This investment is a Category B according to IFC’s Policy on Environmental and Social Sustainability. Based on information reviewed by IFC, the project is expected to 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 (GIIP) and recognized standards, guidelines, or design criteria. The key E&S risks for the investment are expected to include; (i) the effectiveness of the ESMS and capacity of the Issuer (i.e. GCap), to identify and mitigate E&S risks of its own operations and ensure the same for its  clinics, pharmacies, and diagnostic pipeline/portfolio companies, in line with both Georgian national requirements and with IFCs PS; (ii) monitoring and managing the E&S performance of its portfolio; (iii) assurance of fair and safe labor and working conditions in its operations and portfolio companies; (iv) community security, health and safety; and (v) stakeholder engagement.                                                

 Policy and E&S Assessment and Management system

GCap’s ESMS is currently under development. Its E&S Policy sets out its approach to sustainable finance and covers its commitment to minimize the environmental and social impacts of its activities at both GCap level and from its portfolio company activities. It also outlines GCap’s E&S oversight process which comprises screening, appraisal, monitoring, and reporting of the environmental and social risks, and performance of its portfolio companies. However, other than an exclusion list and general E&S checklists to be applied during due diligence and monitoring, there are no formal E&S procedures or documentation to guide and record GCap’s E&S oversight activities. In order to consolidate and formalize GCap’s evolving E&S processes and activities, it will, under ESAP#1, further develop and implement its ESMS. This will follow the general requirements of IFC PSs, and, as appropriate to the scale and nature of its own operations, provide E&S oversight of its polyclinics, diagnostic, and pharmacy retail portfolio companies. As discussed further in the following sections, the ESMS will comprise a set of documented actions and procedures that will be implemented concurrently with GCap’s risk management procedures and will cover amongst others:

a) Board responsibilities with respect to E&S and Governance (ESG);

b) For polyclinics, diagnostics, and pharmacy retail sectors, identification of sector specific E&S risks and impacts, and production of sector specific checklists (to customise the current generic ones) to be applied at due diligence appraisal and periodic monitoring during active ownership, supported by similarly sector targeted guidance on their completion and review;

c) Step-by-step instructions defining what needs to be done by whom and relating to E&S risk management of GCap businesses in the above-named sectors; 

d) Requirements for GCap’s E&S monitoring and reporting relating to their business in these sectors; and

e) Development and implementation of a stakeholder engagement plan relating to their activities in these sectors.

Organizational Capacity and Competency

Overall accountability for GCap’s ESG performance sits at Board level. There are E&S nominated staff within GCap’s investment and finance teams, with specific responsibilities to update GCap’s ESG polices, to apply the E&S screening and appraisal processes at due diligence, monitor E&S performance during ownership, and to report the performance to the Board via the Audit and Valuation and Financial Committees and their directors. In relation to GCap’s portfolio companies in the Georgia Healthcare Group, E&S technical guidance and coordination regarding E&S matters is provided to them by the Georgia Healthcare Group’s Environmental Manager, who also interfaces regarding such matters with GCap. GCap has engaged local and international E&S advisors and technical consultants to assist in developing and implementing its ESMS, including production of the checklists and engagement with the portfolio companies. For portfolio companies where GCap has a majority shareholding, each CEO is appointed by GCap. As per GCap’s most recent ESG targets it will establish ESG committee in all its portfolio companies where it has a majority ownership. There is also an intention to appoint environmental coordinators within such companies.

As per ESAP#1a, GCap will outline responsibilities of, and procedures to be adopted by, the Board in relation to E&S oversight including (but not limited to): approval of E&S Policies and ensuring that GCap’s strategic direction is regularly informed by E&S issues.

Identification of Risks and Impacts

GCap’s current approach to ESG risk and impact management has a strong focus on climate change (i.e., reducing greenhouse gas (GHG) emissions). While E&S issues beyond GHG and climate related risks, for example potential for air emissions, waste and wastewater generation, management of hazardous materials and labor related matters, are identified for each portfolio company through application of GCap’s ESG’s due diligence checklist, there is no mechanism or guidance in place on how the information gathered through that checklist should be used and/or inform subsequent risk management activities. Per ESAP #1b, GCap will identify sector specific E&S risks and impacts for pharmacy retail, diagnostics and polyclinics and based on these, develop sector specific checklists beyond those relating to climate, ESAP# 1c will set out the processes and responsibilities for undertaking specific risk assessments, developing the management measures, and ensuring that the outcomes of those exercises are tracked and recorded in investment decisions and review documentation.

GCap is committed to exclude from its activities acquisition/development of projects with high E&S risks that may result in significant risks/impacts, that relate (but not limited to): (i) involuntary resettlement; (ii) lands to which ethnic minorities/indigenous people; (iii) biodiversity; (iv) cultural heritage; (v) occupational health and safety risks; or (vi) child and forced labor.

Management Measures

In 2022 GCap commenced engagement with portfolio companies to assist them in establishing their E&S priorities, actions, and targets as well as the systems to enable to achieve them. Per ESAP #1c GCap’s E&S risk management processes will continue such engagement to ensure that pipeline and portfolio companies in polyclinics, diagnostic, and pharmacy retail sectors are aware of the E&S risks relating to their operations, and will develop the measures required to manage them.

Emergency preparedness and response (EPR) 

Considering GCap’s own operation is limited to office-based activities, it does not have a specific policy on EPR but requires its portfolio companies to comply with national requirements in this respect, including in relation to life and fire safety (LFS). Under ESAP #1b, as a minimum for the pharmacy, retail, polyclinics, and diagnostics businesses EPR, and LFS will be one of the key considerations in the identification of sectoral ESG risks, while the requirements for their subsequent management will be included in ESAP #1c. The same processes will be applied to other portfolio companies on a best-efforts basis process.

Monitoring and Reporting

Since 2021 GCap has published standalone annual sustainability reports https://georgiacapital.ge/esg. It also submitted for the first time its climate change disclosures for 2022 to the Carbon Disclosure Project (CDP) platform. GCap tracks the status of its agreed E&S actions relating to its projects financed by various DFIs. Under ESAP# 1d GCap will set out it its obligations for monitoring of E&S performance of its portfolio companies in the polyclinics, diagnostic, and pharmacy retail sectors, including how it will implement its requirements for such companies to provide regular E&S reports and to conduct site visits to monitor their E&S performance. It will also, under this action, outline the approach to E&S reporting, both internally within GCap, and to specific external stakeholders as identified under ESAP#1e. As part of ESAP #1d GCap will also specifically develop and maintain an ESG commitment register itemizing and recording the status of all ESAP actions arising from current DFI investments to retail pharmacy, clinics and diagnostics businesses under Georgia Healthcare Group holding company, grouped by PS and the register will be provided to IFC.                                                  

 At the Company level, GCap’s Code of Conduct and its policies on Ethics, Diversity, and Whistleblowing provide controls relating to equal opportunities and prevention of harassment or discrimination, as well as mechanisms for registering and addressing grievances, while their approach to sustainable procurement covers employment practices in the supply chain. Its Whistleblowing policy is also cascaded to portfolio companies where it has a majority holding. Both GCap and its portfolio companies are also subject to Georgia’s labor laws which, with extensive support of the International Labor Organization, underwent significant reform in 2020. The sector specific checklists developed under ESAP #1b will enable national legal requirements in this respect to be identified and compliance to be monitored.

GCap undertakes safety audits, implements preventative measures, and provides training and medical support for its directly employed staff. The portfolio companies are required to comply with national standards, including, as applicable, in relation to chemical management, gas storage, radiation risk, etc. The diagnostic lab’s Joint Commission International (JCI) certification requires a suite of laboratory quality controls and safety measures, while the polyclinics will, it is understood, in the coming years, be required to also have JCI, or comparable international accreditations. The sector specific checklists developed under ESAP #1b will identify the relevant certification and compliance requirements under national legislation relating to staff safety, to ensure that these are monitored, and any shortfalls are addressed.  

 GCap reports annually on its greenhouse gas emissions. In 2022 its own operations and portfolio companies’ aggregated Scope 1 and 2 emissions were 22.8k CO2 tonnes equivalent and it has committed to reduce this by 30% and 95% by 2030 and 2050 respectively https://georgiacapital.ge/esg.

Handling and disposal of waste, wastewater, and hazardous materials at the diagnostic lab are controlled in accordance with both the Facility Management and Safety requirements of JCI accreditation as well as  national legal requirements. The same standards, procedures and controls are applied at its collection and pick up points. The polyclinics and pharmacies are also required to comply with national regulations with respect to pollution prevention. The sector specific checklists developed under ESAP #1b will, for each business in the pharmacy retail polyclinics and diagnostics sector, identify the relevant certification and national compliance requirements, relating to pollution prevention and control, to ensure that these are monitored, and any shortfalls addressed.                                                     

 National requirements with respect to safety procedures and measures at portfolio company facilities in the pharmacy retail polyclinics and diagnostics sector ensure protection of patients and visitors, and of surrounding communities. The proposed measures under ESAP #1b relating to worker health and safety, as described in PS2 above, also address the health and safety risks such as those relating to contagious diseases and/or LFS, to patients and visitors as well as for nearby communities.                                                 

 Although GCap has no formal stakeholder engagement plan, several mechanisms to interact with various external organizations and groups are in place. Such external stakeholders include shareholders, investors, rating agencies, portfolio companies and their representatives, advisors, portfolio company employees, patients, customers and communities of the vicinity of their portfolio company facilities. A key such engagement mechanism is specified in the GCap Whistleblowing policy, which is cascaded to portfolio companies, and includes a grievance mechanism accessible to their employees, patients, customers and the wider public. This is implemented through grievance boxes in the clinics and diagnostics lab. In addition, a range of internal engagements are undertaken regarding E&S issues, notably with the GCap Board, Investment, Financial, Audit & valuation and Communication functions. Under ESAP #1e GCap will formalize its stakeholder engagement plan, which will outline who its key stakeholders are, and identify the required interactions with them, including disclosures and reporting.