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
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.

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 KiK’s suppliers are those related primarily to apparel manufacturing. The most significant of these impacts are related to labor practices, including child labor, forced labor, occupational health and safety, wages & overtime, 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 light of recent major textile sector incidents related to fire safety, the due diligence focused on KiK’s supplier management systems and its effectiveness in identifying and managing E&S risks and impacts in its supplier base.

KiK’s supplier management system consider potential impacts of the suppliers in the aspects related to PS1 (Assessment and Management of Environmental and Social Risks and Impacts); PS2 (Labor and working conditions); and elements of PS3 (Resource Efficiency and Pollution Prevention) which are included in the auditing process. The suppliers to be financed within this Project are all approved factories which have been audited by a permitted third party organization.

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.

Social and Environmental Management Program:

KiK has a publicly available Code of Conduct (CoC) applicable to all its suppliers available at: http://www.kik-textilien.com/unternehmen/fileadmin/media/blaetterkataloge/COC_EN/index.html. The CoC (dated 2006, with the last revision in November 2015) is a compulsory set of basic principles for all KiK business relations, including suppliers and sub-suppliers. It is based on the ILO conventions and is therefore largely consistent with IFC PS 2.



The updated version has strengthened the requirements on transparency, corporate governance & corruption, included a section on environmental aspects, and explicitly mentions the right to terminate business relations if there are serious breaches of this code. The following areas are covered under the CoC: full compliance with local laws, transparency and reporting; corporate governance & corruption; working atmosphere, working hours, compensation, conditions of employment, health and safety at work, forced labor, child labor, discrimination, freedom of association, environment, and grievance mechanism. The CoC governs adherence to minimum standards related to environmental, health & safety and labor aspects in factories supplying products to KiK. Suppliers are required to sign the CoC and make it freely accessible to all employees in the local language. Suppliers also are required to train their employees on their rights and obligations as defined by the CoC and applicable local laws.



Zero-tolerance issues under KiK policies include: child labor, forced labor, abuse (physical and verbal), sufficient supply of drinking water and aspects related to Life and Fire Safety issues mentioned in the Code of Conduct.



On March 29, KiK begin implementation of its new auditing system in Bangladesh and roll-out will continue to other countries in a set time-schedule. The auditing process has four steps: (i) Agents/Buyers undertake a first screening focusing on E&S zero tolerances; (ii) Third party audit at each factory; (iii) Third party provides capacity building program to selected factories; and (4) KiK performs yearly audit. The process starts with a first evaluation before any production is placed and is based on the key KiK Code of Conduct requirements and shall indicate potential serious health and safety related perils and situations regarded as zero tolerances. KiK will evaluate the outcome of the pre-scan and will then, through its SUD (Service Unit Dhaka) office, conduct another enlistment visit to decide whether the supplier is eligible for producing test orders.



After the test orders are processed and KiK would decide to establish a steady business relationship with the respective supplier a full audit as defined by KiK will be conducted by qualified auditors. The audit report then will be reviewed by KiK’s social compliance team. In reference to the documented result of the respective audit and potential need for remediation a Corrective Actio
n Plan is drawn up and agreed with a specific time line to perform appropriate corrective measures. The success in remediation is constantly monitored by KiK. Audits are always carried out by professional and specialized service providers.



Suppliers are contractually obliged to and sanctioned by liquidated damages to indicate any production at any third party factories (sub-supplier) it intends to produce a KiK order in. Before a production takes place the audit process as described before also applies to these sub-contracting factories.



These audits are conducted by accredited third party companies such as, SGS and Elevate on behalf of KiK, and for selected suppliers by KIK’s own compliance team. KiK accepts recognized certification audits and management systems such as SA 8000, WRAP and BSCI. These certifications and audits are reviewed by the KiK compliance team which rates them according to their compliance rating system. KiK scores its suppliers based on the audit results category. The current audit categories are “high risk”, “non-compliant”, “improvement needed” and “good”. Based on the audit results, action plans to improve the non-conformities are put in place. KiK is committed to achieve coverage of 95% of suppliers in Bangladesh with complete labor audits by 2016, and environmental audits by 2017 according to KiK’s auditing template.



Follow-up activities of the findings determined during the supervision audits are followed up by SUD. In addition “short visits” are programmed to follow up with suppliers on safety aspects and wages as required in Bangladesh. A monthly update of the supplier ratings and on the improvements is shared with KiK’s purchasing department. Based on the outcome, a supplier is able to proceed the business relationship with KiK. The existing business relationship with a supplier ends in cases of serious violations of the CoC and in case a supplier constantly refuses to cooperate and / or to improve.



As part of the new auditing system, a qualified third party organization will undertake a capacity building program at selected suppliers to ensure effective implementation of KiK’s E&S requirements. In addition, and in order to improve its verification and monitoring capability, KiK staff will perform a yearly E&S audit for each approved supplier.



Based on the results of the auditing system (pre-scans results, issued audit reports, results of short visits and implementation progress of action plans), KiK’s suppliers are graded using a “traffic light system“:



Green suppliers = suppliers have uncritical findings with a long term improvement timeframe

Yellow suppliers = suppliers have uncritical findings with a medium-term improvement timeframe

Red suppliers = suppliers have critical findings with a short-term improvement timeframe

Dark Red suppliers = suppliers have non-tolerable violation(s) of the CoC or Zero-Tolerances.



IFC’s financing support will be offered to Suppliers with a KiK rating
of green and yellows when a full third party audit has taken place.



KiK is currently implementing additional controls to minimize the risk of sourcing from unknown and un-authorized factories, including: i) additional verification on its own database of suppliers to confirm internal rating, ii) checking if the proposed supplier has a valid certification; and iii) checking if the supplier sells to another major brand. In addition, as of November 2015, KiK is using a new IT platform to monitor compliance that increase transparency and reliability of information.



KiK aims to develop long-standing relationships with its core suppliers and works with them under various programs. In addition, to compliance audits, KiK supports and empowers the supplier with know-how and business procedures as well as conducting regular workshops and training for its suppliers’ employees.



In light of recent major textile sector incidents related to fire safety, in May 2013 KiK signed “Accord on Fire and Building Safety” in Bangladesh (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 (SEF), which is typically accompanied by a Remediation Action Plan (RAP) to be implemented by the suppliers.



Organizational Capacity and Competency:

KiK has a dedicated CSR department and a field based Service Unit Dhaka (SUD) that verifies via pre-scans and supervision audits (the compliance of suppliers with KiK’s CoC). SUD core team of currently 6 full-time KiK’s employees is located in Dhaka and reports to the CSR and purchasing departments in Germany. One of this staff is a Fire Safety expert. Additional third-party professional compliance audits are currently done on behalf of KiK by SGS and Elevate. In 2012, KiK conducted more than 250 social audits in its supplying countries.



For factories in Bangladesh where KiK is a signatory of the Accord for Bangladesh, next to the KiK social audit, a specific Structural, Electrical and Fire safety Assessment is conducted by experts under supervision of the Accord Chief Safety Inspector. KiK is cooperating with the Chief Safety Inspector supporting remediation requirements of the Accord. Kik’s personnel conduct safety visits to factories and has reinforced its team with an environmental expert in Germany. Additional fire safety responsibility / knowledge is available in the SUD office to follow up the implementation of corrective measures and environmental evaluation.



Monitoring and Review:

KiK (via SUD and CSR department) monitors new suppliers’ implementation of the areas for improvement after the pre-scans and supervision compliance audits. KIK also supervises the existing suppliers’ follow up activities implementation after the supervision audits. In its Sustainability report as published, KiK lists the number of supervision audit
s completed. Qualified Safety Inspectors selected by Accord carry out SEFs and later verify implementation of the agreed RAPs for the Suppliers.

KiK’s supplier compliance concept meets core elements of IFC’s Performance Standard 2 (Labor and Working Conditions). The CoC has provisions on non-discrimination, no harassment, no abuse, maximum working hours, paid overtime, required days off, and legally required social benefits. CoC prohibits any deductions from wages as disciplinary sanctions. CoC framework forbids any type of child, slave, prison or forced labor. It promotes the overall respect of universal human rights and ethical behavior. Other provisions covered by the Code include requirements for a workplace to be safe and healthy and a mandatory occupational health and safety training to be provided to all employees.



KiK’s principles cover requirements to provide for a right to freedom of association and collective bargaining. Full details on specific requirements are available on KiK’s website.



KiK offers a direct grievance submission to its CSR department for all supplier employees and provides an email and mailing address as part of the CoC.

Regarding resource efficiency and pollution prevention, in 2012, KiK joined the Carbon Performance Improvement Initiative (CPI2), which is a joint project of various European retailers. It aims to optimize energy usage during the production of consumer goods and to reduce energy costs and CO2 emissions. A computer program was developed that helps manufacturers analyze their energy consumption across the production process and identify where savings can be made. Manufacturers enter their factory’s data and then receive an evaluation of its energy consumption and a rating. Based on the results, improvements are suggested and implemented. More than hundred KiK suppliers signed up till today and KiK aims to encourage further suppliers to join within next year.



KIK updated its Code of Conduct to include a specific requirement on environmental aspects at supplier operations. Suppliers are required to develop an environmental management system and implement adequate measures to prevent or minimize adverse environmental impacts at operations. KIK will begin to audit suppliers on these environmental requirements, and expects to cover 95% of them by November 2017 in Bangladesh.

KiK is cooperating with non-governmental organizations, such as the AWAJ-Foundation to provide basic medical services to any worker of Bangladesh. KiK also assists female hygiene at factories. Furthermore KiK is supporting day care centers at its Bangladesh suppliers to comply with local labour laws as well as water and sanitation projects in northern Bangladesh. KiK publishes an annual brochure “Products that Help” that can be found on its webpage, listing all projects KiK undertakes to support local communities.

This ESRS will be disclosed at the IFC´s website.

Please contact the following for inquiries or concerns about the environmental and social impacts of this project:

Ansgar Lohmann
Head of CSR Department

KiK CSR Department
Siemensstr. 21
D-59199 Bönen

E-mail: mailto:ansgar.lohmann@kik.de
Website: http://www.kik-textilien.com

Broad Community Support is not applicable for this project

Title	Anticipated completion Date
Review labor and environmental clauses in the contracts with agents and importers: Review and update related clauses in a contract with agents and importers to ensure independent and comprehensive evaluation of suppliers. Such clauses should define responsibility for assessment and monitoring of labor and environmental aspects, and the scope of the verification process (e.g. all sub-contractors to be reported). KiK will ensure that a proper follow up of agents/importers with suppliers is in place.	11/30/2016
Achieve 95% suppliers’ coverage of full labor audits: At least 95% of all KIK’s suppliers should undergo a complete labor audit. These audits could be performed by reliable third parties including certification bodies.	11/30/2016
Achieve 95% suppliers’ coverage of full environmental audits: At least 95% of all KIK’s suppliers should undergo a complete environmental audit. These audits could be performed by reliable third parties.	11/30/2017