This is a Category B Project according to IFC’s Policy on Environmental and Social Sustainability (2012). Based on information reviewed by IFC, the proposed project will have limited adverse E&S impacts that are few, largely reversible and readily addressed through existing mitigation measures and good international industry practices (GIIP).

The company identifies and manages E&S risks and impacts associated with vessel operations through ensuring compliance with applicable national standards and E&S regulatory permits and requirements, including ISM compliance with approval of the Document of Compliance (DOC) issued by the Maritime Bureau.

Zhonggu has a corporate EHS policy defining the E&S objectives and principles covering all the company’s operations. The company has a corporate safety management system (SMS) in compliance with the ISM and the People's Republic of China National Management Code for Ship Safety Operation and Pollution Prevention (NSM) requirements. The corporate SMS includes an EHS policy, standard operating procedures and a risk identification procedure, an EHS management organization structure, an emergency preparedness procedure and a corporate E&S monitoring, and review procedure applicable to all company operations. Zhonggu has implemented management systems that are certified as per ISO 9001 (Quality Management), 14001 (Environmental Management) and 45001 (OHS Management). As per ESAP #1, Zhonggu will update and expand the scope of its corporate management system to develop an ESMS incorporating compliance with IFC PSs, and in alignment with GIIP as per applicable and relevant World Bank Group (WBG) EHS Guidelines. The update will include procedures relevant to inventory of hazardous materials, community health and safety during shore leave, gender aspects, ship recycling policy, and specific procedures with respect to shipping route plans and protection of marine mammals, marine protected areas (MPAs) and other internationally recognized areas of biodiversity importance. This will include development of key performance indicators (KPIs) for monitoring all significant E&S aspects and their management.

Zhonggu has a dedicated EHS management team with four staff headed by the EHS manager. The corporate management department is specifically responsible for the safety and pollution prevention management of the company and its ships. On each of the vessel, the captain is responsible to take measures to ensure safety and prevent environmental pollution.

As part of corporate SMS, Zhonggu has a documented emergency response procedure (ERP) including fire and explosion, accidents, oil spill, security incidents and COVID-19 outbreak. The roles and responsibilities are clearly defined. Required training is provided covering all identified emergency situations in coordination with relevant agencies.

The company monitors its operations in accordance with KPIs such as number of accidents, training provided, labor compliance (working hours, grievances) and energy efficiency. The company maintains documented monitoring instructions including investigation, reporting, and handling non-compliance. The KPIs are reported on monthly basis to the EHS management team, each functional department and each captain.

The company has formulated an internal audit procedure and reporting to verify the safety and pollution prevention activities to meet legal requirements. The internal audit is carried out by designated personnel of the company and by external audits at least once a year.

 As of December 2021, Zhonggu has about 1,200 employees for inland operations and the gender split of staff is roughly 70% male and 30% female. The company has an all-male seafarer crew of about 1000 people, amongst 88% is directly hired, and another 12% is contractors. All the Zhonggu’s employees and seafarers are employed by direct recruitment through recruiting agents. As per national law requirement for domestic route vessels, all seafarers are Chinese nationals recruited in China.

Zhonggu has prepared a set of corporate HR manuals and policies applicable to all workers including seafarers and contractors including employee benefits, working hours, overtime, leave, payment and retrenchment. The labor manual for seafarers is in compliance with ILO Maritime Labor Convention (MLC) 2006. Zhonggu’s HR manuals follow the local labor law including non-discrimination on gender, age, religion, disability, promoting equal opportunity and anti-gender harassment. Corporate HR manuals prohibit engagement of child, forced, or bonded labor practices and are materially aligned with IFC PS2.

Employees are provided a written appointment letter which explains their employment terms and conditions. Salaries paid are higher than the minimum wage and overtime payments are aligned with the requirements of national regulation. The company ensures minimum age for employment by confirming it with national identity cards. All employees, including contractors, are given full social security coverage including life and medical insurance. The vessel accommodation design follows MLC’s requirement to provide decent accommodation and facilities on board. Based on the virtual site visit, all ship crew members are provided with a spacious single room and their own washroom. The corporate SMS includes measures for potable water treatment and testing. All seafarers undertake pre-employment health exams as part of their recruitment process. 

A trade union is in place and the employees have voluntarily joined the union. The company holds regular meetings with the union and the discussions mainly focus on benefits, allowances, and staff welfare. The company does not prohibit the freedom to associate and workers have the right to form and join a workers organization.

Zhonggu has a grievance handling procedure applicable to all seafarers including contractors in line with the MLC. As per the procedure, all seafarers are expected to use the grievance mechanism channel via e-mail or hotline to a designated department head. An anonymous mechanism is functional as per the IT based reporting system. Grievances are verified and handled by relevant department head, captain, and HR department. There are no significant grievances, disputes, court cases reported to date. However, there is no clear description of grievance mechanisms for land-based staff. As per ESAP #2, Zhonggu will update its corporate HR manual to formalize and enhance its grievance mechanisms applicable to all staff, including contractors, to fully align with the provisions of PS2.

Zhonggu has developed and implemented corporate safety procedures applicable to ship operations. The company has documented OHS procedures prepared as part of SMS including health and safety hazards identification, risk identification and control, emergency preparedness and response, incident investigation and reporting. The company has a safety committee and conducts OHS review meetings monthly.

Corporate wide OHS training is provided to all employees on various safety related topics including workplace safety, employee health and sanitation, and legal compliance. All new employees are required to receive an induction training. All the crews are required to be trained and certified as per Standards of Training, Certification and Watchkeeping for Seafarers (STCW) requirement. The company provides all staff with personal protective equipment, to the work activity performed. There have been no reported major injuries/fatalities in the past three years.

In response to the COVID-19 pandemic, the company has prepared COVID-19 infection response procedures including infective risk assessment, contingency planning, social distancing, temperature check, frequent sanitization and testing plan in line with governmental regulations. There have been no salary cuts or no-pay-leave arrangements. All the contractors were paid as agreed. There has not been any retrenchment due to COVID-19.

The company assesses its operations to ensure energy and resource efficiency to be in line with the corporate EHS policy through efficient logistics planning, electricity and fuel use saving, and waste minimization. The new vessels are designed per China Classification Society (CCS) code for Green Eco ships.

The vessels financed by IFC will have state-of-the-art engines, multiple cutting-edge emission reduction technologies and low energy consumption equipment to keep gross greenhouse gas (GHG) emissions to a minimum. The estimated fuel consumption of the two financed vessels is 30 tonne per day and gross GHG emissions are estimated to be about 42,439 tons CO2 eq/year. The company will report to IFC the GHG emissions of the project-financed vessels.

Onboard electricity is sourced from fuel and directly supplied from shore power when mooring at ports. The company has a control procedure for air pollution emission by ships in line with IMO requirements and measures in place to minimize spills and dust generation during loading and unloading of containers. As part of the national emission control requirements of the China Maritime Safety Administration, Zhonggu’s vessels use low Sulphur fuel with Sulphur content less than 0.5%. During the site visit, the company’s loading and unloading operations confirmed that no spills or dust emissions were generated.

Water for the vessel operations is supplied from ports including drinking water. The company implements anti-pollution measures including sewage management and discharge and ship ballast water management which will be applied to the project vessels. All new vessels will have oil/water separators, as well as on board sanitary sewage treatment facilities and will obtain an International Sanitary Sewage Pollution Prevention Certificate (ISPP). Domestic wastewater generated from vessel’s operations are treated by wastewater treatment facilities (WWTF). Treated wastewater is discharged following legal requirements to be in line with MARPOL Annex IV. Sludge produced by the WWTFs is removed regularly by a licensed contractor. The company and local port authority and environmental authority monitor the treated sludge effluent quality for compliance with national requirements.

Zhonggu has procedures in relation to the prevention of pollution by waste from ships in line with MARPOL Annex V. The company has a documented mechanism to control harmful anti-fouling systems on ships in compliance with IMO requirements. All the waste is collected for disposal by authorized public service external agencies or port authorities specialized in each type of waste. The company has a procedure to manage hazardous materials including development of MSDS. During the site visit, all hazardous materials were noted to be properly labelled and stored in the designated area. As per ESAP #3, the company will develop a documented procedure to conduct inventory of hazardous materials compliant with IMO requirements.

The technical specifications of the new-built vessels are in line with typical standard container ships being built at present for domestic trading requirements. The new vessels will be built following CCS standard, and subject to a dedicated supervision by a third party to confirm compliance with legal requirements.

The vessels operations do not have a significant impact on the communities given that they operate offshore and in port areas where community access is restricted, and the company has the procedure to manage hazardous materials in place.

The corporate SMS includes management measures to mitigate the risk of diseases during ship operations. The company conducts sanitation, disease prevention including medical care management check at least once a month; however, it does not include information on potential health and safety risks associated with crew members shore leave. As per ESAP #5, Zhonggu will update the relevant procedures in relation to manage and monitor shore leave and community health and safety risks including criminality levels, robbery, kidnapping, violence and gender based violence (GBV), sexual exploitation and abuse (SEA), sexual harassment (SH), cultural sensitivities, sexually transmitted diseases (STDs), drugs and alcohol etc.

 Zhonggu has a corporate grievance handling procedure applicable to the stakeholders and commits to respond any comments or complaints received via e-mail or phone contacts shown their corporate website. Complainants are expected to use the available channel via e-mail or hotline. An anonymous mechanism is functional as per the IT based reporting system. Grievances are verified and handled by relevant department head. To further strengthen and formalize its external communication and grievance redressal process, as per ESAP#6, the company will develop and implement a documented external communication and grievance redressal procedure in line with PS 1.