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
PS 4 – Community Health, Safety and Security

The company will not acquire or purchase any land in Bhutan for the project and there will be no involuntary resettlement or economic displacement. MHV’s corporate office in Thimphu is in a rented building, while the nursery is housed on a land leased by the government. Land required for the processing facility will also be leased by the government. Hence, PS5 (Land Acquisition and Involuntary Settlement) does not apply.

As per past research and experiments, Hazelnuts grow well in Bhutan. Although the variety introduced by MHV is not native to the region, it is considered benign and not invasive, based on numerous nursery experiments over a decade – conducted mainly at Oregon State University, USA – which is not only located in one of the world’s main hazelnut growing regions, but is also renowned globally for its research program on hazelnut breeding. Moreover, the proposed project will not result in any conversion of forest or agriculture lands to orchards. As per the contractual requirements, the farmers plant the hazelnut trees on their own lands that are not under cultivation and/or are degraded. The company has developed a sophisticated monitoring system based on Geographical Information System (GIS) and Global Positioning System (GPS) to monitor this and ensure that there are no adverse impacts on biodiversity. Therefore, PS6, Biodiversity Conservation and Natural Resources Management does not apply. Also, IFC’s review indicated that there are no impacts related to Indigenous Peoples (PS7) or Cultural Heritage (PS8).

This is a category B project according to IFC's environmental and social review procedures because specific impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines, or design criteria.

Key E&S risks and issues related to this project include: social and environmental assessment of the risks and impacts of the project; the company’s capacity, corporate systems and practices to manage its social and EHS performance, and engage with local communities and other stakeholders in accordance with local requirements, IFC Performance Standards and applicable World Bank Group (WBG) EHS Guidelines; assurance of fair, safe and healthy working conditions; resource efficiency practices to maximize conservation of energy and water; management of emissions and wastes from its proposed processing facility; and impacts of transport infrastructure.

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:

Even though the footprint of this project spans across a large part of country, the direct impacts due to the project will be minimal, as the main activities under the project comprise of nursery operation, tree planting and a small hazelnut processing facility. Considering the simple and benign nature of the activities the cumulative impacts due to the project across the country will also be minimal.



Local regulations did not require a formal environmental impact assessment (EIA) study for this project. MHV, however, has completed a detailed EIA study for the activities covered under the project, namely the nursery, hazelnut orchards (in the supply chain) and processing facility. The EIA report documents the various potential environmental and social impacts, estimates the severity of these impacts and the probability of their occurrence, and uses this combination to propose management and mitigation measures.



As per the EIA study the following risks and impacts are expected from the project: a) soil erosion during planting of trees, runoff from fertilized orchards, impact of runoff or wind drift from pesticide application for orchards; b) generation of wastes such as packaging waste, waste oils, lubricants, etc. from the nursery and processing facility; c) water use, energy use, and chemical inputs and noise impacts from machinery. For each impact, risk of occurrence and severity is assessed and mitigation/management measures are proposed accordingly. The study also included an occupational health and safety assessment and described measures to ameliorate such risks and impacts and also provided the results of a public consultation program. Overall, the EIA concludes that the project will result in minimal E&S impacts.



The EIA report is disclosed herewith as a supplement to this Environmental and Social Review Summary.



In addition to the EIA, MHV has completed a detailed analysis of the greenhouse gases (GHG) emission footprint of the project as well as its potential for GHG sequestration, as described later in this document. This study report is also disclosed herewith.



- MANAGEMENT SYSTEMS:



MHV has been developing an integrated management system, covering quality, environmental, health & safety, good agricultural practices (GAP) and food safety aspects of the operation, since the early days of the project. As a result, the company has now developed comprehensive management system documentation, including policies, standard operational procedures, description of roles & responsibilities, and monitoring and reporting protocols. It also maintains relevant records stemming from current operational activities.



For example, SOPs developed by MHV include: Distribution (Distribution Planning, Vehicles Hiring); Field Management (Planting Trees, Field Chemical Drenching Application, Field Chemical Spray Application, Fertilizer Application, Integrated Pest Management); Human Resources, Nurs
ery, Outreach (Land Registration, Group Registration) and Quality Control Reporting.



During the appraisal visit evidence of effective implementation of these SOPs was observed. For example, staff were found to be well trained about the SOPs, and hence the day to day work was being carried exactly as per the SOPs. Moreover, the SOPs and various performance indicators monitored were also displayed at relevant locations and the extensive and effective use of smartphones and information technology was clearly evident.



In addition, in order to promote continual improvement by consistent and complete implementation of these procedures throughout the company, MHV is in the process of instituting an internal audit function, one of whose duties will be to review practices and ensure they are in conformance with stated objectives and are in support of the overall intent of the company policies.



As a 100% export-oriented venture, the proposed hazelnut processing facility will meet international quality standards and matters of food safety; therefore practices in accordance with industry best practices, such as Hazard Analysis and Critical Control Point (HACCP) and Good Manufacturing Practices (GMP) are being put into place at relevant points of the operation.

- ORGANIZATION:

MHV has established a formal and robust organizational structure comprising of the following departments/elements: Nursery Operations, Field Operations and Support, Corporate and Community Relations, Environmental and Technical Services, Human Resources and Finance & Administration departments.



The environmental and technical services department comprises of divisions such as: Impact Assessment, Health and Safety, Quality Control and Extension services. Outreach and advocacy work is handled by a dedicated division reporting directly to the Managing Director of MHV.





- SUPPLY CHAIN:

Overseeing and managing the E&S issues in the hazelnut supply chain will be the responsibility of the Head of Field Operations department, supported by Outreach Advocates and Coordinators who will offer extension services. MHV has developed detailed reporting structures in its management system for this purpose.



One important aspect of the project is to develop the hazelnut supply chain in Bhutan based upon an out-grower model, thereby providing additional income for farmers located in the less developed districts of eastern Bhutan.



MHV imports rooted tissue culture plantlets from a tissue culture lab in Kunming, China, and the plantlets are then transported through a cold chain system to Bhutan. All the necessary phytosanitary certifications as per the local requirements of origin (China) and destination (Bhutan) as well as any transit locations are in place, as per the respective local quarantine regulations.



MHV provides these hazelnut plantlets to the participating farmers at no charge. They train the farmers to raise the trees, according to the protocol developed by MHV
jointly with the MoAF, and shall continue to provide regular extension services to ensure the inputs of the hazelnuts into the company’s supply chain.



MHV’s extension services to farmers include optimal orchard design, training on GAP and Integrated Pest Management (IPM), including safe handling and application of pesticides; and regular monitoring of orchards and agronomical advice. As mentioned earlier, MHV has developed SOPs and farmer training programs for these purposes.



- Grievance Mechanism for Participating Farmers



MHV maintains regular communication with the participating farmers (who can be thought of as primary producers and are the main stakeholders for MHV) through its extension officers as well as other channels, which help the company to understand any concerns the farmers may have, such as those related to agronomy, quality, extension services, transportation, payments or interactions with MHV staff.



MHV has developed and documented a grievance mechanism for participating farmers, to provide formal channels (and forms) for the farmers to share any grievances that they have with the company or its staff, together with a well-defined internal process to handle and address those grievances in a transparent and time-bound manner. This grievance mechanism is now being implemented across the company.



- Labor Issues in Supply Chain



An average of 30 person-days of labor are required per year per acre – including harvesting of hazelnuts. Currently in Bhutan, there is no system of farm labor. Hence, the farmer family themselves will manage the orchards, occasionally with the help of friends and neighbors. Adults in the family do the necessary work, and school education for the children in the family is not affected. As such, there will be no child or forced labor in the hazelnut supply chain in Bhutan. The company’s extension officers monitor this during their regular visits to the orchards.



- Supply Chain and Biodiversity, Food Security



To avoid any negative impacts of the hazelnut plantations on Bhutan’s biodiversity and food security, the contract between MHV and farmers requires that the hazelnut trees are planted only on lands that are not classified as agricultural but are fallow and/or degraded.



To ensure the farmers’ compliance with this requirement, the company has developed a highly sophisticated “Land Truthing System” using GIS, GPS, smartphones and internet technologies; corroborating with the official land use records (which are 100% digitized in Bhutan). This facilitates the company or any other stakeholders to zoom in on any piece of land owned by a participating farmer in the GIS using the internet, and see all the relevant details in real time and remotely from anywhere in the world.



The company’s extension officers regularly visit the participating farmers, and update the information in this “Land Truthing System”, which includes individual pieces of land with the details, such as sta
tus of land (degraded), soil conditions, status of trees and hazelnut orchards, etc.



This not only ensures that no forest land or land under cultivation of food crops is diverted to hazelnut production, but will also facilitate the traceability up to the individual tree in the orchards in Bhutan and even up to the tissue culture lab in China - when the final product is exported in the international market.



Hazelnuts require chill-induced dormancy and other agro-climatic conditions that occur in Bhutan at elevation ranging between 1,600 – 3,000 m; i.e., at an altitude where only a limited number of food crops can be grown. Moreover, as per the company’s contract with the farmers, hazelnuts are not to be planted on land that has been under paddy cultivation. This is verified as per the land truthing system at the time of farmer registration as described above. As such, hazelnut supply chain will not have any adverse impacts on food production and security.



During the interactions with various ministries and government agencies - notably with the MoAF – authorities confirmed that there will be no adverse impacts on forests, biodiversity or food security due to the project. Instead, the government expects that the project will put the unused and degraded land to a productive use in a sustainable manner and contribute to the conservation of existing forests and prevention of soil erosion from currently exposed areas. The positive impact stemming from the project was part of the conclusion of the EIA study.



Soil erosion is a serious issue in Bhutan. MoAF has taken several initiatives to combat land degradation and is preparing a National Action Plan for land management. The government believes that large scale hazelnut orchards perfectly fit within this plan as hazelnut orchards can help both supplement the organic matter of the soil (from leaf, wood, and catkins droppings) so can both improve the soil quality while preventing its erosion.



Hazelnut plantations can significantly reduce deforestation for firewood as the matured shoots can be cut and used as fuel wood. With almost 500 trees in an acre, pruned shoots could provide for one to one and half tons of fuel wood, thereby replacing the current practice of logging approximately 21,000 mature pine trees each year.



- MONITORING & REPORTING:



As a part of its management system and noted above, MHV has developed a comprehensive monitoring and reporting system covering its supply chain (nursery, orchards); a similar system will be developed and implemented at the processing facility, once it is operational. The current practice includes several key performance indicators (KPIs) related the project, including nursery, plantations, GAP, health and safety, HR, training and sustainability.



The company will continue to leverage the latest developments in information and communication technologies, such as smartphones, internet, GPS and GIS for real-time and remote monitoring of the
project as described earlier.

MHV currently has around 590 employees on its payroll, comprising the following: 310 permanent employees in its nursery and offices; 75 non-permanent employees (to be confirmed after a 6 month probation period) and over 200 Community-based Corporate Extension Representatives (“Contact Growers”) – most of whom are also participating as hazelnut farmers on their own land. Of the 310 permanent employees, about 120 are women employees, including about 20 in various managerial positions.



- HUMAN RESOURCE POLICY, MANAGEMENT 

MHV’s Service Rules articulate guiding principles, policies and operational procedures for managing its human resources. The Service Rules specify the types and terms of employment, service conditions including procedures for hiring, probation, compensation and benefits, leave and vacation, occupational health and safety, etc. which are consistent with the national labor laws. The terms of employment and other details about the HR policies are communicated to the employees through a formal appointment letter as well as through other internal communications from time to time, in case of any changes. The HR manual also includes code of business conduct, disciplinary code, corrective action procedure, and travel safety policy. These service rules have been duly approved by the local labor laws.



Moreover, MHV has further enhanced the service rules by articulating a formal grievance mechanism for its employees in accordance with the requirements of the PS2.



- CHILD LABOR



According to the Labor Law in Bhutan, the minimum age of employment is 18 years. According to MHV’s service rules, no one under the age of 18 can be employed in any manner in its operations. MHV has also formalized this requirement for its contractors in the respective SOPs and the contract documents (e.g. in the contracts for truck rentals).



As described earlier, there is no contract labor in the farms, which will be regularly monitored by the company’s extension officers.



- OCCUPATIONAL HEALTH AND SAFETY (OHS)



MHV has put in place the policies and procedures for ensuring that workplace hygiene and OHS conditions in facilities meet recognized international standards. These are articulated in service rules and respective SOPs. For example: the nurseries are designed in accordance with international best practices for chemical storage and handling. Detailed OHS training is provided to respective staff. Similarly SOPs are developed and training is provided on safe driving – especially for extension and outreach workers who travel on motorcycles. The proposed processing facility is being designed to comply with international best practices and standards for food safety.



During the construction of processing facility, necessary construction safety procedures and practices shall be implemented at site. MHV will ensure this through contract clauses as well as on-site supervision. MHV has developed plans and procedures to audit the sub-contractors
on OHS aspects.



The company provides the approved pesticides to the farmers in accordance with its SOP and also provides OHS training to farmers on safe pesticide handling and use in compliance with requirements of GAP, EUREPGAP and GLOBALGAP.

The hazelnut processing is a fairly simple operation with minimal negative environmental impacts. The main processing steps include pre-cleaning, drying, gauging, polishing, weighing and final packaging.



The process does not require any chemical additives. Total water requirement for the factory is estimated between 50-100 cubic meter/day, which will be met with river water which is available year round and in plentiful supply. For example, the estimated river flow rate at the point of extraction is 100 cubic meter/sec, thereby the project is not a significant user of water resources.



Hazelnut husks and shells from MHV's processing operations – which will be the primary organic waste from the process - will be combusted in the facilities boiler so as to provide a sustainable source of heat for its production facility (for drying). Electricity (for lighting, process control, motors and pneumatic material transfer) shall be obtained from the grid (which is based on hydropower in Bhutan). Diesel generators shall be used only as back-up power source, whenever needed.



In designing the facility, MHV will adopt best practices related to resource conservation and pollution prevention. Further, MHV will also finalize its plans for management of emissions and wastes from the facility in accordance with local regulatory requirements and the WBG EHS Guidelines.



Hazardous materials and wastes (such as empty oil drums, used lubricants, pesticide packaging, used batteries etc.) shall be disposed of in an on-site dry hazardous waste disposal pit. Disposal site will be clearly marked and registered with authorities. This site will have adequate buffer zones to prevent drainage into water courses.



As per the SOP developed by MHV, used pesticide containers (40-60 per year) generated at either the orchards and/or the nursery are washed 3 times with water and disposed of in the facility’s on-site dry hazardous waste disposal site. One poly planting bags and one plastic mulching disc is required for each tree that is planted (estimated at a total of 11 million bags and discs during the life of the project). The bags and discs are collected by the company and stored at the nursery site prior to shipment to a recycling facility in India.



- GREEN HOUSE GASES SEQUESTRATION



As part of its environmental mandate, MHV will plant hazelnut trees exclusively on degraded land. Replacing these unused slopes with hazelnut groves will have several positive climate change impacts, such as:

- Long-term sequestration of biomass in the tree and roots, as typical hazelnut plantations are productive for over 50 years.

- Increase in soil carbon sequestration due to leaf mulching.

- Displacement of fuel wood use from neighboring forests through the use of hazelnut prunings.

- Reduced risk of forest fires through microclimatic improvement and disincentives for farmers to engage in slash and burn cultivation.



As a result, MHV projects sequestering up to
1.4 million metric tonnes of CO2-eq over the productive lifetime of the trees (50 years), on the net basis after accounting for transportation and other GHG emissions. This is comparable to almost three times the annual CO2 emissions generated by the entire population of Bhutan, or 5 million barrels of oil.



The study report with detailed analysis of the greenhouse gases (GHG) emission footprint of the project and its potential for GHG sequestration is disclosed herewith.

The nature of the company’s operations does not present significant safety and security risks to nearby communities beyond that of the movement of vehicles. For this purpose, MHV has developed SOPs and provides training to its employees and the drivers of hired vehicles on safe driving. MHV has developed a detailed procedure and a GPS-based monitoring mechanism for the truck drivers.



While the impacts on the nearby communities due to MHV’s hazelnut processing operations are limited, as part of the operational manual and SOPs for the facility, MHV shall develop an emergency response plan for its processing facility during its operation. Key risk will be that of fire, either in the hazelnut shells storage area of the processing facility or at the storage of fuel and any other inflammable chemicals.



As per the local culture and practices, MHV will not allow its security guards to be armed at any of the company facilities.



On the basis of the above information, it is concluded that the project has been designed and will be operated in compliance with IFC’s PS and relevant environmental, health and safety guidelines.

Developing the hazelnut supply chain with thousands of farmers in Eastern Bhutan is the cornerstone of this project. Accordingly, the company has developed a Stakeholder Engagement Plan (including a documented grievance mechanism) to engage with the community and participating farmers.

This project is expected to double the income of participating farmers, which is roughly 15% of Bhutan's total population. With technical training provided by MHV and better access to irrigation and roads/ markets, farmers will be able to grow hazelnuts on degraded land that would otherwise remain unproductive, to generate incremental income.

MHV has documented its experiences of working with the farmers as “Stories of Impact” – disclosed herewith.

Moreover, MHV has established “Hazelnut Trust”, where MHV will donate 20% of free cash flow after all financial obligations. This independently managed Trust is jointly overseen by national and corporate leadership and the money is be used for poverty alleviation, environmental rehabilitation, and cultural preservation in Bhutan, especially as related to stakeholder communities.

MHV will disclose this ESRS and the attachments (viz. the EIA Report, GHG Emission Reduction Study Report and “Stories of Impact” locally at the following address:

Thimphu Office
Mountain Hazelnut Venture Private Limited
No. 8, Changjalu, Po Box 1403
Thimphu Bhutan
Phone: +975 (02) 340009
Fax: +975 (02) 340010

Lingmethang Office
Mountain Hazelnut Venture Private Limited
RNR-RDC Lingmethang
Lingmethang, Mongar District
Mongar PO Box 127, Bhutan
Phone: +975 (04) 744168

And on the website at: http://www.mountainhazelnuts.com

All inquiries and comments may be directed to:

Attn: Mr. Sean Watson,  
Bhutan Tel #: +975-1711-1857
Email:  mailto:swatson@mountainhazelnuts.com  

Broad Community Support is not applicable for this project