CoCs for preferred suppliers 87 % 12 37 Employee health & safety Accident frequency2 9.85 8 403-2 35 Climate impact Total reduction of GHG emissions (scope 1+2)3,4 25 % 2/13 305-1,2 38 Recycling and waste Total reduction of waste to landfill3 77 % 12 306-2 38 Water consumption Total reduction of water consumption3 4.8 % 2/6 303-1 38 Renewable energy Share of total consumption 24 % 7 302-1 24

1 Share of farms reaching top level. 2 Accident frequency per 1 million working hours. 3 Baseline 2005. 4 Please see www.lifecycleinitiative.org/starting-life-cycle-thinking/life-cycle-approaches/carbon-footprint/

UN Global Compact In early 2008, Arla signed up to the Global Human Rights 1. support and respect the protection of internationally proclaimed Compact, the UN initiative to promote ethical human rights; and business practices. As a participant, we are 2. make sure that they are not complicit in human rights abuses. committed to observing the Global Compact’s 10 fundamental principles, to the right. Labour 3. uphold the freedom of association and the effective recognition Since 2008, Arla has been a member of the Global Compact’s Nordic of the right to collective bargaining; Network. In May 2009, Arla signed up to Caring for Climate, a voluntary and 4. the elimination of all forms of forced and compulsory labour; complementary action platform seeking to demonstrate leadership around 5. the effective abolition of child labour; and the issue of climate change. In 2010, Arla’s 6. the elimination of discrimination in respect of employment and CEO signed a CEO Statement of Support occupation.­ for the Women’s Empowerment Principles, an initiative from the Global Compact and Environment UNIFEM (the UN Development Fund for 7. support a precautionary approach to environmental challenges; Women). 8. undertake initiatives to promote greater environmental responsibility; and Read more about the Global Compact and 9. encourage the development and diffusion of environmentally friendly its principles at www.unglobalcompact.org, technologies. and more about Arla’s Code of Conduct at arla.com. Anti-corruption 10. work against corruption in all its forms, including extortion and bribery.

39 Materiality analysis

Through our materiality analysis, first performed in 2014 and updated in 2017, we aim to identify material aspects in the views of our main stakeholders, and use this knowledge to better prioritise our activities.

External stakeholders including consumers, customers, owners, non-profit organisations and financial institutions in Denmark, Sweden, the UK and Germany/Central Europe have taken part in the analysis. All stakeholder groups have received a survey and been asked to prioritise 22 defined areas of interest. Moreover, a group of non-profit organisations were interviewed to get a deeper understanding of their views and opinions.

In addition to prioritising our activities, we also use the results to help us improve the scope and focus of our reporting and communication processes. Furthermore, the study serves as a basis when relating to the Global Reporting Initiative (GRI) guidelines.

Based on the results from the study in 2017, we have identified food safety, animal care and natural products as key areas of focus. These are followed by product innovation, healthy and affordable food and responsible sourcing.

Food safety1 Food safety Animal care Higher 2 Animal care Natural3 products Natural p (includingroducts (including organic) or ganic) Product4 innovation Product innovation Healthy and affordable food Responsible Responsib sourcingle sourcing Transparent7 Transpa and raccountableent and accountab businessle business Supply chain efficiency Greenhouse1 Food9 sa Gfetryeenhouse gas emissions gas emissions Recycling2 Animal c aandre waste 3 Natu10ral p rRoductsecy cling(including & owrganic)aste Working4 Product11 conditions inn Woorkingvation conditions Employee training and development Responsib12 Emple sourlcingoyee training and development Product7 Transpa13 informationrent Pr andoduct accountab inf ormationsupp.le business informed supp. in choicesformed choices Water availability and quality 9 Greenhouse14 W agaster emissions availability and quality Stakeholder10 Rec15ycling S ta& dialoguewkasehote lder dialogue Sharing11 Working knowledge conditions on health and food 12 Emp1loy eeSharing training and kn doevwelopmentledge on health and food Importance to external stakeholders Importance to external Fair13 behaviour Product17 Finairformation behaviour in foreign supp. inform in markets efdo choireignces markets Biodiversity,14 Water avail abilikeepty and and quali tdevelopy 15 Stak18eho Biodilder dialvogueersity, keep and develop Jobs1 and Sharing19 econ. knJobsowle anddgegrowth on e healthcon. in and g thero foodw thcountryside in the countryside Diversity17 Fair behaviour and inclusion in foreign markets 18 Biodi20ver siDityv, keeeprsi andty &de vinclusionelop Farmer19 Jobs 21development and F earmercon. grow dthe inv thee emerginglopment countryside eme marketsrging markets High Local20 Dicommunityversity & inclusion engagement 21 Farmer22 dLeocalvelopment communi emerging marty engagementkets High Importance to internal stakeholders Higher 22 Local community engagement

WAN E © Arla Foods amba, 2018 Project coordinator: Arla Foods Production management: Anna Michélsen Text: Arla Foods in collaboration S CO IC L D A B R with Anna Michélsen Graphic design: Waldton Design, We love people (p. 8) Graphic production: Formalix Photography: Hans-Henrik E O L Hoeg and Arla’s archive. Printing: Stibo, 2018. N

Printed matter 5041 0004

40

Arla Foods amba Arla Foods UK plc Sønderhøj 14 4 Savannah Way DK-8260 Viby J Leeds Valley Park Denmark Leeds, LS10 1AB England

Phone +45 89 38 10 00 Phone +44 113 382 7000 E-mail [email protected] E-mail [email protected] www.arla.com www.arlafoods.co.uk