This is a Category B project according to IFC's 2012 Policy on Environment and Social (E&S) Sustainability. The proposed project will have limited adverse E&S impacts that are few, site specific, largely reversible and readily addressed through existing mitigation measures and good international industry practices (GIIPs). Key E&S risks and issues for this investment are: (i) Pearl Dairy’s capacity to implement its E&S and Supply Chain management systems across all its direct and raw milk sourcing operations; (ii) availability of technical capacity/competency of Pearl Dairy’s EHS, HR and Supply Chain functions; (iii) adequacy of HR/ Occupational Health and Safety (OHS) management systems for assurance of fair and safe working conditions for direct/seasonal workers and contractors, including Gender-based Violence (GBV) risks; (iv) food safety management system, (v) water/energy resource efficiency and pollution prevention; (vi) emergency preparedness and response, (vii) traffic safety and use of security forces, (viii) community grievance mechanism.

Environmental and Social Policies. Pearl Dairy adopted an overarching Environmental, Health and Safety (EHS) policy satisfactory to IFC as part of its previous investment in 2015; the policy was reviewed in 2022. It commits the company to promoting environmental protection, workers OHS protection and continuous improvement of EHS performance. The company has also documented a ‘Quality and Food Safety Policy’, a ‘Code of Ethics and Business Conduct Policy’ and a ‘Corporate Governance Policy’. The ‘Quality and Food Safety Policy’ commits the Company to providing milk products of uncompromising quality and to demonstrating “due diligence” in the production and distribution processes in compliance with ISO 22000 requirements. The ‘Code of Ethics and Business Conduct' contains provisions on selected social and labour topics including employee health and safety, company ethical values (trust, respect etc.) and conflict of interest. The Corporate Governance Policy outlines the Company’s Human Resources commitments and procedures. The operationalization of these policies is further explained in the next sections. Going forward, Pearl Dairy will (i) update its E&S policies and extend their scope to all its facilities, milk collection centers (MCCs) and distribution centers and commit them to meet IFC’s Performance Standards (PSs) requirements; (ii) develop a Supplier Code, aligned with PS2 and PS6 related to supply chain requirements, guiding its raw milk sourcing with all third-party suppliers, including dairy cooperatives and individual farmers and other raw materials (ESAP#1).

Identification of E&S Risks and Impacts. The company has implemented an EHS risk management procedure which defines the methodology to identify, prioritize and record EHS risks and opportunities associated with its operations. EHS risks are identified following the risk analysis process approved by local regulation and recorded in a matrix with associated mitigation measures. The analysis includes an assessment of chemical, biological, physical, ergonomic and mechanical risks based on the type of work performed by employees and the environment in which they carry out their tasks. The process is subject to periodic review by local EHS inspectors. For food safety, the company follows the ‘Hazard Analysis and Critical Control Points’ (HACCP) methodology to identify risks of contamination and implement mitigation measures accordingly. Pearl Dairy holds a valid environmental license from the National Environmental Management Authority – NEMA, that specify regulatory monitoring requirements for air emissions, effluents, solid waste and noise. Going forward, Pearl Dairy will identify, and document risks and impacts associated with the construction and operations of all its facilities including the new powdered milk plant in Uganda and the construction and operation of MCCs and distribution centers (ESAP#2). The company will further consider risks and impacts associated with its raw milk supply chains, as per PS2 and PS6 requirements.

E&S Management System (ESMS) and Programs. Pearl Dairy has implemented an ESMS based on voluntary standards of quality (ISO 9001) and food safety (ISO 22001 and HACCP). The ESMS is documented in the “EHS Manual” which defines the organization’s policies, objectives, responsibilities and authorities for managing various operational processes and ensuring successful E&S performance. EHS provisions are commensurate with the scale and risks of operations. The Food Safety Management System (FSMS) was rolled out with the support of IFC Advisory Services (2018-2020) and covered all Uganda’s operations, including sub-contractors and the raw milk third-party suppliers. As part of the proposed expansion and acquisition, Pearl Dairy will (i) update and consolidate its EHS Standard Operating Procedures (SOPs) in accordance with IFC PSs and WBG EHS Guidelines (General and Dairy Processing); (ii) strengthen its management plans and training programs to reflect the revised risk assessments and (iii) roll out updated SOPs to all its facilities, including the processing plants, MCCs and distribution centers (ESAP#3).

Organizational Capacity and Competency. Pearl Dairy has appointed an EHS Manager reporting to the General Manager in charge of Operations. He is responsible for the implementation of the EHS Policy and for day-to-day enforcement of EHS procedures. He works closely with the Production Head and is supported by one EHS supervisor as well as the EHS committee which meets on a monthly basis. Ultimate responsibility for the implementation of Pearl Dairy’s EHS policy lies with the Chief Operating Officer (COO) overseeing operations at the corporate level. Following IFC’s recommendation in 2015, the company also established a Sustainability Committee chaired by the CEO. The corporate Human Resources (HR) function is overseen by the HR Director who reports to the CEO. She is supported by an experienced HR manager with one HR officer in Uganda. To strengthen its EHS, HR/social and sourcing function to support the implementation of an ESMS compliant with IFC PSs, Pearl Dairy will appoint (i) one additional experienced EHS officer, (ii) one HR manager for the development and implementation of the HR management system, including a worker grievance mechanism, and (iii) trained sourcing officers to roll out the Supplier Code and to monitor supply chain E&S performance of all the raw milk suppliers. (ESAP#4).

E&S Training. EHS training is incorporated in the induction program organized for new hires, including permanent and temporary (casual) employees and contractors. Training is delivered by internal and external teams, and covers a wide range of topics, including on the use of personal protective equipment (PPE), food and road safety within the Company’s premises, permit to work, hygiene and housekeeping and emergency response. Specific training shall include Professional Learning & Development Program (such as ISO 14001, 45001, 39001, etc.), participation to global/regional dairy industry fairs, EHS awareness, risk identification and on-the-job training provided to all high-risk workstations. This training program will be extended to all additional staff (ref. ESAP#3).

Emergency Preparedness and Response Plan. As per the ESAP agreed upon in 2015 (#33405), Pearl Dairy documented an Emergency Preparedness and Response Plan (EPRP) that outlines potential emergency scenarios at the dairy processing plant and specifies responsibilities of the emergency response team, external contacts and first responders such as firefighters, hospitals, police, etc. and measures and resources necessary. Scenarios anticipated include fire, explosion, leakage of ammonia from the refrigeration system, food poisoning, severe accidental injuries etc. Routine emergency drills are performed at the facility. The company has installed fire alarms, sprinklers and ammonia leakage detection systems in its Uganda plant and warehouses; and deployed visible and well-marked fire escape routes in all buildings. Firefighting equipment is serviced by licensed operators and audited periodically by local services as per Uganda regulations. Going forward, the company will commission a qualified Life and Fire Safety (L&FS) professional to conduct a L&FS gap analysis and means of egress review of the processing facilities and a sample of distribution centers to confirm compliance with applicable country-level requirements. Findings will inform a systematic and time-bound improvement program of the emergency equipment and the emergency preparedness and response plan, including assignment of CAPEX/OPEX. As part of the improvement program, Pearl Dairy will ensure all its facilities, MCCs and distribution centers have implemented EPRPs (ESAP#5).

E&S Monitoring and Review. Pearl Dairy’s E&S monitoring and reporting requirements are defined by the permits issued by the NEMA. The company has accordingly implemented an environmental and workplace OHS monitoring procedure incorporated in its ESMS. The EHS team is responsible for conducting inspections and audits, recording environmental and safety observations and for maintaining accidents records. Over the last 4 years, environmental and OHS performance indicators have been benchmarked to national requirements; other than the annual NEMA’ inspections, the company has not systematically documented and reviewed its E&S performance. Food safety compliance however is methodically monitored based on ISO 22000/HACCP requirements. Going forward, the company will (i) develop an environmental monitoring plan in line with IFC PS1 requirements and WBG EHS Guidelines for Dairy Processing and (ii) prepare and submit periodic performance reviews to its Sustainability Committee addressing implementation effectiveness of the ESMS. Based on E&S performance results, the CEO and COO will define the objectives, targets (KPIs) and workplan, including assignment of CAPEX/OPEX to ensure that the E&S policy, procedures and management plans are adequately implemented and continuously improved. EHS KPIs should cover as a minimum Resource Efficiency, GHG emissions and OHS (LTIFR) (ESAP#6).

Supply Chain Risks and Management. The project sources agricultural inputs (including raw milk) which are produced in regions where there is a significant risk of significant conversion to natural and /or critical habitats. The risks are potentially higher in 3 of 7 zones based on past rates of deforestation (Sembabule, Kabula N, and Kabula S). IFC’s screening process findings and recommendations are further detailed in the PS6 section below.                                                                                                

Pearl Dairy has a total workforce of 1,226 workers with a majority (81%) of the workforce being based in Uganda. A significant portion of the company’s total workforce (approx. 88%) are third party workers engaged through labor agencies. These indirect workers are engaged for core business activities and support functions. Of the 150 direct workers, 14% are women and 30% expatriates.

Human Resources (HR) Policies and Procedures. Pearl Dairy has documented an overarching Corporate Governance Policy outlining its HR commitments and procedures. The company recently developed a HR policy in Kenya and is in the process of developing a HR policy and procedures manual for its Uganda operations. The corporate level policy and the country level HR manuals broadly comply with PS 2 requirements, except for gaps on the following aspects: (i) commitments on freedom of association; (ii) policy commitments and mechanisms for implementation of procedures on prohibition of harmful forms of child labor and prohibition of forced labor. These commitments and mechanisms should be scaled to appropriate risks among the company’s direct workers, third-party workers and its supply chain; (iii) OHS commitments and appropriate programs covering third party workers within Pearl Dairy and Musty facilities. The Company shall harmonize the three documents to provide an overarching corporate level HR Policy and Procedures Manual and cascade these policies and procedures to country level. The company will ensure that the cascaded country level HR policies and procedures are fully compliant with local law and PS2 and documented in an HR handbook provided to all staff at induction. Existing workers will also be sensitized on these changes through in-person sessions, online platforms and notice boards (ESAP #7).

Worker’s Grievance Mechanism. Pearl Dairy has documented a ‘Harassment and Grievance Management’ procedure which focusses on grievances related to harassment of workers and third parties for its Uganda operations. The document outlines the roles and responsibilities of Line Managers and the HR Manager in handling such complaints in the workplace and recognizes that complainants may lodge a complaint through available judicial systems as provided for in local laws. Going forward, the Company will extend the mechanism across all its operations and will update the policy and procedure to indicate (i) available channels to submit grievances (including confidential, anonymous and sexual harassment complaints); (ii) roles and responsibilities for treating and responding to grievances; (iii) timelines for taking action; and (iv) system to log, track and report grievances and their status; (v) commitments on extension of access of its GRM to third-party workers in accordance with PS 2 requirements. In addition, Pearl Dairy will: (i) establish a separate channel for grievances related to sexual harassment; (ii) establish a dissemination strategy through inductions, trainings and refreshers; (iii) implement support services for affected workers (e.g., medical services, counseling, legal assistance, job reassignment, etc.); and (iv) appoint a committee to monitor, channel and resolve received grievances. The procedure will be documented, and appropriate worker sensitization undertaken through in-person sessions and dissemination of information on online platforms and notice boards. Staff involved in managing sexual harassment grievances will receive additional specialized training. (ESAP#8).  

Retrenchment. The company does not have documented retrenchment policies and procedures. As part of ESAP#9, it shall develop retrenchment policies in accordance with PS2 requirements and local law to include worker engagement, provisions of notices and severance pay as defined by local laws.

Worker’s Engaged by Third Parties. As indicated in the agreements signed with PDFL, Labour Agencies are required to meet all labor obligations established by local labor laws. The company will review and update existing contract templates for contractors and labor agencies to cover E&S clauses on labor, OHS, Child labor, Forced labor in accordance with PS2 objectives (ESAP#9).

Occupational Health and Safety. Pearl Dairy implemented an OHS management system incorporated in its ESMS, based on country legal and regulatory requirements. The system includes an OHS risk analysis procedure which allows to identify risks for each operational process and develop mitigation measures. There are Standard Operating Procedures (SOPs) and work permit systems for key operational tasks involving powered systems, excavations, confined spaces, hot works, work at heights and lifting operations. Ergonomic hazards have also adopted SOPs for early risk identification process. The work permit must be approved by relevant supervisors, depending on the level of risk. Main causes of injuries include manual handling and lifting, falls from heights, machine injuries, electrocution, and exposure to harmful substances. OHS performance indicators monitored include site inspections and audits, compliance with EHS procedures, OHS training planning and output. No fatalities were recorded over the last three years. Pearl Dairy will enhance its OHS KPIs dashboard and include its performance monitoring as part of its annual reporting to IFC.

Personal protective equipment (PPE) is provided to all workers based on their workstations and enforcement on use was observed. EHS signage is provided practically in all places. This covers wet floors, indication of entrances and exit doors, crossing with internal traffic, forklift roads, warehousing routes, heat and power hazards, etc. There are protection cages around equipment moving parts and floors have demarcation lines, separating corridors for forklift movement from the personnel’s workspace.

Supply Chain. The risk profiles of the 15,000 milk suppliers in Uganda and Kenya vary from family to medium-sized enterprises with different sized workforces. Pearl Dairy is developing a Dairy Development software which has a georeferenced farms database with locations, land size, number of cows but does not track the number of workers nor their working conditions, such as child and forced labor and OHS aspects. Therefore, to address labor risks related to its supply chain, Pearl Dairy will develop a Supplier Code and Supply Chain management system consistent with PS2 requirements (ref. ESAP#1).                                               

Resource Use and Efficiency. Pearl Dairy obtains water from the municipality supply. There are also 2 back-up wells with valid permits available on site. The area where the dairy processing plant is located has never experienced water supply shortages. A total of 240,000 m³ of water is currently used, for a production of 73,000 kiloliters of milk, resulting in an average water usage ratio (WUR) of 3.2 liter of water per liter of milk (l/l). This figure is higher than the international reference of water consumption in the dairy industry (1 to 1.5 l/l). Electricity is sourced from the grid. Diesel is used for backup generators and transportation vehicles; Pearl Dairy does not systematically monitor its resources consumption and has not developed a resource efficiency strategy. To align its operations with the WBG EHS Guidelines for Dairy Processing, the company will perform a cleaner production (CP) audit focused on reducing the consumption of resources (water and energy), increasing processing yields and reducing the volume and organic load of effluent discharges for its Uganda facility. Pearl Dairy will develop a Corrective Action Plan (CAP) based on the results of the CP assessment, including a corporate resource efficiency strategy to gradually implement measures for improving efficiency in its consumption of energy and water. CAPEX/OPEX will be assigned for the time-bound implementation of the CAP (ESAP#10).

Pollution Prevention

Liquid effluents and air emissions. Industrial and domestic effluents generated in milk processing operations are treated on site at wastewater treatment plants (WWTP) which consist of physical and biological treatments in anaerobic and stabilization ponds. The company does not expect a significant increase of wastewater volumes due to the proposed expansion, thus will keep using the same facilities. Treated effluent is periodically tested by external experts for compliance with national standards. Final effluent is discharged to open green fields inside company premises for watering the company gardens; dried sludge is distributed to farmers as a fertilizer. All the guideline values monitored for 2021 and 2022 were compliant with local standards and aligned with WBG EHS Guidelines. Sewage water is channeled to septic tanks then emptied by a licensed contractor who disposes it off in designated municipal sewage treatment plants. As part of the CP audit (ref. ESAP#10 above), Pearl Dairy will evaluate its current management of industrial effluents and identify mitigation measures to achieve compliance with local law and applicable WBG EHS Guideline limits. A time-bound Corrective Action Plan (CAP), with assignment of CAPEX/OPEX, will be developed based on the findings of the CP audit.

The main point sources of air emissions include the dryer, the boilers and back-up generators at both facilities. As part of the previous IFC investment, the company replaced the faulty dryer which was generating excessive dust with an ex-proofed unit. The current boiler in Uganda is furnace oil fired. For the new powder plant, a biomass boiler will be procured, fitted with a dust collecting system and an ash hopper with rotary air lock valve. The wood fired boiler at the co-packing plant will be replaced by a biomass fueled unit using briquettes (coffee husks) within the first year of the investment. These measures will allow the company to adequately mitigate air emissions. Periodic monitoring is ensured by an external party. All measured guideline values were within stipulated local Air Quality Standards and compliant with WBG EHS Guidelines.

Noise. Pearl Dairy monitors ambient noise in its neighborhood as part of its environmental monitoring activities. Since the facilities operate 24 hours/day, noise is measured in the morning and at night. Monitoring values are aligned with limits established by local authorities and WBG EHS guidelines.

Solid and Hazardous Waste Management. Solid and hazardous waste generated by Pearl Dairy’s operations is segregated at source, then stored in dedicated areas for recycling or further disposal by licensed third parties, following country regulations. Most solid waste is reused in operations. The workforce is briefed on sorting/disposal protocols.

Hazardous Materials Management. Hazardous materials present at Pearl Dairy’s facilities include acids and alkalis chemicals, mainly used for the cleaning in place (CIP) operation and for laboratory tests; diesel and refrigerants, including ammonia. Chemicals are locked in a well labelled store and kept on pellets, materials are properly stored according to their physical and chemical characteristics to prevent any possible reactions in a manner that does not pose an environmental risk.                                            

 Road Safety. Pearl Dairy’s facilities are well fenced and operations are confined within the boundaries. Raw milk is transported to MCCs by farmers' motorbikes or by refrigerated trucks driven by third party transporters who are required to comply with local road safety regulations. Going forward, Pearl Dairy will develop a Road Safety Management Plan applicable to its own transport fleet and to transport contractors. The plan will address driver fitness, competence and training, speed limits, emergency response for road accidents, vehicle maintenance and safety standards (ESAP#11).

Security Personnel. In Uganda, Pearl Dairy employs security guards from a specialized security company and 30% of them carry arms. Pearl Dairy will develop a Security Management Plan consisting of a security risk assessment and a security training plan for both armed and unarmed security personnel in line with PS4 requirements (ESAP#12).

Food Safety. In addition to national certification standards from the Uganda National Bureau of Standards and the National Halal Board, Peal Dairy hold ISO 9001 Quality management system certification, ISO 22000 Food Management systems certification and HACCP (Hazard Analysis Critical Control Point) Certification to identify possible risks of contamination in the food chain. The company establishes rules to control food hazards and to minimize the chance of food poisoning. Peal Dairy performs regular audits.

 The project supply chain sources agricultural inputs (raw milk) which are produced in some regions where there is a significant risk of significant conversion to natural and /or critical habitats. In Uganda, the risks are potentially higher in 3 of 7 zones based on past rates of deforestation (Sembabule, Kabula N, and Kabula S); whereas in Kenya, the majority of the sourcing area appears to present lower risk.

Uganda: The project supply chain sources milk which is produced in some regions where there is a risk of significant conversion to natural and /or critical habitats. The project sources 95% of its Uganda supply from within 250km of the plant. MCCs and co-operatives (55% of current supply chain) can currently be traced to one of 7 zones in south-eastern Uganda. Risks are potentially higher in 3 of 7 zones given background rates of deforestation (Sembabule, Kabula N, and Kabula S). A farm-level tracing and verification system for MCCs and co-operatives was established in January 2023. Tracing to farm-level for MCCs and co-operatives is expected to be completed within the next 12 months. Traders (45% of current raw milk supply) are not fully traceable to farm-level but the majority of sourcing can be linked to specific zones within the 250km buffer mentioned previously. There is currently no formal verification/certification to remove potential conversion risks from the trader supply chain. The project plans to reduce dependency on traders to less than 25% of its supply over the next 5 years via an increase in MCC supply. The project has committed to not sourcing from farms where conversion of natural/critical habitat occurs. For traders, this is considered feasible given long standing relationship with traders, good understanding of zones in which traders operate, and overlap with landscapes in which the project is already engaging farmers to understand and manage supply chain risks. The project has thus committed to prioritizing traders in low-risk zones to further reduce habitat conversion risks given the perceived feasibility of achieving this. The project will (i) refine the current traceability system  to allow tracing and verifying the performance of its suppliers with regards to the risks of significant conversion of natural/critical habitats, focusing on high risk zones; (ii) update its Supplier Code to require suppliers remove risks of significant conversion of natural/critical habitats; (iii) update its policies to codify its commitment to shifting its supply chain away from suppliers where risk of significant conversion to natural/critical habitats exists; (iv) develop a sustainable sourcing strategy, based on measures being applied to MCCs and co-operatives, to reduce risks associated with sourcing from traders (ESAP#13). The risk of ongoing conversion of natural/critical habitats cannot be excluded in the period prior to completion of this action but is considered low.

The project currently sources wood as fuel for its boiler in Uganda. No tracing or verification/certification system exists for this supply chain. The Company is in the process of acquiring a new boiler that will utilize alternative biomass (e.g. coffee husks). In the interim (estimated at 3 months), the project has committed to sourcing wood that is not associated with risk of significant conversion of natural/critical habitats. The project will provide evidence of interim wood sourcing that is not associated with significant conversion of natura/critical habitats (ESAP#14).

 Pearl Dairy engages with local communities through the dairy extension program which is intended to support the farming community on improving milk yield and quality. In addition, the company works together to support farmers on multiple projects like financing, training and has been pioneering efforts to introduce a quality-based milk payment system and hence is in touch with regulatory bodies like the Dairy Development Authority of Uganda (DDA) and UNBS (Uganda National Bureau of Standards).

The Company does not have a formal register of stakeholder groups or a formal stakeholder grievance mechanism in place. Stakeholder identification, engagement and responses are conducted on an informal basis. Going forward, the company will develop a Corporate Stakeholder Engagement Policy and Procedure following PS1 requirements and based on a stakeholder analysis and mapping exercise to ensure engagement and participation of all sectors of the impacted communities. The Stakeholder Engagement Policy and Procedure will entail (i) a description of key social and environmental risks and impacts of each facility; (ii) identification and prioritization of stakeholders within the scope of the operations; (iii) methods to provide information to and consult with each stakeholder group; (iv) action plans to be updated annually describing specific stakeholder engagement activities to be conducted; (v) timetable, resources, and responsibilities. The Stakeholder Engagement Policy and Procedure will also include a comprehensive grievance redress mechanism to (i) receive and register external communications and grievances from the public; (ii) screen and assess the issues raised and determine how to address them; (iii) provide, track, and document responses; (iv) provide feedback to stakeholders on grievance mechanism results, and (v) monitoring implementation and effectiveness through KPIs. Pearl Dairy will ensure that staff responsible for the grievance redress mechanism are adequately trained on implementing the survivor centered approach to handling GBVH complaints. A stakeholder engagement plan and grievance management plan will be developed for each of the facilities and appropriately communicated to affected communities (ESAP#15).                                                  

Contact Person: Rohit Rajasekharan

Address: Masaka Road, Mbarara, Ouganda

Email: rohit@pearldairy.com

Phone: +971 55 361 3246