Arla Foods Annual Report 2020

Management Review Our Strategy Our Brands and Commercial Segments Our Responsibility Our Governance Our Performance Review Our Consolidated Financial Statements Our Consolidated Environmental, Social and Governance Data Environmental figures 1.1 GREENHOUSE GAS EMISSIONS (CO2E) Accounting policies (continued) Greenhouse gas emissions are categorised into three scopes according to where they appear across the value chain, and what control the company has over them. Scope 1-All direct emissions Scope 1 emissions relate to activities under the group's control. This includes transport using Arla's vehicles, and direct emissions from Arla's production facilities. Scope 1 emissions are calculated in accordance with the methodology set out in the Greenhouse Gas Protocol Corporate Standard by applying emission factors to Arla-specific activity data. Scope 2-Indirect emissions Scope 2 emissions relate to the indirect emissions caused by Arla's energy purchases, i.e. electricity or heat. Scope 2 emissions are calculated in accordance with the methodology set out in the Greenhouse Gas Protocol Corporate Standard by applying emission factors to the group's specific activity data. In 2020, Arla switched from location-based scope 2 reporting to market-based reporting and updated the 2015 baseline. The market-based allocation approach reflects emissions from the specific electricity and other contractual instruments that Arla purchases, which may differ from the average electricity and other energy sources generated in a specific country. This gives Arla the chance to purchase electricity and other contractual instruments that emit less greenhouse gases than the country average. In accordance with the GHG Protocol, Arla discloses scope 2 emissions according to both the market- and location-based method (also known as dual reporting). Scope 3-All other indirect emissions Scope 3 emissions relate to emissions from sources that Arla does not directly own or control. They cover emissions from purchased goods and services (e.g. raw milk purchased, packaging and transport purchased from suppliers), but also waste processing at sites (e.g. recycling or incineration). Scope 3 emissions from raw milk are calculated in accordance with the International Dairy Federation's guideline for the carbon footprint of dairy products (IDF 2015). Emissions related to raw milk include all emissions on farm (e.g. from cows digesting the feed, manure handling, nitrogen, diesel use for feed cultivation and peat soil) and off farm (e.g. imported feed, fertilizer production and transport). The majority of Arla farmers report on climate data yearly. The emission figure related to raw milk shown in this report is an average emission per kg of milk, calculated based on the self-reported climate data from farms where the data has been validated by external climate experts, multiplied by Arla's total milk intake. Farms visited by external climate experts are statistically representative of all Arla farms. Where do our emissions come from? Scope 3 emissions from whey, waste at sites, packaging, third-party transport and extraction of fuels are calculated by applying emission factors to Arla-specific activity data. In 2020, Arla expanded the reporting scope for packaging and transport suppliers, and now covers 100 per cent of the spend on such suppliers (in previous years reporting covered about 95 per cent). Arla collects data from transport and packaging suppliers covering a minimum of 95 per cent of the spend, and based on the collected data, emissions are scaled up to cover 100 per cent. According to the 2020 quantification of Arla's total climate impact, scope 1 and 2 emissions accounted for 3 and 1 per cent of total emissions, respectively. Scope 3 emissions accounted for 96 per cent of Arla's total climate impact. Milk production on farm (including, among many factors, methane emitted by cows, and emissions related to feed and transport of feed) accounted for 86 per cent of the total emissions. For transport, operations and packaging emission factors are obtained from Sphera, an industry-leading consultancy firm. The emission factors are updated annually to the most recent complete data set for the same year, in this case 2017. Farm-level emission factors are obtained from 2.0 LCA Consultants, a Danish consultancy firm formed by academics. CO2 N₂O N₂O CH4 CH4 CO2 CO2 CO2 CO2 CO₂ Scope 1 3% Feed production Farms Transport Scope 3 96% D ELD Production and offices Transport Waste management Purchased energy Scope 2 124 ARLA FOODS ANNUAL REPORT 2020 1%

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