Impacts related to the following Performance Standards were not identified during IFC’s review: PS5: Land Acquisition and Involuntary Resettlement: For its expansion, Kaufland will acquire sites either by leasing, or by purchasing from private landowners on a willing buyer, willing seller basis, or from municipal land that has clear title and no illegal land occupation.  This means that issues related to PS5, Involuntary Resettlement, are not anticipated in this project.  

Stores are built in urban areas advantageous to retail operations (i.e. in proximity to main roads and other transportation links), and the very locations of these stores make issues related to other Performance Standards unlikely.

This investment is a category B project per IFC’s Environmental and Social Sustainability Policy.

Key E&S aspects for this new investment are essentially the same as those identified under previous projects and comprise company’s commitment to sustainable development and its capacity to assess and manage E&S aspects, including: compliance with corporate standards and national environmental and social laws; management of impacts during construction (particularly protecting the occupational health and safety of those engaged in building the stores); life safety of visitors and personnel during emergency situations; protection of employees’ working rights; ongoing monitoring of the primary supply chain; food safety; resource efficiency and waste minimization; and stakeholders engagement.

These issues may all be readily mitigated and are relatively minor and reversible. 

In the area of sustainable development the Group adheres to the overarching corporate principle: “In our daily business we assume economical, social and ecological responsibility”

Five directions have been identified at the Group level in the area of Sustainable development: Employees, Assortment, Business Partners, Environment and Society.

The Group has different E&S related corporate Policies/Standards approved by the Supervisory Board, which are supported by Directives and Instructions, and used by businesses (Kaufland and Lidl) in countries where they operate. These include but are not limited to Codes of Conduct, Workers’ Safety Policy, Purchasing Policy. However, at this stage, there is no Group-wide Strategy on Sustainable Development which could outline long-term goals and results in each direction. Development of the Strategy in future will also help to better align across operations, merchandizing and sourcing activities as well as various departments involved, and make best use of the company resources.

A Corporate Social Responsibilty (CSR) team on Group level was defined in 2013. The Group has started several CSR Initiatives which include preparation of consolidated Corporate Social Responsibility Report according to GRI International Standard. With the help of external consultants, the company did a materiality analysis and identified 118 applicable KPIs. It is expected that the first consolidated report will be ready in 2020. This Project is a good start for Group-wide E&S information consolidation.

To control E&S performance of the Group’s portfolio, an internal Audit department was established on Group level, based in Germany. Self-assessment and internal audit checklists have been developed in the areas of food, health and fire safety. Audits of stores and warehouses are conducted by the corporate and country-based teams. Based on the results of primary audits, recommendations are developed, implementation of which is controlled through a follow-up audit. Safety conditions at a store is one of the evaluation criteria for a manager. Based on the analysis of findings, an audit group develops a risk-map to tackle the more recurrent risks in future. Results of portfolio monitoring are reported to Supervisory Board at least once a year when CEO of the Group and CEOs of Kaufland and Lidl attend.

The Schwarz group Supervisory Board defines company policy in many areas including Human Resources. Human Resources policy is implemented through a Human Resources director within Kaufland and Lidl International, and through a Human Resources manager within the Kaufland and Lidl leadership team in each country of operation.

Kaufland and Lidl International define the Human Resources policy framework which is implemented through country level operational procedures adapted to consider both legislative requirements and local norms in the country of operation. The policies are communicated to employees through training and written materials presented at induction, notice boards in stores, regular meeting and in certain cases (explaining any changes to existing policies) through written material accompanying wage slips. Kaufland Romania and Kaufland Bulgaria maintain their Human Resource policy statements in alignment with PS2. A similar approach for Human Resources is planned for Moldova where the company will apply PS2 criteria and local law.

Working Relationship

With the exception of security personnel who are contracted, all workers in Kaufland’s operations in Bulgaria and Romania are direct employees of the respective companies.  All employees, including short-term contract staff hired to meet demand peaks, are provided with written contracts that serve to document and communicate terms of employment.

Working Conditions and Terms of Employment

Working conditions and employment terms are based upon legislative requirements in each country, as well as factors such as the cost of living and comparison with salaries paid by competing employers in the same local market.

In each country the standard work week is 40 hours, with permissible overtime of up to 6 hours weekly in Bulgaria and up to 8 hours weekly in Romania.

To improve transparency in terms of wages and hours calculations the company is gradually moving from manual recording of time to SAP-based electronic time recording systems. Such systems are planned to be established in Kaufland Bulgaria’s stores until the end of 2017. Romania is currently using an electronic time recording system called gfos; a SAP-based system will be implemented until the end of 2019.

Disciplinary policy in Kaufland Romania and Bulgaria are compliant with national legislation and will be maintained in alignment with PS2 objectives and requirements.

Workers’ Organizations

In both Bulgaria and Romania, the rights to freedom of association and collective bargaining are provided for in national legislation, and in Romania these are mandatory for enterprises with more than 20 employees. 

Non Discrimination and Equal Opportunity

Kaufland International has an equal opportunity policy. Kaufland Romania and Kaufland Bulgaria have relevant non-discrimination provisions in their country-level HR policies.

Retrenchment

Since Kaufland is expanding in the three countries, large scale retrenchment is not anticipated.

Employee Grievance Mechanisms

In both Bulgaria and Romania employees have several available channels to express grievances, including contacts with a line manager or supervision, by contacting the Human Resources representative in the store or at country headquarters, or by placing anonymous comments in a suggestion box.  In Romania, the elected workers’ representatives are also able to take up workers’ grievances, and a hot line has been established in 2009 to provide another grievance mechanism for employees.  Management is committed to respond to each complaint within 15 days from the date the complaint is filed, and a relevant response procedure has been developed.  Grievances are recorded and analyzed by the top management at country level.  Employees are aware of these mechanisms. Kaufland will continue to implement its grievance mechanism, continuing implementation of reporting from country level operations to headquarters.

Protecting the Work Force

The youngest employee of Kaufland in either country is 18 years old, though 16 and 17 year olds are employed as trainees. Age of potential recruits is verified upon taking up employment. There is no suggestion of forced labor in either company.

Occupational Health and Safety

In 2008 an Occupational Health and Safety (OHS) department was established at Kaufland International level to better address accident trends at country level and to develop strategies to address them.  OHS coordinators, reporting to the Human Resource manager, are appointed at the country level, and an OHS representative is present in each store.  Safety statistics are collected and both companies provide a quarterly report on work-related and reportable accidents, in addition to a summary of general performance in terms of labor related costs (salaries, training etc.).  The accident rates are registered in a company’s database.  Consistent with international good practice, the Kaufland identifies and analyzes occupational risks and specific classes of hazards for each work area and function, and at a country level as well.  Relevant OHS training is provided to each employee.  Documentation and reporting of occupational accidents, diseases and incidents, accident investigation and corrective action identification are conducted consistent with good practice. Emergency response plans have been developed and are available for each store, including response measures for both internal and external emergencies. 

All contractor contracts, including contracts with construction contractors, logistic contractors, and personnel leasing contractors, have relevant and standard clauses that require compliance with the applicable legislation in terms of labor management and OHS protection and management.  Periodic safety, security and hygiene audits are conducted for each operation by the internal auditing team based in the company’s country level headquarters. Audit results, including operation performance rates, are reported to top management at both the country level and Group’s headquarters in Germany. Kaufland will maintain clear lines of monitoring and reporting including both labor practices and OHS protection at its construction sites, for all construction contractors in Romania and Bulgaria and Moldova.

Supply Chain

The management of social and labor risks in supply chains is well established in both Kaufland and Lidl International, with a centralized in-house auditing team in Kaufland, which is currently developing a fully integrated supply chain management tool, and an outsourced auditing program carried out in partnership with the Business Social Compliance Initiative (BSCI) in Lidl. In keeping with good international practice, audits are primarily aimed at building the capacity of suppliers to correct any poor social or labor performance.

Kaufland Romania and Kaufland Bulgaria source a large portion of its food and non-food products from Romania and Bulgaria, respectively. It is part of the contract to supply goods that the suppliers are held responsible for respecting the legal requirements, including relevant provisions for labor and OHS management. Supply chain monitoring mechanisms are being developed. A supplier self-assessment procedure on labor practices, covering forced and child labor concerns among others, has been recently established, in addition to supplier audits conducted by the quality control department. 

In the Project’s Target Countries Kaufland will maintain a consistent supply chain assessment and reporting mechanism, in line with the requirement in Paragraph 18 of PS2, and following sectoral organizations’ corporate social responsibility initiatives.

Energy Efficiency

The Group's approach to environmental management and resource efficiency is well integrated in key activities such as store design, construction and operation. The Group’s stores employ energy-conscious design with high levels of building insulation. 

A majority of operations in Western Europe are ISO 50001 certified and there are targets in place to get similar certification in Poland, Slovakia, Bulgaria, Croatia and Romania.

In several countries the Group’s stores were awarded the Gold LEED Certificate. Several locations have been awarded the BREEAM highest rating of “Excellent” or “Outstanding”.

Since 2015 most stores of Kaufland Bulgaria have obtained IFC’s EDGE (“Excellence in Design for Greater Efficiencies”) Certification for Green Building based on a proved achievement of at least 20% efficiencies in energy, water and materials compared to local benchmarks. IFC’s green building team will continue to work with Schwarz to further explore EDGE certification solution for other business line/countries.

Greenhouse Gas Emissions

Total annual emissions at project conclusion will exceed 25,000 tonnes of CO2-equivalent annually. Kaufland will annually quantify GHG emissions from its operations in the Target Countries.

Solid and Hazardous Waste Management

Minimizing waste generation and separate collection of waste fraction for further recycling is now a group-wide campaign, which provides a standardized material management concept for all warehouses and stores. The goal is to develop improved separation quality and optimized efficiency in terms of collecting waste fractions.        

At the first place the stores are avoiding unnecessary waste by using multi-path systems when transporting fruits, vegetable, meat, etc. Stores are also offering a wide range of drinks in reusable bottles. Generation of food waste is also actively prevented: before the order, it is checked which quantities of the individual products are needed in the stores. In addition, articles with a minimum durability date are gradually reduced in price and/or distributed to non-profit organizations.

All recyclable materials, including glass, metal, paper/cardboard, plastics and wood, are collected separately. Batteries, electric and electronic appliances are recycled through authorized centers.  In addition, collection boxes for batteries and energy saving lamps are available for customers in the stores.

Residuals are disposed of at authorized facilities and using licensed contractors and enterprises.

Additional measures to monitor environmental performance under the new corporate CSR reporting frameworks are also expected to identify opportunities for further improvement in the near future.

Infrastructure and Equipment Design and Safety

Stores are designed to meet all applicable legislative requirements, ranging from those imposed by the EU to local bylaws. Designs generally are standardized, though adaptations are made to account for differences in legislative requirement or site-specific conditions.  These designs are defined within country-specific design manuals, which are updated as legislative requirements change or environmental technology improves.

Requirements of a corporate directive on Life and Fire Safety (based on German codes and regulations) are translated into country-level design manuals. There is also a sign-off process from corporate technical team during commissioning.  In addition, there is a regular internal auditing of life and fire safety provision, and this is supplemented by unannounced audits by the insurance agency.  Audit results are documented, as is any necessary corrective action. 

This approach is consistent with IFC’s Life and Fire Safety requirements.

Food Safety

Kaufland performs regular laboratory tests for pesticide residue levels, as required by EU law, and provides support/training to local farmers to use chemicals properly and meet the requirements.

In 2016 Kaufland Bulgaria in partnership with IFC Food Safety Advisory launched a program to support local suppliers of fruit and vegetables to receive international certification of quality and food safety GLOBAL G.A.P. (Good Agricultural Practices). The certification requires putting in place a management system that covers the following areas: traceability, pesticides and fertilizers, waste and pollution, hygiene, labor safety, water efficiency, biodiversity and soil conservation. All 11 growers achieved GlobalGAP certification.  In 2017, the program is being expanded to Kaufland Romania with 20 growers, plus 10 new growers in Bulgaria as well as ongoing support to the first group.  Local producers will receive training and on-farm consultations from early spring until the certification audits during harvest.

Kaufland has also asked IFC’s assistance to improve food safety and E&S practices for potential suppliers in Moldova.  In order to meet Kaufland’s target to increase national production to 51% by 2020, Phase II of the IFC project (2018 growing season) envisions expansion to increase the productivity and sustainability of professional cooperatives in Romania, especially in the fruit/vegetable and pork sectors. 

Security Personnel

The threat of domestic violence or extremist terrorism is relatively low in the project’s targeted countries. However, theft rates are considerably high in these countries and shoplifting is one of the key security risks for this project. The form and level of security provided by the Group in response to those risks, as described below, is evaluated as appropriate.

The stores in operation have physical, as well as electronic security systems provided by an external security services company. There are comprehensive guidelines on rules of conduct of the security services employed which explicitly define all types of compulsory, permitted and prohibited actions. The use of force, cold steel, firearms, as well as means that restrain personal freedom is forbidden. Before starting to work each security unit undergoes the compulsory trainings prescribed by the law, as well as an additional training for work in Kaufland and Lidl. The completion of the internal training is followed by making a test.

The grievance mechanism for the security arrangements and acts of security personnel does not differ from the general one – complaints are being processed by the Customer Management department (as described below) and are subsequently forwarded to the respective managers. 

The Group hasn’t had any significant security incidents in the past.

In each country Kaufland relies on a variety of channels to communicate with the customers, local communities and third parties. Telephone lines and internet-based feedback forms, which are available at country web-sites  https://www.kaufland.ro/and http://www.kaufland.bg, are the most widely used ones. Generally, most of the queries come from customers, but many tickets are also received from suppliers, merchants, government organizations, NGOs and others. Each of these entries is taken into consideration and managed according to internal process, following strict rules of privacy protection. Kaufland management is informed by various reports regularly on a weekly, monthly, quarterly and yearly basis for the most relevant topics.

Both Lidl and Kaufland have an international communications department. These answer all requests from external stakeholders.

During construction of new stores Kaufland also implements grievance mechanisms for communities to obtain grievances related to construction impacts.

E&S queries regarding this project could be addressed to: 

Kaufland Bulgaria EOOD & Co. KD
Telephone number: +359 2 81 25 000
Website: www.kaufland.bg Address: Skopje Str. 1A, 1233 Sofia, Bulgaria

Kaufland Romania SCS

Telephone number: +40 372 090 000

Website: www.kaufland.roAddress: Strada Barbu Vacarescu nr. 120-144, CP 020284 Bucuresti, sector 2