While all Performance Standards are applicable to this investment, IFCs 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. If IFCs investment proceeds, IFC will periodically review the the project’s ongoing compliance with the Performance Standards

PS 1 – Assessment and Management of Environmental and Social Risks and Impacts
PS 2 - Labor and working conditions
PS 3 - Resource Efficiency and Pollution Prevention
PS 4 – Community Health, Safety and Security
If IFC’s investment proceeds, IFC will periodically review the the project’s ongoing compliance with the Performance Standards
The land required for the proposed Project (133200m2) has been leased by the local government in the Linshu Economic Development Zone, a provincial development zone close to Linyi city. The site for the Project is in a peri-urban / agricultural / industrial area with a well developed infrastructure in place. There are no reserved forests, national parks or indigenous people in the vicinity of the Project. As such, issues related to PS5: Land Acquisition and Involuntary Resettlement, PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resources, PS7: Indigenous Peoples and PS8: Cultural Heritage are absent from this project.

This is a category B project according to IFC’s Procedure for E&S Review of Projects because a limited number of specific E&S impacts may result that can be avoided or mitigated by adhering to generally recognized performance standards and guidelines.

Key E&S issues associated with this Project include: SDF and Changlin''s corporate approaches to management of EHS and social issues, adequate social and environmental assessment of the Project impacts during both construction and operations; assurance of fair, safe and healthy working conditions during construction and operations; resource efficiency efforts for the proposed Project, management of air emissions, wastewater treatment and discharge, and solid and other waste disposal; the impacts of operations on the local ambient environment; and impacts on transport infrastructure during construction and operations.

IFC's appraisal considered the environmental and social management planning process and documentation for the project and gaps, if any, between these and IFCs requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable period of time, are summarized in the paragraphs that follow and (if applicable) in an agreed Environmental and Social Action Plan (ESAP). Through the implementation of these measures, the project is expected to be designed and operated in accordance with Performance Standards objectives. The Sponsor and the Company have presented plans to address these issues and impacts to ensure that the proposed Project will, upon implementation of the specific agreed measures, comply with the E&S requirements including, the host country laws and regulations, IFC’s Performance Standards and the World Bank Group (WBG) EHS guidelines. The information about how these potential impacts will be addressed by the Company is summarized in the paragraphs that follow.

IFC’s assessment considered SDF’s and Changlin’s EHS management and associated performance in the establishment and operation of its facilities, compliance with national and local permit requirements and their engagement with local communities, as well as its suppliers, regarding EHS performance.

- Environmental & Social Assessment and Management Systems:

For the proposed greenfield Project, as per the local permitting requirements, CDF has completed a detailed Environmental Impact Assessment (EIA) study and has developed an Environmental Management Plan (EMP). The environmental permit from the provincial authorities stipulates various mitigation measures (including implementation of the EMP) and emission/effluent discharge limits for the Project.

SDF has developed an integrated quality, environmental, occupational health and safety policy at the corporate level covering all its facilities. SDF has initiated a group-wide program for implementing an Environmental Management System (EMS) compliant with ISO 14001 and an Occupational Health and Safety Management System (OSHMS) compliant with OHSAS 18001 standards. SDF’s Treviglio facility in Italy has been certified for its EMS and OSHMS, with a target for the certification of all its facilities by 2015.

The Changlin Group has also articulated its own EHS and quality policies. Since 1998 all the facilities in the Group have been certified against ISO 9001, a Quality Management System (QMS). Changlin’s foundry and heavy metal plant have also implemented a certified EMS (ISO 14001) and OHSMS (OHSAS 18001). In addition, the Changlin Group has passed the Shandong provincial authority inspection on environment and safety and received certificates of Grade 2 Safety Standardization and Cleaner Production from these same authorities.

In line with the corporate policies and practices of both the JV partners, CDF will develop its own quality and EHS policy, as per the PS1 requirement, which will guide the development and operation of the proposed Project. Accordingly, building upon the management systems of the JV partners, CDF in due course will implement its own EMS and OHSMS at the new facility after it becomes operational.

- Organization:

SDF has appointed a dedicated EHS officer at corporate level to oversee and coordinate safety and environmental management across all the facilities in the group. In addition there is a dedicated Management Representative who oversees implementation of the management system across all the facilities.

Changlin Group’s Board has constituted a high level committee to oversee EHS matters across the Group. This EHS committee is chaired by the President and has a total of 11 members comprising of the Group EHS Director, heads of each business units and executive Board members. The committee meets every month to review the EHS matters and make strategic decisions. A corporate EHS team of 6 full-time professionals is responsible for EHS management at an operational level. Each business unit/manufacturing facility has a full-time EHS officer, while the facility head has the overall responsibility of EHS compliance.

For its new greenfield facility, CDF has confirmed that it will recruit a full-time EHS officer. This person will then report to and coordinate with the respective corporate EHS teams of both the JV partners.

- Monitoring & Reporting:

In line with local regulatory permit requirements, Changlin has an elaborate environmental and safety monitoring program. The EHS parameters monitored are in line with the requirements of WBG EHS Guidelines.

CDF, as a part of its management systems, will develop a documented monitoring and reporting procedure for the new facility. The monitoring procedure will cover all the relevant parameters to be monitored as per the regulatory permit requirements as well as the WBG EHS Guidelines, and will specify the frequency, monitoring methodology and responsible person. The procedure will also include reporting formats and timeframes.

- Managing Supply Chain:

SDF has adopted a global sourcing system across the group. SDF follows an elaborate supplier evaluation process to assess each vendor for its quality, HR, planning, logistics, legal compliance, audit quality etc. While much of its supply chain is in Europe, SDF is now expanding its supply chain beyond Europe to the emerging economies in line with its localization strategy. Also SDF is working towards inclusion of EHS aspects in its supplier evaluation.

For the proposed new facility under the JV, CDF has a target of 9.8% localization of its supply chain in the next 4 years. Recognizing potential EHS risks in the supply chain in these markets and in accordance with the requirements of SDF’s EMS, CDF will include EHS and labor compliance aspects in the evaluation of its supplier base.

- Emergency Preparedness and Response

SDF’s operational facilities are located in well developed industrial zone, with no residential communities in the nearby vicinity. Also, the operations do not require a large storage of hazardous or explosive chemicals on-site. However, SDF has developed detailed emergency response plans for its operations. Mock drills are regularly conducted. Similarly, Changlin also has developed emergency response plans as per local regulatory requirements.

While the impacts on the nearby communities due to CDF’s operations are expected to be minimal, it will develop detailed emergency response plans for its operations in line with the requirements of local regulations as well as the safety regulations and policies of the JV partners SDF and Changlin. Mock drills will be regularly conducted.

SDF currently employs approximately 2,800 staff globally. Changlin has 5,000 employees across all the facilities in the group, nearly 30% of them are women. Changlin is one of the major employers in Linyi area.

As a new JV, CDF has recruited nearly 40 employees so far, and plans to have up to 130 employees by the end of 2012. As per the staffing plan, after full production capacity ramp-up CDF will have a head-count of around 880 employees by 2015-16. Many of the skilled workers are expected to be transferred to CDF from Changlin’s existing production lines.

- HR Policy, Management and Training

SDF has in place HR policies and procedures which are applied across the Group with necessary localization. These HR policies are consistent with PS2 requirements. Changlin too has an elaborate HR policies and procedures framework compliant with Chinese labor law and IFC’s PS2 requirements.

Building upon the corporate HR policies and local legal requirements, CDF has its own HR manual. The HR manual articulates Company policies related to terms of employment, salaries and allowances, training, performance appraisal, disciplinary policies, grievance mechanism etc. The HR policies of CDF also are compliant with Chinese labor law and PS2 requirements.

- Occupational Health and Safety

SDF has instituted a strong safety culture across the organization and has demonstrated a notable improvement in safety indices over the past decade through consistent technical and organizational initiatives, and these are at par with international benchmarks.

SDF’s corporate-wide safety related initiative include: (i) documentation and analysis of ‘near-miss’ accidents, (ii) substantial increase in the activities of the ‘safety teams’, (iii) increased participation of the workers’ safety representatives, and (iv) establishment of the new post of ‘safety tutor’ for work areas.

Safety signage and fire detection and suppression fighting equipment are fitted across all the facilities in accordance with the potential risks. The Company is continuously making improvements in the workplace safety such as changes in the flooring in the engine testing areas to prevent accidental slippage, changeover from solvent-based paints to water based to minimize volatile organic compounds in the workplace, and changes in the production process and practices based on job hazard assessments.

Changlin has also demonstrated high standards of safety management across its facilities. As described above, a committee chaired by the President has been established and a robust safety organization has been put in place. Moreover, Changlin has recently updated its “Group Safety Management Regulations Manual”, which has been signed by the group President and applies to all Changlin group facilities. The manual covers issues such as safe production at each business unit; supervision and management of safety; emergency treatment and investigation of accidents; protection of women workers; EHS training; safety maintenance and inspection; “5S”-based housekeeping practices; hazardous chemicals management; fire safety; personal protective equipment management; safety meetings; prize and punishment for safety. As a result of robust safety management, there have been no fatal or major reportable accidents in any of the Changlin’s facilities during the past decade.

Building upon best practices implemented by both the JV partners in their respective organizations, CDF will design and implement similar safety management systems at their operations.

The main components of the final product (four-wheel tractor) at the new plant are the engine, transmission, front axle, hydraulics, tyres and rims, and cabin. The manufacturing process in CDF’s proposed facility will include: welding, surface treatment (comprising pretreatment and spray painting in an automatic line) and assembly of various components. Except for the surface treatment and painting operations, all the operations are primarily dry operations and result in noise and limited solid (packaging, scrap) or hazardous waste (waste oils etc.). The primary source of wastewater is the surface treatment line and painting operation which results in volatile organic compounds (VOCs) and wastewater generated due to VOC control and built-in painting booth treatment system.

- Pollution Prevention and Resource Conservation:

In its quality, environmental, occupational health and safety policy, SDF has articulated its commitment to minimize pollution and reduce wastes and emissions and enhance resource efficiency in line with the SDF group’s corporate policies.

SDF has set objectives for limiting solvent use in the paints in all the facilities across the group. With the introduction of water-based products and modifications to the coating systems, it has reduced solvent consumption by over 30%. SDF is also implementing measures to comply with the European ‘Reach’ regulations on the import and use of chemical substances and is in the process of introducing a computer-based system for the suppliers.

As per the requirements of Shandong Cleaner Production (CP) Law and Circular Economy Law, Changlin facilities undergo annual CP audits to explore areas for enhancing resource efficiency (RE). For instance, in the year 2011, based on the CP audit conducted by experts from Shandong Municipal Energy Office, 116 CP/RE options were selected for implementation, of which 8 options required major capital investment. After implementing these options, as per the CP certificate from the provincial government, Changlin had made an investment of over $600,000 for implementation of CP/RE options, which resulted in annual savings of 2,100 tons of coal, 5,000 cum of water, 6,300 tons of natural gas, 112 tons of oil, 1200 tons of raw materials and 600,000 units of electricity. All these savings translated into annual monetary savings of $1.25 million.

Encouraged by this success, Changlin has set up new targets for its CP/RE program which include reduction of electricity consumption of one walking tractor from 28 kWh to 25 kWh. It also has plans for boiler optimization, among others.

Similar RE projects will be implemented in CDF’s facility once it is operational, including annual CP audits. At the moment, however, the Company is making efforts to select equipment and production processes for its new facility so as to maximize the RE.

- Water Supply and Effluent:

SDF’s facilities source water from the respective industrial area authorities. Wastewater, after necessary treatment, is either reused for gardening or is discharged in the sewers as per the local permit requirements.

Water consumption in Changlin’s existing 7 production units in Linyi (with 5,000 workers) is around 550 cum/day. Water is provided by the municipal authorities as well as sourced from bore well all of which is metered for each business unit / production line and reported to authorities.

Changlin’s existing facilities have their own effluent treatment plants wherever required by the local permit requirement (such as paint shop), and the domestic and industrial effluents are discharged in public sewers for further treatment in the municipal centralized effluent treatment plant. For the new facility too, after necessary pretreatment effluent will be discharged to sewer as per the permit conditions. The paint shop effluent will be treated in CDF’s own treatment unit.

Daily water consumption for the proposed facility of CDF is estimated to be 480 cum, which will be supplied by the local municipality. Further, CDF will monitor the treated effluent as per the local regulatory requirements as well as the WBG EHS guidelines.

- Solid and Hazardous Waste:

All the SDF facilities comply with all applicable regulations for the storage, handling and disposal of hazardous materials used in the production process such as paints, solvents, paint sludge and other chemical additives. The notified hazardous wastes are disposed of through licensed waste management contractors, as per the regulatory authorizations.

Similarly, Changlin too complies with all applicable regulations related to solid and hazardous waste handling and disposal. Notified hazardous wastes are disposed of through licensed contractors and necessary documentation is maintained. Packaging materials, sheet metal scrap etc., are sold for recycling. Adequate controls during the storage and handling are in place and the types and quantities of solid and hazardous waste thus generated and disposed of are regularly monitored and documented. Similar systems will be implemented for the new facility once it is operational.

Air Quality:

Electricity is the main source of energy for SDF facilities, and is sourced from the grid. In addition diesel generator sets are provided as emergency backup in some of its facilities. Some facilities also have diesel fired boilers or gas burners for paint drying. SDF facilities monitor stack emissions and ambient air quality as per the environmental permit condition and WBG EHS guidelines.

Electricity is also the main source of energy for Changlin’s operational facilities, and is sourced from the grid. Natural gas is used for ovens in painting process. Changlin monitors air emissions (both stack and ambient) as per local regulatory requirements. The monitoring records confirm Changlin’s compliance with national regulatory requirements and the WBG EHS guidelines.

For the proposed facility CDF will monitor stack emissions and ambient air quality and report to IFC through annual monitoring reports regarding their compliance with national regulations as well as the applicable WBG EHS guidelines. In case some parameters exceed the stipulated limits, the Company will take appropriate actions to ensure compliance. The Company will also monitor the workplace VOC emissions from the paint drying ovens and shall regularly report to IFC as a part of annual reporting.

Both the JV partners’ operational facilities are located in well developed industrial areas away from residential communities. The facilities are well connected by national highways.

At CDF’s new plant too there is direct access to the industrial zone and the proposed facility via a highway and hence no impact of vehicular movement on surrounding communities is expected.

None of the JV partners’ facilities employ armed security guards. Similarly, CDF will employ unarmed security guards from a licensed agency for the new facility.

Changlin is one of the most important industrial groups and employers in Linyi / Linshu area and in Shandong province. It services the farmers and rural communities with its products and very well recognizes that engagement with nearby communities and other stakeholders is the key for building long-term constructive relationships that are essential for the success of the Project.

For this, the JV partners will develop and implement a stakeholder engagement plan for CDF, comprising a grievance mechanism and plan for external communication on Project''s environmental and social impacts for the nearby communities and other stakeholders.

The Company will disclose this ESRS and the ESAP at the following addresses:
No. 112 Changlin West Street,
Linshu County, Linyi City,
Shandong, 276715, China

And on the Company website: http://www.samedeutz-fahr.com and http://www.changlingroup.com/

All inquiries and comments may be directed to:
Ms. Hong Chang
Email: mailto:Hong.Chang@sdfgroup.com
Tel: +86-539-6260623

Broad Community Support is not applicable for this project

	Action	Anticipated Completion Date
1.	In line with the corporate policies and practices of both the joint venture partners, CDF will develop a quality and environmental , health and safety (EHS) policy as per the PS1 requirement, which will guide the development and operation of the proposed Project. Deliverables: Quality and EHS policy agreed by IFC and duly endorsed by the top management and made available publicly	31 December 2012
2.	CDF will enhance its vendor evaluation process to include EHS and labor compliance aspects in the evaluation of its supplier base. Deliverables: Updated vendor evaluation procedure, forms etc.	31 December 2012
3.	CDF, as a part of its management systems, will develop a documented EHS monitoring and reporting procedure for the new facility covering all the relevant parameters to be monitored as per the regulatory permit requirements as well as the World Bank EHS Guidelines. Deliverables: Monitoring procedure specifying the EHS parameters to be monitored, monitoring frequency, methodology and responsible person; and reporting formats and timeframes.	31 March 2013
4.	Company will develop and implement a stakeholder engagement plan comprising a grievance mechanism and plan for external communication on Project''''s environmental and social impacts for the nearby communities and other stakeholders. Deliverables: Stakeholder engagement plan including procedures for grievance mechanism and external communication on EHS aspects	31 December 2012