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

This is a Category B project according to IFC’s Policy on Environmental and Social Sustainability 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, guidelines or design criteria.

The environmental and social impacts that are expected to occur among Puma’s suppliers are those related primarily to shoe and apparel manufacturing. The most significant of these impacts are related to labor practices, including child labor, forced labor, occupational health and safety, wages, overtime, grievance mechanism, and overall safe and fair employment conditions; life and fire safety protection (including emergency response); emissions to air and water, hazardous materials management and use of energy and water. In addition, for the shoe manufacturing sector, management of supply chain issues on sourcing of materials such as rubber and leather are of relevance.

PUMA’s supplier system considers potential impacts of the suppliers in the aspects related to PS1 (Assessment and Management of Environmental and Social Risks and Impacts) and PS2 (Labor and working conditions); elements of PS3 (Resource Efficiency and Pollution Prevention) are considered in the audit process. The suppliers to be financed within this Project are all existing factories. Since no greenfield factories will be financed, the impacts related to PS5 (Land Acquisition and Involuntary Resettlement); PS6 (Biodiversity Conservation and Sustainable Natural Resource Management), PS7 (Indigenous Peoples), and PS8 (Cultural Heritage) are not expected. Suppliers’ impacts are limited mostly to their premises and no impacts to local communities are expected, therefore PS4 (Community Health, Safety and Security) issues are not expected.

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. No ESAP

Social and Environmental Management Program:

PUMA has a comprehensive and functional supplier compliance framework. There is a mandatory suppliers Code of Conduct (CoC), which covers the following matters: child and forced labor, protection of the environment, health and safety of workers, working hours and overtime, minimum wages, harassment, discrimination, freedom of association and collective bargaining, respect for human rights. There is a broader Code of Ethics (CoE) applicable to PUMA and its suppliers’ employees and it mandates the overall ethical behavior towards all workers at all times. In addition, the Suppliers’ Management Program consists of a number of mandatory standards, applicable to all PUMA suppliers: (i) 2013 Handbook on Health and Safety; (ii) 2013 Handbook on Social Standards; (iii) 2013 Handbook of Environmental Standards (Environmental Management); (iv) 2013 Handbook of Environmental Standards (Chemical Management). Moreover, the Policy against the Use of Exotic Skins, Feathers and Mulesed Wool; Restricted Substances List (RSL) and the Manufacturing Restricted Substances List, (MRSL) are also parts of the PUMA’s supplier compliance framework.



IFC has reviewed PUMA’s supplier compliance framework and found that it is largely aligned with IFC’s Performance Standards. In particular, PUMA’s system has historically focused on labor issues, and is aligned with IFC Performance Standard 2 (Labor and Working Conditions), and there are significant efforts to address environmental aspects among its suppliers aligned with PS3 (Resource Efficiency and Pollution Prevention) as described later in this document. The CoC has provisions consistent with internationally recognized labor standards. All documents establishing PUMA’s supplier compliance framework can be found at about.puma.com/en/sustainability/standards .



CoC sets a clear minimum standard for supply chain partners that must be displayed in all of PUMA’s directly contracted partner factories. It forms an essential and mandatory part of Puma purchasing contracts. Compliance with CoC is required for any factory willing to become a PUMA’s supplier and it is monitored on a regular basis (via audits) by a dedicated PUMA compliance team, who partners with the Better Work Program for external support and compliance verification in those countries where such programs are in place. As a Better Work Buyer Partner, PUMA no longer audits declared Better Work facilities and accepts Better Work reports and converts these into the PUMA rating system. PUMA compliance program has been accredited by Fair Labor Association since 2007. Currently applicable internal audit Key Performance Indicators (KPIs) include: wages/compensation, benefits, working hours, discrimination, freedom of association, grievance procedure, basic health and safety, dormitories and welfare amenities, social concerns, training, child and forced labor, harassment and abuse, environmental management, ethical sourcing
practice. PUMA uses several electronic E-KPI systems to capture the related results.



The current PUMA’s suppliers rating system uses the ratings “A”, “B+”, “B-“, “C” and “D”. The percentage is assigned based on the compliance with a comprehensive audit tool covering 328 questions with alignment against the FLA Sustainable Compliance Initiative Core tool and the Better Work Global CAT tool. Suppliers rated “A” have a 100% to 95% level of the compliance framework; the required social, health, safety and environmental standards are complied with, and there are indications of strategic initiatives to maintain compliance to the CoC. Suppliers rated “B+” have a level of 95% to 90% compliance; non-compliance issues are of minor importance that can be rectified immediately. PUMA encourages these suppliers to become A rated. Reaudits for these facilities were previously set biannually and annually, respectively, however in 2014 a new Yearend Rating system was implemented wherein additional risk considerations were made. As a result the reaudit period for these facilities is in the process of modification based on total risk performance and exposure.



Factories rated “B-“ are between 90% to 85% compliant. They are re-audited after 8 months or sooner depending on the nature of the issues. If these factories do not improve their rating to a higher one by the subsequent audit, they are downgraded to a “C” rating and issued a warning letter indicating potential business termination if there are no improvements. Factories rated “C” are compliant between 85% to 75%, and would have serious or numerous non-compliance issues identified during the audit and must be rectified immediately. “C” rated factories must implement improvements immediately and reach a higher rating by the next audit for continuing business with PUMA. If they do not, the warning letter is issued and business relationship is terminated within 12 months with a new factory applicant, or business is reduced or terminated in the case of an already accredited factory. Factories rated “D” are below 75%, with serious violations of the standards identified. The business relationship is terminated or, in the case of a first audit, there is no commencement of a business relationship.



PUMA’s new Yearend Grade system incorporates Red Flag incidents that occur at suppliers, such as the actions taken to rectify worker complaints received through PUMA grievance channels. As a result there is a possibility for supplier factories to upgrade or downgrade from one letter grade to another.



IFC’s financing support will be offered only to the Suppliers with a PUMA rating of A, B+ and B- achieved in the Yearend Grade (as opposed to Raw Audit grade).



In 2013, Puma introduced the “Pay for Play” policy to penalize suppliers which are not building on efforts to improve their compliance performance. The penalties come into effect before Puma considers taking the step of contract termination, particularly fo
r suppliers that previously had a history of better performance. By the end of 2013, PUMA terminated its partnership with 24 Tier 1 facilities across all sourcing groups due to the poor compliance systems in place and/or the unwillingness to improve them. By end of 2014 PUMA terminated its partnership with 35 facilities due to non-compliance issues.



Since 2013, PUMA has publicly provided a list of its key suppliers. PUMA publishes a comprehensive Annual and Sustainability Report, where it makes the auditing of its suppliers results available (on a broader scale, mostly per region, not per country). The latest 2013 report is available here:

http://www.puma-annual-report.com/GB/2013/pages/en/pdf/PUMAGeschaeftsbericht2013_en.pdf



PUMA also supports its key suppliers in establishing their own sustainability strategies and reporting (following GRI principles). Individual supplier Sustainability Reports covering detailed sustainability information from 33 Key PUMA suppliers from around the world were published and made publicly available (two of them are from their key suppliers in Bangladesh).



In addition to PUMA’s supplier compliance framework, in Bangladesh, in 2012 PUMA became a signatory to The Bangladesh Accord on Fire and Building Safety (“Accord”); a multi-stakeholder initiative aiming to improve the health and safety conditions in apparel and footwear factories in Bangladesh. Under Accord, suppliers must undergo a comprehensive Structural, Electrical and Fire safety Assessment (SEFs), which is typically accompanied by a Remediation Action Plan (RAP) to be implemented by the suppliers. Early on PUMA took a proactive approach and developed its own independent L&FS supplier building assessment; hired a Program Manager to lead a group to carry out PUMA own L&FS evaluation in Asian sourcing outside of Bangladesh.



Organizational Capacity and Competency:

PUMA has a dedicated PUMA.Safe Department and a global compliance team, who verifies via regular audits supplier compliance with PUMA CoC and other supplier related standards (see above). The compliance team also trains and accredits individual external monitors to conduct audits in high volume countries, and partners with the Better Work Program for supplier compliance verification. The FLA carries out its own external independent assessments (IEA) of PUMA suppliers to verify PUMA’s compliance program performance on the field.



A core team of 21 full-time associates is located in Bangladesh, Vietnam, China, Turkey, El Salvador and Indonesia and reports to the Headquarter PUMA.Safe management team based in Vietnam and Germany. In 2013, PUMA.Safe conducted a total of 411 audits in 28 countries - including initial and follow up audits. The audits covered a total of 365 factories from which 349 are Tier 1 manufacturing suppliers. Additionally, there were external audits conducted by the Better Work program in Cambodia and Vietnam. In total, PUMA carried out 429 audits in 2014 and asse
ssed 366 facilities, 35 of which were made inactive and taken from the supplier base because of failure to meet PUMA standards. In Bangladesh currently PUMA.Safe has one staff member dedicated to supplier compliance supervision.



PUMA internal compliance auditors are trained and certified to the standards of the FLA Sustainable Compliance Initiative Assessor; they are also targeted to receive an annual refresher. In Bangladesh compliance audits are performed by the PUMASafe team, and the FLA conducts random IEA in these facilities.



The Structural, Electrical and Fire Safety Assessment, as mentioned above, is conducted by a qualified Accord Safety Inspector, with fire and building safety expertise selected by the Accord Steering Committee. In addition, PUMA’s own L&FS team carries out independent building assessments.



Monitoring and Review:

PUMA monitors supplier implementation of the compliance Corrective Action Plans (CAPs) through follow-up audits which were previously conducted according to the frequency determined by the supplier rating achieved (see above for details). This frequency of reaudit is currently under review taking into account the total Yearend Grade achieved and the Risk Exposure scores achieved by each facility based on 3rd party Verisk Maplecroft assessment, introduced in 2014. In its Annual and Sustainability report published, PUMA lists the results of supplier performance monitoring. Qualified Safety Inspectors selected by Accord carry out SEFs and later verify the implementation of the agreed RAPs for the Suppliers.

PUMA’s supplier compliance framework considers core elements of IFC’s Performance Standard 2. The Code of Conduct and Handbook on Social Standards have provisions on wages and benefits. Suppliers are required to provide legally mandated benefits and fully compensate for overtime according to local law and to inform workers of overtime policies. PUMA’s framework forbids any type of child or forced labor. It promotes the overall respect of universal human rights and ethical behavior.



PUMA’s authorized suppliers, compliant with the CoC and Handbook, should not discriminate nor tolerate any type of harassment. PUMA’s principles cover requirements to provide a right of freedom of association and collective bargaining. Other provisions covered by the framework include requirements for a workplace to be safe and healthy; and the work environment protecting and preserving environment. Full details on specific requirements are available on PUMA’s website and in PUMA’s Handbook on Social Standards.



As part of PUMA Better Wages Initiative (2010-2014), the company has been exploring different approaches to achieving better wages in supply chain. Suppliers should provide their employees with a clean, safe and healthy work environment. PUMA.Safe pays attention (KPIs) to health and safety, dormitories and welfare amenities and OHS training during compliance audits. PUMA Handbook on Health and Safety stresses a need for a preventive approach in OHS.



PUMA clearly establishes that suppliers should not sub-contract without previous authorization of /and agreement with PUMA. PUMA advises footwear suppliers to purchase leather from nominated leather manufacturers who are certified members of the Leather Working Group. PUMA has set targets to source over 90% of its leather from certified tanneries by 2017. PUMA has also focused on driving traceability and lower-impact material choices. It has worked with its main suppliers of organic cotton and “Cotton made in Africa” to improve traceability of the cotton used in its more sustainable products. PUMA has banned Uzbek cotton from its product range. PUMA has also banned certain processes with known negative health & safety impacts, such as sandblasting.

PUMA measures the environmental impact from its own and key suppliers’ operations. In 2010 Puma published Environmental Profit and Loss Report, an attempt to measure, value and report the environmental externalities caused by PUMA in its entire supply chain. This analysis guided PUMA to focus on specific environmental aspects at its suppliers’ level, such as expanding the scope of measurement to selected raw material and component suppliers; and encourage supplier certification schemes.



PUMA set a goal of zero discharge of hazardous chemicals by 2020. It also encourages regular waste water, sludge, air emissions testing for output control. PUMA maintains a Restricted Substances List (RSL) policy.



PUMA collects environmental KPIs including energy, waste, water and CO2 emissions for footwear, apparel and accessories product divisions (available in E-KPI current corporate system). The Company engages with its key production partners (Tier 1) for them to complete online questionnaires linked to the corporate environmental management software Enablon. In 2014, PUMA started HIGG index (based on the HIGG web platform) roll out – which would help monitor E&S status of factories (impacts and management systems). The successful roll out to the top 60 suppliers was completed by the end of 2014. Plans for further expansion of the HIGG index usage is pending further agreements on the social aspect of the tool at the industry level.



In 2013 the Company launched a targeted suppliers’ resource efficiency program “SAVE http://www.puma-save.org ”(2013-2016) with 25% reduction target by 2016 (CO2, water and waste). It involves 40 key suppliers in Bangladesh, Cambodia, China and Indonesia. PUMA trained 200 factory staff members in all four countries. During 2014, with support from an external technical team of 20 consultants, SAVE conducted 47 resource efficiency assessments covering PUMA’s major suppliers in Bangladesh, Cambodia, China and Indonesia. The benefits from implementing the suggested improvements are expected to have a significant impact on the operational costs of running a factory in addition to reducing environmental impact and improving the conditions for local communities. In December 2014, the project entered its implementation phase, when the factory started implementing the selected resource saving opportunities over a 12-month period with monthly support from the consultants.



PUMA participates in convergence work to align all standards, requirements and performance targets against SAC, FLA, Better Work and IFC requirements. The Company also carries out a supply chain capacity building program to train key suppliers on SAFE standards and required management systems.

PUMA is an active, accredited Participating Company of the Fair Labor Association (FLA); collaborates with the Sustainable Apparel Coalition (SAC) and a signatory to Bangladesh Accord; is an active member of the ZDHC working group; part of the Fair Wage Network (FWN) and a Buyer Partner of the Better Work Program. PUMA participates in an industry-wide Strategic Engagement initiative to align industry and multi-stakeholder approach on strategic compliance standards and enforcement.

Other industry engagements include the CSR Committee of the World Federation of the Sporting Goods Industry, the Sustainability Committee of the Federation of the European Sporting Goods Industry, the United Nations Global Compact Network, Textile Exchange, the German Round Table on Codes of Conduct, the German Network of Business Ethics, B.A.U.M and the AFIRM Group on Restricted Substances. Several civil society engagements are maintained locally in keeping with requirements set by the FLA for accreditation.

This ESRS will be disclosed locally at PUMA: at its offices in Bangladesh (for this pilot stage) and Hong Kong. In addition, PUMA will publish it on its website: about.puma.com/en/sustainability

Please contact the following for inquiries or concerns about the environmental and social impacts of this project:
Contact person: Dr. Reiner Hengstmann
E-mail: mailto:Reiner.Hengstmann@puma.com

Broad Community Support is not applicable for this project