Impacts linked to PS8: Cultural Heritage are not expected since there is no presence of known cultural assets or artifacts within the group’s operational footprint. The group will assess and manage any issues related to PS8, as needed, as part of its E&S management system (ESMS).

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

 This is a Category B project based on IFC’s Policy on Environmental and Social Sustainability. The E&S risks and impacts associated with this project are limited, site-specific, and can be readily addressed through generally accepted mitigation measures described in this document and the attached Environmental and Social Action Plan (ESAP). Key E&S issues associated with this investment are: (i) compliance with applicable Vietnam legal and regulatory requirements, including securing all necessary operational permits for factories and plantations; (ii) effectiveness of Nafoods management competency and capacity to implement the integrated EHS/labor/food safety management systems; (iii) emergency preparedness and response plan, especially Life and Fire Safety (L&FS); (iv) resource (energy/water) efficiency and effluent management, point source air emissions, ambient dust and noise, solid and hazardous waste management; (v) supply chain risk assessment and management, including potential harmful child/forced labor and conversion of natural/critical habitats in fruit sourcing areas; (vii) land acquisition and economic displacement; and (viii) identification and management of impacts on ethnic minorities.

  Environmental and Social Policies. The Nafoods commitments to sustainability are driven by customer requirements with the group maintaining Hazard Critical Control Point (HACCP) as well as International Standards Organization (ISO) 22000 for both NFS Long An and Naprod Nghe An. Global GAP has been obtained for CLN Nghe An six-hectare passion fruit farm. The group expressed a plan for organic certification and SEDEX audits within its future supply chain in anticipation of future customer requests, this plan had not been finalized with no defined policy established to give clear guidance in support of these objectives. As set forth in ESAP #1, the group shall develop and implement an overarching Environmental, Social, Occupational Health and Safety (OHS) policy defining the objectives and principles that guide the group to achieve sound environmental and social (E&S) performance. This policy will specify that all group business activities will comply with the applicable laws and regulations of Vietnam and be consistent with the principles of IFC’s Performance Standards, applicable WBG (EHS) General Guidelines, IFC Food and Beverage Sector Specific Guidelines, ISO 22000/ HACCP, Global GAP principles and criteria for primary production and primary supply chain sourcing operations. This policy will indicate who, within the group, will ensure conformance with the policy and be responsible for its implementation in all group entities. The group will communicate the policy to all levels of the organization, and entities the group has management control over.

Identification of Risks and Impacts: Nafoods has valid environmental permits for NFS Long An and Naprod Nghe An factories. The group identifies E&S risks and impacts in accordance with

national regulations with the Nafoods engineering department responsible for commissioning the EIA report and supervising the environmental consultant submissions to the national authorities for approval. Once the environmental permit is issued construction is initiated. On facility construction and commissioning the EIA documentation is transferred to the factory quality assurance (QA) department to administer the environmental reporting (under supervision from factory manager). A review of NFS Long An’s EIA demonstrated that risks and mitigation measures were adequately identified.

Nafoods business plan is to expand its fresh fruit sourcing to 50,000 hectares through: (i) contracts with large plantation companies (20,000-30,000 hectares); (ii) contract farming with smallholders and medium sized growers (10,000-20,000 hectares); (iii) aggregators; and, (iv) potential expansion of core plantation holdings to 5,000 hectares. This expansion would require support from provincial governments who shall support the group in terms of: (i) obtaining access to state owned land resources (state, commune, and state-owned enterprise-controlled resources); (ii) facilitating engagement with communes and local populations; and, (iii) supporting issuance of permits and licenses for business operations. This engagement with provincial authorities also extends to supporting sourcing of land for plantation development, which may expose Nafoods to risks from impacts to local communities and biological resources. As such, specific measures shall be required to ensure Nafoods compliance to IFC PS5, PS6, and PS7 needs. As set forth in ESAP #2 Nafoods shall develop a Land Acquisition Policy and Procedure (LAPP), sufficient to ensure group compliance to PS5, PS6, and (as applicable) PS7 needs. The needs of the LAPP shall be communicated to all potential Nafoods partners to support screening of proposed land acquisition for business purposes including rental, lease or acquisition.

Management System and Programs: Nafoods operates its facilities in compliance with the national regulations of Vietnam with a commitment to meet its off-takers good E&S management practices through maintaining food safety systems and voluntary international certifications for primary production.

Nafoods applies ISO22000 and HACCP food safety systems within its factories and maintains Global GAP for its Nghe An farm. The group does not have in place any defined management system that consolidates the different aspects of the E&S and OHS standards nor requirements for Good International Industry Practice (GIIP). As set forth in ESAP #3, in accordance with IFC’s Performance Standard 1, the group shall update and implement its Integrated ESMS, which will be appropriate to the nature and scale of the Nafood operations and commensurate with the level of the E&S, OHS risks and impacts for each facility and plantation. This ESMS will be consistent with ISO 14001, OHSAS 18001, HACCP or ISO 22001, ISO50001 and Global Gap requirements. This ESMS will apply to existing and future operations. It will include the following aspects: policy; identification of risks and impacts based on local requirements and IFC PSs; manual of procedures and work instructions related to the management of E&S issues; management programs including relevant mitigation measures defined in environmental and social impact assessment (ESIA) studies and/or voluntary standard’s (i.e. Global GAP); organizational capacity and competency (inclusive of periodic monitoring and supervision of contractors); training requirements to facilitate the implementation of the ESMS; emergency preparedness and response; stakeholder engagement process and community grievance mechanism; and, supply chain risk assessment and management.

Organizational Capacity and Competency: The group has established adequate capacity within the QA teams to manage compliance needs. Nafoods implements current E&S, HACCP and ISO management systems certification needs through the QA department under the human resources (HR) function. The QA team is supported by a technical unit tasked with maintaining environmental equipment and collection of sample data for environmental monitoring. Although the QA team is adequate for supporting the administration of the existing system operating within each subsidiary, further capacity will be required to implement an ESMS aligned with IFC PSs, as well as specialist support within the areas of management of biodiversity and social risks that accompany the group’s land acquisition and future sourcing development plans. As set forth in ESAP #4 the group shall appoint at the group level a qualified E&S specialist to develop an environment function for the implementation of the ESMS (including oversight on OHS throughout the group companies and contractors). Coordination and oversight on all EIAs’ and supporting actions for new facility construction and for mandatory reporting to the national authorities, group shareholders and customers. Creating an E&S function to build capacity of the existing QA teams at each subsidiary, and plantation where Nafoods has management control over. As required, this function shall also be responsible for setting the terms of reference and supporting the formation of a board level sustainability committee.

Emergency Preparedness and Response: Key emergency risks identified by Nafoods subsidiaries include: (i) short circuit; (ii) power cut; (iii) equipment breakdowns; (iv) chemical leaks; and (v) fire, earthquake, storm or flood. The group has in place emergency preparedness and response procedures for each of its entities adequate to the likely scope and scale of the risks identified, with procedures outlining the actions, steps and responsibilities to take to manage each event. Fire permits for processing factories are issued by local fire departments with periodic fire drills and training conducted in handling of firefighting appliances. The group has in place product recall procedures within its ISO22000 certification.

EHS Monitoring and Reporting: The group does not implement a corporate wide E&S monitoring and reporting process. Their focus is on reporting compliance to national standards for emissions and effluents, and HACCP/ISO and Global GAP requirements. As the group evolves and expands its contracted farming base, primary supply chains, core plantation areas and constructs new facilities, the current approaches shall have to be re-enforced to ensure all data is effectively captured, reviewed and evaluated. See ESAP #3.

    Working Conditions and Management of Worker Relationship: The group’s visited subsidiaries terms of employment and working conditions are broadly compliant with PS 2. The sighted working conditions within the factories are considered as reasonable, with all workers (seasonal, fixed term and open-ended contracts) receiving signed agreements stating terms and conditions. Workers’ salaries are compliant to provincial minimum wage for both Nghe An, and Long An respectively.

Human Resources Policies and Procedures: At time of site visit combined between the two processing subsidiaries, the farm and the nursery the group employ ~350 workers, including all definitions of workers. The majority of workers at processing facilities are engaged in sorting, cleaning and preparation of fruit. It was stated that the ratio of employment between male to female as 50:50.

The group level HR management committee is responsible for developing policy based on the national labor regulations of Vietnam. This policy includes: (i) right to unionize; (ii) nondiscrimination; (iii) minimum age; (iv) benefits (including annual leave entitlements, social insurance, maternity and sick leave); (v) hours of work and overtime; (vi) minimum training and competency needs; (vii) disciplinary procedures; and, (viii) right to appeal. This committee is overseen by the group HR director with each subsidiary maintaining its own HR administrative function that reports to both the factory manager and the HR management committee.

The subsidiaries adopt the group HR policy and procedures and applies this to the local situation with no material differences. Although the HR policy is considered as broadly compliant to PS2 requirements it does not possess an effective grievance mechanism including managing anonymous complaints. The current grievance process is managed through the unions, or through writing to facility management with no formal internal process for receiving, handling, and responding to grievances. The group has in place a policy towards zero tolerance for proven cases of sexual harassment, but no mechanism to enforce it, nor any mechanism to address sexual harassment issues. As set forth in the ESAP #5 the group shall revise its HR policies and procedures and shall include a worker grievance mechanism accessible to all workers including seasonal workers, and third-party contractors to address any complaints including anonymous grievances. This process must also include an internal process of review, escalation, investigation, resolution and where necessary appeals process. The group shall amend its employment terms and conditions to include a zero-tolerance for proven cases of sexual harassment or gender based violence and shall include a mechanism that has the expertise to handle sexual harassment cases.

Working Conditions and Terms of Employment: Working conditions and terms of employment are considered as compliant to PS2 needs. Gender specific changing and wash room facilities are present at all site visited. All workers (including seasonal) are issued a contract of employment that defines their role, job title, place of work, time frame (if seasonal or fixed term), wages, hours of work, break times (one hour for lunch), allowances, benefits and holiday entitlements. All workers are required to do eight hour shifts for six days a week, with the factories operating two shifts.

Fixed term contracts include a three-month probation period and are valid for one year. Seasonal workers are engaged and these groups receive fixed term contracts and group and statutory benefits (pro rata) based on length of employment. All workers receive induction training prior to signing of contract with workers informed on contract terms and conditions including training on personal and food hygiene needs and safe working. In addition to this a collective labor agreement signed between the group and the union gives additional entitlements beyond the national requirements to all workers.

No employment hand book is issued to the workers with all data explained verbally, including any amendments to the terms and conditions. It was stated that group employment regulations are open access to all workers on request. As set forth in ESAP #6 the group shall publish an employee hand book at each subsidiary, in accordance with national regulations, specifying statutory entitlements and make this publication available to all workers (including seasonal workers) on signing of employment agreements.

Workers’ Organization: The group is unionized with The Trade Union of Nafoods Group as the sole union. An overarching collective bargaining agreement was signed in December 2016 covering all workers. The unions also handle grievances and convey requests to management.

Non-discrimination and Equal Opportunity: The group has a nondiscrimination policy and base all recruitment on capacity for the role. The process for awarding staff performance and promotion is transparently stated within the employment policy.

Occupational Health and Safety: The OHS policies and procedures are not aligned with PS2 requirements for the full scope of operations conducted under the group.

Identification and management of OHS risks is conducted through a factory level safety committee which comprises of a minimum of three members (HR, union representative and factory manager). The responsibility of this committee includes: (i) OHS; (ii) L&FS; (iii) machinery safety; (iv) training needs; and, (v) food safety audits. The two factory subsidiaries maintain a basic set of operational working guidelines focused on safe working practices. The guides include a description of the action, and basic precautions in relation to specific work areas and tasks.

Nafoods conducts accident reporting (linked to the medical teams), but has no process for recommendation for future mitigation of accident risk, and no near miss accident reporting process. The group does not have procedures for: (i) working at heights; (ii) handling of hazardous materials and minimum standards for PPE; (iii) hot work; and, (iv) lockout tag out for electrical maintenance. See ESAP #3.

The nursery maintains a specific set of working guidelines that include instructions on pesticide use, use of PPE and waste handling. It was noted that although basic guidance on the use of pesticides was applied, and PPE was in place, there was no facility for washing and changing clothes following chemical application activities. Locations of chemical storage at both the CLN nursery and the farm were poorly maintained with chemicals stored in a disorganized manner. No emergency eye wash station was present, no material data safety sheets (MSDS) were present, no inventory cards, and no warning labels highlighting minimum required safety standards. There were no sanitary facilities adjoining the chemical storage locations and no first aid kits. A review of the chemicals in storage highlighted the group used WHO class I chemicals for pest control purposes. As set forth in the ESAP #7, the group shall only allow the use of WHO Class II chemicals for all its operations, this includes: (i) farming and centers of primary production; (ii) pest control at processing facilities; and, (iii) nursery and seed research. A phase out plan will be presented, and a timeline agreed upon. The group shall develop a defined working procedure and practice compliant with GIIP on the handling, storage, use and disposal of chemicals. This shall include: (i) identification of training needs for workers engaged to handle chemicals; (ii) working guidelines for use; (iii) review of existing PPE issued to workers and its fitness for purpose; (iv) installing dedicated changing room and washing facilities (for workers handling crop protection chemicals’); (v) installing of emergency equipment’s at chemical storage and mixing locations; (vi) training in first aid procedures for chemical spills and accidental contamination; and, (vii) procedures for safe disposal of residue chemicals and their containers.

Workers Engaged by Third Parties: The group engages third party contractors for construction purposes and aggregators/traders to supply material inputs in to the production facilities. For the construction Nafoods requires all contractors to sign agreements to comply with minimum

standards for OHS and national labor law, including: (i) contractors must submit an OHS plan for approval prior to operations being initiated; (ii) implement required work safety needs (in accordance with national regulations); (iii) accept responsibility for supervision of sub-contractor safety; (iv) report all accidents and incidents; and, (v) report on work safety management performance. Although the requirement is in place there is no documented process in place to support monitoring of contractor OHS or labor performance. See ESAP # 3.

Supply Chain: There are significant social risks associated with fruit production in the Mekong Region where child labor is widespread in the agriculture sector. The group has no system nor code of conduct in place to notify suppliers on the need to eliminate child and forced labor, and no procedure in place to screen suppliers. To date the group has relied on supply chain approaches including: (i) a system of aggregators (i.e. the nine companies engaged to supply raw material inputs under contract to the processing facilities); (ii) direct suppliers of fresh products (these are the large plantation companies); and, (iii) engagement with small holders (the pilot 300 households, and medium sized growers). As the business plan evolves exposure to primary supply chain risks shall increase. As set forth in ESAP #8 the group shall develop a supplier screening approach and a supply chain management system, which will include: (i) development of a supplier code of conduct that shall state zero tolerance for any use of child or forced labor, nor tolerant any working conditions that pose risks to worker safety; (ii) mapping of all primary suppliers; (iii) risk assessment and prioritization of suppliers; (iv) where reasonable specific E&S requirements to screen out child/forced labor, and work conditions considered as unsafe, and include them in supply contracts.

   Resource Efficiency: The group has no resource efficiency programs in place for either energy, nor water consumption. The NFS Long An, and Naprod Nghe An use grid electricity supply with generators for emergency backup. The factories utilize water sourced from 400m deep bore holes which is licensed with consumption recorded. Naprod Nghe An maintains a 28-hectare constructed reservoir for its water supply. All water entering the facilities is pretreated through reverse osmosis and used in the production process for washing and sterilizing the fruit at point of entering the production line, and general cleaning.

Energy: Total energy consumption for current production is estimated at 6.7 million kilo watt hour (kWh) per annum for the group. Based on an average production volume of IQF of 7,900 tons, and 12,000 tons of concentrate, energy consumption per ton equates to ~336.6 kWh/ton product, exceeding industry benchmarks for energy consumption for IQF by a factor of five per ton of production as stated in the IFC Food and Beverage Processing Sector Specific Guidelines (2007). As set forth in ESAP #9 the group shall conduct an energy efficiency review of its operations and develop a energy efficiency plan with the targets aligned with WBG levels.

Water: Naprod Nghe An consumes 100,000m3 of water per annum, with NFS Long An facility consuming 110,000m3 of water per annum. Water consumption averages 10-12m3 per ton of IQF. Water consumption for both products is above the WBG sector specific guidelines benchmark of 5-8.5m3 per ton of product. As set forth in ESAP #10 the group shall conduct a water efficiency review of its operations and develop a water efficiency plan with the targets aligned with WBG levels.

GHG Emissions: Based on fuel consumption data, and total estimated energy consumption for the group in a 12-month period the estimated GHG emissions levels is well below the 25,000 tCO2e per annum IFC threshold calculated as being less than 3,000 tCO2e per annum.

Pollution Prevention: The main sources of pollution from the facility is industrial effluents from waste water, and emissions from the biomass boiler operations. Ash from biomass boiler operations is disposed on agricultural land.

Air Emissions and Ambient Air Quality: Air emissions are generated from the combustion of the biomass boiler and periodic use of back up electricity generators. Ambient emissions levels are not considered as significant.

Wastewater Treatment: The two factories WWTP comprise of a standard treatment system including: (i) screening and settlement; (ii) balancing; (iii) anaerobic tank; (iv) aerobic treatment; (v) sedimentation, with discharge directly in to water courses. The WWTP working procedure requires water to be checked every two hours at point of discharge and in the event discharge levels exceed permitted levels water is recycled back in to a storage tank and diluted with stored rainwater, re tested and discharged. All facilities are in compliance with the national regulations for effluents. Naprod Nghe An WWTP capacity is 250m3 per day, with NFS Long An constructed to handle 450m3 per day. A review of a sampled effluent monitoring report highlighted that coliform levels for Naprod Nghe An exceed WBG general EHS general guideline (2007) limits with 2,800 MPN/100ml reported as discharged. As set forth in ESAP #11 the group shall conduct a review of the Naprod Nghe An WWTP and identify remedial actions to ensure that monitored levels of released effluents complies with WBG standards.

Solid Waste Management: Solid waste is separated at factory with fruit skins sold for animal feed, all other organic material is burned in the biomass fueled boilers. Organic material from the CLN nursery and farm area is composted.

Hazardous Materials: Hazardous materials in the form of pesticides, cleaning agents, cooling agents (within the IQF) are used at the operations. The IQF system at NFS Long An factory includes a 10m3 Ammonia storage tank which is enclosed with no group employees involved in handling of the chemical. See ESAP #3.

Naprod Nghe An utilizes R22 as a coolant within its Nghe An facility. The client will avoid the use of chemicals and hazardous materials subject to international phase out and bans due to their high toxicity to living organisms, environmental persistence, potential for bioaccumulation, or potential for depletion of the ozone layer. As set forth in the ESAP #12 the Naprod Nghe An shall replace this coolant with a recognized industry alternative and upgrade its IQF production equipment to use an acceptable substitute.

   Community Health and Safety: Nafoods subsidiaries and farming operations are relatively isolated from human settlements, or within existing industrial areas. NFS Long An is within industrial land and a developing industrial estate. Access to this facility serviced by an established all weather road. The CLN nursery and farm are in remote locations with limited impact on surrounding communities. 

Security Personnel. There is no significant level of security issues in any of the Nafoods group locations. Nafoods does employ security staffs to guard its facilities from petty theft. They are unarmed and have limited rights to detain perpetrators with their role focused on monitoring and reporting incidents. All facilities are walled with access gates with visitor logbooks maintained at entrance gates.

 Protection and Conservation of Biodiversity: The group is in process of acquiring an additional ~40 hectares of land in Nghe An province with the intention to develop a passion fruit plantation. The land was formally state forest enterprise land and designated as state production forest. Prior to initiating the land acquisition process existing land users (documented under PS5) were reported as present and conducting farming activities on the land. As set forth in ESAP #14 the group shall conduct a biodiversity assessment to determine the presence or absence of natural or critical species or habitat, and excise identified natural or critical habitat areas from future plantation development. In addition to this, the group shall ensure that all land developed in to plantation is in accordance with the provisions of the LAPP. See ESAP #2.

Sustainable Management of Living Natural Resources: The group is directly engaged in primary production of agricultural products and is required to manage biodiversity risks accordingly. In 2017 Nafoods obtained Global GAP for a six-hectare CLN Nghe An, passion fruit farm and is committed to certify all Nafoods controlled primary production operations to a recognized international third party audited sustainability standard.

Supply Chain: The group does not have a system in place to evaluate PS6 risks within its primary supply chain. As at the time of the appraisal 95% of the material entering the production process is sourced through a total of nine aggregation companies with checks limited to food safety and traceability. The future supply plan will involve a sourcing area of 50,000 hectares which will require engagements with communes, small holders, and large plantation companies. 60% of material shall be sourced from contracted out grower schemes, and 30% from direct sourcing (communes, small holders and large plantations). Farming within the greater Mekong region carries significant contextual risks in terms of habitat conversion for plantation development. As set forth in the ESAP #15 the group shall implement a supply chain management system, including: (i) supplier and contracted out grower screening policy, (ii) risk assessment process that ensures that all plantation supplies are from land classified by the nation state for agricultural purposes and has been modified habitat for a period of no less than 5 years from date of agreement, (iii) specific requirements in contracts; and (iv) monitoring and reporting. In addition, primary suppliers with significant areas (i.e. >1,000 hectares in size) will be in possession of a recognized third party audited internationally recognized standard demonstrating that the sourcing areas are managed in accordance with GIIP.

   As described under PS5 above, the CLN Nghe An Passion fruit farm and nursery facility in Vietnam’s North Central Coast involved the acquisition of 46.9 hectares causing the economic displacement of 21 HH belonging to two of the 54 government-recognized ethnic minorities in Vietnam: Hmong and Thai. The Hmong’s are primary located in the Northern Highlands and represent approximately 1% of the country’s population. The Thai are also primary located in the Northern Highlands and are one of the largest ethnic minority groups, representing 1.7% of the country’s population.

In the case of the 18 HH belonging to the Hmong ethnic minority, it was determined that they are recent arrivals to the project area and the project-affected land was not their ancestral territory subject to collective attachment or use and therefore it did not meet the criteria for the purposes of PS7 application. Therefore, this impact will be covered as described in the PS5 section above 

taking into consideration the vulnerability and any cultural differences (e.g. language) of these HH.

The three Thai HH with whom Nafoods negotiated compensation agreements for use of 0.14 hectares are part of a group that has ancestral presence in the project’s area and meet PS7 application criteria. However, given that the project impacts were limited to individual HH-level land use, as opposed to collective held or used land, the impacts will be, in practice, addressed as described under the PS5 section, also taking into consideration their vulnerability and any cultural differences.

While most of the affected HH speak Vietnamese, verbal communications during consultations and negotiations were held using translation into either Hmong or Thai languages. However, it does not appear that written translations of documents were provided to the HH.

There are different levels of integration of these communities into the broader population, and no significant differential impacts resulting from project activities are expected. Nonetheless, during the preparation of the CD&LRP (see ESAP #13), Nafoods will ensure that the HH receive copy of all relevant documents in the corresponding language and will further assess if any of these households require any additional support considering that they are vulnerable and will ensure that livelihood restoration measures, communications and information are provided in a culturally appropriated format and language.

Given that Nafoods’ facilities are in areas with presence of mixed ethnicities, its community development efforts will be designed and implemented taking into consideration the input and needs of ethnic minority and non-ethnic minority groups.

For future land acquisition, any potential impacts on ethnic minorities will be assessed and managed in accordance to PS5 and PS7 per the group’s LAPP. See ESAP#2.

It must be noted that PS7 application by IFC discussed above does not affect the legal status of the relevant ethnic minorities in the country.

   In addition to engagements during land negotiations, described under PS5 and PS7 above, the group maintains a website and disclosures all relevant information on that platform. All factory locations are open to visitors to request meetings with factory management as required. The group engages with the local communities to source workers and material inputs from the near its facilities maintaining good relationships in doing so. Grievances can be brought directly to the factory and handled by the factory management or brought through the community’s local representatives. There are no reports of community complaints regarding the group and no obvious community issues noted during the appraisal. The group is proactive in engagement with the communities where it operates, including through its community development efforts. As set forth in ESAP#16, as part of its Integrated ESMS, the group will implement an Stakeholder Engagement Procedure and Community Engagement Mechanism in line with PS1.

   Contact Person: Diep Thi My Hao

Group Name: Nafoods Group

Address: No, 195/10/2 Dien Bien Phu, Ward 15, Binh Thanh District, HCM City

Email: haodm@nafoods.com

Phone: +84 2838 997 090

Facsimile: +84 2838 997 090