Nufarm : Climate Change Risk Assessment

Qualitative Climate Change Risk Assessment

Supplement to FY22 Sustainability Report

January 2023

Introduction

The connection between nature and food systems means climate change presents both risks and opportunities for the agricultural industry, including Nufarm. Sustainable agriculture helps mitigate climate change and supports us in adapting to future climates by increasing land productivity and yields, limiting further land clearing, growing renewable sources of fuel and materials, protecting soil against erosion and water loss, or growing crops to sequester more carbon.

Climate change is driving greater focus on practices that support agriculture to adapt to future climates and technologies that enable mitigation of contributing emissions.

We established a climate change policy in 2021, and formalised our commitment to understanding climate-related risks in alignment with Taskforce for Climate-related Financial Disclosures (TCFD) recommendations. This qualitative climate-related risk and opportunity assessment is a further development of this work program.

This risk assessment builds on the climate-related risks and opportunities identified in our 2021 annual report. This assessment will further support us in understanding the most significant climate- related risks to our business, and identify potential opportunities, so that we can continue to support growers in providing food to a growing global population. We completed the first phase of this work through partnering with an experienced service provider who worked with us to conduct a

qualitative climate-related risk and opportunity assessment over Nufarm's value chain.

We will work now with the executive and board risk and compliance committees to determine the next priorities for this program.

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Methodology

Scenarios

The risks and opportunities identified in this risk assessment were assessed against two scenarios:

Low emissions scenario (High Transition Impact)

2⁰C

Global average temperature below 2° C warming relative to pre-industrial levels

This is characterised by peak physical climate impacts by 2040 holding stable out to 2100. Emissions of carbon dioxide and other greenhouse gases peak in the 2020s and then rapidly reduce through the 2030s and 2040s. Global temperature stays below 2° C warming relative to 1850-1900 with implied net zero emissions in the second half of the century

For transition impacts, it is assumed there is substantial regulatory intervention and high stakeholder expectations.

Immediate action is taken to reduce emissions consistent with the Paris Agreement. Introduction of an emissions price. Policy measures are introduced early and increase progressively.

High demand for low emissions products or services to reduce emissions. This could provide a competitive advantage/disadvantage depending on whether the business can meet the market demand.

RCP2.6: 'Very stringent' pathway; SSP1: Sustainability (Taking the Green Road)

High emissions scenario (High Physical Impact) >3°C

Global average temperature above 3° C warming relative to pre-industrial levels

This is characterised by > 3° C warming by 2100, almost certain increase in the incidence and severity of extreme weather events, and significant changes to long-term climate cycles (precipitation, wind, temperature).

Only current climate policies are implemented. Paris Agreement targets are not met. It is an extrapolation of what would happen if no additional measures were taken.

Climate policy focuses on local environment; little concern with global issues.

Highly managed, resource-intensive agriculture with rapid increases in productivity.

RCP8.5: 'Worst case' pathway; SSP5: Fossil Fuelled Development (Taking the Highway)

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Methodology

Time horizons

Two time horizons were chosen for the assessment, a short- and a long-term horizon:

• The short-term horizon is defined as 2030 to align with key decarbonisation targets for Nufarm and internationally and is when transition risks will materialise.
• The long-term horizon is defined as 2050 to align with further materialisation of physical risks, especially material to Nufarm grower demand, and with key international targets.

Scope and approach

The climate-related risks and opportunities assessment was performed for selected areas of the business. The selection comprised key sales regions, Nufarm's largest suppliers and production facilities with known susceptibilities to climate events. This allowed Nufarm to prioritise the risk assessment to the areas most likely to present significant risk and opportunity.

The assessment was conducted in line with the TCFD recommendations, and is therefore divided into the following three major categories below:

1. Transition risks - those associated with the transition towards a lower carbon economy such as increased pricing of greenhouse gas (GHG) emissions or changes in government regulation around use of agricultural products.
2. Physical risks - those associated with the physical impacts of climate change, such as increased incidence of extreme weather events or chronic changes in temperature.
3. Opportunities - those opportunities associated with the transition towards a lower carbon economy, and/or that might arise from a changing climate.

To assess physical risks, we have performed a demand analysis by assessing the impact of the various TCFD climate drivers on agricultural conditions and Nufarm's associated products using the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report and online area and topographic maps for regions.

The descriptions of risks, opportunities and resilience are not forecasts, but describe what could happen if the world's development progressed as described in each of these scenarios. The impact of the risks is described qualitatively and takes into account mitigating actions that may already be in progress - this assessment was the first scenario analysis performed by Nufarm, and therefore focuses on qualitative assessment.

Recommendations of the Task Force on Climate-related Financial Disclosures, TCFD, 2017, p.8.

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Risk assessment

Transition Risks

Description - Risk

Description - Opportunity

Strategy and mitigating actions

1. Changes in product demand - driven by adaptation policy and regulation and the market response to policy and regulation

Therefore we will also need to evolve our product offerings and target markets.

Transition: Policy, legal and regulation; Market

Risk		Opportunity			Improving yields and new plant-based solutions are important elements
Scenario:	2⁰C	Scenario:	2⁰C	>3⁰C	in improving nutrition, supporting the environment and getting the most
			from every acre.
Time horizon: 2030	Time horizon: 2050
	How our products could help growers adapt
Under the low emissions scenario, growers across the globe will	Under both high emissions and low emissions scenarios,
Carbon sequestration case study
adapt and evolve their farming methods and crop choice in direct	changes in climate also create opportunities for Nufarm to
response to regulation and/or consequent economic/market	evolve our product offerings and target markets	Our Nuseed Carinata helps replace fossil fuels as a low-carbon
conditions.					renewable oil feedstock for hard to abate sectors, such as aviation with
Policy, legal and regulation				sustainable aviation fuel, and heavy transport. Nuseed aligns the supply

•	Europe - Changes in government subsidies or regulations	chain to contract-grow our Nuseed Carinata seed as a non-food
harvested cover crop. Cover crops improve soil health, sequester carbon
	around the use of agricultural products or areas allowed to
	as they grow, and protect against erosion and carbon loss in the months
	be planted with certain crops reduces availability and usage
	between main crop rotations when land is typically exposed.
	of crop protection products
	Nuseed sunflower hybrids have many of the characteristics of their wild
•	Europe, New Zealand - Changes in regulation impacting use
relatives, such as drought tolerance and a deep root system that mines
	of genetic modification (GM), limiting use of genome edited
	for nutrients. The majority of sunflowers are produced in a reduced-
	(GE) crops with climate resilient traits
	tillage system which prevents erosion, leaving the stalks standing and

Market

• Global - Reduced demand for Nufarm products due to substitution of crop protection products for lower emissions products
• Global - Higher GHG emissions leading to higher commodity prices might lead to changes in farm inputs and outputs. Increasing costs of commodity prices and negative impact on growers' ability to purchase crop protection and seed products

Impact: Reduced volume of sales / reduced sales

fields undisturbed over winter which also provides an excellent food source for wildlife.

Sustainability enabling crop protection products

We manufacture and sell products that enable sustainable farming practices such as no-tillage farming, which reduces on-farm fuel consumption by up to 60 per cent, significantly contributes to carbon sequesteration, retains soil moisture and reduces erosion. These products help growers reduce energy and time resources while increasing farm productivity and are an important part of our product portfolio.

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