Key environmental and social issues associated with Shenwu’s activities are summarized below. Environmental, social and health and safety issues that require ongoing management attention are included in the Environmental and Social Action Plan (ESAP) and will be addressed by the Company as agreed in IFC’s investment documents and any associated agreements.
PS1: Social and Environmental Assessment and Management Systems
For the Beijing campus in Changping, an environmental impact assessment (to the specifications set by the local Pollution Control Board) was undertaken for Phase I (50mu/3.3ha) and approved in 2003 and for Phase II (108mu/7.2ha) in 2008 and approved in 2009. Current Shenwu operations at this and other sites comprise metal cutting, turning, welding, polishing, painting and assembly and as such, the environmental mitigation measures required are limited. Phase II at Changping includes an R&D facility where test versions of 14 technologies will be constructed, including a rotary hearth furnace and furnace dust recycling. The mitigation for the R&D facility is therefore more extensive, with bag-house filters, cyclones and other air pollution control technology integrated into the approvals and construction plans.
Confirmation of EIA approvals for all Shenwu facilities requiring them is addressed in the E&S Action Plan.
Social and Environmental Management System, Management Program, Capacity and Training, Monitoring and Reporting
Shenwu has developed corporate policies and guidelines for the development and implementation of quality, environment, health and safety management systems at operating company level. The development and implementation process was reviewed in detail at the Xiantao facility, which was certified to ISO 9001 in November 2009 and to ISO14001 in December 2009. The facility is now working toward ISO 18001 (health and safety) certification in the next 12 months. The formal systems documentation for EHS management was developed with the help of consultants and issued in January 2009. The scope is appropriate for site operations and includes occupational health and safety, fire safety, safety inspections, emergency response, safety training, female worker protection, air emissions control, wastewater management, solid waste management, food preparation and personal hygiene (including in dormitories) and pest control. The Production Manager and Safety Manager are responsible for the effective implementation and monitoring of the system, who stated that while most issues were already under active management, the formalization of the EHS management system has provided a greater degree of consistency and accountability for staff and management. While one or two large corporate clients specify ISO certification as part of their contract terms, the primary motivation for Shenwu has been internal (drivers being quality and expansion).
Tours of manufacturing areas in Changping and Xiantao demonstrated that EHS requirements translate into operational practices, with good working practices being observed and appropriate levels of signage and equipment. Two issues were observed where practice was inconsistent however: workplace noise (hammering metal in enclosed areas) and safe handling of acetylene bottles (some free standing at point of use rather than in a dolly to prevent falling). These indicate the need for ongoing monitoring and reinforcement of EHS management procedures through regular workplace inspections and training.
Shenwu relies heavily on contractors for the installation of its technology at client sites, with Project Managers in the Construction Department taking oversight responsibility. EHS practices of contractors are a component of the oversight role. As part of the agreed Environmental and Social Action Plan (ESAP), Shenwu will extend its existing EHS systems and procedures to provide consistent oversight of environmental, social and health and safety for sub-contracted tasks, as well as for screening of new business opportunities or service models in expanding its business. The Safe Production Team (which reports to the CEO) will be responsible for completing this task.
The main raw materials that Shenwu sources are steel (plate, sheet and castings) and ceramic bricks (for heat retention), which are a composite of mullite (a high melting point silicate) with other minerals and oils. Shenwu does not represent the majority customer of any individual supplier.
Due to the limited nature of Shenwu’s current manufacturing operations, there is no formal community engagement program. The development of the R&D facility at Changping may require such a program to be established. The Head of the R&D facility and the Safe Production Team will monitor this need as part of the ongoing review of the EHS program at the site.
PS2: Labor and Working Conditions
HR Policy, Non-Discrimination, Working Conditions, Terms of Employment and Grievance Mechanisms
Shenwu currently employs 900 staff, the majority of which are in two locations (Changping and Xiantao). All workers are direct employees, with written contracts specifying working conditions, terms of employment, wages and benefits (as required by national legislation). Shenwu has a corporate human resources policy and supporting manual which specifies staff welfare, health and performance criteria. This is used as the basis for the policy and staff manual developed at each operating company. As is common practice in China employment relationships recognize the principals of non-discrimination, equal opportunity and grievance procedures (although not explicitly stated). A branch of the ACFTU (All China Federation of Trade Unions) has been established for Shenwu staff.
Shenwu estimates that 80% of its workforce within each operating company location is local, with the remaining 20% typically being workers with specific skills (manufacturing and white collar roles). No part time, contract or seasonal labor is directly employed. There is no differentiation in employment terms or benefits between equivalent local and non-local staff. Staff turnover rate is 5% per annum.
All facilities operate a single 8 hour shift, five days a week. Overtime is restricted to a maximum of 16 hours a month, in the form of up to two additional shifts on one day of the weekend and compensated at twice normal salary. Base salaries are above minimum wage in all provinces where Shenwu operates, with a team based productivity bonus. Minimum employment age is 18.
Shenwu invites and processes grievances through three routes: via ACFTU representation, through issues raised with HR staff and via a suggestion box in each premises (which therefore allows for anonimity). Shenwu management stated that grievances to date had focused primarily on workplace conditions, with suggestions on how to improve productivity, safety or comfort.
Accommodation is available to staff. Shenwu provides this option for staff who have served a minimum employment period and who have applied. No rent is charged – staff pay utilities and their personal costs (e.g. food). After five years of service, staff at a qualifying grade can apply for family accommodation. The dormitory inspected at Changping was newly completed, with a high quality fit out including kitchen, bathroom and air conditioning in each unit. Fire signage and smoke alarms were evident. At Changping, a company bus provides transportation to and from central Beijing for workers not living on site.
Shenwu ensures that child labor or forced labor is not employed by subcontractors through verification of relevant documents. Subcontractors are expected to comply with all local labor requirements specified in contractual arrangements.
Occupational Health and Safety
The core of the occupational health and safety management system has been described earlier, with a corporate policies and guidelines being interpreted and implemented at the operating company level, with the Safety Manager at each location being held responsible for overall performance.
All new staff are given a safety induction. Review of 2009 lost time accident records at Xiantao indicate three incidents, all relatively minor in nature with the longest absence period being two days. The most common injury is metal cuts. There are no outstanding injury claims against the company. Staff is provided with work clothing, safety boots, safety glasses and other personal protective equipment (PPE) as required for the task they are undertaken. From walk throughs at the Changping and Xiantao site, appropriate PPE use by workers was observed, with the exception of ear defenders. Given the high workplace noise levels associated with some assembly operations (hammering of metal), a risk analysis is required, with recommendations on change in process, procedure or the PPE provided. This is addressed in the E&S Action Plan.
PS3: Pollution Prevention and Abatement
As described in PS1, Shenwu’s direct impacts are limited, although the development of the R&D facility will generate new emission streams (primarily to air). The abatement design and EHS management program for the R&D facility is addressed in the EIA (see PS1). Shenwu will also assess the R&D facility against the emission and discharge limits specified in the IFC General Environmental, Heath and Safety Guideline (or relevant industry sector guidelines for individual trial technologies) and mitigate as required to comply. This is addressed in the Action Plan.
Current operations currently generate workplace environment issues (e.g. noise, heat) rather than external environment impacts. There is negligible solid waste disposal, as all scrap metal is recycled. Small quantities of waste such as spent cutting fluids, empty paint tins, packaging materials, office and canteen wastes are collected, segregated, and where feasible recycled by licensed vendors. No discarded waste materials were observed at either the Changping or Xiantao facilities.
Electricity is obtained from the national grid and current annual consumption by the company operations is estimated at 1700 MWh. Coal consumption is estimated at 1,000mt/year. When on line, the R&D facility will increase electricity and coal consumption by 10% per annum. Water is obtained from the local municipal supply and company usage estimated at 80,000 cubic meters per year.
Greenhouse Gas Emissions
As stated in the E&S Categorization Rationale, Shenwu’s biggest pollution prevention and abatement impact comes via the deployment of its technology. At the visit to the client site (a stainless steel plant), the installation of the Shenwu furnace had halved the energy costs/ton metal, due to the recovery and storage of heat from the initial melting process. The avoided greenhouse gas emissions therefore come via reduced primary fuel use (in this case, coking gas). An additional benefit (and potential business driver in itself) is reduced nitrogen oxide emissions (low NOx burner technology).
Shenwu’s contract terms with clients include several performance indicators, primarily on fuel savings and reliability. Completion tests are run after 3-4 months of trial operation. Shenwu calculates avoided GHG through avoided fuel use (using internationally accepted conversion ratios e.g. for coking gas combustion). Equipment is under warranty for one year, with extended warranties available. Furnace maintenance is typically required every six months after the completion tests.
PS5: Land Acquistion and Involuntary Resettlement
The company has acquired land via a number of different procedural processes, with a review of Changping and Xiantao undertaken during the site visit.
For Changping facility, Shenwu acquired the land use rights in two stages. The facility sits within a high-tech development zone designated by the local authority, on land previously given over to agriculture. The 50mu/3.3ha for Phase I was collective village land and was acquired by Shenwu from the local village for RMB11 million in 2003, a price slightly higher than the average sale price at the time. The Company reports that its purchase sum was distributed to all affected persons.
For the Phase II expansion, 108mu/7.2ha of collective village land was acquired. Shenwu was instructed by local government to negotiate directly with land use rights holders (33 individuals). This process commenced in 2007 and involved economic (agricultural) land only – no physical displacement took place. Compensation payments reflected prevailing market valuations and as such, were 2-3 times the government specified floor price. An additional premium was paid to land owners for the change in land status (agricultural to urban). Shenwu has documentation to support the outcome of each negotiation and compensation agreed.
The receipt of the formal land use right certificate for Phase II is pending however, in spite the fact that construction of the R&D facility has begun. This is due to an administrative diversion of opinion between two government bodies involved in permitting and construction: Shenwu was requested by one to commence construction in May 2010, while another department subsequently challenged this request. Shenwu management is negotiating for resolution of this situation, which will need to include receipt of all relevant permits and certifications for land, construction and operation. This will be addressed in IFC’s investment agreement with the company.
At Xiantao, the local government was responsible for negotiation of land use rights, land compensation and clearance/preparation of the 405mu/27ha assigned to Shenwu (of which to date, 107mu/7.1ha has been developed). The site is located within an industrial park established by the local government in 2004. No physical resettlement was required – the land was either agricultural or uncultivated.
Original acquisition of land from local communities took place in May 2006, with Shenwu subsequently purchasing the land use rights from the local government in 2007. Shenwu management and affected persons interviewed by the Company reported that there were no known disputes regarding the land use rights acquisition process or the level of compensation paid. This was reported by the Company to be in line with prevailing local market price for land and that the purchase sum was distributed among affected persons. All affected persons also transitioned from rural to urban residence status, and the Company and the local government undertook initiatives to help affected persons develop new skills and new income sources. Forty persons from the affected community are now employed by Shenwu.
From the above information, IFC concludes that the land acquisition process met the objectives of PS5.
