The proposed investment is a Category A project in accordance with IFC’s 2012 Policy on Environmental and Social Sustainability. Category A projects are defined as those which have business activities with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible and unprecedented. This is driven in particular by ETG’s sourcing high risk commodities, among others, cocoa beans in West Africa, which is associated with significant E&S risks related to the prevalence of harmful child labor, forced labor and conversion of natural/critical habitats (leading to biodiversity loss), with this sector-wide context presenting significant supply chain risk for cocoa bean buyers and additional soft commodities from specific origins, such as cotton and maize, as identified during the high level supply chain assessment described in this document.                                              

   Environmental and Social Assessment and Management System:

ETG has developed and implemented an integrated management system (known as ETG MS) which it uses to assess EHS risks and impacts, and ultimately avoid, manage or mitigate them, and by doing so, drive EHS performance across the ETG Group so as to meet both its local permit/regulatory conditions and company-wide sustainability targets, including those related to international food safety standards. The ETG MS, which IFC has observed its development and roll-out across ETG’s processing and warehousing operations during its previous investments, is aligned with the requirements of recognized, credible management system standards, such as ISO 14001 and 45001, SA 8000, ILO conventions and the IFC Performance Standards (PSs). The ETG MS contains all the basic EHS and workforce policies and procedures that would be expected under these standards. Legal EHS/HR registers are also maintained by all facilities (a sample register for one of the sites visited, Pure Oil Ltd in Zimbabwe, was reviewed by the DEG consultant hired as part of this due diligence).

At present, some 16 sites are independently certified to date for ISO 14001/ISO 45001 (in addition to various food safety standards). In addition, there are plans underway to certify five of the company’s fertilizer plants (located in South Africa) under the IFA ‘Protect and Sustain’ program.

As noted above, the ETG MS is the primary mechanism used by the company for the identification and mitigation of environmental (and social) risks and impacts for its processing and warehousing operations, which was the focus of IFC’s use of proceeds for the previous investments. During prior supervision visits to ETG facilities, IFC has seen the creation and development of this management system. Once overly conceptually cumbersome, it evolved to become fit-for-purpose, better targeting the types of risks and impacts expected of the company’ operations. With the additional diversification of ETG’s operations into some higher risk agro-commodities sourcing, the system has slowly evolved into the risk assessment and management of ETG’s agricultural supply chain. Further efforts are required to systematize the management system of ETG’s sourcing operations, as described below and in the ESAP in items 1 through 6.

Policy. ETG has published a Group Sustainability Policy (June 2018) and a Product Stewardship Policy (Nov. 2018) on its website (see https://www.etgworld.com/ehs.html and associated pages) which describe the company’s commitments towards complying with applicable national legal and regulatory and the objectives of IFC’s Performance Standards’ requirements, monitoring and improving EHS performance, assessing and mitigating environmental and social risks from its businesses, ensuring the health and welfare of its workforce, etc. Generic reference is made in the GSP to assessing environmental and social risks in ETG’s supply chain and adopting suitable mechanisms to avoid and mitigate such risks. The aspirations contained in these documents are implemented via the various operational controls and procedures contained in the ETG MS. Implementation effectiveness of ETG MS and overall performance against its GSP is reported in an Annual Sustainability Reports published on its website. In addition to the published GSP, the ETG MS also contains a series of policy statements (and associated procedures, such as the Environmental and Social Assessment of Suppliers and a Supplier Code of Conduct) and references to ILO/IFC standards, including working conditions, child/forced labor, non-discrimination, land acquisition, etc. These policies are not publicly available but are available to all ETG staff via its intranet. As outlined below (ref. PS1, Supply chain section), going forward, ETG will further develop and refine its Sustainable Sourcing Policy, or SSP, that specifically governs the supply of soft commodities and will disclose this on its website while also developing and implementing actions to be implemented to support a systemic supply chain assessment, management and mitigation program (as detailed in ESAP #1 through 6). 

Identification of Risks and Impacts. The ETG MS includes a systematic, spreadsheet-based risk assessment procedure for use across all its business activities, products and services. The procedure requires facilities to review their risks every year and/or in response to any incidents or changes in process, equipment, legislation, etc. Corrective Actions Plans (CAPs) and targets are then set for any significant EHS risks identified. The procedure covered air and water emissions, land contamination, resource depletion, property damage etc. As IFC’s use of proceeds in previous investments mostly focused on processing and warehousing facilities, the focus and application of these procedures has remained largely with these operations.

ETG has recently invested some efforts into assessing its sourcing operations, including transport used in supply chains (for example, the ETG MS includes procedures on managing transport related risks e.g. associated with driver/vehicle safety). Development of procedures related to selection of third-party suppliers, strict compliance with a Supplier Code of Conduct requiring to sign up and abide by the provision of the Supplier Code (which includes simple clauses relating to issues such as use of child/forced labor, deforestation, worker rights etc.) has recently started. This coverage is not based on a comprehensive risk based approach while its management oversight is less robust than expected. For example, while the Supplier Code was seen to be implemented at all sites visited by the DEG consultant in Zimbabwe, it does however rely on self-declaration.

No formal internal/external supplier audits have been conducted to date to verify compliance. Whereas ETG have created several sustainability programs and initiatives within some commodity value chains, an overarching corporate supply chain policy (Sustainable Sourcing Policy, ref. ESAP#1 above), risk assessment and management program to include corrective actions, such as full mapping of its third-party suppliers (with a priority on its pre-financed suppliers – over which ETG has management control and leverage), identification and assessment of high-risk supply chains, and establishment of traceable/certified benchmark and targets for high risk commodities is required as a priority (ESAP#2). Specific assessment criteria/protocols for different supply chain businesses and country/commodity combinations (which would reflect the relative positions ETG occupies within such supply chains and therefore expectations regarding control and influence over such differing supply chains), need to be developed and/or more fully implemented where currently they do partially exist.

Related to the above, as first level risk screening process, the ETG sustainability team does now apply the IFC’s Global Map of Environmental & Social Risk in Agro-commodity Production (GMAP) tool across its various businesses, in order to help identify and focus its available resources and effort on the most significant risks. It is recommended, however, that consideration is also given to other publicly available tools, such as the WWF/DEG Water Risk Filter (https://waterriskfilter.panda.org/) and WRI’s Forest Watch (http://www.globalforestwatch.org/) to help evaluate PS6 risk and potentially respond to any significant related impacts across its processing facilities and agricultural supply chain in real time (ref. PS3 section). The expansion of ETG’s risk assessment practices to more comprehensively review supply chain risks is addressed in the ESAP and is described in more detail in the PS1 section on supply chain below.

Management Programs. As described above, the ETG MS risk assessment procedure requires individual facilities to develop and implement their own EHS management plans and programs in response to any significant EHS risks or impacts that are identified during their risk assessment process. These plans include EHS targets that are monitored and reviewed on a quarterly basis by the Group-level Sustainability Team, with overall performance reported for the different verticals at the annual EHS committee meetings. A sample risk analysis spreadsheet for a vegetable processing plant was reviewed during the DEG appraisal process, which included basic control measures in response to identified EHS risks.  However, not all of the sites visited in Zimbabwe and South Africa had formal EHS plans in place as yet, with the exception of Pure Oil Ltd, where the solvent extraction and other processes used are generally more environmentally hazardous in nature, and where a detailed assessment and management plan has been prepared.  An action item is included in the ESAP to ensure that all required EHS management programs are developed for each applicable facility (ESAP #7).

This oversight from the Group-level Sustainability Team also enables the harmonization of overarching E&S performance measures across the different businesses, e.g. Greenhouse Gases. As the budgets assigned for the implementation of these management plans come from ETG’s verticals themselves, this makes it difficult to secure funding from corporate initiatives that are less directly linked to the business bottom-line (i.e. in contrast to measures such as energy efficiency improvements, which would generally be well supported). Please refer to the section below (PS1 Supply Chain) and associated ESAP items.

Organizational Capacity and Competency. The ETG Sustainability Team oversees implementation of the ETG MS across the organization and businesses. The team consists of the Group Head – Sustainability supported by two full-time team members.  Each of the five operating business lines or verticals (as summarized in the project description section) have one identified EHS coordinator who is responsible for the overall implementation of EHS systems and procedures in their respective business. They are in turn supported at the operational plant level by EHS ‘champions’ who supervise the implementation of EHS activities at the sites, albeit alongside their own day-to-day operational roles. There are also full-time teams of agronomists working in each country who are directly involved in agricultural outreach activities within the company’s supply chain. In term of EHS competency, the ETG Sustainability Capacity Building Strategy envisages three levels of training for EHS coordinators/champions across the organization (general awareness through to advanced), with EHS performance integrated within the Annual Performance Review mechanism for staff and senior managers.  To date, level 1 training (delivered at annual sustainability workshops) has been organized for key EHS staff since 2012, and more specialized level 2 training (delivered by external trainers in the larger production centers found in each country) started 2018. See below (in the discussion on supply chains) for details on the management and staff added as part of the Cocoanect acquisition.

The assigned DEG consultant reported that all of the EHS staff met during the site visit in Zimbabwe and South Africa  are committed, knowledgeable and well-trained, and the above organizational arrangements appear to be working well in terms of rolling out and implementing the ETG MS across the processing and warehousing operations. Previous visits by IFC, as part of supervising prior investments, reached the same conclusions. However, additional capacity is required in order to fully assess and manage risk within the ETG supply chain; see below for additional information.

Emergency Preparedness and Response. The ETG MS includes an Emergency Preparedness and Response procedure which sets out requirements for each facility to identify site-specific risks and develop and implement an on-site/off-site Emergency Preparedness and Response Plan. The EPRPs are required to be regularly reviewed and updated, and to include plant layouts, incident reports, fire drill records (with plan drills to be carried out on a 6-monthly basis), and Material Data Safety Sheets (MSDS) for chemicals in use at the facility. Based upon the findings of the sites visited by the DEG consultant in December 2019, except for Pure Oil Ltd, none of the sites visited had formally documented EPRPs in place as yet, although all of them were practicing routine 6-monthly fire drills, with basic signage and defined muster points in evidence.  None of the sites were including neighboring communities in their emergency response plans or drills. Although the facilities visited were all within industrial areas, in at least one case (the facility located in Arlington on the outskirts of Harare) there were residential properties in reasonably proximity to the plant. This issue is addressed in ESAP and described in the section on stakeholder engagement)

Supply Chain. ETG’s soft commodity supply chain includes a variety of commodities, with varying degrees of potential risk obtained by differing procurement practices; as such, there are differing exposures and proximities (and potential to effect change if required) to supply chain risk. The main origination and export activities center around pulses, cashew and sesame. Main imports (to sub-Saharan Africa, or SSA) are rice and sugar; it is not expected that ETG has control or leverage over those commodities, but they are included in the analysis for completeness. See below for detailed numbers / %’s of overall business operations of these main commodities and a summary of supply chain practices/realities with respect to each major commodity.

ETG Supply Chain Overview. Over 90% of ETG’s revenue is generated by 3 business verticals (the term ETG uses to describe its various business activities): Cash Products (44%), Fertilizer (22% revenues and 29% by volume) and Exchange Traded Products (21%). Fertilizers and pulses combined account for half of revenues; as such, India and South Africa are the largest countries in terms of revenues. The following section describes soft commodities (by Verticals), what they account for in terms of ETG revenues (where such detailed information is available – thereby giving some sense of their importance within ETG operations), the origins of those soft commodities and which markets they are destined for. In addition, where available, the GMAP score is added to those country/soft commodity combinations that are procured by ETG in an upstream/farmer facing/farm gate manner, i.e. not from a processor (such as a mill), or a consolidator that prevents traceability to primary production or via spot trading where origins cannot be specifically identified.

Those within the Cash Products Vertical include rice, cashew, sesame and pulses which combined account for 44% of revenues (plus the recent addition of cotton).

• Rice (4% by volume and 6% by revenue) is sourced from millers in SE Asia and is intended for markets throughout Africa. Being obtained from millers, ETG does not have contact with primary producers.

• Sesame (2% by volume and accounting for 7% of revenues) originates in Africa where 30% of ETG’s total volumes are sourced, 70% of which is sourced directly from farmers at the farm gate proximate to an extensive network of small and large warehouses. Farmers in remote locations form groups and sell their crop to ETG through a representative; however, since ETG has a widespread presence in the region, even for those suppliers once removed in the supply chain it does have a view on the farming practices and presence (or absence) of E&S supply chain risks in any particular region from where it sources. Most of the sesame is destined for Japan, China and Korea. The GMAP score for sesame sourced from Ethiopia is 78 overall; for Nigeria is it 71; also 71 for Tanzania indicating no issues as per IFC PS 2 and 6 with respect to supply chains.

• Cashews (3% by volume and 11% revenue) are sourced in East Africa (Mozambique and Tanzania) and West Africa (Benin, Senegal, Burkina Faso, Togo, Code d’Ivoire and Guinea Bissau). East Africa forms the main source of cashew i.e., from Tanzania and Mozambique. In Tanzania, direct buying from farmers is not permitted by the government so procurement is done through government cooperatives who collect the cashew from farmers. In Mozambique, direct buying happens with the large farmers at the village level. However, the small farmers form small groups and consolidate their produce and sell to ETG through a representative. Again, since ETG has a widespread presence in the region, they do understand the production practices prevalent in the fields. As regards to West African (CdI, Benin, Togo, Nigeria, etc.), generally the suppliers are large farmers who sell to ETG directly. In some cases, where there are small farmers, they sell by forming groups and choosing a representative who approaches ETG’s buyers. GMP scores for cashews do not indicate PS 2 or PS 6 supply chain issues, except for those sourced in India. Note: ETG does not source cashews in India. 

• Pulses account for 19% of volume and 25% of revenues. From East Africa, ETG sources pigeon pea, mung bean; lentils and chickpeas from Canada; red lentils from Australia; pigeon peas and black matpe bean (black gram) from Myanmar and yellow peas and pigeon peas from CIS. In the African region, the farmers directly sell their produce to ETG at the warehouses or ETG collects it at their farm gates; the smaller farmers also sell directly when they are close to the warehouse location, but in some cases they form groups, collect/consolidate the crop and then sell through their representative. In other locations outside Africa, ETG reports that they are sourced from large-scale operations. Pulses are not included in the commodities assessed by GMAP.

• Cotton (a recent addition to the supply chain) is now sourced from (and ginned in) Zambia along with a soy processing plant (also in Zambia) also recently acquired. Cotton procurement happens using contractual relationships with farmers and utilizes a close working relationship with an ETG agronomic team keeping a close sight of the production practices on the farms. Regular monitoring helps in avoiding any child labor or forced labor on the farms. See below for a detailed description of practices around cotton sourced in Zambia. GMAP does not list cotton from Zambia nor for other adjacent countries that might be expected to have similar production practices.

The Exchange Traded Vertical deals in grains and oil seeds (21% of revenues). Included in this business division are:

• Maize (white and yellow) from East Africa (Malawi, Mozambique, Zambia, Tanzania, Ethiopia, Uganda, Kenya and Zimbabwe), South Africa and the Black Sea Region and the Americas. Procurement is mixed with direct buying from farmers (large & small) up to the purchase of consolidate amounts made through representatives or an aggregator. GMAP lists maize from Tanzania (PS6 – possible impacts upon biodiversity) and Uganda (PS2 – possible impacts upon child labor and/or forced labor – and PS 6); likewise from Zambia (PS2 and PS6)

• Wheat (from Eastern Europe, Australia, India, China, North & South America, Russia, Germany and France). Procurement is from large farmers directly and sometimes their cooperatives. GMAP does not list any country of concern regarding wheat origins.

• Oilseeds from South Africa, East Africa (Malawi, Zambia, Zimbabwe, Ethiopia and Mozambique) as well as from China, India, Brazil, Paraguay, Argentina and the USA. Procurement is mixed with direct buying from farmers (large & small) to the purchase through the representatives. GMAP only lists sunflower seeds (which are themselves not associated with PS2 or PS 6 risks); ETG does not procure sunflower.

• Sugar (6% and approximately average volumes of 400,000 tons p.a.) from Brazil, Thailand, India and Malaysia is traded from ETG’s office in Geneva. ETG buys only from sugar mills and therefore does not have management control or leverage with those involved in primary production.

• Coffee (latest figures show 13,000 MT procured annually) and is also traded from ETG’s office in Geneva. ETG buys only from representatives and not directly from farmers.

• Cocoa (currently procuring 98,500 MT from Ghana, Cote d’Ivoire, Cameroon, Nigeria, and Ecuador) Procurement is from farmers connected to ETG’s Sustainability program and some amounts from local sellers. See below for more details on ETG’s programs related to cocoa procurement. GMAP lists Ghana and Nigeria as being associated with high supply chain risks.

The Vamara and warehousing and logistics Vertical includes:

• Vamara (ETG’s fast moving consumer goods (FMCG) division) accounting for 5% of overall revenues.

• (Included for completeness), ETG has an asset base of 600+ owned trucks and 2000+ network fleet combined with 400+ warehousing and distribution assets across Africa.

Of the above soft commodity/country combinations that are originated by ETG - and that procurement happens in a way that allows ETG to exercise management control or influence the conditions under which the commodity is produced - the following are flagged either by the latest report from the US DOL on goods that may have been/are at risk of being produced by child and/or forced labor (2018, available at the time of virtual appraisal) or through application of GMAP or both:

• Cotton originated from Zambia is reported to be associated with child labor (US DOL);

• Maize from Tanzania (PS6 – possible impacts upon biodiversity) and Uganda (PS2 – possible impacts upon child labor and/or forced labor – and PS 6); also from Zambia (PS2 and PS6)

• Cocoa, originated in Ghana has a high risk of being associated with child labor (US DOL and GMAP for PS2 and PS6), in Cote d’Ivoire with both forced and child labor (US DOL), Nigeria (US DOL - F&CL and GMAP for PS2 and PS6) and Cameroon (US DOL - CL);

Despite not having a documented supply chain risk assessment, ETG’s has informed its sourcing operations with some consideration of E&S risks, such as its cotton sourcing in Zambia and/or its cocoa bean sourcing in West Africa. Details are described below, including awareness, avoidance and mitigating measures in place around child labor in the Zambia cotton supply chain and the cocoa sustainability program in place in Ghana, Cote d’Ivoire, Nigeria and Cameroon, and includes steps and actions taken to avoid them.

Cocoa is sourced from Ghana, Cote d’Ivoire, Nigeria and Cameroon. In September 2019, ETG acquired the staff of Cocoanect (www.cocoanect.com) a specialty cocoa sourcing and trading company. Besides regular cocoa trading (~50,000 mt), this company has developed its own sustainability platform (~35/40,000 mt), and works with a wide network of producer organizations at a large number of cocoa origins in order to best avoid the high risks associated with cocoa procurement in the above countries in West Africa. In terms of capacity, Cocoanect have four people engaged in management in the Netherlands, nine officers engaged in management in Cote d’Ivoire along with eight field staff; in Ghana it is three in management and two field staff, one manager and two field staff in Nigeria and two managers in Cameroon. Cocoanect is committed to the Cocoa and Forest Initiative (CFI) and the Dutch Initiative for Sustainable Cocoa (DISCO). The company’s strategy is based upon an up-country presence with staff and management driving projects focusing on the following four pillars: Farmer Profit (that farmers need the right tools, technology, inputs and skills to turn their farming practices into a profitable future-proof business); Communities (that only in thriving communities will it be possible to ensure a sustainable future for cocoa and empowering the women and youth in the farming communities will contribute to overall economic productivity and sustainability); Environment (the need to guide farmers in creating sustainable environmental farm and household management practices, where nature conservation and a profitable business co-exist); and, Partnerships (the need to be the connector and pollinator in this system, by bringing the right partners and solutions together).

As of 2019-2020 harvest, Cocoanect sourced a total of 98,100 MT of cocoa. Of this amount, 65,100 MT (66%) was certified against international standards (either Rainforest Alliance or Fairtrade). Cocoa sourcing from Cote d’Ivoire amounted to 34,000 MT (of which 87% was certified), Ghana 22,500 MT (with 96% being certified), 11,300 MT from Nigeria (with 46% certified), Cameroon 2,100 MT (90% certified) and Ecuador 19,500 (11%); other origins accounted for 8,700 MT with 4,700 MT (54%) being sustainably produced. All (100%) of Cocoanect’s supply chains are subject to monitoring and remediation schemes on child labor beyond those contemplated in the above international certification standards. Targets for the 2024-2025 harvest are as follows: operations in Cote d’Ivoire will seek to source 80,000MT in total, of which 72,000 MT will be sustainably sourced (i.e., will be certified to either Rainforest Alliance or Fairtrade standards), a total of 80% sustainably cocoa sourcing; in Ghana, it will be 50,000 MT in total with 45,000 MT of sustainable sourcing (90%); in Nigeria it will be 25,000MT total, 20,000 (80%) sustainably sourced; Cameroon 10,000 MT with 8,000MT sustainably sourced; 25,000 MT and 12,500 MT sustainably sourced in Ecuador; and other origins 5,000 MT and 2,500 MT (50%). Total sourcing in 2024-2025 will be 195,000 MT of which 160,000 MT will be from sustainable sources (82%).

The company works by providing agricultural-, Social-, and Environmental farmer trainings via UTZ Certified, Rainforest Alliance, Organic, or Fairtrade. Secondly, they build Public-Private Partnerships (PPP) to come to innovative approaches with more impact. Finally, they monitor & evaluate. Cocoanect has its own field teams in origins to supervise, learn and optimize intervention.

In Cote d’Ivoire, they have worked with 33,217 project farmers, 32 farmer groups, 4 women owned/operated co-ops, another 10 co-ops and 18 buying centers. In Ghana, it is 22,821 farmers, and working with 3 licensed buying companies (LBC’s) - Cocoa Merchants, Fedco, and Transroyal. In Nigeria, they have worked with 6,552 farmers and two exporters Wacot/Vink and (prior to becoming part of the organization) ETG. They have worked with 1,900 farmers in Cameroon. They partner with multiple recognized organizations such as GIZ, IDH, Solidaridad, World Agroforestry Center, Child Rights International, Cordaid, etc.

Cotton is originated in Zambia where ETG has partnered with Parrogate (https://www.parrogate.com/zambia-1). This partnership allows them to reach around 10,000 farmers directly for cotton sourcing and provision of inputs like seeds, chemicals and fertilizers. Cotton trade between the small holder farmers and ETG-Parrogate across Zambia involves registration of farmers, provision of inputs, provision of training to farmers, procurement of the produce and payment to farmers; all activities have a clear visibility to all the parties involved, including the local government agencies. All services are provided to the farmers at the farmgate. At the time of harvest, the company provides woolpacks for proper packing of seed cotton which are delivered to the farmers. Practices around sustainable supply are a part of the commercial arrangement. These include good agricultural practices using skilled agronomists in the field to help and support cotton cultivation. A team of agricultural experts guide the farmers on the right farming practices and conduct several rounds of training throughout the crop season. As a result, cotton yields in the region have improved over time. Farmers are advised on the right type, quantity and the correct dosage of fertilizers, for example; avoiding excess chemical application has helped in avoiding harm to soils and groundwater. The cotton farmers registered with ETG-Parrogate are required to accept the policy of not using child labor on their farms. This condition is included in farmer contracts. During the farmer training sessions such issues are discussed in detail and awareness provided to all on the international conventions on labor as well as IFC PS2. In order to avoid deforestation, cotton cultivation in Zambia is carried out on existing parcels of land with the focus being on improving yields to drive growth rather than bringing higher acreage under cultivation. Farmers are trained to look for the onset of any fungal diseases in the crop. If the disease spread is controlled as soon as possible, the amount of pesticides is reduced. Farmer trainings are conducted through farmer field schools (FFS). Experienced and qualified trainers are used to train field staff. Master trainers come from Aid by Trade Foundation (AbTF), Cotton Export House Africa, CMiA and COMPACI and use a train-the-trainer approach for internal training staff. Training topics have included land preparation and soil conservation, preventing deforestation, conservation farming, GAP - crop diversification, proper crop management and agronomic practices, safe usage of crop chemicals, preventing child labor & IFC Labor PS (PS 2), proper nutrition and food and promoting Biopesticides

The implementation of the sustainable practices is monitored through the sourcing teams of ETG-Parrogate who are in continuous touch with the farmers. The team of agricultural experts monitor the farm practices and the health of crop and provide advice to the farmers on a regular basis. Labor practices are also monitored by personal visits to farms and field visits. The local regulatory agency – Cotton Board of Zambia – also conducts supervision of the operations of all the Ginneries. Local development agencies are also involved in the entire exercise who provide inputs to the Cotton Board.

With regards to coffee, regardless of the current position of ETG in the supply chain as highlighted above (i.e., one step removed from farmers), ETG is planning to extend a program around farmer registration as it contemplates growing this element of its supply chain/business. That proposed program would start in Cote d’Ivoire given the overlap in coffee and cocoa growing areas in that country, i.e., they would leverage their on-the-ground teams in place for the cocoa sustainability program to quickly build up a coffee program. Expansion using a similar model (based on the cocoa program) would then occur in Uganda and other origins.

Lastly, and beyond the supply chain risks as envisaged by the Performance Standards, ETG is working on an initiative around climate risk. This new development will be in conjunction with Wageningen University (Netherlands) aiming to develop a deeper and more quantifiable understanding of the impact of climate change on the agricultural supply chain for one specific crop in one specific country. It is hoped that this pilot assessment will help in the development of tailored solutions for protecting the livelihood of farmers threatened by climate change. The project is scheduled to start in early 2021.

IFC Performance Standards’ gaps identified during this appraisal regarding ETG’s sourcing operations are: the step-by-step actions that are required to be undertaken and, upon doing so, will result in a complete and current detailed supply chain risk assessment along with – where appropriate and required –implementation of mitigating measures to address such risk. These are documented in the first six items in the ESAP, namely (i) further development its Sustainable Sourcing Policy (SSP) and disclosure of the SSP on its website while also developing internal programs to promote awareness and competency around implementing practices required to meet the intent of the SSP (ESAP #1); (ii) conducting a full assessment of the ETG soft commodity supply chain to identify high risk commodities that they have either control or influence over with respect to production practices and developing the means to keep that assessment current and fully reflective of the ETG supply chain (ESAP #2) including use of current assessment tools such as iBAT and GFW, (iii) add capacity, both at the level of the Sustainability Committee (newly created and who develop strategy with respect to EHS management, including that related to the supply chain) and at the country level where procurement takes place (ESAP #3) to enable a supply chain assessment, management and mitigation program to be fully implemented; and (iv) ensuring competency among those involved in ETG’s supply chain assessment, management and mitigation program (ESAP #4). For those commodities confirmed as high risk (the high level assessment in this document lists cocoa, cotton and maize from specified locations), and that are procured in a manner to allow control or influence to be exerted by ETG over production practices, ETG will develop and implement mitigating measures to address identified supply chain risks (ESAP #5). Such measures may include digitization of supply origins and cross referencing those against areas known to be at risk of deforestation, paucity of local education opportunities that increase risks of harmful child labor, etc. ETG sustainability management will periodically verify and report to ETG senior management regarding the assessment and mitigation measures around impacts and risks associated with the primary suppliers in its soft commodity supply chain and, based on such inputs, ETG senior management will act in ways that provide for the intent and objectives of the SSP to be met (ESAP #6). Each ESAP item requires ETG to submit evidence to IFC demonstrating compliance with its requirements; ongoing reporting (such as subsequent assessments conducted if changes occur in procurement practices, origins and/or commodities and ongoing senior management reporting and corresponding actions identified as being required) will be facilitated using the IFC annual monitoring report (AMR) and will also be summarized in future Annual Sustainability Reports that may be made public.

Monitoring and Review: Through its alignment with ISO 9001, ISO 14001, ISO 22001 and ISO 45001, the ETG MS incorporates a system of performance monitoring and review across its businesses, particularly with respect to food safety standards and certification. The management system also includes an internal audit procedure whereby progress against targets is tracked on a quarterly basis and reviewed in terms of the overall performance of each business vertical at the annual EHS committee meetings and that of periodic external/third party audits.  From EHS monitoring, the focus of this ‘top-down’ internal monitoring tends to be priority actions and activities within the business e.g., in relation to management system roll-out, certification processes and/or measures to address any regulatory infringements or problems that may have arisen at a particular location. Routine emissions monitoring is also carried out at facility level to meet regulatory reporting requirements. As discussed under PS3, this typically involves third-party testing of boiler/generator emissions against regulatory requirements. These data are generally held at site level and would only be shared with the sustainability team if an issue should arise.

At a more strategic level, the ETG Sustainability Team have recently introduced an IFC annual monitoring review template that includes various KPIs relating to IFC PS2, PS3 and PS4. These include indicators relating to issues such as occupational health, water and energy consumption, waste management, transport safety, land acquisition, community grievances, stakeholder engagement etc.  Data for the AMRs will be provided by individual facilities and consolidated at Group-level and eventually reported in the annual ETG Sustainability Reports.  Based upon the facilities visited, some data are already being provided to the Group-level Sustainability team on a monthly basis, for example basic OHS data and energy and (in cases where usage is significant, e.g. Pure Oil Ltd) water consumption. As per the requirements of the various management system to which ETG is certified, senior management reviews are undertaken on a periodic basis. In addition, a Sustainability Committee has recently been formed. The inaugural meeting was held in November 2019 whereupon the committee’s charter and responsibility was discussed along with progress on achieving ESAP items from an FMO investment, integration of Sustainability KPIs into senior management performance reviews, and announcement of the successful completion of a BRC audit for a cashew processing operation in Mozambique. 

    Human Resources Policies and Procedures.

As referenced above, the ETG MS has been developed to align with IFC/ILO standards and SA 8000, and as such includes a range of policies and procedures regarding minimum wages, working hours, overtime, freedom from forced/child labor or discrimination at work, and recognition of collective bargaining etc. Reference is made to conducting reputable employment practices in the Group Sustainability Policy (and that ETG does not engage in child and forced / compulsory labor in any of our activities and that they create equal opportunities, without any discrimination, in turn allowing workers freedom of association and right to collective bargaining).  IFC has observed the development and implementation of such policies and procedures and the outcomes at several warehousing and processing facilities over the years, as part of its previous supervision activity. In summary, the actions taken by ETG with regards to labor and working conditions are aligned with and meet the objectives within PS2. Please see additional details below.

Working Conditions and Terms of Employment: The ETG MS defers to local legislation with respect to the basic terms and conditions of employment, insofar as this meets the minimum requirements as set out in its own policies. The HR department provides templates for workers’ terms and conditions for use by all business units, which set out all ETG’s HR requirements. This includes working hours (not to exceed 48 hours per week), overtime (not to exceed 12 hours per week), minimum wages (defined as Basic Need Wages, in line with local regulatory requirements), etc. The DEG consultant carried out a sample review of worker contracts during one of its site visits (for fixed-term contract staff at a fertilizer plant); these basic conditions were reported as being in place at the local level.  Wages are set according to government rates prescribed via Collective Bargaining Agreements (CBAs) with different professions / industry sectors. Moreover, from discussions held by the consultant with managers at the different facilities, it was concluded that additional salary benefits were being provided by ETG to all contract staff (both permanent and fixed-term) over and above the government’s minimum sector pay requirements, including cost of living (COL) allowances and food baskets. The COL allowance was reportedly reviewed (at the country level) on a regular basis in line with ‘real’ inflation rates in the country.  Notwithstanding, it was also reported by a few senior managers that salary was the most frequently raised issue during worker council meetings (a part of the employee grievance mechanism). The occurrence of such is thought, by the consultant conducting such interviews, to reflect the rampant inflation in several countries in which ETG operates, rather than an indicator of ETG’s performance in this area.

Workers’ Organizations. As described earlier, in line with IFC/ILO standards, the ETG MS contains provisions that explicitly support its workers’ rights to freedom of association and collective bargaining and enforces these rights through its standard terms and conditions of contract issued to its business units. In the case of Zimbabwe, these rights are enshrined in national legislation, and as described above are enacted by Collective Bargaining Agreements (CBAs) which are periodically made with different industry sectors/worker groups. The various facilities visited all recognized and adhered to these CBAs within their worker contracts, both for permanent and temporary (fixed term) contract staff.  This was confirmed in the sample contracts reviewed. The provisions are also rolled out to ETG’s contractors and suppliers via a Code of Conduct.

Non-Discrimination and Equal Opportunity: As described earlier, in line with IFC/ILO standards, the ETG MS contains provisions that explicitly promote and support equal opportunities and zero discrimination, including on the basis of “race, caste, national origin, religion, disability, gender, sexual orientation, union membership, political affiliation or age”. These policies are communicated to all employees and based upon discussions with managers during the site visit, there was a demonstrated awareness of them. Indeed, it was reported that a positive discrimination policy within the Vamara vertical in Zimbabwe in 2019 has led to an increase in the female workforce from around 2 to 7%, with the recruitment largely taking place in the operational side of the business.

Retrenchment: There is no explicit retrenchment policy in ETG MS, and no written or formal policies on this subject were observed during the site visit. It is understood that if required, ETG operations follow national law and regulations with respect to retrenchment. As per ESAP #8, the project will develop and implement an overarching retrenchment policy that will require any needed retrenchment to occur in accordance with the laws and regulations of the country where the facility is located and PS2 requirements.

Grievance Mechanism: The ETG MS includes a Grievance Handling Procedure for employees, which establishes the basic principles of a process that needs to be implemented at each facility.  These include inter alia: the right to channel grievances verbally or via suggestion boxes (i.e. to include anonymous grievances), emails, worker representatives etc.; the right to access managers/supervisors at all levels; and the requirement for grievances to be tracked via a formal grievance register.  However, based upon the sites visited in Zimbabwe, it did not appear that a formal grievance mechanism/register was being maintained at the facilities, and instead local worker grievances (for both permanent and contract staff) were handled solely via representatives at Worker Council meetings, which are a statutory mechanism that exists within the workplace.  Although this was understood to be an effective approach, and one that is well understood by the workforce, there appeared to be a general lack of documentation involved in the process. ETG will therefore conduct a review of their employee grievance mechanism and update accordingly. This is addressed in the ESAP #9.

In addition to the above, ETG does also have a company-wide system to report wrongdoing (“Whistleblower”), that is run from Johannesburg by an independent company. Workers (including temporary contract staff) are taught about the scheme, and can submit complaints anonymously, which are then passed onto ETG management to address.  However, the system appears to be geared more towards legal/financial wrongdoing than day-to-day grievances.  There were reportedly no complaints received last year through this system.

Protecting the Work Force: As described earlier, in line with IFC/ILO standards, the ETG MS contains provisions that explicitly prohibit child or forced labor in any of its businesses. Further, the provision of a grievance mechanism to be available for contracted workers, the need to comply with stated health and safety requirements, etc. are addressed in the ETG Code of Conduct for suppliers, contractors, sub-contractors and visitors.

Occupational Health and Safety: Detailed occupational, health and safety (OHS) procedures and requirements are defined in the ETG MS, including, among others, use of PPE, safety processes and equipment and associated training, accident and incident reporting/ investigation.  This is aligned with the requirements of IFC PS based on previous investments, and ISO 45001:2018 certification. This represents basic good international industry practice (GIIP). Based upon the 2018/19 Sustainability Report, OHS performance across the company has steadily improved over the last five years, although there was an increase in first aid cases in 2017/18 which was subsequently addressed by a company-wide safety campaign. Based upon the site visit of DEG’s consultant, it is reported that the basic procedures appear to be reasonably well implemented at the local level, though better at some facilities than others. In general, there was good evidence of signage, basic PPE use (high visibility clothing, dust masks, ear defenders), in-date fire extinguishers and general housekeeping, staff safety training records  Specialized and/or hazardous procedures, such as fumigation of the silos and warehouses was being conducted by licensed, third party contractors.  Not all the sites visited had documented EPRPs in place yet (see PS:1), although all were practicing routine on-site fire drills, with basic signage and defined muster points. Only one facility visited (Pure Oil Ltd) had a separate fire hydrant system, and none had sprinklers fitted. Limited health monitoring (e.g. for Tuberculosis - TB) was also being conducted at most sites (legal requirement), and in one case there was an on-site first aid clinic. 

Comprehensive EHS measures appeared to be in place at the facility that involved high hazardous risks and/or processes (e.g., solvent extraction and ammonia refrigeration plants at Pure Oil Ltd) and at the modern, up-to-date facilities (grain silos and warehouse at Arlington).  Based on discussion with managers and staff at the various facilities, it is clear that considerable improvements have been made with EHS measures at all sites in the last few years, and that there is a continuing commitment to complete the roll-out of the ETG MS measure across all facilities in future.  It is also clear that the implementation of these measures is linked to business priorities and performance; for example, the fertilizer blending plant at Aspindale is on leased land, which makes it difficult to justify costly capital investments such as a sprinkler system whilst new permanent premises are being sought.

Third Party/Supply Chain Workers. Labor and working conditions for staff working for ETG via third parties/suppliers are managed via a Code of Conduct procedure, which requires the same levels of basic human resources and/or OHS protections afforded to the third-party workers as for ETG staff.  The Code of Conduct was evidently in use at all the facilities visited in Nov. 2019; however, it relies largely on a system of self-declaration, and in many (perhaps most) cases supplier audits are not being carried out. This does not necessarily present a significant risk for contractor staff that are based/working at the ETG facilities themselves (e.g., production staff hired via brokers, those conducting specialized services or providing transport, etc.) since their on-site working conditions will be directly governed by ETG.  Most of their HR/OHS terms and conditions of contract (e.g., around working hours, overtime, minimum wages, etc.) are also enshrined in applicable national legislation and it is considered unlikely by facility managers that were interviewed that infringements on the part of suppliers or contractors would go unnoticed.  Regardless, the need to audit the practices and implementation of the Code of Conduct within its suppliers is addressed in the ESAP (#10) 

   Resource Efficiency/GHG Emissions. The environmental data collected and reported to the Group-level Sustainability Team on a monthly basis by all processing and warehousing facilities focuses primarily on energy and (in cases where usage is significant, e.g., the vegetable oil plant) water consumption. These data feeds into the company-wide annual sustainability report prepared by the ETG Sustainability Team. The 2019 report is currently in draft and its disclosure on ETG’s website is expected by August 2020.

ETG’s total energy consumption (total) in 2018/19 was around 133k MWh, which was mainly sourced from diesel fuel (for transport and generators) and national power grids. This is a slight increase on the previous year, due in part to inefficiencies introduced by significant power outage problems in Zimbabwe but has fallen from a peak of 192k MWh in 2015/16.  The fall is due to a significant focus on energy efficiency measures throughout its operations in recent years. This includes the procurement of energy efficient equipment (boilers, production lines etc.), installation of energy efficient LED lighting, use of solar (e.g. for office lighting), and employee awareness schemes etc. Several of these measures were evident at the facilities visited in Zimbabwe. As would be expected, ETG’s estimated total GHG emissions follow a similar pattern to its energy use, with estimated total GHG emissions having fallen from 70.5k to 52.8k Mt. Although there are ambitions to do so, ETG’s water consumption is not currently included in its sustainability report, either by production centers or in total. Many of ETG’s operations are dry process, such as warehousing or consume little to no water, e.g. physical grading, sorting and bagging of grains, pulses, etc.

Pollution Prevention (including Wastes). ETG’s annual EHS monitoring report template includes a series of indicators relating to waste management and recycling and wastewater generation and treatment across its businesses. The intention is to collect data from the various facilities and consolidate them into the annual Sustainability Reports. However, this is at present a work-in-progress and no quantitative data are yet available for review. Similar to most African countries, the production facilities visited in Zimbabwe are all inspected and licensed on an annual basis by the environment and public health/welfare authorities (ZEMA and NSSA respectively in this case).  As part of this process they are periodically required to organize independent testing of their boiler/generator emissions against regulatory requirements (a recent generator emissions report was reviewed for Pure Oil Ltd). It is understood that site level monitoring data are held at the facility level and would only be shared with the Group Sustainability Team if an issue should arise and remediation measures were necessary. In addition to air emissions monitoring, some processing facilities (for example Pure Oil Ltd) have wastewater and/or water treatment systems installed at their premises, which are being monitored on a routine basis against applicable WBG EHS Guidelines (Vegetable Oil Production and Processing). Again, data are held at site level and would only be shared with the Group Sustainability Team in the event that an issue should arise.

With respect to potential pollution arising from its agricultural supply chains, there are no quantitative data presented in ETG’s Sustainability Report with regards to agro-chemical (fertilizer and pesticide) consumption and use. However, the company provides a significant amount of agricultural extension and outreach services to its farmers via both its in-country agronomist teams, which work with various out-grower schemes that the company supports, and also more widely throughout Africa via the ETG Farmer Foundation.  These extension services include training and capacity building on a range of sustainable agricultural practices that include the efficient application of agro-chemicals and soil conservation practices that should support a reduction in non-point source pollution from the agricultural areas where its supply chains are based.

Hazardous Materials Use and Management. The ETG MS risk assessment procedure (ref. PS:1) is designed to identify any significant issues and measures required with regards to the storage and handling of hazardous materials on site. For example, the sample analysis spreadsheet provided for a vegetable processing plant included some general measures relating to the disposal of spent transformer oils and batteries etc.  It is also understood that the management plan for Pure Oil Ltd includes specific detailed procedures for the safe handling and management of chemicals, such as hexane and ammonia, which are used in the solvent extraction and margarine refrigeration processes respectively. These procedures were not available for review, but storage and handling measures (including clear signage and handling instructions, specialized PPE, etc.) were evident during the site visit. A recent site condition report (Nov 2019) also described progress with measures to securely store hazardous chemicals in its warehouse.

Away from its production facilities, main hazardous materials used in ETG’s supply chain are agro-chemicals, in particular pesticides. Based upon data supplied for ETG’s own out-grower schemes, the pesticides used are mainly WHO Class II, with no Class 1a or 1b. ETG reportedly also tries to limit the distribution and use of Glyphosate (Class III, but suspected to be more toxic and persistent) and also Paraquat (Class II, but banned in EU) in its own agricultural production centers, i.e. the out grower schemes that it supports (such as those run by Pure Oil Ltd in Zimbabwe). No data is collected for its wider agricultural supply chain.  However, as described above, the company works with out-growers and smallholder farmers to improve their Integrated Pest Management (IPM) practices, including minimization of agri-chemical use via the extension services provided by its in-country agronomist teams and the ETG Farmer Foundation.

    Community Health and Safety. The main risks to community health and safety arising from ETG’s activities are from potential road safety and nuisance impacts arising from the constant haulage of raw materials and product to/from its production and storage facilities.  In response, ETG has developed a series of detailed procedures for driver selection and training, vehicle maintenance, and safe driving that it applies to both its own staff and logistics contractors it uses for its businesses. From observations at the different facilities during the Nov 2019 site visit, these procedures appeared to be in place, with haulage vehicles appearing to be well maintained and orderly.  Discussions with the various managers revealed a general level of awareness of the risks associated with this area of the business, and the importance of the procedures. Additional risks to public health will arise from air emissions from boilers, generators and production facilities, although for most of the facilities (at least those visited in Zimbabwe and those known to IFC from prior supervision activities), these were mostly situated within industrial areas and away residential properties.  Notwithstanding, as discussed under PS3, the emissions are routinely monitored for regulatory purposes to ensure that pollution standards and compliance to applicable requirements in the WBG EHS Guidelines are being met. There was no evidence that this would not be the case (see ‘community grievances’ below).

Community Grievance Mechanism. As discussed under PS1, there is a procedure within the ETG MS that requires facilities to develop formal community grievance mechanisms to handle any complaints relating to non-product related issues. An example was provided for the fertilizer businesses in South Africa; however, no formal mechanisms appeared to be in place as reported by the consultant at any of the facilities visited in Zimbabwe.  Instead, it was understood that the companies operated an informal ‘open-door’ policy for all complaints and relied on their strong ties with local communities to identify and resolve any issues.  These ties have been developed over the years through employment and a wide range of CSR activities that have been carried out within the communities. The Group-level Sustainability Team now routinely collects data from facilities on complaints received. Based upon the latest Sustainability report (2018/19), the only grievances that were reported last year were in South Africa and in Canada, where local communities complained about some waste storage issues that were subsequently addressed. ETG will conduct a review of its community grievance mechanism; this is addressed under ESAP #11.

Emergency Preparedness and Response. There is currently no requirement for facilities to include neighboring communities in their emergency response plans or drills.  Although the facilities visited were all within industrial areas, there were occasionally residential properties in the vicinity (e.g. close to the silos/warehouse facility in Arlington) such that it would be a worthwhile next step to identify and include them in the annual drills.  As a minimum, the documented EPRPs (when available – see PS1) should be disseminated to all neighbors.

Community Exposure to Disease. Based upon the facilities observed during the site visit, there are no significant or enhanced risks of water-borne or communicable diseases arising from the company’s operations. The ETG MS includes company procedures around malaria prevention and HIV AIDS for its workforce.

Security Personnel. According to the 2018/19 Sustainability report, the company has approximately 270 security personnel, of which large majority are recruited from third-party agencies and are unarmed. This situation was observed to be the case at all the facilities visited in Zimbabwe, which were using well-established local companies to provide their security personnel, in addition to CCTV systems within the warehouse facilities. There are reportedly some countries where local police force personnel are employed (in Kenya) and where ETG directly hires its own staff from local communities (Mozambique). Whilst the security companies are covered by the Site Safety and Security Procedure, no formal security procedures or training are provided, either to direct employees or third parties. Security incidents are monitored via the annual sustainability reporting system, and the aforementioned report states that no grievances have been reported to date.  A rapid external factor review (using RepRisk) was also carried out for the present assessment, and no issues were identified in this area. The need to review the use of third-party security at ETG operations in order to meet the objectives of PS 4 is addressed in the ESAP (ESAP #12). 

   The ETG MS includes limited procedures around the assessment and management of deforestation risks in its agricultural supply chain, including the identification of key biodiversity areas, including the requirement to “shift primary supply chains over time to suppliers that can demonstrate that they are not significantly adversely impacting these areas”.  The procedures would benefit from further elaboration about how (and what) screening tools and processes are available, and what methods or approaches can be adopted to mitigate risks aside from changing suppliers, which could be impractical in some regions/contexts. In this respect, the ETG Sustainability team has recently started to apply the IFC’s Global Map of Environmental & Social Risk in Agro-commodity Production (GMAP) tool in order to identify the most significant supply chain risks in this area of its business at country level, which includes risks relating to biodiversity conservation and protection. As noted in PS1 Supply Chain section, items described in the ESAP will ensure ETG conducts all necessary and required screening (and use of tools such as iBAT, Global Forest Watch, etc.) of its supply chain with respect to avoidance of impacts upon natural and critical habitats leading to biodiversity loss. 

   Stakeholder Engagement/External Communications:

The ETGMS includes a procedure on External Communications that requires each facility to “have in place a written procedure to receive and respond to external communications” including with respect to complaints received from local communities about issues such as noise, emissions, pollution, unauthorized land-use etc.  The procedure also needs to include contact details and procedural flow charts for handling of communications. A detailed procedure was available for the Kynoch fertiliser businesses in South Africa (dated 1st August 2018), which although focused primarily on customer/product complaints does include steps relating to dealing with community grievances.  However, no formal community grievance mechanisms appeared to be in place yet at the facilities visited in Zimbabwe.  The companies did though report strong ties with local communities (e.g., through their workers) and an open-door policy for all complaints. The need to ensure where proximate local communities exist, that those communities are made aware of possible actions in ETG facility emergency preparedness plans that would apply to them is addressed in ESAP #13.

Aside from community grievance processes, it was evident from the site visit that the local businesses are all carrying out a range of CSR activities within their communities, many of which focus on community health and welfare issues as discussed under PS:4.  More generally, the 2018/19 Annual Sustainability Report states that over 100 community meetings took place last year across the business to share information about company activities, in addition to 23 print media articles and 16 broadcast media reports about the company.  The company is also providing agricultural outreach within farming communities through both the work of its agronomy teams within the Agri Inputs business vertical (which reportedly reached over 1.6 million farmers last year via seminars held in Eastern and Southern African countries such as Kenya, Tanzania, Uganda, Rwanda, Malawi, Zambia, Mozambique, and South Africa), and also the activities of the ETG Farmer Foundation.

    Alok Mishra | Group Head - Sustainability

Export Trading Group (ETG) | Aurbis Business Park, 2nd floor, Devarabeesanahalli, Outer Ring Road

Bangalore - 560103, Karnataka, INDIA

T: +91 80 4670 0600 (Ext: 3015) | M (India): +91 7710037481 |

Alok.Mishra Alok.Mishra@ETGWorld.com