While all Performance Standards (PS) are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards: - PS1: Social and Environmental Assessment and Management System; - PS2: Labor and Working Conditions; - PS3: Pollution Prevention and Abatement; - PS4: Community Health Safety and Security. Issues relating to PS5: Land Acquisition and Involuntary Resettlement are not applicable - IFC's assessment considered the potential displacement and compensation of occupants and/or users of land acquired for the construction and operation of the new production facilities and power plant. The company reports that 20.5 ha of legally titled land were acquired through purchase of land from individual land owners under commercial terms (willing buyer - willing seller). Purchases of land and property were made above prevailing market rates in consultation with the village leaders (Lura). The company has confirmed that titles to the acquired land/property have been legally transferred to the company, and that there are no outstanding legal actions pending with respect to any of the land/property transactions. PS6: Biodiversity Conservation and Sustainable Natural Resource Management; PS7: Indigenous Peoples and PS8: Cultural Heritage is not applicable to this project.

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 may result, which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. Key environmental, health and safety, human resources and social issues that were reviewed included the following: - Environmental and social management system; - Quality and sustainability of water resources; - Emissions to the environment – air, water and subsurface; - Solid and hazardous materials management, including transportation, handling and storage; - Life and fire safety; - Community and occupational health and safety; - Traffic safety - Energy use and efficiency; and - Community engagement. The company has presented specific plans to address key issues and gaps to ensure compliance with local regulatory requirements as well as consistency with IFC Performance Standards and applicable sections of the World Bank Group (WBG) Environmental, Health and Safety guidelines, during the construction phase and when the plant is operational. Additionally, new technology, energy efficiency and recovery provide a significant positive impact on global climate change. The project will create additional employment opportunities for local communities. Environmental and Social Impact Assessments (ESIA) are currently underway which included consultation with the local community on potential project related impacts. On completion, the ESIA will be disclosed publicly and require approval by the local government prior to commencement of activities for which an approved ESIA is required.

The company has provided information on its current practices and policies that seeks to address these risks and impacts to ensure that the proposed project complies with or, will upon implementation of specific additional agreed measures, comply with host country laws and regulations and the IFC Performance Standards on Social and Environment Sustainability and applicable sections of the general and sector specific environmental, health and safety guidelines. Environmental, social and health and safety issues that require ameliorative measures will be addressed by the company as part of IFC’s Loan Agreement. - Social and Environmental Assessment and Management Systems: South Pacific Viscose is an existing IFC client, and this is a repeat investment. SPV has been in compliance with national regulatory requirements and its E&S performance has been consistent with at approval requirements for the previous investments. SPV has a certified management system which includes ISO 9001, ISO 14001 and OSHAS 18001. Facilities are audited periodically to ensure compliance with certification requirements. SPV's management program is consistent with that of its EU parent (Lenzing, Austria). SPV has a vice-president with responsibility for environmental matters. These include measures such as risk analysis, development of safe working procedures, a work permits system, staff training in areas such as basic safety awareness, use of personal protective equipment (PPE), hazard identification, housekeeping, use of MSDSs, and fire fighting, emergency response and first aid. Every accident and dangerous occurrence is investigated to identify what happened, the causes and action necessary to prevent repetition. SPV maintains accident frequency and severity statistics which is reported to be better than its EU parent. Accident frequency is satisfactorily low when compared with similar industries in the sector such as pulp/paper making. Environmental and Social Impact Assessment (ESIA) are currently being undertaken for the new manufacturing line (Line 5). The scope of the ESIA will include among other things, establishment of recommended emission performance standards and consultation with the local community on potential project related impacts. On completion, the ESIAs and environmental and social management plans will be disclosed publicly and require approval by the local government prior to commencement of activities for which an approved ESIA is required. Human resources are managed effectively at the corporate level and in compliance with Indonesian labor laws. The company is currently undertaking a review of its HR policies for consistency with that of the Lenzing Group. Training of staff is done on a routine basis in compliance with Indonesian workplace regulations. Facilities managers are responsible to ensure that employees are adequately trained to perform their work safely. SPV has a monitoring program for occupational health and safety (OHS) issues that are managed at the facilities level in compliance with Indonesian regulatory requirements. Facility managers monitor that standards are met and any reportable incidents are reported and follow up action taken when required. Reporting requirements comply with national laws and regulations, and are largely consistent with applicable sections of the WBG EHS guidelines for the sector. - Labor and Working Conditions: SPV currently employs about 1,700 employees and expects to hire in addition up to 270 new employees after expansion in production capacity. Labor practices and working conditions, including occupational health and safety, comply with local regulatory requirements, and consistent with IFC PS2 requirements. SPV policy on employment is included in employment contracts, and addresses working conditions, terms of employment, and wages and benefits. This information is provided in the form of an employee brief at the time of induction. The minimum employment age at SPV is 18 years. Child labor or forced labor is not employed directly, or by subcontractors or in the supply chain. Subcontractors are expected to comply with all local labor requirements specified in contractual arrangements. SPV is currently working on achieving consistency with policies and procedures established by the Lenzing group. Occupational health and safety at SPV facilities are managed by designated health and safety staff. There is a plan for prevention and worker safety consistent with local regulatory requirements. All employees in the company have to undergo a full training program at induction and subsequently on worker health and safety relevant to their job activity. Health and safety procedures are consistent with that of the Lenzing group. Facilities are audited by regulatory agencies to monitor compliance with labor regulations, as well as by staff from Lenzing Austria. Workplace air quality and noise are monitored annually, and reported to be in compliance with local regulatory requirements and WBG guidelines. SPV has made significant progress toward improving its health and safety standards and monitoring performance on the use of PPE, especially in work areas where workers can be exposed to low levels of carbon disulphide (CS2) and hydrogen sulfide (H2S). Policies and procedures were reviewed with certified specialists from the Lenzing Austria, and changes implemented as necessary, ensuring consistency with the parent company's European union standards and IFC PS2 requirements. The scope of review and changes included SPV’s own operations, as well as where relevant, services procured from subcontractors and to the extent possible its supply chain. - Pollution Prevention and Abatement: Liquid emissions from the SPV facility are primarily wastewater from viscose manufacturing operations, sanitary wastewater, and storm water. SPV currently discharges 30,000 cubic meters per hour of treated wastewater to the nearby Citarum River. The wastewater treatment plant receives effluent from process streams, blow downs from utility areas, floor wash waters, chemical tanker truck unloading pads and other fugitive discharges that make their way to the treatment plant through uncovered collection drains. Treated wastewater quality is in compliance with Indonesian regulatory requirements, and IFC guidelines for the discharge of treated wastewater to surface water. After the increase in production capacity, it is anticipated that an additional 12,000 cubic meters per day of treated wastewater will be discharged to the river. River water is used for irrigation, marginal domestic and other recreational usage by villagers. Expansion in wastewater treatment facilities to meet the additional load will be completed prior to commencement of operations of the new production line. After the expansion of the wastewater treatment plant is complete, it is expected that the treatment system will continue to maintain compliance with Indonesian regulatory requirements which may be revised after completion of the ongoing ESIA. Final emission standards will be established per the ESIA which will include a cumulative impacts assessment on the Citarum River to which SPV discharges treated wastewater. In compliance with local regulatory requirements, sanitary wastewater from SPV’s employee housing colony is treated in septic systems attached to each house. Sanitary wastewater from facilities within the production areas are also treated in septic tanks. Septic tanks are inspected and maintained on a regular basis to ensure efficacy of treatment. Storm water (along with once through cooling water and other fugitive discharges or spills) is collected via an extensive system of storm water drains that provides coverage to most of SPV’s operational areas. In compliance with Indonesian regulatory requirements, storm water from the site is presently discharged directly to the Citarum River without further treatment. Final emission standards for storm water will be established per the ESIA for the facility. Air emission from SPV facilities are mainly exhaust gases discharged by the waste gas recovery plant and flue gas emissions from the power boilers. SPV consumes CS2 in their manufacturing process, and generates additional CS2 and hydrogen sulfide (H2S) during a later process stage. CS2 and H2S are removed from the process machinery and manufacturing building by ventilation systems. The exhaust stream containing a high concentration of CS2 is recovered for reuse in the process. The more dilute exhaust stream is sent to a waste gas recovery plant where its sulfur content is converted to sulfuric acid which is used in SPV’s process. Emissions of particulates, sulfur dioxide and nitrogen oxides from existing power boilers and the waste gas recovery plant are in compliance with Indonesian regulatory requirements and consistent with applicable WBG guidelines. Fly ash from the power plant is sold as feedstock to cement manufacturers in the region. SPV makes special provision for the safe management of hazardous materials such as acids, alkalis and CS2. SPV assumes responsibility for these chemicals at its gate. Vehicles carrying these chemicals are marshaled to designated parking and unloading areas, where unloading is supervised and logged by trained members of staff. All hazardous materials storage areas have secondary containment and leak detection systems. An emergency response plan has been developed which includes means to contact the surrounding village in the event of a serious event, and a joint response to fire has been agreed with surrounding manufacturing sites. Recyclable solid waste is sold to third party recyclers, while other solid wastes are disposed by licensed disposal companies in accordance with local regulatory requirements. Hazardous wastes and chemicals including used motor oils, lubricants, laboratory chemicals etc. are disposed by government licensed contractors. The wastewater treatment plant produces about 40 tons of sludge per day, mainly consisting of hydrated lime with co-precipitated sulfates and metals along with biological material from the secondary clarifiers. The sludge is incinerated in the existing power plant. Fresh water for process and cooling needs is obtained from the Citarum River. Current water consumption is estimated to be about 60,000 cubic meters per day. An additional 20,000 cubic meters per day of fresh water will be required when the new production capacity comes on line. A new pump station and pipeline will be constructed to meet the additional water demand. The withdrawal of fresh water from the river does not impact other beneficial use of water by local residents or villagers at any time during the year, and will be confirmed during the ESIA process. SPV consumes about 275 gigawatthours (GWh) of electric energy annually (25 GWh from grid, and 250 GWh from captive power plant). After expansion, SPV's annual electric consumption will be 360 GWh (80 GWh from grid, and 280 GWh from captive power plant). SPV consumes about 300,000 tons of coal annually for electricity and steam generation. Other fossil fuels used by SPV include natural gas, diesel and furnace oil. Net green house gas (GHG) emissions attributable to SPV’s projected annual consumption of electricity and fossil fuel usage post expansion is estimated to be in excess of 800,000 metric tons of carbon dioxide equivalents per year. SPV has made significant progress in reducing its carbon foot print through various initiatives including energy efficiency, heat recovery, resource reuse and recycling. It is estimated that these climate change related initiatives have resulted in improvement in specific energy usage at SPV by over 10% (from 8,500 kcal/ton to 7,600 kcal/ton of fiber), resulting in an offset equivalent to about 100,000 tons of carbon dioxide annually, when compared to a base case scenario of ‘business as usual’. Consistent with IFC PS3 requirements on GHG emissions, SPV will continue to (a) monitor and quantify GHG emissions annually in accordance with internationally recognized methodologies, and (b) evaluate technically and financially feasible and cost-effective options to further reduce or offset project-related GHG emissions during the design and operation of the project. - Community Health Safety and Security: SPV is continually working toward improving its management and safe handling of the raw materials, some of which are transported by road over a distance of more than 150 kms from the nearest port. After expansion of its production capacity, it is estimated that SPV can receive up to 200 truck loads per day of materials delivery to its facilities which requires careful management and planning. The procurement department at SPV coordinates the logistics of these operations with hauling company, while concerns from the local community are handled by the office of General Affairs and Community Relations. Based on feedback from the community, logistics of truck traffic and unloading activities have been scheduled to cause minimum disruption. To improve its management of increased truck traffic resulting from stepped up production capacity, SPV will review its procurement process/procedures and its logistics management plan to safely manage the increased truck traffic to its facility. SPV has initiated construction of a second access road to its factory. SPV is also working with the local government to find a longer term solution to reduce the impact from excessive traffic on the narrow approach roads through the town of Purwakarta.

SPV has good neighborly relations with the communities surrounding its manufacturing facilities. No local communities have been significantly affected by environmental risks or impacts from SPV's ongoing operations. Where there have been complaints from the community, such as those related to traffic and noise, SPV has worked with the community to address those issues quickly. The company creates jobs and other opportunities for local communities, and has no significant adverse social impacts. Through its community liaison officer, SPV has established procedures for communicating environmental and social aspects to external interested parties and maintain procedures for receiving, documenting and responding to concerns from any external interested parties relating to the project. For more information see the company’s website at http://www.pt-spv.com or contact: Mr. Hemawan P. Utomo General Affairs & Community Relation South Pacific Viscose Desa Cicadas, Purwakarta 41101 West Java, Indonesia e-mail: Hemawan@pt-spv.com Tel: +62-264 278 642 Fax: +62-264 200 738

Environmental and social information pertaining to the project will be available for access by the locally affected communities at the Purwakarta Town Hall and outside the company’s premises at the following addresses: South Pacific Viscose Desa Cicadas, Purwakarta 41101 West Java, Indonesia Tel: +62-264 278 642 Purwakarta Town Hall Jl. Gandanegara Nomor 25 Purwakarta West Java, Indonesia Tel: +62-264 200 036