The proposed investment is focused on improving wood manufacturing within established industrial zones and within existing operational footprints. As such, PS5 – Land Acquisition and Resettlement was not considered as applicable. The group does not anticipate further acquisition of new forest land nor require any additional land acquisition in the PRC. There are at least 10 ethnic minority populations in the Guangxi Region and areas around Nanning, including large communities of Zhuang. Because these populations have assimilated into Han Chinese culture, it was determined that the group operations do not pose significant adverse impacts on local ethnic minorities and PS7 – Indigenous Peoples does not apply to this project. Similarly, PS8 – Cultural Heritage was determined not to be applicable within the targeted industrial sites.

This proposed investment is anticipated to have limited environmental and social impacts which are expected to be site-specific. 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 IFC Policy on Environmental and Social Sustainability (January 1st, 2012). The project is designed to avoid, minimize and manage Environment and Social (E&S) risks and impacts in compliance with PRC legal and regulatory requirements, IFC’s Performance Standards and applicable World Bank Group (WBG) General and Sector specific (Forest Harvesting Operations, Board and Particle Based Products) Environmental, Health and Safety (EHS) Guidelines (2007). 

Key E&S issues associated with this investment are: (i) quality of ESIA, and implementation of the Environment Social Management and Monitoring Plan (ESMMP); (ii) labor and OHS policies and procedures during construction and operational phase; (iii) compliance of primary supply chain to labor and OHS local regulations and IFC PS supply chain requirements; (iv) water and energy efficiency; (v) emissions, wastes, noise and effluent discharge; and, (vi ) sustainable use of natural resources (related to supply chain and primary production of natural resources).

This is a repeat IFC client who has demonstrated senior management commitment and technical/financial resources towards the implementation of mitigation measures to address the E&S aspects identified in previous investments made in 2004 (#22165), 2006 (#25299 and #26490), and 2014 (#35042). The group has demonstrated compliance with applicable PRC regulations, commitment to meeting IFC’s Performance Standards (PS), and using forestry and wood product industry best practices. The group has made measurable progress in reducing its EHS risks through investments in human resources and equipment. The group has established and certified its manufacturing facilities to several internationally-recognized and externally-verified management systems, including the ISO 14001 standard for environmental management, the OHSAS 18001 standard for occupational health and safety, and the FSC Chain of Custody (CoC) as well as FSC FM certification for a portion of its plantation estates. 

The Environmental and Social Review Summary (ESRS) and ESAP describe the results of the appraisal and the additional agreed upon E&S corrective actions to further improve the group and targeted subsidiary’ environmental and social performance. 

      Environmental and Social Assessment and Management System:  The Environment and Social Management System is integrated into the group operations and is implemented through established EHS and Safety committees at corporate and subsidiary level.  

The group Quality Environment Operational (QEO) system, sets policy and standardizes SOPs. The QEO system is applied to all manufacturing facilities and the forest estate. All manufacturing subsidiaries maintain certification for the ISO Chinese National Committee standards of GBT 19001 – 2008 (equivalent to ISO 9001-2008), GBT 24001 – 2004 (equivalent to ISO14001), and the GBT 28001 – 2011 (equivalent to OHSAS 18001). All group subsidiary manufacturing facilities are FSC CoC certified, with Fenglin Forest becoming FSC FM certified for ~2,720 hectares (from the Fenglin Forest total of 14,897 hectares of plantation holdings) by Bureau Veritas, in 2014. Review of subsequent FSC FM audits confirm, the certificate is valid until July 2019. All group subsidiary manufacturing facilities have valid Environmental Permits, and are subject to periodic local government environmental audits, with the local government forest department checking on legality of raw waste wood supply. All operating subsidiaries have a procedure to capture stakeholder grievances, with defined steps and actions to be taken on receipt of the complaint, recording, timeline for response and next steps in the event the complaint becomes unresolved. 

Policy:   The policy commitments of the group are defined within the operational management manual of the QEO system, these being: (i) 1st class product and customer satisfaction; (ii) low Carbon and Green production; (iii) high standards of OHS; (iv) abide by national laws of the PRC; and, (v) commitment to continuous improvement. Responsibility for implementation of these policy needs is defined within the QEO management operating manual, and the SOPs. 

Identification of Risks and Impacts:  All Environmental Permits, and valid EIAs for the three operating manufacturing facilities are approved by relevant government authorities. Specifically related to this investment, the ESIA for the brown field PB factory in Nanning was reviewed. The review confirmed its compliance to IFC PS1 requirements covering the construction and operation phases including: (i) risk based assessment of likely impacts (e.g. Particulate Matter (PM) release, noise, vibration, and water related runoff,) with a defined environmental risk assessment conducted for each stage of the construction and operation phases; (ii) modeling of ambient and point source air emissions from operations (including risks from Volatile Organic Compounds (VOC)); (iii) assessment of accident risks (including spillage of hazardous materials); and, (iv) technical measures to mitigate impacts. The ESIA Study included a management plan both for the construction and operation phases of the PB factory. Risk assessments to identify hazardous materials as part of decommissioning (of the previous facility) indicated the application of appropriate measures for hazardous materials identification and removal. The ESIA included an assessment of likely impacts from the new construction on local communities, such as transportation of building components, and building wastes etc., Technical specification of emission control equipment, enclosure of operations that generate significant noise, such as raw waste wood chipping and most importantly the location of the new plant within an industrial zone, all reduce risks to local communities. 

Management Programs :  All E&S mitigation measures listed in the ESIAs have been consolidated into site specific Environmental and Social Management Plans (ESMP). For each mitigation measure, the ESMPs describes: (i) the activities to be performed; (ii) responsibility for implementation; (iii) operating procedures; and, (iv) performance indicators. E&S mitigation measures linked to construction activities are incorporated into contractor requirements. The QEO management manuals are common across all manufacturing subsidiaries and based on three levels: (i) level 1 is the operational management manual, approved by the group level EHS Committee; (ii) level 2, the common set of procedures; and, (iii) level 3, the job specific implementation requirements at the subsidiary level. This management approach is shown to effectively control EHS and OHS risks and impacts within the group. 

Organizational Capacity and Competency:  The EHS and OHS teams are comprised of six qualified staff who are part of the EHS department at the group and subsidiary level.   At the group level both an EHS and a Safety committee are active comprising of senior management of different business units. This committee meets on a periodic basis to review legal and performance-based requirements for EHS and OHS issues, and give additional feedback and strategic objectives to the group Level EHS Director. Each subsidiary has an EHS officer (who reports to the EHS committee, and ultimately responsible to the GM) is tasked with implementation and monitoring of, and reporting EHS performance. Site interviews and review of documentation demonstrate that the implementation of EHS and OHS requirements are handled successfully by capable staff and that the EHS system, as described at the group level, was shown to be effectively implemented at the operating subsidiaries visited. 

Training plans are developed on an annual basis. Every new employee joining a group subsidiary was subject to both induction training, general safety training (site level), department safety training (area of work), and job specific safety training. Sighting of training reports at the group level, and proof of training attendance, and courses at the operating subsidiary level confirmed this system was implemented. Reviewed actions are consistent with the requirements of organization capacity and competency, within PS1.

Emergency Preparedness and Response:  The group level has defined SOPs for the management of emergencies, with each subsidiary having in place a full suite of procedures and approaches for management of emergency situations. Each subsidiary has in place an emergency committee reporting to the plant-level GM with defined roles and responsibilities. In the event that the occurring incident is considered as large scale, then the emergency committee at the group level is informed and takes over management of the issue and response. Each operating subsidiary maintains valid fire safety permits (issued by the local fire department), and strict working protocols to reduce risks of fire events and explosions. Regular fire drills and training on firefighting is conducted with workers. Firefighting appliances are inspected monthly. Minor fires at facilities do occur and these are managed by the in-house teams. Fire department inspections occur quarterly for manufacturing subsidiaries. First aid equipment was sighted during walk through of two subsidiaries visited.  The actions indicate compliance to emergency preparedness and response needs as defined under PS1. 

Monitoring and Review:  The group QEO system has in place procedures for continual review and improvement of performance based actions, which is demonstrated at the facility level in improvements in stack emissions air quality. As such the group actions indicate compliance to monitoring and review requirements within PS1. The group subsidiaries visited had real time stack emissions monitoring results publicly displayed at the entrance gate to the facilities. An analysis of air emissions, effluent and noise monitoring data submitted to the national authorities for all manufacturing subsidiaries highlights compliance to both national regulations and WBG EHS Guidelines for Board and Particle Based Products (2007). 

     Working Conditions and Management of Worker Relationship:  Overall the group employs directly 868 individuals   with an average gender split of 75% men to 25% women. The majority of workers are employed at the manufacturing plants, with 80% employed in the subsidiaries, with headquarters and the plantation operation employing approximately 10% each. In general, the working conditions sighted at both offices and manufacturing locations was considered as good. 

The Human Resources (HR) function is split between the group level and the subsidiary. The group level HR function is responsible for: (i) setting HR policy and standardizing procedures (in consultation with the Workers Union); (ii) developing a group employee manual; and, (iii) recruitment of subsidiary level management. Apart from the recruitment of senior management at the subsidiary level, all other implementation of the HR policies and procedures are delegated to the subsidiary. Each subsidiary has its own HR function, appointed HR manager, supporting staff, and administers the terms of employment and working conditions of its workers. 

Human Resources Policies and Procedures :  The employment policy, procedures and employee manual is agreed between the management at the group level and the Workers Union, and is based on the applicable labor law of the PRC.  The group has one standardized employment manual that is provided and communicated to all workers. The manual and procedures are reviewed on a periodic basis based on changes in national legal and regulatory requirements. All amendments and changes to the procedures need to be agreed with the Union. Although the group policies and procedures have a clear process for recruitment and employee selection, there is no non-discrimination policy, nor any policy relating to zero tolerance towards gender based sexual and physical violence, nor work place harassment. 

As set forth in the ESAP #1  the group-level HR function will conduct a review of its employment policies and include in its core HR policy  the following requirements: (i) commitment to avoid use of forced or child labor in its managed operations and in its supply chain; (ii) equal rights and equal pay; (iii) nondiscrimination based on gender, age, or sexual orientation; (iv) retrenchment, including the process for selection of workers; and, (v) a commitment to apply zero tolerance for any proven case of gender based sexual or physical violence, or work place harassment.

Working Conditions and Terms of Employment  All workers are required to work a standard 40-hour week, with overtime optional up to an additional 8 hours per week. The group operate the manufacturing facilities on three shifts of 8 hours per shift, with a shift allowance paid in addition to basic salary. The group operations work 365 days  ( excluding for system failure and scheduled  downtime) per annum, including Chinese New Year, with workers paid overtime in accordance with national regulations for working during the Chinese spring holiday. Employment contract terms are based on two fixed term contracts,  a 3-year contract  followed with a 5-year contract .  At the end of the second contract, the employee becomes a full time Open Ended permanent staff. Disciplinary practices, terms for early termination, and resignation are defined within the employment manual and the clauses within sighted contracts are compliant with PS2 requirements. All workers receive statutory benefits in accordance with national labor law of PRC, including (i) social insurance; (ii) housing fund; (iii) statutory holidays, sick days and other allowances; (iv) subsidized meals; (v) medical checks, and, (vi) accommodation. Workers receive a copy of their contracts and the HR manual upon hiring.

Each manufacturing subsidiary has an area which houses the accommodation blocks and additional infrastructure. All employees have the right to obtain accommodation with the group subsidiaries, with 422 employees (or 49% of the total workforce) opting to stay in provided accommodation. Individual employees receive accommodation for free including all energy and water (including potable), with family accommodation charged a nominal fee of 150 RMB (22 USD equivalent) per month. The family accommodation (which can include spouse and children), comprises of a 1 bedroom apartment with en-suite facilities (including cooking facilities). Although the group policy restricts access of children only to the workers’ accommodation blocks, and most of the accommodation blocks are at a significant distance from the work site and log storage yards, the presence of young children on site presents a significant health and safety risk. As set forth in the ESAP #2, the Fenglin shall conduct an OHS assessment of the risks presented by the presence of young children within the worker’s accommodation blocks, and identify reasonable measures to ensure the protection of infants. This assessment shall include the evaluation of risks from exposure to dangerous and hazardous conditions if entering the work place, access to education and healthcare, as well as risks related to dwelling in accommodation and the potential life and fire safety risks.  Single workers were housed 3 to a room, with en-suite toilet and washing facility. Each person had a designated bunk and a secure location to store belongings. Fire alarm, emergency exits, emergency and firefighting appliances (inspected monthly) were present within the block. It was stated that an appointed warden patrolled the block during the night. 

Workers’ Organization:  A worker union with elected union leaders is set up at the group, as required by the All-China Federation of Trade Unions (ACFTU). The union head is elected by employees and the union management is independent of corporate management. There is no collective bargaining, however in accordance with the labor law of the PRC, the union does work with the group level HR management to settle grievances, and act as a platform for communication with workers.

Non-discrimination and Equal Opportunity:  As stated above, the group apply a policy of non-discrimination and equal opportunity in recruitment, however, do not have a specific written policy in place to ensure that this is clearly communicated and understood ( see ESAP #1).

Retrenchment:  Recently the Fenglin closed the Shangsi Huaxia Fenglin Wood Co., Ltd, with all 33 employees retrenched and compensated in accordance with the labor law of the PRC. The recent closure of the Nanning facility (the site currently being re-developed), resulted in retrenchment of 37 employees (or 16% of the total group work force). It was stated in the case of Nanning, an assessment of skills required for the new plant was undertaken, with all staff offered training, and/or redundancy. All staff who departed did so voluntarily. Retained staff are temporarily relocated to other manufacturing subsidiaries for training, during the construction phase of the new PB manufacturing plant, (all staff relocated for training were provided travel, accommodation and additional allowances.)  The employment procedures have no policy and procedure for staff retrenchment ( see ESAP #1).

Grievance Mechanism : Employee grievance can be either direct to manager or supervisor, or anonymous within suggestion boxes placed in the canteen locations of the subsidiaries. It was stated verbally that communal grievances, such as quality of canteen food was brought to the Union. Personal grievance can be brought to the manager, HR department or directly to the group level by the worker. As such the employee grievance mechanism, as reviewed during this due diligence is considered as compliant to PS2 requirements. 

Occupational Health and Safety : The group maintains an extensive list of OHS procedures that cover all aspects of operations within the group and the subsidiary companies. It was stated that there were no significant lost time events within any of the subsidiaries in the previous 12 months.

The group has in place accident logs, accident investigation, as well as a near miss reporting processes. To track OHS compliance, weekly OHS inspections at the subsidiary level are conducted, with quarterly OHS inspections conducted (at the subsidiary level) by the group level safety and EHS committees. The group have a set of emergency procedures that cover all operational activities in both Fenglin Forest and the manufacturing subsidiaries. Although the group has in place a risk based assessment approach for the identification of potential hazards, it was noted that operational risks are still present. During the site visits it was noted that the wood chipper plant can handle material of a certain diameter, with oversized (once entered the conveyor system) material required to be cut to size. To do this action, operators enter the conveyor belt (standing on top) and cut the round log to size with an electric powered chainsaw. The chainsaw connected to the main supply through an extension cord, with no circuit breaker. During this operation, it was noted that the chipper was still running, and that neither operator handling the chainsaw had the basic PPE of: (i) protective boots; (ii) chainsaw protective leggings; (iii) ear protectors; (iv) face guards; and, (v) anti vibration gloves. It was noted that the method and handling of the chainsaw suggested that the equipment was not effectively maintained. It was also noted that there was no guard rail along the inspection ramp that ran immediately parallel to the chipper conveyor belt. The current practice for management of oversized material entering the chipper system is considered as highly unsafe and if replicated at other subsidiaries is a significant risk to safety. As set forth in the ESAP #3 all log storage yards, and chipping facilities be subjected to an OHS review to: (i) identify potential hazards to workers, particularly those that may be life-threatening; (ii) identify preventive and protective measures, including modification, substitution, or elimination of potential hazard; and, (iii) identify additional training needs of workers.

Workers Engaged by Third Parties : The main contractor working for the group is the EPC contractor constructing the new PB factory in Nanning. The engagement contract between the group, and the EPC contractor requires the EPC contractor to commit to OHS and EHS compliance during the construction of the project, and to abide by all relevant health and safety, and labor regulations. To ensure compliance to OHS needs, the group conduct OHS inspections on a weekly basis with the supervising engineering company, and the EPC contractor representatives on the construction site. A sample inspection report and corrective action report was reviewed. The group EPC contractor selection process was targeted to recruit an organization with the relevant experience and expertise, that complied with Fenglin E&S standards, including companies that were OHSAS18001 and ISO14001 certified, as well as legally licensed to operate. All certificates were verified by the group prior to engaging the EPC contractor. Within the engagement contract an additional clause disallowing the use of sub-contractors by the EPC is included, this was explained as an additional safe guard to limit the risk of unsafe, or illegal work practices occurring on the site. A site visit to the Nanning construction site confirmed OHS and PPE warning notices where present. Likewise, minor OHS discrepancies were noted such as inadequate PPE usage, and basic equipment not maintained to a reasonable standard. Fenglin is aware of these implementation problems and is working with the contractor to address these gaps. The client has established policies and procedures for managing and monitoring the performance of third-party employers in relation to the requirements OHS and EHS, and labor compliance. As set forth in ESAP #4 the Fenglin shall include within its supervision of the OHS compliance of the EPC contractor a requirement for random, unannounced OHS inspections by Fenglin and Supervising Engineering Company staffs. These additional inspections shall be logged and corrective actions communicated to the EPC contractor through the current process. 

EPC workers have access to a confidential grievance, with the name and contact details of the group project manager displayed at the entrance to the construction site. No underage workers were noted at the construction site, nor at any group manufacturing subsidiary visited. 

Supply Chain:  The group, and its operating subsidiaries, have a defined supply chain procurement procedure and process. The suppliers are broken down by class as follows: (i) micro enterprises with < 10 employees and < US$100,000 annual sales (95% of total suppliers and 10% of total raw waste fiber inputs); and, (ii) small and medium enterprises <300 employees, and < US$ 15 million in annual sales (5% of total suppliers and 90% of total raw waste fiber inputs).  41 medium suppliers are locked in to long term supply agreements. These long-term supply agreements include clauses on compliance to national labor laws and minimum standards for OHS.  The group stated visual inspection of supplier facilities was conducted, but the group do not undertake any documented audit to confirm compliance to labor and OHS requirements. It is recognized that forest industry, and the forest processing sector are a high-risk sector for occupational hazards, with an average lost time injury rate of two-fold when compared to the general manufacturing sector. Due to this the group is required to implement a robust and recordable process for tracking primary suppliers’ child labor, forced labor and OHS compliance. As set forth in the ESAP #5, the group shall develop and implement a supply chain compliance assessment target, and procedure to ensure all primary suppliers, initially starting with supplier’s subject to long term raw wood waste supply agreements are at a minimum, compliant to relevant OHS PRC regulations, and do not employ child labor nor forced labor.  This assessment target will define the classification of suppliers to be assessed (based on risk assessment), and a timewise action plan for implementation of the assessments.

     Resource Efficiency : A significant portion of energy consumption in the group subsidiaries is derived from the use of waste wood products in the boiler system. Dust from the production process is also recycled back as feedstock to the boiler. Average consumption of energy per m ³  of production by each facility is broken down as: (i) Baise Fenglin MDF 269 kwh per m ³  of production; (ii) Huizhou Fenglin PB 110 kwh per m ³  of production; and, (iii) Mingyang Fenglin MDF 273 kwh per m ³ .  Water consumption based on m ³  consumed to m ³  of processing volume is: (i) Baise Fenglin MDF 0.86 m ³  water consumed per m ³  of product; (ii) Huizhou Fenglin 0.34 m ³  of water consumed per m ³  of product; and, Mingyang Fenglin 1.13 m ³  of water consumed per m ³  of product, well within the water consumption rates per m ³  of production benchmarks in the WBG EHS Guidelines for Board and Particle Based Products (2007).

Other material and energy efficiency initiatives include upgrades in existing facilities, such as dust removal and recycling to boiler, and heat recovery systems. For example, at the Huizhou facility, heat recovery systems are installed within the drying cycle, reducing energy consumption by an estimated 50%. 

GHG Emissions : Based on information provided for total energy consumption in 2016, the combined estimated emissions for the group is 140,000 tCO ₂ e per annum. This equates to a GHG emissions generated per m ³  of material produced to 0.175tCO ₂ e per m ³  of production.  The group does not report on total energy consumption nor the total level of GHG emissions that relate to its operations. The group shall report to the IFC on annual basis the level of GHG emissions, based on an international recognized approach, within an approved Annual Monitoring Report. 

Pollution Prevention : At the Huizhou, a new electrostatic and plasma stack scrubber has been installed, reducing PM ₁₀  emissions from 50 mg/Nm ³ , to a stated level of 6.5 mg/Nm ³ . Like other facilities visited, the Huizhou subsidiary has a real-time stack emissions monitoring system and measurements can be checked on a continuous basis. Parameters monitored are PM, SO ₂ , NO _x , and VOCs, are in line with the levels indicated in the WBG EHS Guidelines for Board and Particle Based Products (2007). All submitted reports on noise testing indicated that the manufacturing subsidiaries operating noise levels were within WBG EHS Guidelines for Board and Particle Based Products (2007).

As at the date of the due diligence the group manufacture MDF and PB, to E0 (formaldehyde emission limit in parts per million (ppm) of less than 0.04) and E1 formaldehyde emission limit in ppm of less than 0.08), specification for the Chinese market.

Air Emissions and Ambient Air Quality:  All subsidiaries recorded and submitted data on emissions and effluents demonstrated the group and subsidiaries compliance to the WBG EHS Guidelines for Board and Particle Based Products (2007). 

Wastewater Treatment : Industrial (i.e. from the production process) wastewater treatment facilities are present at all subsidiaries visited. The wastewater treatment plant process comprised of: (i) addition of sodium hydroxide; (ii) separation of solid waste; (iii) settlement tanks; (iv) chemical treatment; and, (v) monitoring. The outlet is discharged into the industrial estate municipal wastewater system. Testing of the outlet is conducted every eight hours and recorded. All effluent levels shown for the three manufacturing subsidiaries indicates compliance to the WBG EHS Guidelines for Board and Particle Based Products (2007).

Solid Waste Management:  Solid waste management is limited to waste material from the wastewater treatment facility which is disposed by a certified waste disposal company. There are no hazardous materials wastes from the production processes. Waste in the form of packaging inputs is disposed of through licensed companies to a landfill. Waste ash from wood fired boilers is disposed as follows: (i) Baise Fenglin, material is sent to landfill; (ii) Huizhou Fenglin, material is dispersed on farm land and tree plantations; and (iii) Mingyang Fengin the material is sold. 

Hazardous Materials:  The primary adhesive resin used in PB and MDF manufacturing is urea-formaldehyde which is considered toxic in concentrations exceeding 3.0 ppm causing a variety of adverse health effects impacting the eyes and respiratory systems. As such, this product is stored in a separate location within the manufacturing facilities with controlled access. One storage tank area sighted had in place a dedicated underfloor drainage channel leading to an isolated containment tank external to the building, capable of holding 1.5 times the maximum storage capacity of the tank. These actions indicate that the management of hazardous materials is compliant to PS3 needs.  

   Community Health and Safety:   The group has limited to no risks poised to communities as subsidiaries are all located in industrial areas. All transport of goods is conducted by logistics firms under contract, with specific requirements related to equipment used, driver training, and legal permits. Also, as indicated above, all reported noise emissions levels from operating subsidiaries are within WBG EHS Guidelines for Board and Particle Based Products (2007). Fenglin Forest is the most exposed to community health and safety risks, particularly when harvesting or conducting other forest operations. To mitigate risks, Fenglin Forest have safety procedures included in harvesting operations. These include the presence of Fenglin Forest staff at harvest locations 24 hours a day, during operations. 

Emergency Preparedness and Response:  Beyond the local emergency authorities (such as local fire departments), there has been no engagement with local communities in the preparation of and testing of an emergency preparedness and response plan. As the group’ manufacturing subsidiaries are located in designated industrial parks, beyond engagement with emergency services, no additional actions are considered necessary. Fenglin Forest manages fire risks through the size and natural boundaries of its dispersed plantations, training and equipping forest guards from the neighboring communities, and using regional detection and cell phone communications for primary response.

Security Personnel:  Except for one subsidiary (Huizhou Fenglin) all security personnel are directly employed by the group companies. All the manufacturing facilities are based in designated industrial parks and maintain secure entry, with boundary fences surrounding the yards and facilities. No security forces in the group carry fire arms.  

•      Protection and Conservation of Biodiversity:  IFC review of the region where the Fenglin Forest operates and identification of biodiversity and recreational values are presented in the ESRS for the investment #35042.  FSC FM public summary (see below under Sustainable Management of Living Natural Resources) reported that no areas of significant biodiversity were present (within the scope of the FSC FM assessment.) All land under management of the forest estate is classified as commercial plantation forest land and as such has no areas of conservation status.  However, habitats for key species may be present in the region and Fenglin Forest understands the relevant requirements under PS 6.  As part of IFC review for this proposed investment, Fenglin Forest has therefore confirmed that it is committed to establish a system for the identification and management of high conservation value forest and other natural areas within the area of its operations, as per ESAP for investment #35042 and as required for the FSC certification.  
•  Sustainable Management of Living Natural Resources:  Fenglin Forest manages 14,897 hectares of eucalyptus plantation and has achieved FSC FM certification for ~2,720 hectares of its plantation, and stated its commitment to adhere to FSC for the remaining ~12,177 hectares of the forest estate. Although little, if any, of the Fenglin Forest round wood production is used as feedstock for its own manufacturing production they work closely with state and local leaders to improve forestry practices.
• With regards to raw material used in the manufacturing operations, raw waste wood supply, for the last 12 months was sourced from approximately 792 suppliers, with 41 suppliers having a long-term relationship with the group, accounting for 90% of raw waste wood supply. Material that arrives at the mill gate is accompanied by a government issued Movement Permit that states: (i) origin of the material; (ii) quantity and type of material; (iii) details on delivery truck (including license number) (iv) details of the driver; and, (v) date of transport and likely transport route.  This government regulatory approach indicates a level of assurance that raw waste wood material entering the supply chain, accompanied with an issued Movement Permit, is derived from a designated commercial plantation. The group stated that 90% of all raw waste wood material sourced has a Movement Permit. At point of delivery at mill gate, the Movement Permit, truck, driver and volume of the material is recorded, matched and logged. Retention of the Movement Permits is a requirement for the group to demonstrate the sustainable sourcing of raw material and therefore eligible for the tax rebate. Small scale deliveries arriving at the gate (such as less than 1m ³ ) have accompanying letters of proof issued by local village heads. At the group manufacturing subsidiary level, there is a policy commitment not to source material from forest areas designated as HCV. As set forth in ESAP #6, the group shall set a time bound target to commit to source 100% of its raw wood waste material inputs under long term supply contracts, and have all raw waste wood supplies accompanied with a Movement Permit. 

The Fenglin Group has maintained good relations with local governments, worker’s unions, and influential community members which has effectively reduced or eliminated contentious problems with affected community groups around its mills and forests. Starting from a modest manufacturing base nearly 15 years ago the group has developed a decentralized and organic management approach for milling and forestry which has helped it grow quickly into a regional leader. Each plant has a designated contact for community outreach and grievances and each plant manager is provided a budget for social investment programs. Although the plants operate in industrial zones the group has established a proactive and direct engagement with communities on the plants fence lines. The group is considered to be a good employer exhibiting strong employee retention. There is an expanding interest in establishing its brand beyond quality and price to broader sustainability criteria including engagement with communities. It routinely makes resources available to plant managers and forestry division staff for social and physical infrastructure investments which will become more strategic in the future.                                                  

  22 Baisha Avenue, Nanning, Guangxi, 530031, China