PS1: Social and Environmental Assessment and Management System

In this Project, potential adverse E&S impacts may arise at the level of the Suppliers. While all IFC Performance Standards are applicable to this investment, IFC’s due diligence has focused in Nemak’s systems for management of E&S performance of their Suppliers; therefore the investment will have impacts which must be managed in a manner consistent with the Performance Standard 1.

Suppliers under this transaction provide a variety of services and goods to Nemak including logistics, machinery, food services and goods such as raw materials, cylinder liners, tooling and equipment among others. Most of the suppliers are small Mexican enterprises.

The potential risks, where encountered, are both manageable and site specific. This is therefore considered to be an E&S Category B project.

The most common E&S risks associated with these suppliers include labor management and working conditions, including occupational health and safety; potential air emissions and liquid effluents derived from industrial operations; and efficient use of natural resources such as energy, water and fuels.
PS1: Social and Environmental Assessment and Management System
Procurement practices at Nemak follow the Automotive Industry Action Group (AIAG) criteria in the selection of suppliers. Key elements considered in the selection of suppliers are oriented towards quality compliance and product characteristics. Nemak has in place a supplier registry, a supplier control and a supplier survey where information regarding suppliers is collected. The company performs visits to some key suppliers; nevertheless, this is not a routine activity. Currently the supplier documentation and visits do not include explicit environmental and social criteria.

However; suppliers providing services on Nemak’s facilities (on site sub-contractors) are screened and audited on their labor practices; specific controls are in place, such as clauses in the legal contracts and controls to the physical access of the employees to Nemak facilities. These controls ensure that all workers are registered in the social security system, therefore that the sub-contractors’ employees are in compliance with minimum age of employment, have formal contracts and are paid according to Mexican law. In addition, verification of occupational health and safety training is performed to these sub-contractors.

Nemak has a well defined sustainability strategy aligned with corporate policies. The program ECOS2011 – Sostenibilidad defines the key strategy, in which aspects of eco-efficiency, social commitment and competitiveness are addressed. Suppliers are aligned in the strategy for eco-efficiency in the supply chain. Nemak’s indicators for suppliers include the promotion of projects that are eco-efficient and the assessment of CO2 emissions on the supply chain. In addition suppliers are considered as key stakeholders on achieving the sustainability strategy; Nemak is committed to promote sustainable practices its supply chain.

Nemak has agreed to expand its assessment of suppliers to consider environmental and social criteria. The assessment will allow Nemak to screen and support suppliers to achieve better E&S performance. The assessment will consider a rating system (e.g. A-D); which will be defined to be indicative of material compliance with the Performance Standards and hence determine which suppliers are eligible to participate in the IFC supplier finance program. A procedure will be defined and implemented with the following elements: (i) environmental and social criteria to reflect applicable IFC requirements; (ii) mechanisms for gathering E&S information provided from the suppliers; (iii) rating system of the suppliers; (iv) follow-up mechanism and corrective action derived from rating of suppliers; and (v) progressive verification of suppliers’ performance.

Environmental and social criteria to be included in the assessment will consider sector-specific risks for each supplier. The minimum criteria to be considered are: compliance with local environmental, labor and occupational health and safety law, existence of environmental and social management systems, and exclusion of activities defined in IFC’s exclusion list
http://www1.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/IFC+Sustainability/Sustainability+Framework/IFC+Exclusion+List/).
In addition elements to be considered might include possible E&S related court cases or fines imposed on suppliers, suppliers’ management of community relations including E&S complaints; and possible history of significant adverse E&S events such as fires, explosions, fatalities, large scale spills, etc.. There are considerable similarities between Mexican labor law and IFC’s PS2 labor and working conditions requirements.

The mechanisms for gathering E&S information provided from the suppliers will include a combination of self assessment questionnaires, audits or documentation provided by the supplier demonstrating compliance with the E&S criteria.

A rating score (e.g.A-D) will be generated on the basis of the E&S information collected, and this rating will be calibrated to distinguish those suppliers in material compliance with Performance Standards from those that are not. Only suppliers in material compliance with Performance Standards will be part of the IFC’s finance program.

As needed, corrective action or actions plans to improve supplier E&S performance will be agreed between Nemak and the supplier. It is expected that through implementation of these action plans supplier will improve E&S performance, to an extent that will be reflected in the rating, such that the supplier will be able to access the finance program. In the development of the rating system Nemak will consider methodologies used by other large scale Buyers with supplier assurance programs.

Following the implementation of the Suppliers rating procedure, Nemak will review the effectiveness of the program and will enhance it as appropriate in coordination with IFC.

Nemak, as part of the Grupo Alfa, participates actively in social responsibility initiatives, mainly in topics of education, nutritional care and the environment. Some of the initiatives are implemented through the Alfa Foundation. Nemak has a specific initiative on aluminum recycling.

Grupo Alfa, and therefore Nemak, has well defined means for collecting and registering complaints which have strict follow up procedures. Channels of communication have been created to promote flow of information, including a system named “Transparency mailbox”.

At the supplier level the management of external communications will be considered within the assessment of suppliers performed by Nemak.

This ESRS will be disclosed locally at Nemak’s offices in Mexico and at Prime Revenue offices in Mexico:

Tenedora Nemak, S.A. de C.V.
Libramiento Arco Vial Km. 3.8
Garcia, Nuevo Leon, Mexico

E Factor Network, S.A. de C.V.
Mol de Valle
Calzada del Valle 400 Local 60
Colonia del Valle, Sand Pedro Garza Garcia
N.L., Mexico CP 66220