Environmental & Social Policies. Sustainability is a core priority of LDC’s business model. Its sustainability efforts are structured across four pillars, namely (i) protection of the environment; (ii) protection and development of its people; (iii) innovation and partnerships for sustainability; and (iv) support to producers and communities. To translate these into concrete actions across its operations, LDC adopted a Sustainability Policy (last update 2020). Scope of application, center of responsibility for enforcement and internal references are detailed in this Policy, including supportive evidence provided during this appraisal.
LDC’s specific corporate policies applying to this proposed investment include (i) commitment to eliminate deforestation and conversion of native vegetation of high conservation value (HCV) for agricultural purposes from all its supply chains by the end of 2025 (2022); (ii) Soy Sustainability Policy (last update 2018) for its sourcing operations; and (iii) Safety, Health and Environment (SHE) Policy (last update 2018) applying to its logistic assets (warehouses and port terminals), including sourcing operations.
The Soy Sustainability Policy commits LDC to “influence and collaborate with stakeholders across the soy supply chain in order to: eliminate engagement in, or financing of deforestation throughout our supply chain, and conserving biomes proven to be of high ecological value, such as the Cerrado Biome, with the intent to discourage and eliminate conversion of native vegetation; respect the rights of local communities; comply with all eight International Labor Organizations (ILO) Core Labor Standards; respect internationally and nationally designated protected areas; not endanger threatened species, with specific reference to international or national systems of species classification; abide by rigorous anti-bribery and corruption standards.” In addition, LDC commits to conduct E&S impact assessments for any new infrastructure or logistic development; pursue continuous improvements in measuring and reducing greenhouse gas emissions, as part of its reporting on its industrial footprint. The latter includes its industrial (Scope 1 and 2) and sourcing operations (Scope 3). These principles apply to all business transactions and trading relationships, whether the product is sourced for its use or for others.
LDC management approved OPEX/CAPEX for the timely implementation of the above-mentioned Soy and SHE policies’ objectives during the 2021-2022 soy crop season. The effective implementation of its Soy and SHE Policies are monitored and reported quarterly to LDC’s Board of Directors following review by its Sustainability Committee. LDC’s Code of Conduct (last update 2021) applies to all its activities and any party can write anonymously and confidentially to report concerns over noncompliant conduct to LDC Ethics Point by phone or website. Based on this policy review, IFC confirmed the alignment and consistency of LDC sustainability policy framework with PS1 requirements.
Environmental and Social Risk Assessment. With the adoption of its global corporate commitment to zero deforestation and native vegetation conversion in its supply chains by 2025 (2022) and its Soy Sustainability Policy (2018), LDC has moved to a proactive “sustainability” risk screening process to qualify the eligibility of its Brazilian suppliers based on requirements not to engage in natural habitat conversion and to comply with laws concerning forest protection, infringement on protected areas and indigenous territories, and forced labor. LDC’s risk screening and monitoring platform is described in the PS1 Supply Chain section below.
Producers in the supply chain within the scope of this investment include those that sell directly to LDC, including those that establish a pre-financing arrangement with LDC months before harvest and those that sell directly to LDC on the spot market at the time of harvest (without a pre-financing arrangement). Producers may include those who cultivate soy or a combination of soy and corn on the same property. Both pre-financed and spot sellers undergo E&S screening (see PS1 Supply Chain section below). The percentage of pre-financed versus spot sellers will be dynamic over the course of the loan.
Process-wise, producers in the supply chain must sign LDC’s Code of Conduct for Raw Materials Suppliers, undergo verification and monitoring of their eligibility against LDC’s E&S requirements, and sign a purchase contract with sustainability clauses reflecting LDC’s E&S requirements. LDC’s origination team conducts regular visits to its pre-financed supply chain farms during the four-month soy/corn production season, on average three visits per year. For those farms with RTRS (Round Table on Responsible Soy Association) certification and/or LDC’s Sustainable Agriculture Program (aligned with the European Compound Feed Manufacturers’ Federation (FEFAC)’s Soy Sourcing Guidelines), additional visits by LDC’s sustainability team and independent auditors will take place. For other farms, the visits depend on climate risks and other factors. As an example, during the soy crop season of 2020-21, due to volatile climate conditions, all soy suppliers with a contract with LDC were visited at least once. Sample purchase contract, farm site-visit report, and RTRS audit reports have been provided and reviewed during this appraisal. Going forward, reports from all farm site visits will be registered into the risk screening platform to centralize information. The SHE team is involved in the implementation of SHE practices at sourcing operations, as needed. LDC’s origination team verifies that all producers in the supply chain comply with zero deforestation/habitat conversion requirements, comply with Brazilian environmental laws and labor and occupational health and safety (OHS) requirements. Where non-compliance is identified, LDC conducts further investigation and, if non-compliance is confirmed, then the company will remove the supplier(s) from its portfolio.
Management Programs. In 2022, LDC made a global corporate commitment to eliminate deforestation and conversion of native vegetation with high conservation value from its supply chains by the end of 2025. LDC’s Soy Sustainability and SHE policies and management systems, including standard operating procedures (SOPs) and management plans, are aligned with good international industry practice (GIIP). The PS1 Supply Chain section below provides additional details. For effective implementation of its 2018 Soy Sustainability Policy, LDC has adopted a comprehensive soy sourcing management system composed of a i) Supplier Code of Conduct for third-party suppliers (ref. Code of Conduct for Raw Material Suppliers), ii) the risk screening platform to regularly verify and monitor compliance of producers in its supply chain against LDC’s E&S and this investment requirements, iii) farm-level agronomic management plans (ref. LDC’s RTRS and/or Sustainable Agriculture Program), iv) soy/corn sourcing training plan and KPIs, v) contractual clauses for labor and OHS, including checklist, and vi) an internal/external monitoring and reporting framework.
Organizational Capacity and Competency. LDC has reinforced its corporate sustainability governance through the establishment of two committees to set new standards of transparency and accountability in 2019: an Environment Committee, focusing on environmental risks and impacts of the LDC’s operations and supply chain, and a Human Rights Committee, focusing on human right issues within LDC’s operations and supply chain. Senior LDC executives sits on both committees to ensure leadership from the top, while external specialists also participate. Company-wide SHE committees also exist, focusing on the safety profile and environment/carbon footprint of LDC assets. In addition, a Regional Community Committee focuses on implementing LDC’s Sustainability Policy in each geographic region. For this proposed investment, numerous LDC functions at corporate and country level are involved, including the Brazil Sustainability and Research Monitoring Team, whose main agenda is to increase the traceability/mapping /risk screening of LDC’s direct and indirect suppliers – especially for no-deforestation and conversion of natural habitats. LDC Brazil recently recruited a Sustainability Manager and plans also to recruit two Sustainability Analysts who will oversee social risk management and social performance (ESAP#1).
A corporate and country-level HR function is responsible for overall HR management of LDC’s workforce, including contractors and service providers. The function overseeing the LDC Ethics Point Grievance Mechanism (GM) is at the corporate level, whereby the Global Head of Compliance and Audit and Global Head of Trade Compliance, receive the case and, assign the complaint to the respective Regional Compliance Officer, after an initial review, the Regional Compliance Officer assign the case for investigation, to Regional Head of Internal Audit or HR Business Partner or Regional Head of SHE, depending on the matter of allegation. All complaints related to labor disputes, E&S issues, cases involving soy/corn suppliers as well as those from communities, are handled through the same mechanism. In most cases, as many complaints are anonymous, LDC does not differentiate between complainant types. Further details about the GM are outlined in PS2 and the Grievance Mechanism for Affected Communities sections below. Improvements are needed in the organizational capacity and implementation of the GMs to meet the requirements of PS1 and PS2 in particular, to classify the type of complainant (e.g., employee, contractor, communities), provide an option to self-identify, and type of grievances, resolve, analyze, and provide feedback on grievances expressed by employees, contractors, soy/corn suppliers, and communities associated with the soy/corn sourcing operations (ESAP#3). IFC’s review concluded that LDC has assigned competent resources to meet compliance with PSs under the proposed investment, aside from the additional resources and competency which will be required as part of ESAP#1 and ESAP#3.
Training. LDC’s Sustainability, SHE and HR team developed, based on approved corporate policies, SOPs, and workplace risk assessment and performance (ref. OHS statistics), a structured Sustainability/SHE/HR training curriculum which any new staff is required to complete, relative to their role and risk encountered in the course of their work. As a baseline, all employees receive training in incident reporting, emergency response procedures, hazard communication, injury prevention and use of PPE, first aid, fire prevention, chemical handling, and hygiene plans. The training is provided to LDC’s employees and contractors. Local translation of SHE/HR Policies, including display at LDC’s operations and briefing at staff induction workshops, is implemented. Due to COVID-19, local SHE teams shifted training delivery from physical to online with minimal disruption in 2020-21, maintaining the pace of improvement.
Monitoring and Review. For its soy sourcing, LDC established three sustainability sourcing targets – two of which are relevant for this proposed investment, namely (i) achieving 100% traceability to farm in Brazil for direct purchases by December 2022; (ii) expanding preferential financing program in Brazil’s Cerrado. LDC intends to measure, monitor, and ultimately reduce its Scope 3 carbon emissions from its soy sourcing operations. A Carbon Solutions Platform has been established under the direct management of the Group CEO and it is expected that the results are available upon completion of the 2021/22 soy crop season. Within the scope of this proposed investment, LDC will monitor and report on all pre-financed and spot suppliers, the geographic location and size of the supplier farms, and their compliance against the supplier eligibility criteria (detailed in the next section) that ensure compliance with relevant laws and no natural habitat conversion. An internal and external audit of LDC’s compliance with the Soy Moratorium for the 2019/20 and 2020/21 season showed the company was successful in avoiding the purchase or financing of soy in areas of the Amazon deforested after 2008.
Supply Chain Risk Assessment and Management. The supply chain for this proposed investment may include pre-financed and spot purchases from producers of soy and corn, principally located in Mato Grosso, Goiás, and Minas Gerais. The supply chain is fully traceable to the producers’ farms. The supply chain management process involves the following components:
1) LDC will screen producers of soy and corn for their eligibility to sell to the company. Although the timing and execution of screening may be different between pre-financed and spot purchases, all suppliers will undergo screening prior to, and within the season of, sale of soy or corn to LDC.
2) LDC will not purchase soy or corn from farms where the property or the property owner (including other direct family members) appears on the following lists:
a) Ministry of Economy (Secretariat of Labor) embargo for forced labor risk (ref. “Lista Suja”);
b) IBAMA (Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis) embargo for illegal natural habitat conversion;
c) embargo for violation of Soy Moratorium; and
d) non-compliance with Protocolo Verde dos Grãos.
3) Geographic coordinates for each farm, and its existing Legal Forest Reserve and Permanent Protected Areas as registered in CAR (“Cadastro Ambiental Rural”) will be uploaded to LDC’s risk screening platform. Using PRODES and DETER maps of deforestation (Amazon and Cerrado), MapBiomas, and maps of Quilombola territories, Indigenous Lands (as designated by FUNAI), Conservation Units, and INCRA (Federal Territorial Agency) - registered land claims, LDC will determine if:
a) natural habitat conversion has occurred on the farms any year after the cutoff dates for the Amazon biome (2008) or Cerrado biome (2016);
b) natural habitat is not intact within the Legal Forest Reserve and Permanent Protected Areas registered in CAR;
c) farm infringement is occurring on Conservation Units;
d) farm infringement is occurring on Indigenous Lands;
e) farm infringement is occurring on Quilombola lands;
f) farm infringement is occurring on land claims registered with INCRA.
LDC will not purchase soy or corn from farms where natural habitat conversion has occurred since the relevant cutoff dates, Legal Forest Reserves and Permanent Protected Areas are not respected, or farm infringements occur on Quilombola territories, Indigenous Lands, Conservation Units, and INCRA-registered land claims.
4) LDC will not purchase soy or corn from a farm that is in excess of a volume that can reasonably be harvested from that farm’s production area.
5) Where non-compliance with the law is detected, LDC will suspend the supplier’s eligibility to sell production from any of their farms to the company while the Legal and Compliance team conducts a follow-up investigation. Where the infraction or embargo is active and confirmed, the supplier will become ineligible to sell to LDC. In case of legal natural vegetation conversion, ineligibility to sell to LDC will be restricted to the individual farm where the vegetation conversion has occurred.
The risk profile of the suppliers within the scope of this proposed investment is low – the targeted farms will be commercial, highly mechanized, industrial farms, with some properties as large as 6,000 ha. LDC will hire an independent auditor to verify the effectiveness of the supply chain risk screening platform and verification system after the first year of this investment (ESAP#2). The comprehensiveness of this approach aligns with PS2/PS6 supply chain requirements.
