Issues related to are not applicable PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resources, neither are PS7: Indigenous Peoples, and PS8: Cultural Heritage, for the following reasons: There is no known critical or natural habitats remaining within the landscape with surrounding areas semi urbanized and or developed in to industrial production facilities. There is no presence of indigenous peoples or known cultural artifacts within the current and future operational footprint. In the event that issues anticipated by these Performance Standards arise, XN will promptly inform IFC.

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

This proposed investment is anticipated to have limited environmental and social impacts which are expected to be site-specific and insignificant. These impacts can be avoided or mitigated by adhering to recognized Performance Standards, procedures, guidelines and design criteria as described in the following sections. Thus, this is a Category B project in accordance with Environmental and Social Sustainability Policy (January 1st, 2012). The project is designed to avoid, minimize and manage Environment and Social (E&S) risks and impacts in compliance with Peoples Republic of China (PRC) legal and regulatory requirements, IFC’s Performance Standards’ and applicable World Bank Group (WBG) General Environmental, Health and Safety (EHS) Guidelines (2007).

 Key E&S issues associated with this investment are: (i) compliance to environmental and social impact assessment guidelines, monitoring and management of corrective actions; (ii) compliance to labor regulations for permanent employees, contractors and supply chain labor; (iii) water and energy efficiency; (iv) solid and liquid waste treatment and disposal; (v) use of natural resources; (vi) management systems to provide systematic management of all the identified issues and where appropriate external certification of such; and, (vii) government led land acquisition and economic displacement. 

Environmental and Social Assessment and Management System: HKG and XN demonstrated compliance to regulatory requirements for EHS aspects as demonstrated by completion and submission of respective Environmental Impact Assessments (EIA), provision of monitoring data and confirmation to IFC of compliance to national regulations maintained on file.

 XN has appointed a capable Environment Manager. HKG has assigned responsibility for EHS management to an Associate Director.

 Policy: Neither HKG and XN have an environment and social policy. A formal structure and nascent system for the management of their relative environment and social aspects is present; with all actions related to E&S aspects solely in response to regulatory requirements. XN maintains ISO 9001 certification for quality control and plans to implement a management system according to the ISO 22000 standard (which includes good manufacturing practices and hazard analysis and critical control point’s management). As set forth in the ESAP #1, the group shall develop an environment and social policy that defines the need for compliance of all operations with national legislation and the requirements of the IFC Performance Standards (PS).  The policy will also reference voluntary credible third party audited food safety standards such as those above. In addition, the group shall expand the responsibilities of an existing Environment Manager Position to include the scope of both operations to ensure the two companies are aligned towards a common policy commitment.

 Identification of Risks and Impacts: HKG and XN are compliant with national regulations for the identification of risks and impacts from their operations. Planned expansion at the XN facility will be based on compliance to the PRC EIA regulations and the results of that assessment. Regulations on Environmental Management of Construction Project, (1998) require consultation with local communities that may be affected by the construction of the XN factory expansion as part of the preparation of the environmental impact statement.  For operations the group does not apply a risk based approach to the identification of risks and impacts. Key risks that relate to equipment’s, and facilities are identified through national regulatory requirements. Key equipment’s include gas fired boilers for steam production and heating in the production process. Compressors for maintaining air pressure for air pneumatic driven production lines. Both XN and HKG facilities have electrically driven equipment’s.  Heavy loads handled manually in both goods in and in goods out locations. HKG has specific risks associated with working at height, confined space work and risks associated with flour dust. As per the action defined below XN and HKG will address risk management via establishment of an Environmental and Social Management System (ESMS). As part of the regulatory requirements for the future constructions EIA the group shall develop a Stakeholder Engagement Plan (SEP) that includes the contacts of local communities that will be affected by the new construction including a schedule for updates on operations, risks and awareness on operations, as well as a grievance mechanism for these project affected peoples.

 Management Programs: HKG and XN management programs are focused on maintaining food safety and brand quality. There is no specific management program to target environmental management within the group.  Thus as set forth in the project ESAP #2, HKG and XN shall develop a PS1-compliant ESMS that is also aligned with the requirements of ISO14001, OHSAS 18001, and ISO 22000.  More specifically this will include EHS objectives and targets, management plans to achieve such, supporting procedures and work instructions and a monitoring and reporting program.  In addition, there will be both a management review system, that assesses, evaluate and continually improves management approaches, coupled with an ongoing program for training of employees on the ESMS.

 Organizational Capacity and Competency: At HKG, the responsibility for the EHS function is dedicated to an Associate Director position. For XN, the EHS function is located under the department of corporate administration, with the task assigned to an Environment Manager. Both roles are to track and assure compliance to PRC regulation. There is no group coordination or combining of functions between the two entities. As set forth in the ESAP above, the group shall assign the role of group Environment Manager, and structure the environment function to include oversight of both entities, thus combining approaches, policies and procedures. This action will also improve the implementation of a Hazard Analysis and Critical Control Point (HACCP) third party audited certification planned by the group to be completed by year end 2017.   

 Emergency Preparedness and Response: HKG and XN conduct fire drills on a periodic basis. HKG and XN emergency response procedures are in accordance with national regulation and maintain fire certification permits from local fire departments. HKG and XN maintain procedures for management and response in emergency situations. For example, XN emergency response guidelines include: (i) response to fire; (ii) boiler explosion; (iii) electric shock; (iv) machine damage; (v) vehicle collision; (vi) dangerous substance release and explosion. HKG and XN both maintain food safety and recall procedures.

 Monitoring and Review: Beyond regulatory-based monitoring of working conditions such as levels of Particulate Matter (PM), noise and flour dust, neither HKG and XN have a system to identify and monitor or measure limits related to environmental or occupational health and safety matters. A safety committee comprising of worker representatives does meet on a weekly basis to review safety implementation and discuss any safety issues arising. This is also supported with Worker Meetings (most recent conducted November 24^th, 2016), where safety lessons are conducted. Although the PRC labor code requires the capture of statistical data on accidents and fatalities in the work place, there is no specific requirement for companies to maintain an accident log, nor process to review underlying causes of accidents. As such neither XN nor HKG maintain an accident record log, or an accident review or investigation log, as well as maintain no record of regular workplace health and safety inspections.

 Statutory monitoring includes emissions from boilers, waste water effluent and work place PM levels. Data capture for consumables or consumption of natural resources is undertaken for financial purposes. As set forth in the ESAP above, the company shall include monitoring within its ESMS system. Although XN engages with communities on an annual basis for environmental reporting purposes, there is no tracking of community grievance, and in particular no tracking of grievance from land use right holders who have relinquished that right to the state for previous or future facilities development. As set forth in the ESAP #3 the group shall develop a grievance mechanism for communities, which will include a hotline and email address and publicize this at the entrance to group location premises enabling local communities, workers, customers, or service providers to make anonymous complaints regarding either group company actions and or the conduct of security personnel employed by the group companies.

Human Resources Policies and Procedures: HKG and XN have a dedicated Human Resources (HR) function. In XN, HR is managed via the corporate administration division comprising a senior manager, a deputy and a team of administrators that manage payroll and other supporting functions. The XN factory operates on three shifts at 8 hours per shift 7 days a week and employs 780 workers.  Of these 40 are office workers with a ratio of 1:1 in terms of gender split, and 740 factory workers with 318 women and 422 men. HKG has a dedicated HR manager that reports to the mill director and is responsible for 97 employees. HKG employees work on a standard 8-hour shift, 40 hours per week, with a gender split of 34 females to 63 males.

 HKG and XN maintain employment policies and procedures that are approved by the local government department of manpower and compliant to the PRC regulations. The HR guidelines reviewed included procedures and documentation related to: (i) general employment principles; (ii) HR systems; (iii) a recruitment procedure; (iv) employment registration; (v) training programs; (vi) an employee engagement and grievance mechanism; (vii) probation period; (viii) transfer of position/change of duties; (ix) maternity leave and sick leave allowances; (x) resignation; (xi) work attendance; (xii) leave allowances; (xiii) labor contract; (xiv) pension/seniority subsidies; (xv) dismissal; (xvi) discontinuation of labor relationship; (xvii) uniforms;  (xviii) worker welfare; (xix) wage and rights to equal pay; (xx) bonus and punishment; (xxi) accommodation regulations; and (xxii) sanitary checks.

 Both HKG and XN provide accommodation to workers free of charge and it was noted that this is clean and in good order. That being said, emergency exits were not clearly marked and no firefighting or other fire safety equipment was noted during the visits. It is a requirement that worker accommodation is compliant to the basic services as defined in PS-2, these being: (i) minimum space; (ii) supply of water; (iii) adequate sewage and garbage disposal system; (iv) appropriate protection against heat, cold, damp, noise, fire and disease-carrying animals; (v) adequate sanitary and washing facilities (vi) adequate ventilation, cooking and storage facilities and natural and artificial lighting, and in some cases basic medical services. As set forth in the ESAP #4, XN and HKG shall ensure compliance basic services requirements for worker’s accommodation. In regard to fire safety, and ensure a fire safety plan is developed for each facility, necessary equipment is installed and residents are trained and made aware of fire safety needs.

 Working Conditions and Terms of Employment: HKG and XN workers received and sign for a copy of the approved company HR requirements.  Induction training is conducted and proof of delivery is maintained in worker’s employment files. Workers operate on 8 hour shifts with breaks every 2 hours. Interviews with workers at both HKG and XN locations highlighted that: (i) salaries were in excess of city level minimum wage (Nanyang minimum wage); (ii) overtime was paid at in accordance with regulation; (iii) benefits include health, housing, and social insurance, paid annual leave and a spring festival bonus; and, (iv) workers accommodation is open to all employees who request it. Working conditions at both HKG and XN were considered aligned with the requirements of this PS.

 Workers’ Organization: HKG and XN workers have a right to unionize. Membership with the union is voluntarily. The XN HR department engage with the union on a monthly basis to discuss any pending challenges, known grievances and future activities planned by XN. There is no collective bargaining agreement.

 Non-discrimination and Equal Opportunity: XN has a policy commitment to ensure equal rights and non-discrimination in its recruitment process.

 Retrenchment: HKG and XN have no policy on retrenchment. XN is in a process of expansion; therefore, retrenchment is not envisaged.

 Grievance Mechanism: HKG and XN employment regulations include a section entitled “employee engagement and grievance” with the process stated as being confidential. Grievances emanating from the XN workforce can be brought in person to the HR manager, through the union, or anonymously through a comment box located within the factory. It was stated verbally to IFC by the head of HR XN that all grievances are treated in confidence.  No examples were given showing how grievances are addressed.  It is a requirement that the grievance mechanism shall be publicized at group company facilities and rights of grievance extended to include third party contractor’s employees. As set forth in the ESAP #5, right to bring anonymous grievance to the group companies will be extended and publicized to the employees of third party contractors.

Protecting the Work Force: HKG and XN do not employ any individual under the age of 18 years old. A sample review of employment files in XN confirmed that new employees submit identity cards and these are used as verification of age. Visual sighting of work force within both HKG and XN showed no obvious signs of underage workers. Forced labor, either indebted or bonded was not seen to be occurring at HKG or XN. All workers interviewed highlighted the benefits of working with both HKG and XN and a commitment for working towards the company ethos to produce healthy good nutritious foods highlighting this was one of the reasons for choosing to work for the company. As set forth in the ESAP #6 the group shall develop a policy and procedure to demonstrate commitment to core International Labor Organization (ILO) conventions including (i) right to collective bargaining, (ii) commitment to avoid use of forced or child labor; nondiscrimination based on gender, age, or sexual orientation; and, (iii) protection of rights of migrant workers.

 Occupational Health and Safety: HKG and XN are compliant to the national regulations for Occupational Health and Safety (OHS); documents made available during the assessment confirmed local government approval of OHS approaches and compliance to national regulations.  The documents included: (i) safe working instructions; (ii) emergency response measures; (iii) protective equipment needs; (iv) working instructions; (v) general equipment and maintenance; (vii) fire safety requirements; (viii) safety administrator roles; (ix) Weekly safety briefings to workers and safety training included in induction training; (x) strict guidelines on worker health and annual health checks. The translation of key aspects and elements of these documents/procedures were confirmed as having been implemented during interviews conducted with workers. XN emphasized that safety procedures were developed through consultation with a worker’s committee. Some OHS issues that needed addressing were noted during the XN site visit. These included: (i) presence of overhead obstacles; (ii) inadequate lighting on the factory floor; (iii) some workers not complying with warning signs regarding the need for protection against high levels of noise; (iv) failure to extend the application of OHS standards and practices to contractors while operating on company property; (v) lack of equipment “kill switches” and risks related to exposed moving parts; (vi) no accident record log, no accident investigation, and no near miss reporting; and, (vii) an electrical junction box being located on the ground outside of a building with insufficient overhead weather protection and being sited adjacent to an area storing hazardous materials. The need for the company to address such potential hazards to workers, and provide preventative and protective measures to address them, is included in the ESAP.

 No first aid equipment is maintained in the factory floor; a first aid box stored in the main office. There are no designated first aider responders on the factory floor. As set forth in the ESAP #7 the group shall develop a process to identify potential hazards, provision of preventative measures, identification of substitutes, training on measures (including provision of first aid responders) and documentation and reporting of occupational accidents, diseases, and incidents, which shall include both near miss reporting and accident investigation for lost time incidents.

 Workers Engaged by Third Parties: As at the time of the appraisal XN contracted out 1.5% of its food production operations to third parties.  It was stated that in future, to meet anticipated demands, XN would increase the contracting out of noodle manufacturing. In addition to food production currently third party contractors are engaged on an ad hoc basis for contracted truck transportation. All construction is contracted to third parties. The company does not conduct checks on labor, health and safety matters with respect to engaged contractors. As set forth in the ESAP #8, the company shall evaluate the labor compliance of all engaged third party (including suppliers), shall only engage with companies whose labor, health and occupational safety policies and procedures match that of the group, and will extend the scope of its enhanced OHS risk assessment and hazard reduction/elimination practice to include contractors.

 Supply Chain: XN flour supply chain is derived from both its wholly owned subsidiary HKG and from wheat flour millers in Henan province.  HKG, and XN purchase wheat from farmers, and traders (as required). All wheat entering the supply chain is sampled and tested in accordance with PRC national food safety standards.

 45% of flour generated by HKG is sold to XN based on gluten and protein content. The balance of HKG production is sold to local bakeries.

 Wheat cultivation is conducted by farmers’ independent of the group. This is done in accordance with government guidelines on chemical inputs with some additional guidance from XN to the farmer.  To support this relationship with the farmer, (for select farmers) XN co funds the cost of harvesting, and pays a fair market price to the farmer to reward loyalty and encourage group preferred agricultural practices. There are no coercive or forced measures applied by the group with farmers making market related decisions on crop cultivation options.

 XN supply chain includes the farmer, HKG, wheat flour millers, and the trader; HKG’s supply chain includes the farmer and the trader. 22,000 farmers are within the group supply chain in Henan province; this excludes wheat purchased through traders. Harvesting of the crop is both contracted out (by the small holder or cooperative) and conducted directly by small holders. Agriculture in the PRC is known for its high accident rates and OHS shortcomings. This is prevalent among small holders. These farmers often do not use personal protective equipment (PPE) and therefore expose themselves to herbicides and pesticides. As per the requirements of PS2, where significant safety issues related to supply chain workers are present, the IFC client is required to introduce procedures and mitigation measures to ensure primary suppliers are taking steps to prevent or correct life threatening situations. In addition, forced, child and bonded labor have also been issues in agriculture in the PRC. Mitigation of these risks must be balanced against the ability of the client to control or influence its primary suppliers. In order to address these risks, the group shall develop a procurement policy that clearly defines a commitment to purchase inputs from primary suppliers that have incorporated good OHS practices, and do not use child or forced labor, in the production of inputs supplied to XN. This policy will provide a framework for any and all measures to be undertaken in support of that position, commensurate to the ability of the company to control or influence its primary suppliers. This is addressed in the ESAP. Going forward, the company will integrate into its existing procurement practices, and other instances whereby they interact with their primary suppliers, such measures to increase awareness of the risks associated with using pesticides, and the need to preclude forced or child labor, in the production of wheat for XN’s use. Once established, the company will report on measures taken in support of this policy in an ongoing manner by using the AMR.

Resource Efficiency: HKG and XN maintain no policy or commitment and maintain no system or procedure to track, improve and reduce resource use. There are no operational efficiency targets or objectives to track, and reduce consumption of inputs. XN electricity is drawn from the municipal power supply. Water entering the supply chain is drawn directly from the mains water supply. Heat for the XN production process is provided by a gas boiler. Packaging is a combination of plastic, paper and light card based on the destination/use of the end product. Electricity consumption equates to 59 KHW per 1 ton of noodle manufactured, with water consumption 0.46 m³ per 1 ton of noodle manufactured.

Energy and Material Efficiency Projects: HKG had no efficiency programs in place at the time of IFC’s visit. XN stated that they had a plan in development to utilize waste heat from the factory boiler in the noodle manufacturing. This was at the feasibility assessment stage; no financial nor technical data was yet available to review. In 2015, under regulation from the local authorities, XN switched its boiler from coal powered to natural gas thereby significantly reducing its emissions and its impacts on local communities.  As set forth in the ESAP in PS1 the group shall develop an overarching policy objective and target for improving material efficiency and develop baselines, benchmarks, monitoring and performance evaluation for energy and material consumption within the ESMS. This includes evaluating packaging material used in the production process.

GHG Emissions: HKG and XN do not calculate greenhouse gas emissions. Based on the volume of fuel used in transport of both supplies, raw material inputs, and distribution, energy in manufacturing for both XN factory and HKG mill operations the GHG emissions to year end 2015 do not exceed 25,000 tCO₂e per annum.

Pollution Prevention: HKG and XN comply with national regulations and make annual emissions monitoring and reports for all facilities.  Based on PRC Ambient Air Quality Standards Regulations (2012), and comparison to WBG EHS (2007) standards allowable emissions for SO₂, NO_X, maximum limits exceed the WBG EHS guidelines, with maximum limits for PM₁₀, and PM_2.5 matching to WBG EHS (2007) guidelines. Emissions reported for XN include: SO₂ 13.5 µg/m³ – 15.7 µg/m³; NO₂ 9.69 µg/m³ – 8.08 µg/m³; PM 29.1 mg/m³ – 32.3 mg/m³, all recordings within WBG EHS (2007) requirements.

Air Emissions and Ambient Air Quality: HKG and XN submit annual and monthly reports on emissions to national authorities. XN emissions data is submitted on a monthly basis to local environment department.  PM concentration in working locations are monitored and measured; data reviewed by IFC from three monitoring locations showed results between 29.1mg/m³, and 32.3 mg/m³.  All workers within milling and noodle processing locations were issued and observed to be using face mask protection.

Wastewater Treatment: Waste water from both XN and HKG operations comes from cleaning of manufacturing equipment and waste water from accommodation blocks, toilets and shower facilities. All process waste water is ultimately managed through the municipal waste water treatment facility. Stated by XN that an additional Waste Water Treatment (WWT) facility had been constructed to manage sewage waste from the workers’ accommodation and ensure compliance to national standards for discharge of waste water. The WWT facility was constructed in 2016.  After pretreatment the waste water is discharged in to a municipal waste water treatment system. It was stated verbally by the XN EHS Manager that due to the location of the factory in close proximity to the fresh water canal system that supplies drinking water to Beijing additional restrictions on waste water, emissions and general waste were being implemented by the city authority.

Solid Waste Management: HKG and XN have informal waste management systems in place. In general waste is classified as (i) recyclable (i.e. has resale value); (ii) organic (sold to animal feed); and (iii) land fill and treated by municipal waste authority. As stated within PS1, the ESMS shall include a waste management plan to track and record volumes of waste generated and record by classification type, with targets to reduce volumes of waste sent to landfill.

Hazardous Materials: Both XN and HKG stated that they have no hazardous chemicals used in the production process nor on site. That being said HKG facility has a hazardous materials management procedure. XN and HKG have no hazardous waste management plan. Empty 40-gallon fuel storage drums numbering upwards of 20 units, with scrap metal, and other assorted wastes including liquid natural gas and oxyacetylene bottles were located in the center of the XN factory facility. It was apparent that this material is stored without any consideration for fire safety, spillage or other associated risk. As set forth in the ESAP within PS1, the ESMS shall include a hazardous waste management policy and procedure to ensure that all hazardous waste generated on site including waste fuels, containers, oils and metals are recorded and removed in accordance with regulations and by certified hazardous waste disposal agents. The ESMS shall also include a permit register, and a system for reviewing and ensuring that all temporary permits (such as required for temporary storage of hazardous wastes), are tracked and obtained as required by the group.

Pesticide Use and Management: HKG and XN maintain zero tolerance approach to spraying for chemical pests using prevention measures such as good hygiene, cleanliness and mechanical equipment such as fly catching UV lights. Rodents are controlled through physical means such as traps, and good hygiene. Chemicals used in agricultural production are guided by the Government Agricultural Agency. HKG and XN advises its producers not to use any chemicals during cultivation.

Security Personnel: The group engages security personnel. All security personnel are direct employees of the group and subject to the standard employee recruitment process. As outlined by the HR manager of XN, the recruitment process includes verification of previous work history and reference checks. Stated verbally by the HR manager that the security staff carry no weapons and have no right of detention, with task mainly to observe movements in and out of facility, protect company property, monitoring for violations and or acts against the company and report these to the authorities and or senior management. Within PS-4 it is a requirement that security engagement be subject to a security review to ensure that: (i) responses to security threats is proportional; (ii) defined rules of conduct and engagement; (iii) are adequately trained for the role; (iv) sufficient monitoring; (v) act in accordance with prevailing law; and, (vi) hiring of security personnel includes criminal back ground checks. In addition to this a transparent grievance mechanism should be in place to ensure that any complaints made by communities or workers towards conduct of security personnel is logged, and managed in a confidential and transparent manner. As set forth in the ESAP #10 the group shall develop a recruitment process that includes criminal back ground checks for security guards, training on rights and responsibilities, and legal limits to authority.

XN already engages with the communities within a 3-mile radius of the facilities as part of the annual environmental monitoring reporting. Annually XN has to select 100 households to survey to ascertain opinions on air quality. That being said, there is no other channel for communities to engage with the group. As highlighted above and in the ESAP, the group shall develop a complaints and grievance hotline, and email and advertise this at the entrances of group facilities. The group shall develop (as part of the ESMS) the procedures and systems for management of community grievance and notification of outcome of grievance review process.

Contact Person: Mr. Wang Xuelong

Company Name: Henan Xiang Nian Foods Co. Ltd

Address: Longshen Ave. Longshen Industry Park, Nanyang City, Henan Province, China

Email: wxuelong@163.com

Phone: +86 13948386290