25170 - MCS Group

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Environmental & Social Review Summary

Project Number

25170

Company Name

MCS (MONGOLIA) LLC

Date ESRS Disclosed

Oct 31, 2007

Country

Mongolia

Region

East Asia and the Pacific

Last Updated Date

Jun 3, 2021

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : May 1, 2008
Signed : May 31, 2008
Invested : Jun 23, 2008

Sector

Construction and Real Estate

Industry

Tourism, Retail and Property

Department

Gbl Ind, Manufact, Agribus & Services

Project Description

Incorporated at Ulaanbaatar in 1993, MCS Group (MCS or the Group) is one of the largest private enterprises in Mongolia with 15 subsidiary companies engaged in diversified business activities including:

- energy development equipment and services;
- property development, civil engineering and construction;
- textiles manufacturing;
- consumer goods distribution and sales;
- computing and information technology sales and service; and
- food and beverages, including bottling and distribution of water, soft drinks, beer and spirits.

MCS has requested IFC to consider long-term corporate financing to support the company’s various capital expenditure programs and improve its balance sheet.

Overview of IFC's Scope of Review

IFC’s appraisal of its proposed investment in the MCS Group consisted of:

- a review of documentation and discussions with MCS management regarding the environmental, health, safety and social performance of the entire range of the Group’s operations; and
- a physical inspection of a representative sample of the Group’s operations, including:

the Goyo cashmere wool factory;
the MCS/Coca Cola formulation and bottling plant;the MCS/Asia Pacific Breweries brewery;
the construction sites for the high-rise Shangri-La Ulanbaataar Office Towers and Shopping Complex, the Shangri-La Hotel and the MCS residential complex;
retail computer sales outlets;

- discussions with officers of government agencies responsible for the promulgation and enforcement of environmental, health and safety standards.

E & S Project Categorization and Applicable Standard

While all Performance Standards (PS) are applicable to this investment, IFC’s review indicates that the investment will have impacts that must be managed in a manner consistent with the following Performance Standards:

- PS1: Social and Environmental Assessment and Management Systems
- PS2: Labor and Working Conditions
- PS3: Pollution Prevention and Abatement
- PS4: Community Health, Safety and Security
- PS5 Land Acquisition and Involuntary Resettlement
- PS6: Biodiversity Conservation and Sustainable Natural Resources Management

The findings of the of the project review confirm the application of these performance standards and indicate that there are no impacts related to PS7: Indigenous Peoples or PS8: Cultural Heritage.

This is a category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts that may result have been or are being avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.

Based on a preliminary review of project information, IFC identified potential environmental, social, health and safety risk in the following areas: environmental health and safety management systems within each sector of business operations as well as at the holding company level. Within specific property development, construction, manufacturing and food and beverage processing operations, potential risks are associated with:

- labor relations and workplace health and safety;
- air and dust emissions;
- liquid waste treatment and disposal;
- solid waste handling and disposal;
- transportation operations;
- life and fire safety of public buildings;
- sustainable water supply; and
- the management of impacts on biodiversity and natural resources related to wool processing operations.

Environmental and Social Mitigation Measures

Information concerning how these potential impacts are addressed by the Group is summarized in the paragraphs that follow.

- PS1: Social and Environmental Assessment and Management Systems

IFC’s assessment considered the Group’s management of its environmental, health and safety performance in the establishment and operation of its facilities; compliance with national and local permitting requirements; and the Group’s engagement with local communities regarding environmental, health and safety performance and corporate social responsibility.

- Environmental & Social Assessment:

All MCS operations having direct impacts on the environment have obtained the necessary approvals from the concerned national and Ulaanbaatar city government authorities. Mongolia’s system of environmental assessment, as codified in the Law on Environmental Impact Assessments (1998), requires project proponents to submit a detailed project description, inclusive of technical and economic feasibility, for a General Environmental Assessment by the responsible division of the Ministry of Nature and Environment (MNE). Depending on the scope and significance of the proposed project’s environmental impacts (e.g., large scale construction project), MNE may require the project proponent to submit a Detailed Environmental Impact Assessment to be prepared by a government-licensed entity. Once a project is approved by MNE, a summary of the project’s detailed EIA is published on the Agency’s website: www.mne.mn.

The EIA Law makes no formal provision for public consultation regarding the environmental and social impacts of a project. MNE requires the project proponent to conduct an opinion survey among those people directly affected by a project, and to incorporate both the findings this survey and proposed measures to address any public concerns in the Detailed EIA submitted by the proponent for approval.

- Management Systems:

The entire MCS group adheres to vision that promotes responsible environmental, health and safety (EHS) management to minimize potentially adverse social and environmental impacts of its operations. The Group’s core business units targeted for this review maintain integrated systems to manage environmental, health and safety (EHS) performance commensurate with the level of risk associated with their operations. These systems incorporate, or are consistent with ISO standards of quality management and continuous improvement.

MCS Coca Cola adheres to The Coca Cola Company’s international quality management system that incorporates:

- a worker safety management system structurally aligned with the international workplace health and safety standard OHSAS 18001;
- an environmental management system aligned with ISO 14001;
- a quality assurance system aligned with ISO 9001:2000; and
- a social accountability standard modeled on SA 8001.

Coca Cola’s own Total Quality Management system holds its franchisees accountable for ensuring the system is applied throughout the supply chain, the manufacturing process, distribution network and retail sales outlets. The system monitors all production inputs and waste streams in an effort to optimize raw material and energy consumption, reduce waste and ensure worker health and safety. MCS Coca Cola is audited each year by Coca Cola as well as independent auditors for quality management and EHS standard compliance.

The Group’s joint venture with Asia Pacific Breweries (APB) for the production of Tiger Beer and local beer brands requires the Company to operate its brewery in accordance to the international EHS standards of the Heineken Group, which is the owner of APB. These standards are consistent with ISO and European Union EHS standards. The MCS/APB management is required to submit a detailed annual EHS report to the Heineken Group’s Supply Chain Services to maintain rights to the Tiger brand.

The Group’s cashmere wool processing operation, Goyo Co. Ltd., has strengthened EHS standards inherited from Soviet industry with the influences of international partners such as Coca Cola and Asia Pacific Breweries. Goyo maintains sophisticated quality control systems coupled with robust workplace EHS systems to ensure worker safety.

MCS International maintains a staff of Labor Safety engineers responsible for supervising local MCS contractor compliance with national EHS requirements on its various projects, including civil construction and erection projects, and electro-mechanical works. MCS International assigns an EHS team to each of its joint venture construction projects to coordinate and ensure the compliance of foreign EPC contactors with all national environmental and labor safety standards.

- Community Engagement:

The Group’s engagement with the public is undertaken through a corporate website as well as the Media. The Group’s website (www.mcs.mn) provides timely information on each of the Group’s company activities, and press reports provide information on Group business and community initiatives. EIA information related to the Group’s capital development projects is posted on the Ministry of Nature and Environment website.

PS 2: Human resources and working conditions. IFC’s assessment considered MCS’s operations with regard to fair, safe and healthy working conditions in construction and operation of facilities in all business segments. As of September 2007, the Group directly employs more than 3000 full time staff. Nearly 50 percent of this workforce is female and women occupy nearly 60 percent of the Group’s management positions.

- Human Resource Policy and Management:

Each of the Group’s companies abides by the requirements of the Mongolian Labor Law, which was influenced by a history of association with the Soviet Union. One of the Group’s Companies, Anungoo, has been the exclusive distributor of Procter and Gamble household products in Mongolia. Beginning in 2005, the Group began to establish a comprehensive, group-wide HR management system modeled on Procter & Gamble standards adapted to the requirements of the socialist model of labor relations. Subsequently, the Group developed a framework for an HR management system governed by a policy that is consistent with the ILO declaration on fundamental principles and rights at work. The Group’s HR policy includes components related to:

- guidelines for recruitment, selection and continuity in service;
- standardized skill competencies;
- performance appraisal;
- career progression;
- professional development;
- rewards and recognition;
- professional ethics.

Under the supervision of the Group Vice President for Human Resources, the Group undertakes and annual Organizational Culture Survey to sample the opinions/grievances/ suggestions of all employees regarding wages, benefits, working conditions, relations with management and professional development. The results of the survey are reviewed by Group management and consolidated into an Action Plan that is circulated among the entire workforce. The Vice president for Human Resources is accountable for the implementation of the Action Plan.

- Worker’s Organizations:

There is a strong tradition of organized labor and worker’s rights in Mongolia inherited from Soviet influences. The workforce of the Group’s companies is not unionized but there is no restriction to any employee joining a union. The country’s principal trade union (‘Mongolian Trade Union’) advocates for advances in workers’ wages and benefits directly with the central government, and these advances are reflected in amendments to the national labor laws.

- Retrenchment:

There is no retrenchment associated with IFC’s investment in the Group.

Occupational Health & Safety
The Group companies follow all national statutes governing the protection of the workforce. High standards of workplace health and safety are maintained by each operating unit such as good housekeeping, daily safety briefings, good safety signage, employee health records and Lost-Time-Accident records (low frequency of occurrence). In those operations where Personal Protective Equipment (PPE) is applicable, operations managers enforce the use of PPE among employees. MCS International adopts the safety management practices of its international engineering contractor partners in the Group’s major joint venture construction projects in addition to its own procedures for meeting Mongolian workplace safety standards.

All Group company operations that require the handling of potentially hazardous materials (e.g., spent fuel oil, chemical dyes and cleaning solvents, water/wastewater treatment chemicals and sludge) have relevant safety signage posted in the workplace as well as convenient access Material Safety Data Sheets. However, threshold exposure limits to chemical components in workplace environments and repetitive tasks are not established in Mongolia.

- PS3: Pollution Prevention and Abatement

IFC’s assessment considered the Group’s operations with regard to efforts to optimize resource inputs, including energy efficiency and waste minimization practices as well as the storage, handling hazardous materials used in the construction and operations of facilities. Mongolia’s State Inspection Agency has the authority of setting and enforcing environmental quality standards, and is the agency responsible for monitoring the compliance of industrial units and commercial enterprises with those standards. The Agency maintains a comprehensive set of standards for potable and waste water quality. Ambient air quality standards and limits for industrial emissions are being developed by the Agency.

The MCS Group supports efforts within its operations to conserve resource inputs and reduce waste in all operations as part of its commitment to environmentally responsible performance. The Group’s beverage and textile units draw water from the municipal supply and pre-treat process wastewater before discharge to the municipal sewer system. While Mongolian standards for treated effluent are somewhat higher than IFC’s standards, the quality of effluent discharged by the MCS units is well within Mongolian statutory limits. Each of these units monitors raw material consumption, water and energy use on a production unit basis in order to progressively reduce the amount of inputs required for processing. Both the soft drink and brewery companies benchmark their resource efficiency with the international standards maintained by their respective brands. The Group’s cashmere factory has developed its own initiatives for conserving energy in wool washing and dying processes, including pre-heating of wash water and recycling of rinse water.

The Group complies with all applicable statutory requirements for the handling and disposal of solid and hazardous waste.

- PS4: Community Health Safety and Security

IFC’s assessment considered the Group’s operations with regard to the impacts of the construction and operation of its facilities and business units on surrounding communities.

All Group properties are equipped with fire detection and fire fighting systems that meet Mongolian national standards for fire safety design and building works. Each property has an emergency evacuation plan and drills are carried out on a biannual basis under the supervision of the local fire brigade. The MCS/Shangri-La properties have been designed in accordance with building fire safety standards developed by the British Standards Institute.

The sites of all MCS International construction projects are secure and only authorized construction personnel, contractors and suppliers are allowed access. MCS International staff manage day-to-day delivery of construction materials to building sites to minimize the impact of vehicle traffic on surrounding communities. The large expatriate workforce employed by the Beijing Construction and Engineering Group for the construction of the two MCS/Shangri-La properties is housed in dormitories on the outskirts of Ulaanbaatar and bussed to the worksite. The construction workforce employed by the Korean group building MCS’ residential complex, Seoul Win, is predominantly Mongolian.

Group operating units retain unarmed security personnel from established private security contractors. Units operating in industrial estates are provided security services by the estate authorities.

- PS5: Land Acquisition and Involuntary Resettlement

IFC’s assessment considered the company’s operations with regard to the potential displacement of occupants and/or users of land acquired for the construction and operation of facilities.

There is no physical or economic displacement associated with any of the Group’s acquisition or development of its facilities and operations. The Group’s beverage and textile units were formerly state-owned assets subjected to privatization and subsequently re-fitted or expanded to accommodate their current operations. The sites for the MCS/Shangri-La Ulaanbaatar properties were formerly public lands awarded to the developers through tender by the Ulaanbaatar city government. The sites of the MCS international residential complex and the existing MCS Complex were unoccupied properties acquired from commercial developers.

When state-owned enterprises are privatized, the Government leases long-term “possession” rights for those assets to successful bidders for those enterprises. Similarly, the Government leases possession rights to greenfield sites for capital development projects to project proponents. Within designated urban areas, the Government allots the ownership right for 0.07 hectares to each household for a housing plot. These ownership and possession rights are transferable. While there is a mechanism of “eminent domain” exercised by the government to obtain land for capital development projects, there is no established framework for the compensation of households affected by such acquisition. As such, the MCS group has committed to meeting IFC’s Performance Standard on Land Acquisition and Involuntary Resettlement for any future land acquisition situation triggering its requirements.

- PS6: Biodiversity Conservation and Sustainable Natural Resources Management

IFC’s assessment considered the direct impact of Group activities on biodiversity and natural resources through its wool processing operation. Goyo is one of a number of cashmere, camel and yak wool processors in Mongolia. Each competes for raw material supply through a network of state organized herders’ cooperatives, private brokers and direct procurement from individual herders. Growing demand for the same raw material from Chinese processors has lead to a three-fold increase in the number of grazing stock in Mongolia in the last twenty years – from 5.5 million head to 16 million head. This level of grazing pressure on the limited productivity of the Mongolian steppe is not likely to be sustainable. Goyo management has expressed interest in participating in an industry-wide program being developed by the IFC Small and Medium Enterprise Advisory Services to promote improved stock breeding that would lead to reduced herd size and pressure on grazing land.

Stakeholder Engagement

The MCS Group of companies is a leader in corporate social responsibility in Mongolia. The Group supports a variety national cultural and athletic initiatives as well as a nation-wide competitive university scholarship program. Group companies individually support a wide range of education, health and religious activities around the country, including mobile dental clinics that serve a widely dispersed population, mother-child health, support for orphanages and libraries, literacy and computer training programs, and support for the revival of Buddhist institutions. Goyo maintain supply chain relationships with a network of small herders that provide livelihoods for rural communities around the country.

Contact Information:

Mr. Gankhuyag, Chief Financial Officer
MCS Plaza, Seoul Street-4
Mongolia

Telephone: 976-11-312625
Website: http://www.mcs.mn

The environmental documents will be made available at the following location:

Lobby of MCS Plaza,
Seoul Street-4, Ulaanbaatar-210644,
Ulaanbaatar, Mongolia

Client Documentation

File Name	Actions
MCS Mongolia EHS Action Plan final.pdf

**Information on IFC's Policy and Performance Standards on Environmental and Social Sustainability can be found at www.ifc.org/sustainability

IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

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