While all Performance Standards are applicable to this investment, IFC’s 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

 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

 PS5: Land Acquisition and Involuntary Resettlement is not applicable. The land acquisition required for the proposed investment is 26 hectares of area involving 115 project affected peoples. The company has in place a land valuation methodology and based on this negotiates the sales price on an individual by individual basis. Therefore, land is acquired on a  willing buyer willing seller   approach. 

PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resources is not applicable. The construction foot print of the new factory is within agricultural land that has been significantly modified through decades of agricultural use. Based on current provincial land use plans the land area where construction shall occur has been classified as an industrial zone. The supply chain of the company comprises of commercial agricultural crops sourced from both overseas and national suppliers through agents and aggregators with no primary agricultural production sourcing.

PS7: Indigenous Peoples is not applicable for this investment. There are no known populations of indigenous people’s groups at or near the facilities, with all peoples fully integrated in to Javanese and Indonesian culture.

PS8: Cultural Heritage is not considered applicable to this project. There were no finds of cultural significance during early development and construction of the factories. Chance find procedures shall be required to ensure any chance findings are effectively investigated.

This is a Category B project according to IFC’s Policy on Environmental and Social Sustainability. The environmental and social risks and impacts associated with this project are limited, site-specific and can be readily addressed through generally accepted mitigation measures as described in this document and the attached Environmental and Social Action Plan (ESAP).

Key Environment and Social (E&S) issues associated with this project as identified during IFC’s review are related to the company’s corporate organizational capacity and competence and implementation of an Environmental and Social Management Systems (ESMS) to manage E&S risks in its current and future operations. Associated risks include: efficiency of water and energy use; effective reuse, recycling and disposal of solid wastes; management of effluents, and ensuring good labor and working conditions are applied in its operations.

Environmental and Social Assessment and Management System:   The ESMS is managed under the Quality Assurance Department, with the focus on food safety. The company has both ISO22000 and HACCP certification within all its existing factories with related policy and Standard Operating Procedures (SOPs) implemented.  The SOP manual includes industry specific: (i) policies; (ii) training and communication procedures; (iii) monitoring and internal auditing procedures; (iv) pest control procedures; (v) emergency response and recall procedures; and, (vi) reporting procedures. 

All factories have Government mandated environmental management and monitoring plans in place and report on compliance to environmental requirements on a biannual basis. All factories have waste management systems that include disposal of food wastes for animal feeds and management of water effluents through waste water treatment systems.  

Although the company maintains ISO and HACCP systems, with aspects pertaining to waste management and food safety, these do not fulfill the requirements for an ESMS as required by this Performance Standard.   Gaps remain in areas such as risk assessment and management, efficiency in use of natural resources, stakeholder engagement and community grievance mechanism, evaluating the source of primary products within the supply chain and associated risks,   management of OHS related risks from both suppliers and third party contractor operations.  As set forth in ESAP #1, the company shall build on its existing ISO system and develop both policy and supporting procedures, with assigned responsibilities for: (i) risk assessment; (ii) management programs, including target setting and identification of preventive and corrective actions; (iii) stakeholder engagement and community grievance mechanism (including channels for land acquisition grievances); (iv) supply chain management, including evaluation of E&S risks and alternative sourcing options; (v)  contractor management and enforcement of OHS and E&S requirements (in particular heavy equipment, storage of hazardous materials and emergency response procedures); and, (vi) EHS internal audit and reporting system.

Policy:   The company policy Occupational Health Safety and Environment, commits Nabati to comply with applicable operational safety and both national and international environmental standards. The objective of this policy is to manage the operation’s OHS and environmental risks through the implementation of a management system.  This policy is enhanced by the commitments within the HACCP system that define the company’s commitments to ensure food safety. Although the policy sets clear requirements, there is no policy on environmental protection, sustainable sourcing of material production inputs, nor energy and water efficiency. As set forth in ESAP #2, the company shall develop a public policy statement highlighting that in addition to environmental commitments, the company is committed to adhere to the IFC Performance Standards, working towards applying sustainable sourcing practices for material production inputs; applying best practice in OHS standards in all areas of operation; and, committed to resource use efficienc y.

Identification of Risks and Impacts  : All the company operating factories have valid environmental permits which are granted after the environmental assessment including the Environmental Management Plan (EMP) is approved by the relevant local Government department. The 26-hectare expansion area at Majalengka (where land acquisition had recently been completed), is in process of completing its environmental permit.  This planned expansion will increase the Majalengka factory foot print to ~40 hectares.  The company’s future expansion plans in Majalengka go beyond the current 40-hectare footprint with an immediate 30-hectare of land acquired for future expansion with a long-term expansion plan for the location based on business development targets. 

Under Indonesian regulations the company has not been required to develop an Environmental Impact Assessment (EIA) for each phased expansion, as each phase taken individually in terms of scope falls below the threshold which requires an EIA to be completed. Each factory in Majalengka shall extract ground water for its operations, although a rudimentary ground water extraction model is included within the EMP for each factory, no detailed assessment nor sampling on the current volume, use rate and recharge rate of the ground water has been conducted factoring all current users demands. Within the EMP traffic flow studies are included to assess the likely impacts on the transport network from the probable increase in vehicle delivering production inputs and dispatching completed products. These studies only factor in the immediate impacts from each factory without assessing the cumulative impacts from future facility expansion. As such in addition to the EMP for each factory the company shall conduct additional independent studies. As set forth in ESAP #3 in addition to the environmental monitoring and management plan for Majalengka, the company shall engage a suitably qualified consultancy to: (i)    Review and confirm the availability and sustainability of groundwater for the project considering varying climatic conditions and the requirements of existing water users and communities reliant on the associated source. Based on the findings thereof, implement the recommendations / mitigation measures as may be deemed relevant and practical.  The review should also consider the water requirements for future developments by the company such that these requirements can be accommodated and impacts on other existing water users managed to acceptable levels, considering seasonal variation and impacts of extreme climatic events; and, (ii) develop a traffic management plan to; a) minimize off-site impacts in terms of congestion (e.g., via designated vehicle staging / holding area, ensuring collection of product during off-peak periods) and public safety (e.g., contractually require transport operators to maintain vehicles as per national legislative requirements and ensure drivers similarly comply with such); and, b) optimize traffic movements on-site to limit congestion and minimize safety risks to workers. In development of the plan, consider future expansion plans by the company. The plan is to clearly define resource requirements to ensure effective implementation.      

Management Programs:   The main E&S programs include: (i) food safety and related training programs focused on maintaining ISO and HACCP certification; and, (ii) staff OHS training programs to reduce accidents and incidents. Environment related measures are included at the site level with the quality assurance department tasked with monitoring and reporting for OHS and environmental compliance. 

The ISO and HACCP systems ensure a risk based approach to food safety is applied with emergency recall procedures and traceability integrated as part of this system. The company maintains a production input supplier review process to evaluate suppliers for: (i) food traceability; and, (ii) hygiene practices at related facilities. The OHS and environment policy highlights a commitment to continually review and evaluate performance and refine deficient policies and procedures (see ESAP #1).

Organizational Capacity and Competency:   The food safety (ISO and HACCP), OHS and environment function is housed within the quality assurance department with a team of four staffs at the corporate level including a manager, supervisor and two support staffs. This unit reports directly to the corporate Head of Manufacturing. Each factory has an internal team (three, two person teams) with responsibilities for EHS, food safety, and emergency response. As such, organization capacity and competency is considered as fulfilling the requirements to implement an effective ESMS system.  

Emergency Preparedness and Response:   The company has an emergency preparedness and response plan which includes measures to respond to emergency situations such as serious accidents, or events such as earthquakes or fires. The main objective is implementing preventive measures and being able to respond to unexpected events to minimize harm to workers.   Fire drills are conducted on an annual basis along with local fire department inspections. Fire equipment is maintained by a third party and visual sighting of firefighting equipment’s confirmed inspection dates on appliances were present and up to date.   Food recall procedures are present as part of the ISO and HACCP food safety systems. 

Monitoring and Review  : The company maintains ISO22000 and HACCP, and undertakes periodic review of its systems. There is no effective overarching ESMS present that assures continual improvement in the company’s OHS practices, effective use of resources, environmental management, and supply chain management (see ESAP #1). 

Supply Chain:   The company has in place a supplier screening procedure that is based on two aspects: (i) evaluating the supplier’s capacity to supply the required quantity, and quality of product needed; and, (ii) evaluating food safety aspects including supplier’s food traceability systems. The screening tool also rates the performance of suppliers and potential suppliers, mainly those in Indonesia, on timeliness of delivery and other relevant commercial factors. The supplier evaluation checklist does not include criteria to confirm suppliers apply reasonable labor and working conditions and standards. As the suppliers are a combination of traders and processers the company shall, as far as commercially reasonable, undertake an assessment to determine the supply chains with both the highest risk, and suppliers the company has influence and control over and put in place appropriate measures to reduce identified risks.  As set forth ESAP #4 the company shall develop a risk based procurement policy defining its commitment to comply with specific E&S requirements based on both product and supplier risk, and shall develop (as part of the ESMS) a procurement procedure that defines: (i) process for selection of suppliers; (ii) process for evaluating suppliers, and systems for capturing relevant data; (iii) process for reviewing suppliers E&S risks and impacts (child labor, forced labor, and OHS); (iv) for monitoring of suppliers E&S performance; (v) process for removing suppliers based on failure to comply with minimum company OHS standards; (vi) process for evaluating E&S risks within the primary supply chain; and (vii) process for recording annual reviews of suppliers and communicating E&S related improvements to suppliers. 

The raw material inputs entering the supply chain for the year end 2016 include: (i) palm oil (~24,000 metric tons); (ii) sugar (~38,000 metric tons); (iii) wheat flour (~70,000 metric tons); (iv) cocoa (2,000 metric tons); and, (v) cheese and milk powder (5,500 metric tons). Packaging material such as containers, plastic/foil wrappers, and boxes are sourced from packaging manufacturers totaling over 400,000 metric tons of material. The planned expansion will increase this demand for material inputs and packaging by more than 50%. 

Working Conditions and Management of Worker Relationship  : Overall the group directly employs ~11,500 workers over three operating factory’s working on three 8 hour shifts per day. Approximately 70% of the production work force are female.  In general, the working conditions sighted at both administration office locations and factories were considered as good and compliant to PS2 requirements.  

The HR policies and procedures are implemented at the factory level with the HR corporate function having oversight on performance, conducting biennial reviews and publishing the worker handbook (Peraturan Perusaahan). Factory level HR functions report to the factory management and are responsible for recruitment and management of labor aspects below manager level. 

Human Resources Policies and Procedures:   The HR policies and procedures are based on Indonesia labor regulations and are communicated to the worker during the hiring and induction process. Although the company worker handbook is compliant to the labor law and approved by the local Government labor authority, it lacks specific guidance and communication on policy and worker rights relating to: (i) nondiscrimination, equal rights and equal pay; (ii) freedom of association and right to collective bargaining; (iii) contractor management; (iv) excess in overtime; and, (v) commitment to apply zero tolerance towards gender based sexual or physical violence or work place harassment. It is a requirement that the company provide workers with documented information that is clear and understandable regarding their rights under national labor law and any applicable collective agreements, including their rights related to hours of work, wages, overtime, compensation, and benefits upon beginning the working relationship and ending the working relationship. As set forth in the ESAP #5 the company HR function will conduct a review of its employment policies and include in its core HR policy the following requirements: (i) nondiscrimination, equal rights and equal pay; (ii) freedom of association and right to collective bargaining; (iii) contractor management; (iv) rights to refuse overtime requests; 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, on a daily 3 shift basis with no shift allowance paid. Shifts are scheduled and workers rotated every week. Overtime is paid at one and half times to two times basic salary rates, which was confirmed in worker interviews. Employment contracts (sighted in the Majalengka factory) are based on 1 year renewable contracts with two contract renewals before the worker obtains an open-ended contract. Sighted employment files included workers proof of age, medical certificate (for working in the food industry), interview notes and application form. All terms and conditions of work are in accordance with Indonesian labor regulations and referenced within sighted worker contracts. Every employee is issued a copy of the worker handbook (Peraturan Perusaahan) that specifies the employment terms and conditions including benefits the workers are entitled to. This booklet also includes information on disciplinary practices, sanctions, and terms for termination. Despite all workers receiving an induction training to improve understanding on food safety and OHS needs and terms and condition of employment it was noted in worker interviews that workers remained unclear regarding their benefits and entitlements, with no access to a formal grievance process. It was identified that the company is still in progress of implementing a night time shuttle service for female workers. As set forth in ESAP #6, the company shall communicate the rights and responsibilities of the employment terms and conditions to the workers at the hiring stage and reinforce in induction training. The company shall take written record that the workers have received and understood these rights. The company shall implement an employee grievance process that includes anonymous channels for bringing grievances, as well as procedures for handling of grievances and management of responses, including protecting the identity of the complainant (as required). The company shall implement a night time shuttle service sufficient to ensure that all female workers are transported to and from their place of residence to work location.    

Workers’ Organization:   There is no union present within the facility and the company makes no effort to communicate the rights of workers to form a union (see ESAP #5).

Non-discrimination and Equal Opportunity:   There is no policy on nondiscrimination and equal pay, with the company applying the provisions under Indonesian labor regulations (see ESAP #5).

Grievance Mechanism:   There is no grievance mechanism in place for workers (see ESAP #6).

Occupational Health and Safety:   All Nabati factories have been audited by the Government Department of Labor and awarded the highest standard for OHS regulatory compliance in the work place. The company has developed and implemented SOPs for the management of identified OHS risks. This SOP manual outlines the company’s objectives and framework for implementing OHS needs. This document is supported by a suite of related procedures that include: (i) job hazards analysis; (ii) work permit management; (iii) hot work, working from heights and confined spaces; (iii) emergency preparedness and response; (iv) accident and incident recording and reporting; (v) use of Personal Protective Equipment’s (PPE); and (vi) OHS performance reporting. For equipment maintenance, there is no procedure for Lock Out Tag Out. As set forth in the ESAP #7 the company shall develop a Lock Out Tag Out approach for electrical isolation of equipment’s for both maintenance and (as appropriate) cleaning operations. The company maintains accident log books, and an investigation process is undertaken for each accident to ensure corrective actions are implemented to reduce the risks of further incidents. All lost day events are recorded with the company stating that none had occurred within the previous 12 month reporting period. Training on OHS and ISO food safety certification is continuous with over 700 employees or ~16% of the total workforce trained in the last 12 months. A walk through Rancaekek and Majalengka factories highlighted good OHS practices. 

Workers Engaged by Third Parties:   The company has engaged a construction contractor to construct the next two phases of the Majalengka factory expansion. The construction contractor is tasked with: (i) land clearing; (ii) foundation laying; and, (iii) erection of steel framework and the external shell of the building. Additional contractors will be engaged for fitting of electrical appliances, plumbing and installing food production lines. 

Although the company includes sanctions for OHS violations within the construction contract for actions such as: (i) failure to use appropriate PPE; and, (ii) careless actions resulting in accidents, there appears to be limited enforcement. The company has no oversight nor monitoring on any OHS related aspects. During the site walk through the team identified multiple OHS non-compliances ranging from significant to potentially extremely hazardous (for example, absence of any PPE beyond re-enforced boots). In addition, there is no verification of the age of contractor workers, no verification of on-time salary payment, and no monitoring of accidents and incidents. As set forth in ESAP #8, the company shall strengthen its OHS and labor requirements and implement a compliance auditing procedure for third party contractor employees. This procedure shall assign internal responsibilities for: (i) monitoring of the contractor workers (periodic and random OHS inspections on site safety) including safety checks on vehicles and users permits/capabilities/certified training, preventative measures applied on site, PPE usage, suitability and fitness for purpose; (ii) process for notification of minimum standards of PPE to contractor; (iii) process for data capture and  supporting evidence for contractor OHS and EHS audits; (iv) enforcement and penalties on the contractor for identified OHS or labor violations; (v) a process for both random inspections on labor compliance (including interviews with workers to ensure minimum wage, benefits and no use of child or bonded labor) and verification of age and identity of all contractor workers on entering company grounds; and, (vi) penalties for continual or severe violation (i.e. use of child or forced labor) or company OHS and labor requirements, that shall include ejection from site and cancellation of contract with financial claw back instruments (with criminal violations notified to regulatory authorities). The scope of this process shall apply to all contractors and any sub-contractors the main contractor has responsibility over.

Resource Efficiency:   Decision making on resource use efficiency is based on unit cost reduction targets. It was highlighted that factory building design includes air flow dynamics, using high roofs that generate heat in the top of the building resulting in cooler air being drawn from the base of the building creating a natural air circulation. 

The company has no specific activities focused on resource efficiency nor in evaluating alternative energy generation options (see ESAP #1).

Energy and Material Efficiency Projects  : The combined consumption of Compressed Natural Gas (CNG) (used for the biscuit baking process) over a 12-month period for the three factories is calculated as 22 million m 3   per annum, equating to an average of 129 m 3   CNG/ton of product. Gas supply is maintained through bottled supply from Perusahaan Gas Negara, the state-owned gas supply and distribution company. The company has in place procedures for both refueling and emergency response. Energy consumption per 12-month period for the factories (based on Kilo Watt Hour (kWh) consumption per month) is a total of 29 million kWh per annum, equating to an average of 160 kWh/ton of product. Energy is supplied through an electricity network operated by Perusahaan Listrik Negara. It is estimated that the expansion of production capacity shall result in an estimated increased energy demand of ~12 million kWh and ~11 million m 3   of CNG. 

Water:   Water for factories is drawn from both ground water and municipal water utility supply. Ground water supplies are sourced from 140m depth permitted bore holes. All water is filtered and pretreated through a reverse osmosis system before entering the production chain. The combined consumption estimated over a 12-month period for the three factories is 111,948m 3   or an average of 0.80m 3   water/ton of product. Based on the planned increase in capacity at the Majalengka facility shall result in a localized production demand of ~167 m 3   of water per day. This anticipated future demand does not factor in total water consumption for the planned expansion which, including use water use by workers is estimated as 782m 3   of ground water per day. Impact on ground water resources will be assessed as part of additional studies with mitigation measures implemented, if necessary (see ESAP #3). 

GHG Emissions:   A review of estimated energy demands from the IFC supported factory expansion is anticipated to result in an increase demand for electricity of 21 million kWh, and CNG demand of 11 million m 3  .  Based on these numbers it is expected that once operational the GHG emissions from the new factory shall not exceed 25,000 tons of Carbon Dioxide equivalent units per annum.

Air Emissions and Ambient Air Quality:   Recent ambient air quality reports sighted for the three-factory operations are within WBG EHS general (2007) guidelines. 

Wastewater Treatment  : Production wastewater, which has a high Biochemical and Chemical Oxygen Demand (BOD and COD) resulting from organic wastes entering the wastewater stream, is treated in accordance with standard industry practice with all wastewater discharge tests demonstrating compliance to effluent guideline values of the WBG EHS Food and Beverage guidelines (2007). The sludge from the wastewater treatment facility is tested prior to dispatch to a landfill via a licensed collection and disposal agent. Grey water or soil from staff toilets is sent to a septic tank. There are no hazardous wastes from the production process. 

Solid Waste Management  : Solid waste is generated from raw material inputs packaging and waste food (i.e. quality control failures or damaged product). The packaging from material inputs which comprises of 25-50kg bags are sold to recycling for other actions. The waste food is sold for animal feed.

Community Health and Safety:   The factories of Rancaekek and Cicalengka are within industrial areas that have adjoining industrial facilities, such as garment and footwear. The Majalengka facility is a former garment factory on a 13.5-hectare plot. The local area including the village has a population of 8,000 people with dwellings adjoining the main vehicle access road to the factory. Currently the Majalengka production levels result in two hundred and fifty 38-ton delivery trucks entering the site every 24 hours excluding deliveries of production inputs. It is estimated that once the Majalengka expansion is completed this volume of traffic could increase to ~5,000 delivery trucks every 24-hour period or ~200 trucks per hour entering and departing the factory.   As at the date of the appraisal development status of the industrial zone is limited therefore the impact from an increase in vehicle movements will have a noticeable impact on the conditions of the roads surrounding the factory. As set forth in ESAP #3, the company shall include a road traffic assessment including a review of transport routes to minimize risks to stakeholders from particulate matter generation, emissions, noise and accidents. Mitigation measures will be identified and specific E&S requirements included in contracts with third party providers.  

Infrastructure and Equipment Design and Safety:   All production equipment sighted within the company facilities was considered as safe with moving parts adequately shielded, warning signs displayed and heated surfaces effectively insulated. As a food production factory, the majority of the process is enclosed with people required at the start of the process and at the end of the process for packing. 

Security Personnel:   The company outsources security to a licensed security provider. A review of the clauses within the engagement contract highlighted that the provider must provide proof of permits as a Government regulated provider and that all staff are adequately trained to provide security services.   Any breaches of the contract requirements will result in cancelation of the service agreement. It was noted that all security personal displayed their names on the chest of their uniforms and none of the personnel carried fire arms.

The company has engaged with the local communities within the area where it operates both in terms of providing direct employment, as well as undertaking Corporate Social Responsibility (CSR) activities with local communities. This CSR actions include donations to local institutions, as well as donations to support families impacted by natural disasters. 

In Majalengka the company has socialized its presence through engagement with the Head of the Village (Kepala Desa), engaging with local communities through local community meetings. The company is a major employer in the Majalengka area with a high proportion of its work force sourced from the immediate surrounding area. 

The company recognizes that its community grievance process needs to be improved, and shall take steps to improve engagement and communicate future development and management plans to local community (see ESAP #1).

Contact Person:      Christianta Sitepu & Iwan Gozali

Company Name:     PT.Kaldu Sari Nabati Indonesia

Address:                 Jl.Soekarno Hatta 112, Bandung 40223, Indonesia

Email:                     csitepu@nabatisnack.co.id    and iwan.gozali@nabatisnack.co.id

Phone:                   +62 22 6000666