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
If IFC’s investment proceeds, IFC will periodically review the the project’s ongoing compliance with the Performance Standards

This is considered to be an E&S Category B Project. Potential E&S risks associated with the rubber sector in Indonesia and Thailand include those at the level of primary production of natural rubber. These risks include labor management and working conditions, chemical use and disposal, and conversion of natural/critical habitats. IFC’s GMAP review process also indicates potential risks associated with child labor and forced labor at the primary production level. IFC understands that the rubber supply chain is extended, however, with many steps between those involved in primary production and those at the level of supplying rubber to Pirelli. Given this reality, the application of supply chain requirements is limited to those at the level immediately below Pirelli in the supply chain and not any further removed (e.g., not at the level of primary production).

The E&S supply chain risks associated with those suppliers to Pirelli who engage in rubber processing include labor and working conditions (specifically child and forced labor and worker OHS). Impacts upon biodiversity, however, do not apply at the processing level. Therefore E&S risks associated with this level of production of natural rubber (i.e. the suppliers to Pirelli) are both manageable and site specific and are addressed through the Pirelli-developed management system program for its supply chain described below.

In this Project, potential adverse E&S impacts arise at the level of suppliers to Pirelli. Identified suppliers are traders and processors of natural rubber in Indonesia and Thailand. Several trading companies are subsidiaries of companies active in rubber processing and production of various rubber products. These traders and/or processed rubber suppliers have well established supply chains through which rubber is sourced and E&S risks and impacts are well known, site specific and can be readily managed.

IFC’s due diligence indicates that the investment may have impacts that must be managed in a manner consistent with the following Performance Standards: PS1 Assessment and Management of Environmental and Social Risks and Impacts and the supply chain requirements of primary suppliers under PS2 Labor and Working Conditions.

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 supply chain associated with bringing rubber to market in Indonesia and Thailand is simple but extended and in a majority of cases involves smallholders selling rubber to collectors/aggregators who bring the raw product to processing facilities; these then sell to traders/brokers who in turn sell natural rubber onto the international market. Some traders/brokers are entirely separate to processors (i.e. they act solely as spot traders) and some are known to be subsidiaries of the same company or entity and are therefore vertically integrated. In determining applicable requirements to be made of IFC’s clients, the different nature of these relationships has been taken into consideration in order to assess management control or leverage over buyers. PS2 supply chain requirements therefore apply to all clients



Pirelli has developed a sophisticated management system with respect to its suppliers, in order to assess and manage E&S risk, including those related to child and forced labor and OHS in rubber processing. Suppliers are referenced in both the Code of Conduct and the Values and Ethical Code of the Pirelli Group; it is, however, the Social Responsibility Policy for Occupational Health, Safety and Rights, and Environment that contains the most comprehensive set of requirements that suppliers are required to meet in order to qualify as Pirelli suppliers. Specifically, the Pirelli Group is committed to: the dissemination of occupational health, safety and labor rights and environmental information to its internal and external stakeholders (which include suppliers under the definition provided in the above codes), both by communicating with them and actively co-operating with national and international government and academic bodies; promoting use of the most advanced technologies to achieve excellence in occupational health and safety and environmental protection; assessing and reducing the environmental impact of its own products and services throughout their entire life cycle; not using or supporting the use of child labor and forced labor; and, establishing and maintaining appropriate procedures to evaluate and select suppliers and subcontractors based on their commitments to social and environmental accountability. These objectives are made manifest by enterprise-wide risk assessment and country and sector review (including that of the supply chain), the conduct of ad hoc assessments before entering a market (in order to assess any political, financial, environmental and social risks, including those connected with respect of human and labor rights) and the use of periodic audits of suppliers. For example, 128 audits have been conducted since 2009 which have included suppliers in Indonesia and Thailand. Pirelli Purchasing Managers and Sustainability Managers coordinate local audits of suppliers (which are performed by third parties); the most common instances of non-compliance were in the adequacy and level of implementation of safety
and environment management systems. Upon discovery of such non-compliance, Pirelli and the supplier agree on the development of compliance plans setting out the necessary remedial measures to allow the supplier to re-attain compliance with the above codes and policies.

Sustainability clauses are contained in supplier contracts. The clauses require that “Suppliers confirm their own commitment to: not using or supporting the use of child labor and forced labor” amongst other requirements and that “imposing these principles, values and policies on their own subcontractors and sub-suppliers, regularly monitoring that they actually comply with this obligation” is required. “On the basis of these sustainability clauses, Pirelli is granted the right to conduct audits at any time, either directly or through third parties that the supplier has effectively satisfied its assumed obligations.” Lastly, the audit program itself is audited. This audit is carried out by an independent entity using a high level audit procedure (in accordance with AA1000 Assurance Standard (2008) provisions).

Utexam Solutions Limited has existing contracts with suppliers and processors of Indonesian and Thai rubber. If and where there are contracts directly involving Pirelli, these would include reference to the Code of Conduct and the Values and Ethical Code of the Pirelli Group, and the Social Responsibility Policy for Occupational Health, Safety and Rights, and Environment. Audits of suppliers provide for field level contact with processors and others in the supply chain. The Sustainability Report provides significant detail regarding Pirelli’s E&S performance and is made available through the Group web site (http://www.pirelli.com/corporate/en/sustainability/official_reports/default.html

None, because locally affected communities are not yet known.

Broad Community Support is not applicable for this project

Current client performance is aligned with applicable Performance Standards and EHS Guideline requirements. No ESAP is required.