This is a Category B based on IFC’s 2012 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. Mercon is aiming for sustainably managing its farming, milling, warehousing and sourcing operations in compliance with applicable countries’ legal and regulatory requirements, IFC’s Performance Standards (PSs), WBG EHS Guidelines (General, Perennial Crop Production, Food and Beverage Processing) and its own corporate policies.

Key E&S risks and issues associated with this investment relate mainly to (i) labor practices among smallholder farmers, including risks of harmful child labor, forced labor or significant supply chain safety issues and (ii) risk of ongoing conversion of natural and/or critical habitat to farmland used to produce the coffee. The E&S risk associated with the farms and mills’ operation relate mostly to occupational health and safety, resource efficiency and biodiversity conservation.

 Environmental & Social Policies. Mercon strengthened its corporate-level sustainability policy framework under its 2018 Corporate Responsibility and Sustainability (CRS) Policy by adopting in November 2020 Environment, Occupational Health and Safety (OHS) and Stakeholder Engagement Policies applicable to all its operations (farms, mills, warehouses, and sourcing operations). These policies committed Mercon in meeting performance-based requirements, such as IFC PSs, WBG EHS Guidelines, applicable legal and regulatory requirements in countries of operation, and voluntary standards’ Principles and Criteria (e.g. Rainforest Alliance, Nespresso’s AAA Sustainability Quality Program).

Mercon also adopted in October 2020 a Farm Code applying to its current Nicaraguan Robusta farms (and any additional farming expansion) and a Supplier Code of Conduct applying to its sourcing operations from third-party coffee bean suppliers in all origins. These codified Mercon’s sustainability commitment, risk assessment and management practices for these operations, including expected E&S performance-based requirements. A communication and training plan have been developed to socialize these Policies and Codes with its employees, contractors, service providers, third-party suppliers, and off takers, including local translation, display at Mercon’s operations and briefing at staff induction workshop.

The effective implementation of the EHS Policies and Codes will be monitored and reported quarterly to the Board of Directors’ CRS Sub-Committee and with IFC. Mercon management has approved OPEX/CAPEX for the timely implementation of the above mentioned EHS policy/code objectives in 2021-2022. Based on this policy review, IFC confirmed the alignment and consistency of Mercon’s sustainability policy framework with the requirement of IFC Performance Standards.

Environmental and Social Risk Assessment. To effectively implement its above EHS Policies and Codes’ objectives, Mercon commissioned EHS risk assessment in 2020 for its midstream (mills) and downstream (sourcing) operations. Specifically, Cleaner Production (CP) audits of all Mercon’s Nicaragua mills are currently underway by third-party consultancy. Based on the audits’ results, Corrective Action Plans (CAPs) at each mill will be developed, including the update of each mill’s draft Environmental SOPs and implementation of mill-level environmental management and monitoring plans, including environmental KPIs. CP audits will also take place at Mercon owned/rented mills in Brazil, Guatemala, Honduras and Vietnam (and at any other greenfield/brownfield coffee mills Mercon may acquire during this facility). An 18-month implementation roadmap was shared with IFC during this appraisal. Mercon is also finalizing the EHS checklist applying to its warehouses and will demonstrate implementation effectiveness in all origins in 2021. As set forth in ESAP#1, results of CP audits for all own/rented mills and the resulting CAPs will be shared with IFC, including final versions of each mill’s environmental SOPs and KPIs and a quarterly progress report on its road map implementation. Mercon also commissioned an external OHS consultant to undertake workplace risk assessment at its owned/rented mills. This OHS diagnostic has been completed for Guatemala, Honduras, Nicaragua and Vietnam, and will be done for Brazil during the upcoming coffee season. Please refer to PS2. OHS section below. Finally, Mercon has commissioned a consultancy firm for its supply chain risk assessment against IFC PS2/PS6 supply chain requirements in all origins. Please refer to PS1, supply chain below.

As set forth under ESAP #2, Mercon will conduct a social assessment at all its operations (farms, own and rented mills), to identify potential risks and impacts on affected communities, such as those associated with traffic, security forces, proximity and interaction with communities, among others. In case of adverse risks and/or impacts are identified, Mercon will implement appropriate management programs, consistent with IFC Performance Standards, including specific measures associated with IP communities consistent with PS7 (see more information below under PS7).

The four Robusta coffee farms in Nueva Guinea, in the Atlantic region of Nicaragua, were established on previously consolidated agricultural lands. Mercon was not required, as per applicable Nicaragua’s EIA regulation to undertake an ESIA Study. Mercon secured its environmental license from MARENA (Nicaragua’s Ministry of the Environmental and Natural Resources) for these farms, whose provisions include the implementation of a farm’s Reforestation Management Plan. Mercon is scheduled to plant 70,000 tree seedlings (native species) in 2021-22, especially within farms (shade trees) and along farms’ water streams and buffer zone of conservation areas. In partnership with Wageningen University, Mercon developed an Evaluation Progress Report on the socio-economic and environmental baseline of the introduction of Robusta coffee in Nueva Guinea in 2020 for the monitoring of the development impacts of smallholders’ producers. A follow-up field verification on socio-economic and development impacts’ KPIs by Wageningen University is scheduled in 2022-23. The first three Robusta farms are Rainforest Alliance certified while the 4th farm (La Palmira) will be certified in 2022. 

Mercon established a consolidated legal registry for applicable EHS and labor requirements for its operations (own farms (4), own (6) and rented (16) mills) in August 2020. Copies of environmental licenses and permits (e.g. water extraction rights, water discharge, diesel storage permit, including secondary containment) were shared with IFC during this appraisal for owned/leased operations. Two permits are pending final review/approval by MARENA in Nicaragua. Mercon confirmed that it has not incurred any penalties or fines for legal, economic, environmental and social issues over the last three years.

EHS Management System and Programs. As outlined in the disclosed 2019 E&S Review Summary (ESRS), further development and implementation by Mercon of corporate-level EHS policies/codes, risk assessment, SOPs, management plans, KPIs and monitoring/reporting framework was required to achieve full compliance with international EHS Management Standards. Based on findings and recommendations of IFC’s site-based supervision of Jan/Feb 2020, a comprehensive EHS workplan was adopted by Mercon management in July 2020 and has been under implementation since then.

As of March 2021, Mercon’s EHS Management System is still in its development phase for its farms and owned/rented mills, warehouses and sourcing operations as its corporate policies/codes were recently approved (Nov 2020) while the CP/OHS audits and supply chain risk assessments started in Sept 2020. The results of these assessment/audits will inform the development of operation-level CAPs and multi-year EHS management plans, finalization of EHS SOPs for addressing risks and impacts (e.g. water supply, including hydrogeological study and sustainable water abstraction definition, wastewater treatment, ambient air quality and point source air emission, noise, solid and hazardous waste management, safe hazardous material storage), and corporate and plant-level monitoring/reporting framework, including EHS KPIs. Mercon provided an 18-month implementation plan for these systems to be in place at all owned operations and budget (OPEX/CAPEX) for 2021-2022. The Robusta farms’ operations have adopted its agronomic and environmental SOPs and management plans in alignment with Rainforest Alliance’ requirements.

Mercon started establishing the building blocks of its integrated EHS MS in 2017 through: (i) securing senior management commitment to be a sustainability leader in coffee production in Nicaragua, (ii) achieving 100% sustainable/certified sourcing from pre-financed suppliers in Nicaragua and Brazil, including rolling out its LIFT (Leading Innovation and Farmers Traceability) sustainable sourcing program in all origins, (iii) adopting a CRS policy, (iv) establishing a CRS Sub-Committee, (v) developing an OHS management system at its Nicaraguan mills, including  a Master List of EHS Standard Operating Procedures (SOPs), Working Instructions and establishment of safe work permit system (e.g. confined space, hot work, working at height, Lockout-Tagout (LOTO), and (vi) disclosing an annual Sustainability Report.

EHS Organizational structure and competency. Mercon has established a functional EHS team to catalyze the development of its sustainability agenda as defined in its business strategy. A Sustainability Director was recruited in 2018. A sustainability analyst was recruited in April 2020 to support the roll-out of the LIFT program in Guatemala and Honduras. To further strengthen its EHS leadership, competency and technical guidance at operation-level based on IFC’s EHS workplan of July 2020, the Director for Latin America Operations and the Strategic Planning and Sustainability Manager have been assigned for the implementation of this workplan. A Global EHS manager, based in Managua, was added to Mercon’s EHS function in November 2020 to oversee the on-going CP and OHS audits and the development of the EHS SOPs and management/monitoring programs, with the support of an existing regional OHS manager. Mercon’s farms, wet/dry mills and warehouses have also assigned plant-level EHS coordinators, OHS supervisors and HR officers who are responsible to ensure compliance with EHS/labor legal and regulatory requirements. A Human Resources and Communications Director is responsible for the overall HR management at Mercon upstream, midstream (own and third-party mills and warehouses), and trading operations. In compliance with national labor regulatory requirements, an OHS Committee, composed of management and workers’ representatives, and an Emergency Preparedness and Response Group have also been established at all farms/mills. The function overseeing the Community Engagement and Communities’ Grievance Mechanism is managed by the Strategic Planning and Sustainability Manager. Based on quality of responses provided during the virtual meetings and supportive documentation, IFC’s review concluded that Mercon has assigned competent technical resources to successfully implement its corporate and plant-level EHS management system and programs.

EHS Training. Mercon’s EHS team developed, based on approved corporate policies/Codes, draft SOPs, and workplace risk assessment and performance (e.g. OHS statistics), a structured EHS/HR training curriculum in December 2020 which any new staff is required to follow, 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, on injury prevention and use of PPE, first aid, fire prevention, chemical handling, and hygiene plans. Further training will be provided based on the results of the on-going CP/OHS audits, CAPs, finalization of the EHS SOPs and working instruction, and management plans. As set forth in ESAP#3, Mercon will provide corporate and plant-level EHS training plan for 2021-22 and 2022-23. The training will be provided to Mercon’s permanent, temporary and seasonal workers, contractors and service providers.

Emergency Preparedness and Response. Emergencies associated with coffee farming, milling and warehousing may include risks of dust explosion, fire, chemical spills, structural or power failures, and natural disasters. As part of the scope of the on-going OHS diagnostic at owned/rented mills, Mercon is updating its emergency preparedness and response procedure, including technical specifications of mill life and fire safety (L&FS) system, based on Good International Industry Practice (GIIP). Preliminary results for Guatemala, Honduras and Nicaragua show deficiencies in L&FS systems at Mercon’s owned and rented mills and CAPs have been already approved. Mercon has successfully reached agreement with owners of rented mills to support CAP implementation.

The existing Preparedness Plan already included the designation of an Emergency Committee and several brigades (evacuation, first aid, fire prevention and communication brigades). This plan also identified the areas where accidents and emergency situations may occur, the response procedures (for fire, earthquake, flood and hurricanes, civil unrest and theft), an inventory of the equipment and resources available and the designation of responsibilities. This plan is reviewed annually. Due to the quantities of combustible solid materials (bags with coffee, husk), fire was identified as a “red alert” emergency. Periodical emergency preparedness training (annual) and fire drill (every semester) is provided to the personnel, including the participation of the Local Fire Department. Dust cleaning programs is implemented to reduce ambient dust concentration. Clear passage marking, evacuation plan and assembly point were observed during IFC’s previous site visits to mills in Nicaragua, Honduras and Vietnam.

COVID-19 Impact. The Government of Nicaragua, Honduras and Vietnam have designated the food and agriculture sector as a critical sector whose assets, systems, and networks are considered vital. Mercon’s operations have not stopped due to COVID-19. Mercon has taken numerous contingency measures to ensure the well-being of its workforce, including a specific selection of its employees being allowed to return to its office based on business criticality. All employees without on-site essential work have been instructed to work from home. Mercon has been developing a COVID protocol and SOPs on safety and health of its workforce, has communicated formal companywide COVID-19 update twice a week, and is strictly enforcing precautionary measures (temperature check twice daily, mask wearing, social distancing and increased sanitation measures). Before returning to the office or mills, all employees are required to complete an in-depth training on Mercon’s new COVID-19 protocol and procedures. Budgetary allocations for COVID related contingency measures (e.g. diagnostic equipment, C-19 test, protection screen, face masks, installation and expansion of handwashing station, medical consultation, preventive signalization) have been allocated for 2021-22.

EHS Monitoring and Reporting. Mercon established EHS monitoring report of its milling operations for water supply, energy consumption (electricity, diesel, petrol, LPG), effluents, ambient air quality and point source air emissions, noise, solid and hazardous waste management, and safe hazardous material storage in 2017. To harmonize/systematize such data collection at corporate level and across all operations, as part of the development of its EHS MS, Mercon developed reporting formats for each of these parameters in December 2020. These formats will be amended to ensure coverage of parameters covered by national regulations and WBG EHS guidelines for air emissions (ambient air quality and point source emissions), effluents and noise. Mercon has adopted a structured and documented annual EHS monitoring calendar. Measurements of these parameters will take place during the coffee harvesting / milling season (October-February) and will be reported in Mercon’s Sustainability Report. Based on the on-going CP audit at mills, Mercon will then define energy/water use reduction targets, including GHG emissions. For the OHS performance review (as further explained in PS2. OHS section below), Mercon has developed KPIs which are reported in its monthly operational dashboard (e.g. lost time injury frequency rate (LTIFR), Hazard prevention and Control Index, Global Safety Index, Accident rate, and Accident Investigation). Based on the completion of the OHS audit, Mercon will further adopt OHS leading/lagging indicators (workplace inspections per manager /supervisor; number of system audits; % completion of corrective actions; number of safety committee meetings; number of refresher trainings and incident near-misses) and lagging OHS indicators (e.g. first aid cases, medical treatment and restricted work cases; LTIFR and fatalities). These indicators will apply to Mercon employees and contractors. IFC’s appraisal concluded that the design and implementation of Mercon’s EHS monitoring practices for its operations is in the process of being aligned with global best practice. 

Annual EHS performance audits will be carried out by Mercon’s global and regional EHS manager and plant-level OHS Committees, under the oversight of Mercon’s Director of Operations starting in 2022. Findings and recommendations will be submitted to the CRS Sub-Committee for review and amendments of the Sustainability Strategy, as needed, and the allocation of corporate and plant-level OPEX/CAPEX. Mercon undergoes regular independent audits from its coffee products off-takers as part of the implementation of the Buyers’ Supplier Code of Conduct. Recommended corrective actions have been successfully implemented based on supporting documentation for corrective / preventive non-conformities or are in the process of such. Successful completion of corrective actions is required to maintain annual certification of third-party voluntary standards (e.g. Rainforest Alliance, UTZ). Mercon prepared its first Group-level Sustainability (EHS) Performance Report using the Global Reporting Initiative (GRI) – G-4 Guidelines in 2019. The 2020 Sustainability Report is scheduled to be available in May 2021 and disclosed on its website (http://merconcoffeegroup.com/).

Stakeholder Engagement Plan and Community Grievance Mechanism. As part of its materiality assessment of 2018 for CISA Exportadora, Mercon has identified and mapped its main stakeholders and has engaged into a consultation process. In 2020 the materiality assessment was updated identifying key aspects that have significant economic, environmental and social impact on the organization. Mercon pro-actively supports multi-stakeholders’ sustainability coffee roundtables which are aligned with its business model focusing on coffee farm renovation, climate resilient coffee production through best agronomic practices and seed varieties, and traceable/certified sourcing. Partnership has been established with such roundtables and research institutions, such as Sustainable Coffee Challenge, International Organization for Coffee, World Coffee Research, Coffee Center at University of California in Davis.

In October 2020, Mercon implemented an exclusive communication channel (My Voice) that provides a safe and confidential environment in which people can make suggestions, submit grievances, claims, report violations of Mercon's Code of Ethics and Code of Conduct, or simply share their thoughts about topics related to the company. The system allows for anonymous communication and is operated by Ethics Global, an independent company, specialized in complaint and report management, ensuring confidentiality and the appropriate treatment for each situation by the Ethics Committee. Grievances can be registered online (https://merconmyvoice.ethicsglobal.com/?l=en) or by phone. The channel is available 24 hours a day, 7 days a week. As set forth in ESAP#4, Mercon will enhance the implementation of its grievance mechanism, including (a) disclosure of the mechanism to external stakeholders, including producers and local communities; (b) development of guidelines for resolution and response, including appropriate methods to handle grievances or concerns related to sexual harassment and gender-based violence; (c) periodic monitoring of the grievances with defined KPIs; (d) training to staff and grievance handling committee for consistent implementation of the grievance mechanism; (e) specific training to handle grievances or concerns related to sexual harassment and gender-based violence. Third-party services to handle such grievances will be considered, as needed.

A stakeholder engagement policy (SEP) applicable to all Mercon operations (farms, mills, warehouses, and sourcing operations) was developed and approved by the Board of Directors in April 2020. The policy has been disclosed in English, Spanish, Portuguese and Vietnamese to all employees and is available on Mercon’s Intranet. In November 2020, an external consultant was assigned by Mercon to support the implementation of the engagement policy and develop a Stakeholder Engagement Plan to all operations. As set forth in ESAP#5, Mercon will develop a Stakeholder Engagement Plan applicable to all operations which will include (i) updated stakeholder identification and analysis, including focus on identifying groups affected by operations and specifically vulnerable groups such as indigenous people, elderly, persons with special needs and single headed households; (ii) planning for dissemination of information, consultation and participation. Based on the social assessment conducted at all operations to identify potential risks and impacts on affected communities (required under ESAP#2) specific actions will be included in the SEP, such as the emergency preparedness plan to be socialized with neighboring communities in case risks are identified. The grievance redress mechanism will be widely communicated through the implementation of the Stakeholder Engagement Plan. The SEP will be inclusive to ensure engagement and participation of all localities, all sectors of the local population and relevant civil society organizations, and include the following elements: (i) the company’s and project description; engagement principles, objectives and criteria for stakeholder engagement; (ii) local regulations and lender requirements; (iii) description of key social and environmental risks and impacts; (iv) summary of previous engagement activities and stakeholders’ concerns; (v) identification, analysis and prioritization of stakeholders, focusing on those directly affected including vulnerable groups; (vi) methods and tools to provide information and consult with each stakeholder group, including women, men, youth and vulnerable people; (vii) action plans to be updated annually describing specific stakeholder engagement activities to be conducted by Mercon; (viii) timetable, resources, and responsibilities, and (ix) completion indicators for monitoring purposes.

Supply Chain Risk Assessment and Management. Mercon is sourcing coffee beans from countries of origin in Latin America (Brazil, Guatemala, Honduras, Nicaragua) and Asia (Vietnam). In all origins, Mercon’s strategy is mainly but not only focused toward small producers. An estimated 80% of its coffee supplies are sourced from small farms (of less than 12 ha), 15% are medium-sized farms (between 12-25 ha), and 5% are large farms (more than 25 ha).

Mercon has been rolling-out an agronomy and sustainability program entitled “Leading Innovation and Farmers Traceability” (LIFT) – a proprietary sourcing program/standard - since 2015. This program, dedicated to smallholder producers, has three main pillars, (i) to increase coffee productivity by 40% within three years, (ii) to promote environmental management (reforestation, conservation of water resources, protection of natural forests and soil improvements); (iii) to promote social development (education). LIFT is a 3-year farmer training program comprising of 23 modules (e.g. coffee plant physiology and nutrition, protection and recovery of water resources; farm and pest management, financial literacy) - http://merconcoffeegroup.com/lift/. LIFT provides short-term (pre-harvest and harvest financing) and long-term financing (farm rehabilitation, planting material, effluents management, and technical support to achieve voluntary certifications, e.g. Rainforest Alliance).

LIFT provides coffee traceability to the supplier’ farm, and this and the close co-operation with its directly contracted farmers that LIFT provides allows Mercon to understand labor/OHS conditions and other sustainability characteristics of its suppliers’ farms, including the compliance with Mercon Supplier Code.  By March 2021, LIFT covered around 4,000 farms and more than 32,000 ha of production in Central America and Brazil. Of these farms, almost 3,400 have either UTZ or Rainforest Alliance sustainability certification.

Mercon aspires to 100% sustainable sourcing, including traceability and certification of its third-party coffee bean suppliers by 2030. In an earlier financing facility in 2019, Mercon developed three independently verified sustainability KPIs, which were: KPI 1 – Volume growth of coffee beans under the LIFT program, KPI 2 – Increased external certification; and KPI 3 – Improvement of the Lift Index in Nicaragua, and also developed sustainable sourcing strategies at all origins. As a result of this work, and building upon a sustainable sourcing baseline developed in 2017-2018, Mercon is projecting a measurable increase of its sustainable volume (defined as LIFT + third-party certifications) by 2022-2023 from 21% to 28% in Brazil, 31% to 45% in Guatemala, 3% to 39% in Honduras, 42% to 70% in Nicaragua and 43% to 55% in Vietnam. For all origins, sustainable sourcing will increase from 39% to 49% during this 5-year period.  IFC’s review concluded that Mercon has established well defined sustainability road maps for its coffee sourcing in IDA countries, and that these road maps will cover the term of this short-term facility.  However, these are relatively short-term goals, nor is it possible to state definitively that these measures will avoid habitat conversion or child or forced labor in Mercon’s entire supply chain.

As was described under the “Scope of Review” section of this summary, IFC’s preliminary screening identified that coffee farming is associated with child labor in all countries from which Mercon sources, there is forced labor risk in Brazil and that in Guatemala, Honduras and Vietnam there is ongoing habitat conversion which may support future coffee cultivation.

Building on IFC’s earlier screening, in July 2020 Mercon commissioned a consultancy firm to undertake a supply chain risk assessment which included two phases of work, namely (i) preparation of contextual risk assessment (based on GMAP methodology, with inclusion of additional risk filters, i.e., human rights and ecosystems services) for Brazil, Colombia, Ethiopia, Guatemala, Honduras, Laos, Nicaragua, Peru and Vietnam; and (ii) site visits to validate initial findings on risk of harmful child and/or forced labor, significant OHS risks and risk of conversion of natural/critical habitats in some origins. Preliminary study results were aligned with IFC’s earlier risk assessment, showing the need to strengthen Mercon’s supplier risk management practices.  Based on these two phases, coffee sourcing CAPs, will be developed including development of supply chain risk assessment and management procedures. As set forth in ESAP #6, Mercon will share the final results of such risk assessment, resulting CAPs and comprehensive set of SOPs (e.g. supplier evaluation framework, profile template, evaluation form, specific Audit Questionnaire, training presentation, training records, corrective action plan) by Sept 2021. Reporting on CAP implementation progress status will be done annually through Mercon’s Sustainability Report.

To formalize and strengthen its supply chain management system, Mercon adopted in December 2020 a Supplier Code, which is aligned with IFC’s supply chain requirements defined in IFC PSs 1, 2 and 6 and which was applied immediately to all its third-party coffee bean suppliers. This Supplier Code has been added to Mercon’s Handbook of Good Agronomic Practices (GAPs). Communication plan and training of Mercon sourcing team and distribution of the Code to all suppliers is on-going. All suppliers, especially the ones under commercial sourcing, will confirm their acceptance of these requirements through signing the Code. It is estimated that 80% of Mercon suppliers in Guatemala, Honduras and Nicaragua have already signed the Code. Sample of such evidence was provided during the IFC appraisal.

Mercon will undertake a series of random audits of its contracted farmers, in all countries of origin, in order to verify the degree of farmers’ compliance with the Supplier Code requirements, especially prioritizing those countries (Guatemala, Honduras and Vietnam) where on-going habitat conversion risk remains and where there is a high risk of child and forced labor. Audits will also include checks for child or forced labor. In addition to these random audits, Mercon will pilot and scale up new methods to verify compliance at all suppliers’ farms. ESAP#14 refers.

On the basis of the July 2020 supply chain risk assessments, the supply chain audits described immediately above and a review of the LIFT-based sustainable sourcing initiative expected to deliver 49% sustainable sourcing by 2022, Mercon will develop a detailed implementation roadmap leading to 100% sustainable coffee sourcing by 2030, in line with its aspirations by December 2022. ESAP#15 refers.

Human Resource Policy and Management. As of February 2021, Mercon employed 691 direct (full-time/permanent) employees (in comparison to 685 in February 2020). In term of gender breakdown, there are 66% male and 34% female workers. More than 58% of Mercon’s permanent workers are within the range of 18-35 years old. During the crop season, additional workforce is hired as temporary staff. On peak, 4,625 workers were hired in 2020/2021, out of which 62% were male and 38% female.

From its original federative organizational model of independent country entities, Mercon has consolidated all its operations, including Human Resources, into one group entity (Mercon Coffee Group). The Mercon HR team has adopted a set of corporate values (integrity, excellence, teamwork and entrepreneurship) and a robust corporate Human Resource Management System in 2017 which provides a comprehensive range of policies and procedures under five main themes, namely (i) compensation and benefits (salary administration, temporary assignment, promotions, bonus); (ii) recruitment (permanent and temporary employees); (iii) training (assessment needs, onboarding); (iv) performance appraisal; and, (v) compliance (e.g. overtime, vacations, maternity leave). Talent of its human capital has been defined as a key CRS pillar in 2018. The reference documents for the development of its Group-level HR Policies and country-level Manual of Procedures included the applicable Labor Code in all countries of origin, ILO Conventions, IFC PS 2, Fair Labor Association, sector-based requirements as well as Global Reporting Initiative (GRI) – G-4 Guidelines HR related monitoring/reporting indicators. The objectives of this HR Management System are fully aligned with the six objectives of PS2. These requirements apply to all workers (permanent and temporary) at all workplaces where Mercon maintains management control, including its farms, mills, warehouses and offices. Mercon has not had a labor infraction nor court case during the last four years.

The HR Group-level policies and HR country-level procedures, which are defined in an Employee Handbook, are applicable to all permanent (indefinite term of contract) and temporary workers, including seasonal employees. Each new employee undergoes an induction session which include the reading and signing of his/her understanding of the HR framework and Code of Ethics. An HR handbook is given to all employees following the induction session. Mercon communicates any HR update through multiple channels, e.g. HR Intranet, Bulletin Boards, e-mails, monthly Mercon HR news. The HR function proactively invites any suggestions from workers through suggestion box (“my voice”). Inspection by the country-level labor authority also takes place annually (e.g. in Nicaragua, by the Ministry of Labor (MoL)). 

In addition to its Group-level HR Policies and country-level Manual of HR Procedures, Mercon has a Code of Conduct and a Code of Ethics which formalize its corporate commitment towards applying ethical standards to its employees and business partners, including contractual agreement with employees (permanent / temporary), conflict of interest, relationship with suppliers and service providers, professional security management practices, prohibition of sexual harassment and/or bullying, and process of disclosing whenever non-compliance with the Code occurred.

During IFC’s site-based visits of January/February 2020, IFC’s Gender-based Violence (GBV) risk screening tool indicated substantial risk associated with Mercon’s operations, especially associated with the absence of specific policies and procedures to prevent and address harassment, intimidation, and/or exploitation in regard to women, including lack of assessment of the risks of gender-based violence within workers, in affected communities and/or supply chain. In November 2020, IFC shared with Mercon specific guidance for the implementation of a gender and inclusion strategy. Based on that, Mercon developed an action plan to review its policies and procedures considering the lenses of gender, diversity and inclusion; to communicate the focus on equality, diversity and inclusion at all operations and external stakeholders; and to develop a diversity, inclusion and gender strategy and action plan for 2021-2025 (ESAP#7).

Working Conditions and Terms of Employment. Mercon complies with the labor compliance framework of each country of operation for minimum wage, working schedule, overtime, holidays, probation period, labor contracts, for fixed (permanent employees) and determined (temporary workers). If a contract is required as a legal document in the country, it’s signed by both parties and a copy is given to the employee; if there’s no contract required, a detailed term sheet or offer letter is given to the employee to specify the agreed terms and conditions. All Mercon permanent employees are subject to the salary review policy, that can be done every 2 years or yearly, depending on how the market information grows and the financial situation of the company. This adjustment and revision apply to permanent employees and depend directly on individual performance, comparison to market information (derived from annual salary surveys per country), country inflation and the company’s financial results. Additionally, Mercon provides in certain countries, complementary benefits to the employees such as: health insurance, life insurance, transportation, employee discounts for various services (dentists, ophthalmologist, among others). For temporary workers in the mill, Mercon provides free shuttle for employees working on night shifts and an attendance bonus for special holidays (Christmas and New Year’s Eve). For salaries, Mercon complies with the minimum wage salary of the sector in each country of operation and perform salary benchmark within the coffee sector to guarantee external competitiveness.

Workers’ accommodations at Mercon’s farms have the capacity to accommodate in average 70 people per farm during the peak season. Periodic checks are conducted by HR together with the OHS team to verify the facilities conditions and agree on corrective actions if needed. Mercon provides transportation services to workers living in remote areas where public transportation is not available. As set forth in ESAP#10, Mercon will develop internal procedures to conduct periodic audits of workers’ accommodations and transportation, to ensure compliance with national regulations and IFC Worker Accommodations good practice note (Workers’ Accommodation: Processes and Standards - A Guidance Note by IFC and the EBRD).

Worker’s Organization. Mercon has established policy and procedures which explicitly support the rights of freedom of association and workers to seek collective bargaining agreement. This provision has not yet materialized in any of Mercon operations, except for Vietnam. There is no history of recent labor strikes among Mercon operations.

Non-discrimination & equal opportunity. Mercon is committed to establish a work environment based on the principles of equality, non-discrimination and fair treatment in compliance with applicable labor code and its Code of Ethics. Such commitment is reflected in the Group-level HR Policy statement prohibiting any forms of discrimination in hiring, compensation, access to training, promotion, etc. based on race, origin, age, gender, etc. Sample of interviewed workers during previous IFC visits confirmed they were treated with respect and dignity. 

Worker/Contractor Grievance Mechanism. In 2020 Mercon reviewed its Workers’ Complaint and Resolution Management Procedure which was managed internally (“My Voice”) and implemented a grievance mechanism operated by Ethics Global, an independent company specialized in complaint and report management, ensuring confidentiality and the appropriate treatment for each situation by the Ethics Committee, as was described above. Grievances can be registered online (https://merconmyvoice.ethicsglobal.com/?l=en) or by phone. The channel is available 24 hours a day, 7 days a week. As set forth in ESAP#8, Mercon will complete the implementation of its grievance mechanism, including (a) enhanced disclosure of the mechanism and training to direct workers (permanent and temporary) and third-party workers. In addition, farms, mills and sourcing managers and supervisors will be trained to ensure effective implementation; (b) development of guidelines for resolution and response, including appropriate methods to handle grievances or concerns related to sexual harassment and gender-based violence; (c) periodic monitoring of the grievances with defined KPIs. Awareness of this procedure will continuously take place during staff induction session; (d) training to staff and grievance handling committee for consistent implementation of the grievance mechanism; (e) specific training to handle grievances or concerns related to sexual harassment and gender-based violence. Third-party services to handle such grievances will be considered, as needed.

Protecting the workforce. Mercon adopted a procedure for prohibiting use of child worker in alignment with applicable country-level Labor Codes in all countries of operations. This procedure stipulates that Mercon will not engage child labor in its farms, mills, warehouses or sourcing operations. In effect, as stipulated in its HR Recruitment Policy, minimum age of employment is 18 years old for permanent and temporary workers. Job announcement with terms and conditions of recruitment make sure that the applicant met such provision. All applicants are required to present their age proofs to recruitment staff during the application process. Representation of age proofs may include national ID card, family book, election card, birth certificate. A copy is kept on worker’s personal file for reference. Internal rules against child labor is also posted on notice board at facilities. All expatriate employees at management and supervisory levels possess documentation required by local law. All operations are annually inspected by local authorities to verify the absence of illegal foreign workers.

Life and Fire Safety. All Mercon operations (farms, mills, warehouses) are maintained as required by local regulations. The farms, mills and warehouses are inspected and certified by the local authorities. Corrective Action Plans (CAPs), if any, are implemented in a timely manner. The mills’ and warehouses’ OHS Committee are accountable for the timely implementation of these CAPs. As mentioned above (PS1, Emergency Preparedness section), Life and Fire Safety improvement plans are currently under implementation in all owned and rented mills.  (please refer to ESAP#10 below).

Workers engaged by third parties. Due to the seasonality of coffee activities, Mercon’s operations can involve significant number of directly contracted and sub-contracted workers (e.g. loading / unloading laborers, truck drivers). For all operations, 343 third-party seasonal employees have been recruited during the last coffee harvesting season. This represents a significant challenge for Mercon in ensuring appropriate OHS training for these seasonal and third-party workers. OHS and HR officers support processing and sourcing teams undertake due diligence before establishing a contractual arrangement with any labor agency or contractor, including registration with relevant labor regulators, as well as complying with local labor and OHS provisions, namely payment of worker’s legal benefits, timely payment of wages, OHS training and provisions of PPEs, ILO Convention 138 on minimum age.

During the IFC’s visit in 2020, risks related to third-party workers at CIGRAH (Honduras) were identified associated with excessive working hours and partial use of personnel protective equipment (PPE). As a result, IFC required Mercon to review its OHS policies and procedures applicable to third-party workers consistent with national regulations and IFC PS2 requirements. Mercon shared with IFC evidence of (i) corporate-level OHS policy adopted in November 2020 applicable to all its operations (farm, mill, warehouse), to all workers, contractors (and sub-contractors), suppliers, and visitors; (ii) standard operating procedures (SOPs) adopted in December 2020 (in draft version) focused on contractors’ health and safety applicable to all operations; (iii) minutes of a meeting held at CIGRAH mill on August 13, 2020 to discuss OHS and working hours requirements with contractors. In addition, CIGRAH general management revised its processes and implemented weekly planning and monthly inspections to ensure compliance with local labor requirements and Mercon’s OHS Manual of Standard Operating Procedures (in draft version). As set forth in ESAP #9, Mercon will commission an independent audit to verify contractors’ compliance with Mercon’s OHS SOPs, legal requirements and WBG EHS guidelines.

Occupational Health and Safety. Mercon’s milling operations are fully automated leading to avoidance and/or minimization of OHS risks. In addition, conveyors belts are being used for the loading/unloading of 69kg bags and trying to reduce use of stevedores, to the extent possible, considering the ergonomic hazards.

For its Nicaragua-based mills in 2017 (especially San Carlos and La Luz), Mercon started establishing a OHS Management System, including the development of an OHS Manual of Standard Operating Procedures (SOPs) – known as “Normas de Trabajo Seguro”, and a workplace risk assessment procedure entitled “Hazard Identification and Risk Assessment Control” which included a map of specific occupational risks and its corresponding plan of prevention and promotion of healthy working environment, following the procedure established by the Ministry of Labor (the evaluation was performed by independent evaluators, accredited by the Ministry in November 2015). Each identified hazard was analyzed, according to the level of probability and severity. This approach has been effectively implemented at its San Carlos and La Luz mills. Working stations have been designed to optimize safe working conditions, engineering barriers and equipment (e.g. rubber mat at electrical panel location) have been provided to reduce noise, heat, improve luminosity and enhance workplace air quality while provision of Personal Protective Equipment (PPE) has been provided to all permanent and temporary workers (e.g. overalls, helmets, protective boots, ear plugs) based on workplace risk assessment. As described in PS1, risks of chemical hazard (use of crop protection products) at Mercon Robusta farms, including use of PPEs, are being mitigated through strict implementation of SOPs, aligned with PS3 and Rainforest Alliance requirements. 

Going forward, to harmonize and strengthen its OHS management practices, Mercon adopted in Nov 2020 a corporate-level OHS policy applicable to all its operations (farms, mills, warehouse). This policy is applicable to all workers, contractors (and sub-contractors), suppliers, and visitors. An OHS diagnostic is currently underway at its owned/rented mills in Guatemala, Honduras and Nicaragua by an independent OHS expert to (i) assess compliance with applicable country-level OHS regulations (e.g. emergency preparedness and life and fire safety, electric systems, platforms and stairs, protective guards on moving equipment, use of PPEs, light and waste management), PS2 and ISO 45001 requirements; (ii) identify gaps; (iii) define CAPs at each mill. Preliminary OHS diagnostics from mills in Guatemala, Honduras and Nicaragua have been shared with IFC, and include areas for improvement of OHS.

These OHS diagnostics will support the finalization of corporate-level OHS SOPs and permit to work system, EHS checklists for warehouse, implementation of OHS CAPs at each mill, training plan, upgrade of the Emergency Preparedness and Response Plan (including L&FS system) and establishment of OHS leading and lagging KPIs to assess implementation effectiveness and performance. As set forth in ESAP#10, Mercon will share the final OHS diagnostic report, for IFC review and validation, definition of a road map for OHS management system at corporate and mill-level, consistent with ISO 45001, and timely implementation of consolidated CAPs at all own/rented operations. Mercon has already allocated CAPEX/ OPEX in 2021-22 for addressing OHS deficiencies and mitigation measures. This program will be extended to Vietnam’ Mercafe mills (2) and the 16 rented mills in Guatemala and Brazil and finalized by 2021. In addition, Mercon will develop internal procedures to conduct periodic audits of workers’ accommodations and workers’ transportation, to ensure compliance with national regulations and WBG EHS guidelines.

As mentioned above, to ensure implementation effectiveness of its EHS management, Mercon has recruited a Global EHS manager in November 2020 to implement EHS plans, administer budget and KPIs related to EHS management system and to annually audit EHS system at origin to guarantee compliance with IFC PSs, WBG EHS Guidelines and applicable OHS regulations in countries of operations. This manager is supported by three plant-level OHS supervisors (full-time at San Carlos and La Luz mills). In Honduras, the mill manager is responsible for OHS issues. Each mill has established an OHS Committee (“Commission of Hygiene and Safety”) which define its annual workplan and targets and monitor its effective implementation (e.g. budget, training plan, KPIs, maintenance of internal accident / near-miss register, internal/external audit). OHS training is provided to the workers, especially for the working stations having highest physical hazards, such as stevedores. Training on safety at work is also provided to contractors.

As described earlier, Mercon has implemented comprehensive monitoring and reporting of OHS leading indicators (e.g. safety training, ergonomic opportunities identified and corrected, employee perception surveys, safety audits) and OHS lagging indicators (e.g. injury frequency and severity, OSHA recordable injuries, lost workdays, worker’s compensation cost). These KPIs cover all workers including temporary and third-party workers.  All mills’ workers undergo a systematic health check-up before hiring and then on an annual basis. Mercon has shared cases of illness, including dehydration recorded during the last harvesting season in Nicaragua and mitigation measures taken for individual treatment. Based on OHS statistics provided in Mercon for 2019/2020, workplace accidents were reduced by 46% compared to 2016/2017 (total of 175). This is the result of the effective implementation of a corrective action plan addressing near-miss incidents. A procedure “Reporte e Investigacion de Perdidas y Cuasi perdidas” is completed for any accident, incidents and near-miss. LTIFR at CISA Exportadora (including San Carlos mill, the largest Mercon operation in Nicaragua) is below the U.S. benchmark for milling operations. Mercon forklift drivers have the appropriate license, including safety training certificate. No fatality has been recorded in Mercon’s operations since the last three years. Mercon has established a clinic at San Carlos mill and with additional support from nearby health clinics, in case of emergencies. OHS Committee members underwent first aid training, in case of minor accidents. First aid kits are found in all working stations                                                   

 Mercon is committed to promote resource efficiency through adopting GIIP to achieve energy and water efficiency and promoting climate-smart interventions in its farming, milling, warehousing and sourcing operations. Mercon is targeting high quality coffee which is grown under a canopy of diverse native trees species (“shade coffee system”) which help maintain ecological functions (e.g. soil conservation, water cycle maintenance, carbon sequestration) in the Central American highlands.

Resource (Energy and Water) Efficiency: Wet and dry mills consume significant energy for de-pulping, fermentation, washing, drying and de-hulling processes. Mercon’s wet and dry mills source grid electricity in Brazil, Guatemala, Honduras, Nicaragua and Vietnam. To reduce its overall energy consumption, Mercon has implemented energy efficiencies projects, including more efficient lighting systems (LED), upgrade of compressed air systems, installation of translucent roof panels and solar panels at its San Carlos dry mill. At its wet mill (El Carmen), Mercon installed a methane capture project using biogas derived from effluent treatment for energy production. Finally, coffee husks are being used to fuel its mechanical driers– eliminating the need for wood fuel. Coffee cherries from the wet-mills’ de-pulping process are processed into flour (e.g. Nicaragua/El Carmen). Mercon started recording its energy (electricity, diesel, petrol, and LPG) consumption in 2017.

As part of the on-going CP audits at its mills (ref PS1, EHS risk assessment section), Mercon will be able to benchmark its energy/water usage against industry reference. With the technical assistance from the Wageningen University and Research, Mercon Group calculated its total GHG emissions per activity (tree nursery, coffee cultivation, processing and storage and transport,) based on Scope 1 (direct emissions from Mercon’s activities), Scope 2 (indirect emissions from electricity and heat generation plants) and Scope 3 (indirect emission from supply chain input and waste treatment) – note: Scope 3 did not take into account the cultivation and processing of purchased parchments and land use changes in its sourcing operations). Total GHG emissions in 2018/19 were estimated at 20,000 tpa CO2 (eq). (excluding purchased parchment beans). By far the largest contribution of GHG emissions that can be attributed to Mercon’s activities is the Scope 3 emissions related to the purchased parchment beans for processing. The remaining is mainly caused by container transport, transport to and from processing, coffee bag production, and fertilizer production and use on the coffee farm. Going forward, Mercon will report its GHG emissions annually in its Sustainability report. Mercon’s reforestation plan (70,000 tree seedlings) at its four Robusta farms has not been accounted for in this carbon footprint calculation.

Mercon’s LIFT program, in partnership with Conservation International, has launched a study to further assess LIFT’s forest conservation and reforestation activities in enhancing carbon sequestration of coffee farms, while efforts to optimize use of fertilizer to reduce GHG emissions from farms. The carbon savings of these efforts are currently not accounted for in the LIFT program, preventing the participating farmers from receiving payments for the additional carbon stored or mitigated on farms. This study will be available in October 2021.

Air Emissions Monitoring and Ambient Air Quality. The mill process generates significant dust emissions, especially from the cleaning and dry milling sections. Point source and ambient air emissions measurements started to be monitored at the San Carlos mill during the 2018/19 harvest. Based on measurements for the three mills in Nicaragua (San Carlos, El Carmen, and La Luz) shared with IFC during this appraisal, these are materially in compliance with WBG EHS guideline values for point source air emissions and ambient air quality. Proactive dust management programs are implemented at all mills with the intent to meet WHO ambient air quality guidelines for PM10 and PM2.5. The dry mills’ point source air emissions shall comply with applicable country (Nicaragua, Honduras and Vietnam) level regulations and WBG EHS guidelines for point source emissions (PM10: 50 mg/Nm³, NO2: 460mg/Nm³; SO2: 2,000mg/Nm³).

Noise. All Mercon mills are located in industrial zone. As per WBG EHS guidelines, the ambient noise level should not exceed 70 dBA in day and nighttime. This was achieved for the coffee harvesting season of 2020 for all mills in Honduras, Nicaragua and Vietnam. All material handling and process equipment is enclosed to reduce noise levels at source. Ear defenders have been/will be provided to workers exposed to higher noise levels.

Wastewater treatment. All Mercon mills are dry mills, aside from El Carmen wet mill in Nicaragua Main consumption of process water is due to El Carmen’s wet mill. The facility generates significant volumes of wastewater that contains fermented sub-products (honey water) and other waste from the coffee cherry. Wastewater are characterized by high BOD, high total suspended solids and acidity, especially in the context of the low water usage from the wet mill. Based on Dec 2020 values, BOD, COD and Nitrogen guidelines values were significantly above WBG indicative values when leaving the process and entering storage lagoons. Two main initiatives have been implemented to address this issue: (i) re-using water from the first cycle into the second washing cycle; and, (ii) wastewater treatment. All process waters that cannot be reused is sent to an on-site treatment plant, which is a joint effort funded by the Dutch government and by the Consortium Climate Neutral Group (CNG), UTZ Certified, and CISA. The objective of this project “Energy from Coffee Waste in Central America” is twofold: (i) produce biogas (methane) that is usable as an alternative energy from the wet method process; and, (ii) reduce surface water pollution through effective treatment of wastewater and provide an opportunity for carbon credits. Based on data provided, the implementation of these two mitigation measures have resulted in a reduction of 89% of water use and a generation of 18,000 m3/year of biogas/harvest. As a result, up to 70% of the diesel used by a genset in a pulping machine could be substitute with resulting biogas Remaining effluents are used for field application in farms based on strict technical specifications (ref. Rainforest Alliance). Measurements of the wastewater (process water) at San Carlos dry mill was shared with IFC during appraisal which are compliant with WBG EHS guideline values for effluents. The resulting wastewater are not released to surface water but stored in an underground reservoir and emptied by a service provider, on regular basis for further treatment. The limited domestic sewage from all operations (mills and warehouses) is collected in septic tanks and treated on-site through a leach field.

Solid and hazardous wastes. Mercon has adopted a Waste Management Procedure. Waste characterization (mostly coffee husk, discarded sacks, straps, low-density polyethylene plastic, scrap) and volume have been monitored since 2016/17 and will be reflected in the 2020 Sustainability report. Method of elimination for all waste streams are being documented. Coffee husks collected at the dry mills are estimated at 20-25% of coffee beans. Mercon used the coffee husk as feedstock for the dry mill’s ovens. Used oils are collected and disposed by a licensed service provider (due diligence of provider is carried out). The on-site diesel reservoirs at all operations were judged meeting the WBG EHS guidelines as secondary containment has been built in case of spill.

Integrated Pest/Fumigation Management Plan. Mercon, through its LIFT agronomist team, is providing technical assistance to small producers in the selection and use of fertilizers and pesticides with an Integrated Pest Management approach. LIFT’s supplier use of pesticides is regulated by third-party coffee certification bodies, ensuring that suppliers do not use WHO Class Ia and Ib products or products prohibited by the Montreal Protocol (e.g. methyl bromide). If WHO Class II products are used, proper training, equipment and facilities to handle, store, apply and dispose of the products are done using LIFT and/or Rainforest Alliance requirements. Terms and Conditions from MARENA was defined for the safe storage and use of agro-chemicals at the Robusta farms. Products are fumigated for pest control using aluminum phosphide. Fumigation is carried out in the warehouses by licensed vendors and in compliance with local regulatory requirements                                                  

 Road traffic safety. Mercon relies on transport service providers during the harvest season for its sourcing of coffee. In Nicaragua alone, 167 providers were hired for the 2020/21 season. CISA implemented a program called “Safe Route”, which includes the identification of key risks and management measures associated with the transportation between San Carlos mill and the Corinto Port. All transport providers undergo a due diligence process to confirm they are in compliance with applicable legal requirements. The Ministry of Labor and the National Policy annually verify compliance with such requirements. Health certificate is required at hiring for all drivers while annual medical health check-up is required. As set forth in ESAP#11, Mercon will develop a corporate Road Safety Policy and Procedures consistent with the WBG EHS Guidelines, which will be implemented at all operations. In addition, as set forth under ESAP#12, Mercon will assess risks associated with gender-based violence along its transportation routes and a risk management plan will be developed, including access to a grievance mechanism to the communities along such routes, as appropriate.

Food Safety Management System. To meet recently adopted legal requirements (e.g. U.S. Food and Drug Administration’s Food Safety Modernization Act, FSMA) and increasing food safety specifications from its customers (e.g. coffee roasters), Mercon has developed and implemented at its mills in Nicaragua, Honduras and Vietnam a food safety management plan. Copies of these plans (including recall plans) and Foreign Supplier Verification Programs have been provided to IFC during appraisal for all owned mills. Certificate of Training for Mercon’s full-time food safety coordinator to the Food Safety Preventive Controls Alliance has been updated in May 2020.

Security Personnel. Due to challenging security status in Nicaragua, Mercon contracted a security provider for its operations. Security personnel are deployed at CISA’s patios (coffee sun drying yards), warehouses, coffee milling facilities, agencies and container coffee transport operations to ports. Mercon has adopted security management practices, defined in the Mercon’s Safety and Security Manual for Crisis and Risk Management (June 2017). This manual includes the determination of the main risks to be addressed in terms of safety, security and business continuity. It defines security structure that include local and regional committee as well as operational procedures. In June 2017, Mercon recruited a consultancy firm (CEGESTI) to undertake a gap analysis between Mercon security practices at CISA Exportadora and IFC’s PS4 requirements for armed security services regarding the Voluntary Principles on Security and Human Rights (VPSHR). The audit’s findings confirmed that, in general terms, Mercon fulfills the criteria for VPSHR 1 associated to risk assessment practices on security matters. Mercon has established an organizational capacity (led by the Chief of Patrimonial Security – having over 20 years of experience in security matters) and management structures (patrimonial security supervisor, monitoring center) for such management. Most of its security procedures were found to be effectively implemented and recommendations were provided to improve performance in regards VPSHR and IFC PS4. As a result, additional procedures were implemented to ensure monitoring and periodic evaluation of security services in compliance with the guidelines established in the VPSHR. A specific mechanism has been implemented to capture and address grievances associated with security personnel. Security practices of CISA and VSN were found complying with the Nicaraguan private security regulations (Law 903 Private Security Services). The Nicaraguan security forces have a national program focused on the safety of farmers, producers, merchants, transporters, and rural population in certain coffee production areas. In addition, CISA has an agreement with the national security forces (Nicaragua) to enhance the presence of public security personnel in specific areas during the harvest season. As set forth in ESAP#13, the security policies and procedures will be expanded to all operations (aside Nicaragua) and specific risk assessments and management plans will be developed to all locations, consistent with PS4. In addition, Mercon will ensure security personnel continue to be adequately trained at all operations consistent with principles of Human Rights, training in the use of force (and where applicable, firearms), and appropriate conduct toward workers and Affected Communities                                                  

 Sustainable management of Living Natural Resources. An Environmental and Social Impact Assessment (ESIA) and/or a High Conservation Value (HCV) Assessment have not been carried out for the development of the four Robusta farms in Nueva Guinea as not required under national legal and regulatory environmental requirements. Based on IBAT and University of Maryland’s biodiversity related risk screening, the 1,644 ha Robusta farms (of which 1,044 ha are planted) have been established in consolidated agricultural areas (former land cattle ranching and pineapple farms) and/or no recent deforestation took place. MARENA requested Mercon to develop and implement a forestry management plan surrounding its farms. A Reforestation Plan has been prepared for all farms. The first three Robusta farms have been certified against the requirements of Rainforest Alliance, UTZ and the Nespresso AAA Sustainability Program in 2018. Copies of the third-party audits and certificates have been shared with IFC during the appraisal visit. The 4th farm (La Palmira) will be Rainforest Alliance certified in 2022.

Supply Chain Risk Assessment and Management. In two origins, Nicaragua and Brazil, coffee production occurs in consolidated agricultural areas where there is no significant risk of further habitat conversion. In three origins, Guatemala, Honduras, and Vietnam, production occurs in landscapes that are largely consolidated agricultural areas, but remaining habitat in these areas is a high priority for conservation. In these three origins there is evidence of recent habitat conversion occurring, but it is not possible to confirm with the available information whether recently converted sites are suppling Mercon. Therefore, further expansion of production that entails habitat conversion in these origins presents a risk to biodiversity until shown otherwise through producer verification (given the small size of most producer farms, an improved verification system will be required), as described in ESAP#14. It is not possible to state definitively that Mercon’s traceability and verification system can avoid significant loss of Natural and/or Critical Habitat in these origins during the period of implementation. See PS1 section for additional details on supply chain                                                  

 The 9.8 hectares of land (14 manzanas) on which San Carlos Coffee mill is located belongs to the Indigenous Peoples Group of Matagalpa (IP Group). CISA acquired the right to the lease along with the acquisition of San Carlos mill in 1994. Prior to 1994, different individuals had rights to the lease and built a mill on this leased land. When CISA acquired the mill in 1994, CISA signed a lease agreement with the Matagalpa Indigenous Community. Based on the current Nicaragua’s Civil Code, leases are valid for ten years. The most recent renewal is valid until 2024.

Indigenous Peoples Groups in Nicaragua are recognized both by the Government as well as the International Convention on Indigenous and Tribal Groups in Independent States (ILO No. 169). The ancestry of the group originates in the region of Matagalpa. Its historical socio-cultural and religious norms, practices and traditions are deeply rooted and dependent on its lands. With urbanization of the region, the Matagalpa IP Group have adapted and integrated into modern life, but continue to hold  collective ownership and administration of their lands and natural resources, including provisions to protect and maintain their traditions, norms, knowledge and beliefs, ensuring global access to health and education and the attainment of a decent quality of life and well-being, in accordance to the legal and administrative provisions detailed in its Statutes, Laws and Bylaws.

As part of a previous appraisal by IFC of CISA in 2014 – when the lease agreement was being renewed – IFC conducted a social review which involved (i) reviewing the legal agreement and IP Declaration confirming the validity and terms and conditions of the lease; (ii) speaking to the Client about their relationship with the IP Group, including how they engaged and entered into an agreement with the Group and the nature of that relationship at the time, (iii) a review of the IP Groups Statutes, Laws and Bylaws to understand how they are governed, and if the lease agreement is consistent with its objectives, and finally, (iv) a discussion with the President of the IP Group to confirm: their collective and informed consent to the terms and conditions of the agreement; their ongoing positive relations with the company; and their confirmation that there were no adverse impacts on IP lands or resources.

The review confirmed that the lease agreement between the Client and the IP Group (i) does not result in adverse impacts on IP land, natural resources or cultural heritage; (ii) was entered into voluntarily between the parties, in good faith, free from coercion or force, through a participatory, informed and transparent process; (iii) respects the collective rights of the IPs and contributes to their well-being, through the re-investment in social programs; and (iv) complies with the aspirations and objectives of both the PS requirements and the IP’s Statutes. The Matagalpa IP Community demonstrated good capacity and organization for governing and managing its own lands and resources, in a manner conducive to the development and protection of its people.

As set forth under ESAP#2 (see PS1 section), Mercon will conduct a social assessment at all its operations (farms, own and rented mills), to identify potential risks and impacts on affected communities, such as those associated with traffic, security forces, proximity and interaction with indigenous communities, among others. In case adverse risks and/or impacts are identified on IP communities, Mercon will implement appropriate management programs  as per PS7, to minimize, restore, and/or compensate for these impacts in a culturally appropriate manner commensurate with the nature and scale of such impacts and the vulnerability of the IP communities. If applicable, the proposed actions will be developed with the informed consultation and participation of the IP communities and contained in a time-bound plan, such as an Indigenous Peoples Plan, or a broader community development plan with separate components for the IP communities.

As set forth in ESAP#16, Mercon will commission an independent assessment to determine if the current lease agreement complies with market value. In case such assessment indicates the current lease agreement is not consistent with market value, a community development plan reflecting key community priorities in equivalent monetary value will be developed for the remaining period of the current lease agreement (2021 – 2024).  

As set forth in ESAP#17, as part of the new lease to be renewed in 2024, Mercon will (i) assess that the lease terms and conditions are consistent with market value at time of the renewal reflecting these in the new lease; and (ii) hold an informed consultation and participation process with the IP Community and its leaders on the terms and conditions of the lease, registering that the IP Community voluntarily agrees to these. The process will be recorded, documented and signed by those in attendance.