PS5 - Land Acquisition and Involuntary Resettlement does not apply as this investment does not involve acquisition of land or new construction. Chenguang’s existing facilities are situated in government-designated industrial parks. Chenguang acquired land use rights for the lot it occupies in the industrial parks from the government at market price. The land for Chengguang’s Indian facilities was acquired through a willing-buyer-willing-seller arrangement and there was no physical resettlement or economic displacement involved.

PS 6 – Biodiversity Conservation and Sustainable Management of Living Natural Resources does not apply to this investment.  The facilities financed and supply chains related to this project are not located in any areas of biodiversity significance and therefore PS6 is not applicable.

PS 8 – Cultural Heritage similarly does not apply as no issues related to cultural heritage were identified for this project.  

Where applicable for future development, management of the relevant aspects of these Performance Standards will be identified and managed by the client.

 The environmental and social risks and impacts associated with this project are limited, site-specific and can be readily addressed through good international industry practice (GIIP) and mitigation measures that are described in this document and in the attached Environmental and Social Action Plan (ESAP). This is a category B project in accordance with IFC’s Policy on Environmental and Social Sustainability.

The key E&S risks and issues include the following: 1) management system and capacity to ensure that E&S issues are adequately managed consistently across an increasingly diverse , operation; 2) occupational health and safety issues related to safe handling of process dust and hazardous materials used in large quantity that are toxic, flammable and/or explosive; 3) pollution control and mitigation related to boiler emissions and process wastewater; 4) resource efficiency; 5) community health, safety and security; 6) safe and fair treatment of workers with attention to temporary and seasonal workers; and 7) labor issues in the supply chain.

 Environmental and Social Assessment and Management System: Chenguang has an E&S management system in place certified to ISO 14001, OHSAS 18001, ISO 9001, ISO 22000, British Retail Consortium (BRC) Food Safety Standard, and Current Good Manufacturing Practice (CGMP) by US Food and Drug Administration (FDA), covering all its facilities in Quzhou, Hebei province where the company headquarter (HQ) is located. The company has designated personnel in charge of environmental affairs, safety, equipment maintenance, and human resources, although they are embedded in different divisions of the company and have different reporting lines.

Standard operational procedures (SOPs) on E&S assessment, work safety management, environmental affairs, equipment operations and maintenance are well defined and responsibilities for day-to-day implementation are cascaded throughout employee and position structures. The subsidiaries in Xinjiang and India follow the same procedures as in HQ. Management and technical positions in the subsidiaries are filled with staff that is rotated from HQ thereby ensuring a consistent corporate culture, including the way safety and environment issues are managed.

Corporate Environmental and Social (E&S) Policy: Chenguang has an EHS policy, published on its website, speaking of its commitment to sustainability. Its goals and objectives include the implementation of an environmental management system, fair treatment and protection of workers, and promotion of community development programs. Overall, the policy aligns with IFC Performance Standards requirements and aspires for zero accidents, zero injuries and zero pollution, as well as “Green and Responsible Procurement” in the supply chain. Chenguang tracks policy changes in relevant environmental and social areas and update their own policies accordingly. It published its first corporate social responsibility (CSR) report in 2018 detailing its business achievements, its philanthropic activities, and commitment to continued improvements. The policy and the CSR report have been communicated to workers and stakeholders through company newsletters, company public website and social media channels. 

Identification of Risks and Impacts.  For each facility built, Chenguang contracts external experts to conduct environmental impact assessments (EIAs) per local regulatory requirements. Based on the EIA and prior to approval to start operations, the facility will have to meet local regulatory requirements upon successful implementation of the proposed mitigation measures. IFC reviewed the EIAs for the Natural Pigment Extraction facility and Stevia Processing Plant in Quzhou and the Natural Pigment Processing Facility in Yarkant and found that the risks associated with the operations were properly identified and mitigation measures adequate. The company has implemented procedures for periodic identification of E&S risks and impacts across all key activities. This is carried out by respective units in charge of environmental affairs, safety management and human resources.

Management Programs, Organizational Capacity and Competency: At the headquarters, Chenguang has designated deputy manager in charge of environment, occupational health and safety, and human resources, respectively. The manager in charge of environmental protection has a background in chemical engineering and has a team of technicians working on maintaining and monitoring emissions and effluent treatment facilities in Quzhou. Similarly, the manager of safety has two full-time safety coordinators working with him conducting safety inspections and training in the 3 plants in Quzhou. Subsidiaries in Xinjiang and India follow the same corporate procedures on safety, environment and HR management. In addition, there are technicians overseeing the environmental equipment at subsidiaries onsite. Energy and resource efficiency is covered by a unit under the Production Equipment and Power Department. Annual efficiency targets are set and implemented by this unit. Subsidiaries report to HQ on incidents/accidents, resource consumption and HR matters.

Going forward Chenguang will be required to appoint a corporate EHS coordinator to oversee ongoing risk and impact identification, IFC’s ESAP implementation and to ensure maintenance of the E&S management system across subsidiaries. This requirement is addressed in the ESAP (task number 1).  

Management programs are in place to manage identified E&S risks and impacts, these include specific activities and targets. For example, the company has established safety training, fire and safety inspections, fire drills, hazardous material management, equipment maintenance and emission/effluent monitoring are established. Some of them are more rigorously implemented than others. For example, during the site visit, it was observed that some of the prescribed personal protective equipment (PPE) were not worn despite the signage displayed in the workshop that requires employees to use required PPE. There was very visible dust accumulation on the machinery where dust was identified as one of the major OHS risks in that workshop. This will be further discussed in the relevant section under PS2.

Emergency Preparedness and Response: IFC reviewed Chenguang’s Emergency Response Plan and found it adequately addressed emergency situations common to all its operations onsite, including fire and explosion, chemical spills, electrical shocks, mechanic failures, natural disasters and others. Emergency response training is conducted regularly. Fire drills are conducted annually. Safety unit coordinates fire drills and records all findings and incorporates non-compliances into future drills.  

Monitoring and Review: In compliance with Chinese regulatory requirements, Chenguang regularly monitors various environmental parameters, including boiler stack emissions and wastewater quality, noise level and workplace air quality. It also tracks resource consumption including water, electricity, natural gas and coal to improve efficiency. Other indicators that are monitored include waste generation and accident statistics.  

Supply Chain Risks: The company has implemented policies and procedures to manage suppliers. These include mapping of all suppliers, risk assessment, and specific requirements in contracts. Cottonseed is the biggest process ingredient of Chenguang’s raw materials, with total procurement in 2017 of 266,484 tons, or 48% of total procured raw material by weight. About 90% of this cottonseed comes from Xinjiang, and 10% from Hebei province. Cottonseed is a byproduct of cotton processing and Chenguang purchases it from cotton processing gins. Rising labor costs in recent years have incentivized massive adoption of machinery cotton picking in Xinjiang, greatly easing labor shortage during the cotton-picking season, and leading to substantial labor and working conditions improvement related to cotton production in this area. Paprika is the second (30%) in terms of weight of raw material processed, with total dried paprika in 2017 amounting to 73,762 tons, which is purchased directly from the farmers, with nearly 20% from Xinjiang, and the rest from India. Dried paprika powder and pellet amounting to 90,477 tons are purchased from other paprika primary processing plants in Xinjiang. Marigold comes the third, with total procurement in 2017 amounting to 117077 tons (21% of total raw material processed). Stevia comes the last, with total processed amount being 10,000-tons of dried pellet in 2017, or 2% of total raw material processed by weight. Stevia are purchased directly from farmers in Jiangsu and Gansu.

In cottonseed, paprika and stevia procurement Chenguang faces a competitive market as there are many other players competing for the same raw material. Therefore, all three commodities are purchased in the spot market at market price. Marigold pellets were exclusively from Yarkant county, Xinjiang, where Chengang purchased directly from the farmers.

Marigold flowers must be processed immediately after harvesting and Chenguang’s processing plant in Yarkant, Xinjiang is the only user of this raw material. Chenguang fosters the marigold growing business in Yarkant by working with local governments, and providing the farmers with seed advance, assistance in fertilizers, and technical extension services. Chenguang signs an Intention to Purchase contract at the beginning of each year with village and town governments specifying the size of marigold growing area and purchase price for fresh marigold flowers, and uses the contracts to plan for procurement and production. The village and town governments in turn coordinate with villagers on annual planting. Farmers appeared to be satisfied with the relationship with Chenguang, as marigold brings higher income compared to alternative cash crops such as cotton. Chenguang has a 12-person technician team in Yarkant and surrounding area, working with marigold farmers from planting to harvest, and in some cases helped double the unit output with better growing technologies. The risks of child labor and forced labor are low since marigold growers are usually small holders with average planting size of 10 mu (or about 0.67 hectare). Farmers hire fellow villagers to help with harvest if extra hands are needed.

Based on the above assessment, IFC concluded that the risks in Chenguang’s primary supply chain are low to medium. Furthermore, the company has implemented appropriate procedures to manage the E&S risks of its primary supply chain, including a traceability system that enables the company to trace each batch of product to its original suppliers.

 Chenguang currently employs 1030 workers, with 82% being male, and 18% being female. The operations in headquarters hire 126 temporary workers out of a total of 755. Temporary workers are hired directly by the company, mainly for low skill jobs or those of seasonal nature. In Xinjiang subsidiaries, the percentage of temporary workers fluctuates and can reach ~30% during harvest season, reflecting the seasonal nature of the operations including procuring and processing of paprika, marigold and cottonseeds.

Human Resources Policy and Procedures, Working Conditions and Term of Employment: Chenguang has a written Human Resources (HR) policy and manual. The HR manual covers hiring process, probation, performance evaluation, working hours, leave, benefits including social security, medical insurance, unemployment insurance, disability insurance, maternity insurance, and a housing fund, and termination of employment. At time of hiring employees sign a labor contract that specifies the term of employment including working hours, location, remuneration, and necessary occupational health and safety (OHS) measures in place for employees to carry out the work. Both regular and seasonal workers are required to sign the labor contract and retain a copy. Employees work 6 days a week for 8-hour a day and received double pay on Saturdays, in compliance with Chinese labor law requirements. The company provides dormitories for workers. Each dormitory unit is shared by 2 or 3 workers or a couple depending on the size of the unit and is equipped with heating, showers and air conditioning.  All HR policies and procedures comply with Chinese labor regulations and are aligned with IFC requirements under this performance standard, including guidelines on workers’ accommodation.

Workers’ Organization: There is a workers’ union at Chenguang. All the workers belong to this union. The union represents workers in negotiation on issues related to salary increase, social insurances, and working conditions, etc.

Non-discrimination and Equal Opportunity: The HR policy specifies equal opportunity and fair treatment of all workers. Both the field appraisal and document reviews confirmed no discrimination practices were identified. All the hiring and promotion processes are merit-based. Staff are encouraged to rotate among different positions, with localization being one of the HR targets for Xinjiang subsidiaries, for example. The target was 10% in 2017 (i.e., 10% of the staff in Xinjiang subsidiaries are from Xinjiang), which was achieved.

Grievance Mechanism: Grievances can be channeled to employee’s supervisors, HR managers, or a hotline where complaints can be recorded anonymously. The company conducts quarterly and annual staff surveys on various subjects where staff can provide feedback anonymously. Exit interviews are also conducted for employees who quit the company. Most of the grievances are related to canteen and accommodation services provided by the company and all are addressed and a response provided.

Protecting the Work Force: Chenguang does not hire anyone below the age of 18-years. HR checks IDs and school certificates during the hiring process.

Occupational Health and Safety: The company undertakes an OHS risk assessment for each job position, results determine procedures and required training. In addition, the requirements for workers to participate in OHS training and the obligation for Chenguang to provide such training are established in the labor contract and management programs. New workers must undertake 3-level training and pass a test before starting the work, and specialized and refresher trainings are required for certain positions depending on the level of risks assessed. Chenguang has individual health monitoring programs and workers undergo annual health checkups to ensure they are not exposed to undue risks. OHS risks associated with each operation are clearly identified and communicated to workers, including posting signage informing of risks and mitigation measures at the workshops. Daily, weekly, monthly and seasonal safety inspections are conducted based on the safety requirements. Chenguang reported zero incidents in 2016 and 2017, and informed IFC of two minor incidents involving 2 workers with a total of 12 lost workdays for the 1st quarter of 2018. 

Despite all the measures described above, some noticeable gaps were observed at the site visit: workers were not wearing required PPE at certain workshops. In another instance, very visible dust accumulation was observed in the cottonseed processing plant where dust was identified as one of the major OHS risks. Some of the machinery appeared to be in need maintenance with gaps between enclosures. Going forward, Chenguang will be required to enhance its safety management program including performing an independent, 3rd party safety risk assessment at its cottonseed processing plant, implementing corrective actions, and strengthening its accident statistics monitoring. These requirements are addressed in the ESAP (tasks numbers 3 and 4).

Third-party Workers: Chenguang does not hire any workers through third-parties. Currently there are no new sites under construction.

 Resource Efficiency: Chenguang prides itself on superior extraction yields from raw materials that, based on their estimates, are 15-20% higher for capsicum, 10-15% higher for paprika, and 4% higher for marigold than their competitors. Chenguang tries to preserve resources on other fronts including recycling solvents for extraction: consumption of the solvents utilized in oleoresin extraction dropped from the initial 300 kg/t in 2000 to the current 3 kg/t of raw material; recovering heat generated from raw material drying to pre-heat the water used for another process; and, processing raw material wastes into animal feed.  The company tracks its resources consumption (raw materials input, solvents, energy and water usage) per unit of product produced and set targets. Targets are determined by a strong R&D center whose mandate includes improving resource efficiency.

Greenhouse Gases (GHG): Chenguang’s emissions are mainly related to the use of energy from the grid in a total of ~37,401,638 kWh in 2017, steam production from the boilers in total 737,425 m3of natural gas and 19,774.32 tons of coal in 2017; and diesel fuel for forklifts and backup generators, 251.47 tons. Annual CO2-equivalent emissions from electric energy consumption and direct fuel uses for all operations were estimated at 72,424 tonnes (t) in 2017. Chenguang’s Energy and Resource Efficiency Unit sets up annual energy/resource reduction targets and carry out various initiatives to achieve these targets. Going forward Chenguang will quantify direct emissions from the facilities owned or controlled within the physical project boundary, as well as indirect emissions used by the project. Quantification of GHG emissions will be conducted annually in accordance with internationally recognized methodologies and good practice. This requirement is addressed in the ESAP (task number 5).

Pollution Prevention and Mitigation: Air emissions from the boilers are monitored and reported to local EPA online. The sample air emission testing results are found to meet Chinese regularly standards and WBG EHS guideline values.

Process wastewater is treated at onsite wastewater treatment facilities and is tested prior to being discharged into municipal sewage systems for final treatment. IFC reviewed sample effluent testing records and found they met both Chinese regulatory requirements and WBG EHS guideline values. Solid wastes are mainly boiler fly and bottom ash, which is sold for the manufacturing of cement, brick and other fire-proof building materials. Process organic wastes are either turned into animal feed or fertilizer for sale. The hazardous wastes are mainly empty chemical containers and used lubricant oils which are collected and disposed of by licensed service providers.

Chenguang outsources trucking services from qualified service providers, including providers who are licensed to transport and handle hazardous materials. It checks training and safety records prior to hiring such service providers.

Hazardous materials management: Hazardous materials that are used in large quantity at Chenguang’s operations include hexane, ethanol, methanol, butane, carbon dioxide, sodium hydroxide, phosphoric acid, and potassium hydroxide. They are stored separately in dedicated storage tanks underground or in dedicated, enclosed storage areas. All storage areas are clearly marked, labeled and with controlled access. Hazardous materials are transported by qualified service providers with designated approved vehicles. Leak detectors are installed at both the storage areas and the workshops.

Pest management: Pest management and control is outsourced to an Intertek subsidiary in China. IFC reviewed the list of pesticides applied by the pest management company and was assured that there was no WHO Class 1a or 1b pesticides used on Chenguang’s premises. Chenguang has a good management system to ensure that pesticide residual in the raw materials is well controlled. Its procurement team collects pesticides, fertilizers usage and plant diseases information before making procurement decisions, and its quality testing lab is equipped with advance analytical and detection equipment including gas chromatography, liquid chromatography, and plasma mass spectrometry.

 Community Health, safety and Security: All Chenguang’s plants are located in government-designated industrial parks with no residential communities nearby. However, due to rapid urbanization, some residential development has developed near to Chenguang’s operations in Quzhou. Chenguang has built its own residential buildings across the street from the company gate. Given that Chenguang’s operations involve the transportation, storage and use of large quantity of various hazardous materials that are flammable, explosive, toxic or corrosive. Going forward Chenguang will be required to involve neighboring communities in its emergency preparedness and response plan. This requirement is addressed in the ESAP (task number 6).

Security Personnel: Chenguang has its own staff guards for access control and they are not armed.

 Most of Chenguang’s raw materials, ~90% of cottonseed, nearly 83% of paprika, and all marigold flowers are sourced from Xinjiang, with 6 of its subsidiaries being in Xinjiang, where many ethnic minority groups live, including Uighur, Kazakhs, Tajiks, Hui, Kyrgyz, Mongols, and Russians. Two of these subsidiaries with primary processing facilities are in Kashgar, where most of the population are Uighur, one of the ethnic minority groups officially recognized in China, with a distinct language and culture that is different from the mainstream Han population.

As described previously, all Chenguang’s facilities reside in government-designated industrial parks and there will be no land acquired or new facilities built as part of this investment. As such there is no negative impact on local natural resources or on cultural heritage viewed by those Uighur farmers as being integral to their culture. Chenguang has an equal treatment policy and currently has 29 staff from ethnic minority groups in its Xinjiang operations, accounting for more than 14% of its workforce in Xinjiang. The company is working on increasing local staff in local offices and localization is one of the performance indicators for assessing management at the subsidiary level. In Yarkant, Kashgar, Xinjiang, Chenguang directly works with around 8000 Uyghur farmers. Interviews with sample marigold growers suggested a positive relationship between Chenguang and growers. Growers are happy that marigold brings them higher income than alternative crops, and are satisfied with the extension services Chenguang provides, including assistance in seed, fertilizers and technical advices. 

 Client’s Community Engagement: Chenguang’s current engagement with communities is mainly either commercial or philanthropic in nature. All Chenguang’s plants are located in government-designated industrial parks with no residential communities nearby. However, due to rapid urbanization, some residential development has appeared near Chenguang’s operations in Quzhou, Hebei. Chenguang also has built its own residential building right across the street from the company gate and purchases raw materials form farmers. At this moment Chenguang does not have ongoing engagement with these communities. Going forward Chenguang will be required to establish a mechanism to receive feedback from the neighboring communities, and to communicate and to share information especially where emergency preparedness and response plan is concerned. This requirement is addressed in the ESAP (task number 2).