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

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

Key E&S risks and issues related to this investment include: assessment and mitigation of the impacts due to the company’s activities including future projects; the Company’s capacity to manage its social, environmental, health and safety performance, and IFC Performance Standards and applicable guidelines; assurance of fair, safe and healthy working conditions; utilization of equipment and operational practices that maximizes conservation of energy, water and process materials including recycling and reuse initiatives; management of waste emissions and discharge; handling and management of hazardous materials and hazardous wastes; and the impacts of operations on local ambient environment.

Company’s manufacturing operations do not result in any significant noise, wastes, emissions or other risks and impacts. Also, the manufacturing facilities are located in the well-developed industrial zones and remote from the nearby residential communities. Hence, impacts related to PS4: Community Health Safety and Security are not expected for this investment.

Impacts 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 not expected because the Project does not involve any new land acquisition and involuntary displacement, as envisaged under the PS5. Any future land purchase will only be in industrial areas and strictly through a willing-buyer-willing seller open market transaction or through a lease from the government agencies.

The Company has presented the information about how the E&S issues and impacts are being addressed, to ensure that the Project complies with the environmental and social (E&S) requirements including: the host country laws and regulations; IFC’s Performance Standards; and the relevant World Bank Group (WBG) EHS Guidelines. This information is summarized in the paragraphs that follow.

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.

- Environmental & Social Assessment:

For its operational facilities, the Company has procured all the regulatory permits, and complies with the mitigation measures as per the permit conditions. For the development of any new facilities, as per the local regulatory requirements, the Company engages external consultants to conduct an Environmental Impact Assessment (EIA) study and develop an environmental management plan (EMP) covering both the construction and operation phases; this is documented in its management systems manual.



- Management Systems:



Hollysys’ vision and mission is “using automation to improve people''s work, life and the environment”. “Care about the environment” has been an important part of Company’s Management Policy. (http://www.hollysys.com.sg/home/about-us/mission-vision).



This forms the basis of the management systems implemented at the Hollysys facilities. Several subsidiaries of the Company, including Beijing Hollysys, Hangzhou Hollysys and Hollysys Electronics, have passed several or all of the GB/T19001-ISO9001 international quality management system certifications, GB/T24001-ISO14001 environmental management system certification, and GB/T28001 occupational health and safety management system certification.



(GB standards are the Chinese national standards issued by the Standardization Administration of China (SAC), the Chinese National Committee of the ISO and International Electrotechnical Commission, IEC).



The company’s quality management system certification is valid for production and technical services for industrial automation products. The other two certificates are valid for production, technical services and related management activities.



All the 8 subsidiary companies in China are well covered under the management systems, while, the recently acquired subsidiaries in Singapore and Malaysia are being integrated in the existing Hollysys management system. The company expects to fully integrate these two entities in its existing management systems by 2016-2017.



- Organization:

Hollysys Group Management Document articulates the detailed organization chart, specific roles and responsibilities and reporting lines of the various functional units in managing the EHS issues. This covers, for example, specific responsibilities of the President, Chief Engineer, various department heads, employees, and even worker unions.



At the corporate level, environmental and safety issues are managed by the Logistics Service Center, while the Human Resources Department is responsible for overseeing the occupational health and safety management across all facilities. At the facility level, the day to operations related to EHS management are performed by the respective managers of the companies on behalf of the general manager of the facility / production line.



Monitoring & Reporting:



The Company has put in place an elaborate monitoring and reporting program as documented in its management syste
m manual. This program covers several KPIs related to manufacturing, HR and EHS. All subsidiaries report on standard safety related KPIs such as (lost time accidents, safety training, medical checkup of employees etc.), while each subsidiary has its own environment related KPIs (such as treatment rate for printed circuit board processing, emission treatments), depending on the specific activities and their environmental aspects and impacts.



The KPIs from each subsidiary are compiled at the corporate level and feed into departmental scorecards. The safety related KPIs for instance have a significant weightage in the scorecard such that even one minor accident can ruin the score card of the concerned department.



- On-site Emergency Response Plan:



Based on the identified hazards and risks, an on-site emergency response plans has been developed by the Company. Accordingly, potentially hazardous areas have been identified and evacuation routes and assembly points have been designated and clearly marked. There have been no emergencies in the past at any of the company’s facilities.

Hollysys currently employs around 3,500 employees. The manpower comprises of only 300 blue collar workers and those associated with the shop floor, and the rest are in the R&D department (over 900 employees), sales, and other management functions. Female employees constitute approximately 30-40% of the total workforce. Hollysys hires very few temporary or casual workers (no more than 100), just to accommodate fluctuations in work load for short periods of time.



Hollysys outsources transport, security (unarmed), cleaning, gardening and canteen to licensed contractors.



- Human Resource (HR) Policy, Management

Hollysys has in place documented HR policies and operational procedures which are in line with company’s corporate vision and mission as well as Chinese labor law requirements. The HR manual documents the terms of employment, policies and procedures for compensation and other benefits, training, performance appraisal, and promotions.



This manual is accessible to all the employees, who also receive a copy of the same at the time of joining, together with their appointment letter and contract. The company’s HR policies and procedures are consistent with the requirements of PS2.



- Workers Union, Grievance Mechanism:



A registered workers union is active at Hollysys and is an important part of EHS management procedures. In addition, the company engages with the union for any significant business decisions (such as for example any relocation of facilities), and seeks its approval prior to making any major changes.



The company conducts an anonymous employee satisfaction survey twice a year. In this survey, employees can provide open-ended comments / feedback, or share their grievances. Employees can also raise their grievances through HR department. After receiving such information, HR handles the case, and reports the key conclusions and suggestions to the managers.



- Training and Human Resources Development



Hollysys has an extensive human resource development and training program for its employees, which is managed by the HR department. Several structured training programs are developed for different levels of employees and covers behavioral aspects as well as technical/functional training. EHS is an important component of induction training as well as the ongoing training calendar.



- Occupational Health and Safety



Hollysys has put in place elaborate safety management system at the company. The Safety Policy guides the overall safety management at the facility. Safety orientation is an integral part of the induction training for all the new employees.



The shop floor has hi-technology; high precision machines designed and built in Japan, with automated operations. All the moving parts are enclosed and normal operation of the machines requires minimal contact with human body parts, thus minimizing the chances for an accident.



The company’s safety manual lists the potential risks for each machine and a
ctivities – during operation as well as during maintenance operations - and accordingly has developed lists of precautions and personal protective equipment (PPE), all of which is integrated in the work instructions and Standard Operating Procedures (SOPs). All shop floors are neatly organized following 5S principles and all the KPIs, work instructions and SOPs are displayed on the shop floor.



Personal protection equipment such as gloves, safety shoes, masks and glasses is provided to all the workers on the shop floor, which is commensurate with the nature of operations and potential safety hazards.



Adequate fire detection and suppression equipment is fitted across the facility in accordance with the potential fire risks. Fire exits and the locations of fire extinguishers are clearly marked. Firefighting training is provided to the employees and fire drills are regularly conducted.



Due to all its efforts, Hollysys has not had any accident involving any employee since 2006, except for some minor incidents involving economic loss.

The manufacturing process comprises of totally automated assembly of Printed Circuit Boards (PCBs), which are further assembled into modules (a set of PCBs), which are further assembled into the cabinets as the final product. Most of the manufacturing process does not require water or chemicals, nor does it result in any wastes - except for the special surface treatments of PCBs like anti-erosion and anti-aging which involve some toxic chemicals (such as methyl benzene and dimethyl benzene).



However, workspace for those special treatments is well-isolated with effective ventilation and gas treatment systems and the resultant waste is disposed of through licensed contractors as per the pollution permit conditions. Employees are well protected with the appropriate personal protective equipment.



The manufacturing process is not resource intensive and the primary inputs are only PCBs, electronic components and electrical energy. Water is used mainly for domestic use and is sourced from the local authorities. The domestic wastewater is discharged in the sewers, which is treated in the centralized treatment plant.



Hollysys complies with all relevant regulations for the storage, handling and disposal of hazardous materials used in the production process. The notified hazardous wastes are disposed of through licensed waste management contractors, as per the regulatory authorizations. Adequate controls during the storage and handling are in place and the quantities of solid waste thus generated and disposed of are regularly monitored, documented and reported to the authorities.



- Energy Sources and GHG Emissions:



Primary energy requirement for the project is that of electricity, which is procured from the national grid. No fossil fuels are used in the Company. Small capacity diesel generators are installed on site as backup generators, for use in the rare case of power failure.



The GHG emissions of the Project are, therefore, dominated by those due to the electricity consumption, with a small contribution from loss of refrigerant from HVAC systems. The project had estimated emissions of 9,200 tons of CO2e during the year 2013.



While the project results in limited GHG emissions, some of the Company’s products contribute to lower GHG emissions from the coal fired power plants. Hollysys has one of the top 3 industrial automation solutions for the power plants, which helps in reduction of coal consumption through optimization and continuous maintenance; which results in reduced costs as well as GHG emissions. Hollysys also helps small coal fired power plants with its waste heat recovery (WHR) solution, and has 25% market share in the segment in China.



On the basis of the above information, it is concluded that the facilities covered under this investment have been designed and will be operated in compliance with IFC’s PS and relevant environmental, health and safety guidelines.

As part of its community engagement activities, Company together with its trade union, supports the disaster areas, children''s learning and living in poor areas, assisting the disabled persons in getting employment and similar other activities.

Hollysys will disclose this ESRS locally at the following address:
No. 2 Disheng Middle Road,
Beijing Economic-Technological Development Area,
Beijing, P.R. China 100176

All inquiries and comments may be directed to:

Ms. Jennifer Zhang
Telephone: +86 10 5898 1386
Telefax: +86 10 5898 1326
E-Mail: mailto:zhangqiuju@hollysys.com

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.