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 IFC's 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
PS 6 – Biodiversity Conservation and Sustainable Management of Living Natural Resources

This is a Category B project under IFC’s Policy on Social and Environmental Sustainability. A limited number of site-specific environmental and social impacts and risks inherent to forest plantations were identified during IFC’s appraisal. It has been determined that these risks and impacts can be avoided or mitigated by adhering to established forest management practices and complying with applicable regulations and IFC’s Performance standards. While risks associated with land acquisition, biodiversity, and indigenous people are often significant in this region, available information indicated these risks are being avoided through careful site selection and can be mitigated through good industry practices. Appraisal information indicated that the Company has demonstrated consistent compliance with applicable Brazilian E&S regulations, that it has conformed to IFC requirements and that it shall obtain independent certification of its forestry and chain-of-custody practices

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.

Identification of Risks and Impacts. Environmental and social risk assessment is conducted at the forest compartment or Forest Management Unit (FMU) level through internal assessment procedures. Fazendas (farms) are comprised of one or more acquired properties which include areas to be planted, homesteads and conservation areas. The Company developed explicit tools and screening procedures to identify E&S risks during its land acquisition phase, which include explicit technical, environmental, socioeconomic and legal due diligence of each property under consideration. This review process includes mapping of topography, soils, vegetation, proximity to protected areas and indigenous reserves, and previously established Reserva Legal (Legal Reserves or RL) and Área de Preservação Permanente (Permanent Protected Areas or APP) on each prospective farm. Social risks are identified through the same mapping process and supplemented with land title searches, interviews with adjoining owners, and review of other sources to identify historic environmental issues or land disputes. This information is organized into management information systems which allow the Company to assess the viability of each acquisition and integrate them into the larger FMU. This internal review also forms the basis of the submission to the State Environmental Directorate (SEMA) which conducts its own assessment of the impacts using ArcGIS image analysis as a requirement for approval and licensing of each fazenda. Documentation on all fazendas has been reviewed according to established internal and legal requirements established by applicable laws and copies of such documentation for all farms will be provided to IFC during supervision.



Policies and Management Program. The Company has an overall Forest Management Plan framework which describes the expectations for all plantations managed by the Company. This Plan outlines the policy, assessment requirements during due diligence, sustainability goals, conditions and broad operations for each unit, which include producing detailed soils and vegetation maps and for establishing an APP and a RL required by State and Federal regulations. In addition CVA has developed detailed standard operating procedures for land appraisal and most aspects of forest management which were observed to be employed across operations. Broad responsibilities for environmental and social issues reside in senior management, in particular the general manager of forestry operations, who directs all aspects of plantation management and compliance with social and environmental norms. CVA has engaged full-time expertise to increase the monitoring of forestry research and environmental conditions in plantations. It has also engaged an environmental management specialist to help develop internal training systems and develop an integrated environmental, health and safety management system. Procedures will be reviewed, improved and consolidate into an Op
erating Manual which will be trained in across all staff under the direction of a new Human Resources Manager. The Company will also consolidate its current environmental management and occupational safety practices into systems which will be: (i) internally-audited, and (ii) externally-audited quality assurance system which is commensurate with the risks and impacts associated with its forestry and wood processing operations (1.1)



Stakeholder Analysis, Engagement and Disclosure. As part of the land acquisition due diligence described above, CVA conducted a stakeholder mapping during the first phase of considering a potential property which includes identification of contiguous property owners, proximity to infrastructure, and natural features through cadaster and geographic information systems. All properties have been managed for crops and/or pasture; thus, prior ownership and occupation are well established during the internal process. Review of legal records and title searches of several previous purchases indicated compliance with State and Federal regulations for documenting legal land use. Some earlier challenges have resulted in an expanded process which provides assurance that there is no clearing of native “cerrado” during the Company’s operations. The results of SEMA’s Environmental Review and Licensing are made public through local media announcements and made available by CVA at the particular fazendas and at central locations in Agua Boa.



Monitoring and Reporting. The Company will develop detailed monitoring and reporting systems to meet its own corporate governance requirements as well as the detailed requirements of FSC certification and IFC’s Annual Monitoring Reporting. Currently, detailed reporting on environmental and social issues is included in regular reporting to the Board. CVA has engaged a specialist in forest inventory management systems who organizes technical and environmental information into an integrated system.

CVA will design and develop a GIS/MIS system over the next approximately 12 months to ensure its EHS management practices and safeguards are routinely captured and recorded in management system, and their performance assessed for effectiveness and improvement of overall forestry and processing practices (1.2).

Human Resource (HR) Policy and Management. CVA directly employs approximately 150 workers with 5-6 staff for supervision and administrative work. The São Jorge Fazenda is where most of the employees work and of the approximately 120 employees in forest operations about 40 are voluntary prison laborers participating in an innovative and well-managed work rehabilitation program called Nova Chance (best translated as “Fresh Start”), which is described in greater detail below. Most site preparation and plantation management practices are now undertaken by contractors supervised by contractor staff and CVA managers. The nursery in the Agua Boa area is mainly used for the native species seedlings that are planted in the APPs and RLs and employs 1-2 workers. Recruitment by contractors is direct and open to all qualified persons in possession of proper work documents. There was no observance of child labor, forced labor or discrimination during appraisal. The Company currently has no HR policy per se, but follows Brazilian law through adaptation of the Consolidated Labor Laws (CLT) which includes most requirements in PS2. Mid-level staff and contractor employees are drawn from local labor pools and working conditions and terms of employment are provided in writing by both CVA and its primary contractors. Review of monitoring logs by CVA’s fazenda managers, and the keen oversight of senior managers observed during appraisal, ensures that subcontractors are meeting all labor laws and regulations. The Company employees are typically men, but 20% of CVA’s work force is women, many of whom are employed in administrative duties, nursery operations, and some plantation operations. There was no formal grievance mechanism for contract workers or direct employees workers observed, but issues are addressed through the employees’ union representative. CVA hired a senior-level HR specialist who developed the plans, procedures, training materials and broad oversight to transfer all operations into Company-supervised employees and eliminating most contractors.

CVA has agreed to develop a more robust and formal grievance mechanism in 2015 to improve early identification and resolution of struggles (2.1)



Occupational Health and Safety. Significant workplace safety risks can arise from farm equipment accidents and pesticide applications during plantation establishment and harvesting. Other risks will occur when harvesting of timber starts and transportation and milling begins in 2-3 years. The Company ensures that proper rest, food, shelter and sanitary facilities are provided for all field workers who are bused to sites from near-by settlements. Employees and contractors were observed largely using appropriate personal protective equipment when conducting field operations. Review of accident reports and logs indicated no serious accidents during the prior three years. Medical facilities are near-by most sites, and first aid supplies and first responder i
nformation were available at fazendas. Some lapses in management of hazardous chemicals (below) indicated some room for strengthening worker safety procedures for handling such materials. As the Company proposes to establish primary lumber milling activities and a wood treatment line, OHS will become increasingly important. The Company is aligning its workplace safety risk procedures toward a more formal Occupational Health and Safety Management System which will improve operations and internalize operations that are currently conducted by contractors. Brazilian OHS standards (the so-called normas regulamentadoras or NRs) are comprehensive and detailed, and they require the establishment of a thorough OHS management system and regular reporting to and monitoring by labor inspection authorities.

Through the functioning of this system, it is anticipated that CVA will meet relevant OHS requirements under PS2 which will be reported within the Annual Monitoring Report. (2.2).



Use of Prison Labor. CVA's workforce at Fazenda São Jorge numbers some [120] workers, out of which approximately 100 are involved in semi-skilled plantation work. Of the 100 plantation workers, 40 are male prisoners from the Major PM Zuzi Alves da Silva Penitentiary, a publicly-managed, medium-security prison within the Mato Grosso state penal system. The prison is located c. 50 km from Fazenda São Jorge, the Company's main teak farm (which itself is situated about 30 km from the town of Água Boa). Referred to as "recuperandos" (those who are undergoing recovery), these prisoners are fully voluntary participants in the Nova Chance program. They are paid at the federal minimum-wage level, which is slightly less than the sector-specific minimum wage paid to general forestry workers. Prison laborers do not receive fringe benefits (paid vacation, the “13th month” year-end salary due to non-prison laborers), and they do not participate in the Company’s performance-based bonus programs. They receive about one-third of their salary in cash at the end of the each month, with the rest deposited in the prisoner’s saving account for use upon release from prison (and part sent to his family, should he chose). Their sentences are also reduced by one day for every three days worked.



Since the program's inception in November 2013, of those prisoners who applied, some 60 participants have been selected in total on the basis of clear criteria and the thorough evaluation of an internal prison administration committee comprising personnel from management, security, social services, and psychological services. (Due to the end of some participants’ sentences and some dismissals for misbehavior, the total number of participants was around 40 as of February 2015.) Selection of prisoners is confirmed by a judicial order, and each participant signs an undertaking, reviewed by IFC, that clearly documents his voluntary participation in the program. All participants interviewed by IFC expressed s
trong support for the program. Virtually all recuperandos are employed in the forestry operations: pruning branches, weeding, marking and thinning, or carrying out other tasks identical to those of the non-prison workforce. A very small number are employed in cleaning or maintaining CVA's administrative offices. All Nova Chance participants are required to adhere to the same OHS rules and practices as non-prison labor. Since they are not covered by Brazil’s worker compensation/social security system, the Company pays separately for accident insurance for them. Aside from differences in their pay packages, they are otherwise treated identically to the general workforce. According to prison officials, the program appears to have reduced recidivism. No Nova Chance participant has reportedly been rearrested following his participation in the program and his release from prison.



As part of supervision, the IFC will monitor this program closely, and it will encourage the Company to reevaluate risks associated with it on a regular basis, at the very least once a year (around the time that a program extension is considered), including those risks that might arise from the differences in pay packages between prison and non-prison labor.

Hazardous Materials Management and Pollution Prevention. Plantation operations are dependent on a certain number of hazardous materials including herbicides and pesticides used broadly across all assets and petroleum products including fuels and lubricants for equipment. Glyphosate is used for weed control during the first two to three years through manual and mechanical means. Mirex-S, a low-toxicity, sulfluramide-based formulation is used sparingly on a spot basis for ant control although it requires a derogation for use within FSC-certified plantations. The Company provides training to workers and contractors and all are required to provide and ensure the use of appropriate protective equipment is o workers. Review of Operating Procedures for agrochemical management require updating and detailing for the specific types of equipment used. Most plantation equipment is owned, operated and maintained by contractor staff and was observed to be poor condition with field servicing and garage maintenance not performed to the satisfaction of the Company or IFC. Calibration and maintenance procedures for all agrochemoical equipment must be clearly established. Fuel depots, herbicide mixing stations and used chemical container stores were not properly managed resulting in localized but unnecessary contamination of soil and water. Collection of used oils and lubricants and improper garage procedures provided additional indications that contactor conversion is necessary and will result in reduced risks and impacts from hazardoius material management.

The Company will strengthen its policies and procedures for the management of all hazardous material management within the Forest Management Plans, Standard Operating Procedures and Training Requirements for employees and contractors and will be reported annually (3.1).



The Company reviewed options for wood processing which include a small diameter saw mill and a pressurized wood treatment line for poles. The selection of pressure treatment equipment and chemicals for impregnation are under review and should be carefully assessed in order to minimize risks and impacts to water, soils and workers. Selection of equipment and chemicals will be fully compliant with Federal and State Environmental requirements and the IFC Performance Standards and EHS Guidelines. The Company will obtain the operating environmental permit from the State Environmental Authority (SEMA) for all saw milling and pressure treatment processing and that they have included explicit consideration of associated EHS risks and impacts including energy efficiency, storm water and effluent management, waste minimization, and occupational safety in the design of facilities and selection of equipment. (3.2)





Resource Conservation and Energy Efficiency. CVA is reforesting degraded pastures and marginally performing oil seed and cereal farms. Planting of teak will result in a significant and positive impact on carbon stocking ove
r pre-plantation conditions. Based on studies undertaken by specialized firms and IFC’s own internal review it is anticipated that the project is likely to result in a net increase in carbon sequestration of approximately 100,000t CO2e/year. In order to ensure accurate depiction of the composite GHG footprint of CVA entire operations the Company will develop a GHG emissions monitoring program that it will report on annually. Should the Company monetize GHG benefits it will use an internationally-recognized system and accredited certifying body. (3.3)

Community Health and Safety. Teak plantations are expected to result in impacts beyond the farm boundaries, and will pose limited dangers to neighboring farms or any communities in the region. The Company has cartographic information about all fazendas and fazenda managers have complete lists of adjacent neighbors and maintain contact with them through routine meetings and cell phone services. The broad aspects of community interaction are established within the Forest Management Plan and more detailed expectations for primary risks, including fire prevention and control, are being established and trained in. Fires from plantations or from neighboring properties may be significant risks to communities during the 2-3 month dry season. Which is substially mitigated by establishing fire breaks around and within plantations and managing fuel loading through the use of herbicides and mechanical equipment. The Company will install infrared fire observation towers and mobile response equipment, and ensure that trained fire response teams are ready to respond if fires should occur. Fire prevention will occur through training of staff and adjacent farmers and suppression teams will be trained in and connected through cell phone service and radio. Other risks to communities may include contamination of surface water courses which may flow through plantations. The primary mitigant for such contamination is clear establishment and protection for APP’s (see below) and careful use of agrochemical during the early stages of plantations establishment described in “pollution Prevention (above). Illegal activities in plantations could be another source of risk for communities and the Company has internal security teams responsible for identifying illicit activities, fires, and potential threats to the plantations or adjacent properties.

The Company will develop mechanisms and more explicit channels for communication with local communities and area stakeholders in the general area of operation. (4.1)



Use of Security Personnel: The above-mentioned voluntary prisoner work program operating at the São Jorge Fazenda, known as Nova Chance, includes the presence of two armed prison guards throughout the entire process of transport from the prison, work in the plantations, and the return to the prison at the end of the day. Prisoners participating in the program are close to the end of their prison terms, and in order to greatly reduce the risk of flight, participants have been rigorously screened for good behavior during incarceration and willingness to participate in the program, which does involve manual labor in outdoor, tropical conditions. In addition, the Fazenda is located far from population centers, and Nova Chance participants work in separate crews from non-prisoner labor. The team of guards – who are public-sector employees trained and authorized to carry firearms – are carefully selected and clearly oriented on their duties within the Nova Chance p
rogram to ensure that the use of potentially lethal force occurs only as a last resort in the most extreme, life-threatening situations, after other options have been exhausted. IFC reviewed Mato Grosso state’s current standard operating procedures for prison operations (Manual de Procedimento Operacional Padrão do Sistema Penitenciário de Mato Grosso), which does not include guidance on managing prisoners working in rehabilitation programs such as Nova Chance.

Under the ESAP, the Company shall request that State prison administrators provide clarification and guidance on the rules covering how inmates are managed during work-release programs, such as CVA’s, especially security provisions and clear rules on the use of potentially lethal force by prison guards in case of prisoner flight, situations of violence and other crises. (4.2)

The primary risks to biodiversity and ecosystem services include conversion and further fragmentation of remaining natural habitats and direct threats to rare, threatened or endangered species. Review of studies conducted by the Company, aerial observations, discussions SEMA specialists and Company staff, and the use of the Integrated Biodiversity Assessment Tool (“IBAT”) confirmed the high diversity and clear importance of protecting and connecting riparian corridors. Roughly two thirds of the landscape remains in these highly modified habit which is bisected by remnant natural habitats located along water courses and ridge tops. CVA purchases only established farms and consolidates the APP and RL located on the holdings which are set by law as at least 35% of the gross area. Land use licenses provided by SEMA indicate CVA has demonstrated consistent compliance with the APP and RL requirements. Detailed discussions with SEMA staff and Company representatives indicated the Company’s willingness to seek ways to increase the quality of RL through more objective analysis of biological attributes, setting clearer conservation priorities and restoring RL’s through enrichment planting of native species. In 2010, the Company contracted Conservation International to conduct an in-depth biodiversity assessment of one of the Company’s larger fazendas which typifies other farms in the Agua Boa area. The study, which is being used to establish the identification of High Conservation Value Areas and determine a sampling strategy for monitoring purposes, identified a wide variety of habitat types ranging from short and dense cerrado in early stages of regeneration of degraded pastures to tall and closed cerrado in riparian areas that is more indicative of “primary” cerrado. The Company is exploring tools and partnerships to pioneer better tools for HCVF determination and management and will consolidate its learning into an HCVF Methodology. The Company will develop an HCVF methodology which will be integrated into its Forest Management Plan and SOPs as part of its program for FSC certification and forestry leadership. (6.1)



Other risks to ecosystem service may include changes in water quality. Protection of water resources from sediments and mobile agrichemicals starts with the use of proper soil conservation technologies on CVA’s fazendas and careful use of agrochemicals to avoid overfertlizing. The Company has developed land tilling practices which require contour framing practices on areas exceeding 5% grades and some innovative bunding technologies were observed at some sites adjacent to APPs. Some experimentation with leguminous cover crops (e.g. macuna) or intercropping with other cereals or grains should be attempted in order to keep soil organic matter intact. The Company has also established smart soil amendment systems that reduce the need for broadcast fertilizers. Road construction practices were generally good using water bars to reduce er
osion and appropriate materials for water crossings which can reduce sediment loading. The Company will develop guidance and practices for identifying and managing High Value Conservation Forests within its RLs. It will also establish 3rd party certification of its forest management practices and chain-of-custody system and will undertake an FSC Pre-Assessment with an accredited FSC certifying body to ensure its practices will conform to FSC Forest Management and Chain-of-Custody requirements. (6.2 - 6.4)

The Company has established good relations with the Agua Boa municipality and the State Environmental Agency Environmental (SEMA) authorities through more than eight years of operations. The Company has developed several means of communicating in this sparsely populated dominated by large farms and extensive grazing on degraded sites. The Company and its contractors are primary employers of casual and semi-skilled labor in the area. There is no requirement for local public disclosure of the purchase of farm land although the Company has sought informational meetings regarding the sustainability of teak business in the region. The Company needs to start preparing mechanisms to provide information in response to questions about its policies and operations and to address grievances which might arise. These also will be required as part of their FSC certification. The Company expects to respond to community needs in its general area of operation, as opportunities to do so arise.

Companhia do Vale do Araguaia
Rod. MT 240, km 23 – Fazenda São Jorge
CEP: 78635-000
Água Boa, MT
Fax: +55 (66) 3468-2770
Tel: +55 (66) 3468-3966
http://www.valedoaraguaia.com.br

Broad Community Support is not applicable for this project

CVA(33683) Supervision Disclosure Snapshot – Version 9
Description	Anticipated Completion Date	Status	Comments	Completion Date
The Company will establish and maintain (i) an internally -audited Environment and Social Management System and (ii) externally-audited quality assurance system which is commensurate with the risks and impacts associated with its forestry and wood processing operations.	30-Jun-2015	Completed	Completed	12/1/2014
GIS System Development. CVA will develop and implement an integrated geographic and information management system to monitor and evaluate the sustainability of its forest management practices.	30-Jun-2016	Completed	Completed	5/7/2019
Grievance Mechanisms. The Company will develop and implement an appropriate grievance procedure to improve early identification and resolution of potential employee and contractor grievances.	30-Jun-2015	Completed	Completed	6/1/2016
Report on Conversion of Contractors. A plan for the conversion of contractors to Company-owned operations including, OHS training requirements, has been implement, and will be reported on during Supervision.	31-Mar-2016	Completed	Completed	12/1/2014
Environmental Permits. The Company will obtain the operating environmental permit from the State Environmental Authority (SEMA) for all saw milling and pressure treatment processing prior to operation	30-Jun-2015	Completed	Completed	6/1/2015
Hazardous Materials Management Procedures. The Company will strengthen its procedures for the management of all hazardous materials within the Forest Management Plans, Standard Operating Procedures and Training Requirements for employees and contractor.	30-Jun-2015	Completed	Completed	6/1/2016
GHG Emissions. The Company will develop a system for measuring the composite GHG footprint of its operations and report its estimated GHG emissions balance annually.	31-Mar-2016	Postponed	Changed project circumstances mandated a delay of this task
Stakeholder Engagement. The Company will make reasonable efforts to consult with and inform communities and stakeholders in its general area of operation about its plantation management activities and potential risks and impacts.	31-Jul-2016	Completed	Completed	6/1/2016
Methodology for Identification and Management of HCF. The Company will develop guidance and practices for identifying and managing High Conservation Value Forests within its RLs which will be included in its Forest Management Plan and operating procedures.	31-Dec-2015	Completed	Completed	5/7/2019
FSC Pre-Assessment. The Company will undertake an FSC Pre-Assessment to identify and close gaps in its forest management practices.	30-Jun-2020	Completed	Completed	6/1/2022
FSC Certification. The Company will establish 3rd party certification of its forest management practices and chain-of-custody system.	30-Sep-2020	In progress	Under discussion with IFC Client
Security. The Company shall request that State prison administrators provide clarification and guidance on the rules covering how inmates are managed during work-release programs, such as Araguaia’s, especially security provisions and clear rules on the use of potentially lethal force by prison guards in case of prisoner flight, situations of violence and other crises.	31-Aug-2015	Completed	Completed	5/7/2019