This is a Category B project according to IFC’s Policy on Environmental and Social Sustainability. Based on the information reviewed by IFC, the proposed project is expected to have limited adverse E&S risks and/or impacts that are few in number, generally site-specific, largely reversible, and readily addressed through mitigation measures, as described in the following sections.

Key E&S aspects associated with the project are: (i) adequacy of  ZGH’s E&S management systems and its ability to assess and manage E&S risks and impacts across its subsidiaries and business lines per IFC PSs; (ii) labor and working conditions and emergency planning; (iii) pollution prevention, including solid and hazardous wastes and air emissions/odors; (iv) water and energy efficiency; (v) community health and safety including infrastructure safety, road safety, and life and fire safety (L&FS); (vi) land acquisition, where applicable; (vii) stakeholder engagement and community grievance mechanism.                                                  

 Environmental and Social Assessment and Management System and Policy

ZGH has established several group-level policies focused on environmental protection and occupational health and safety (OHS), defining company values and behavior principles. E&S risks and impacts associated with their operations are being managed through compliance with applicable national E&S regulations. Several subsidiaries implement E&S policies and E&S management systems (ESMSs) tailored to specific E&S risks. Some of these ESMSs are accredited with ISO 14001:2015 for environmental management.

As per ESAP1, ZGH will develop and implement a group-level ESMS appropriate for the scale of its operations in accordance with the general requirements of IFC PS1 and national laws. The processes and practices defined within ZGH’s ESMS will be extended to its subsidiaries.

Furthermore, as part of the ESMS, ZGH will develop and implement an E&S Training Plan to ensure ZGH subsidiary workers are aware of ESMS requirements applicable to their roles and responsibilities and an E&S Monitoring Program to assess its subsidiaries' adherence to applicable national E&S laws and IFC PSs and identify any corrective actions if any needed.

ZGH, via its subsidiaries, conducts Environmental Impact Assessments (EIAs) for projects as required by national law, and for projects for which ZGH is not obliged to carry out EIAs required by national law, ZGH will develop and implement an E&S Assessment and Management Procedure to identify and evaluate potential E&S risks and impacts associated with capital works. The process will ensure that locations that may require involuntary physical or economic displacement or of high environmental, biodiversity, cultural heritage, or other social value for local communities are identified and avoided, or where avoidance is not possible, risks and impacts are assessed and mitigated as per IFC's PSs.

ZGH’s activities do not involve regular or significant land acquisition or resettlement; however, its water infrastructure subsidiary, ViO, does acquire land for its activities. ZGH and its subsidiaries follow Croatian Law when such land acquisition is needed. ZGH’s ESMS will include a Land Acquisition and Resettlement (LARP) procedure aligned with national laws and IFC PS5 to be applied when required. The LARP will be applied by ZGH and its subsidiaries (ESAP2).  

ZGH has two group-level service teams with responsibilities relating to E&S - ‘Service Team for OHS Protection and Environmental Protection,’ which includes health and safety (H&S) and fire safety specialists, and a ‘Service Team for Physical and Technical Protection,’ which provides security staff. ZGH service team personnel are positioned in the subsidiaries covering H&S, fire safety, and security. As per ESAP 3, ZGH will appoint a suitably qualified E&S specialist/coordinator to oversee the development and implementation of its ESMS.  

A staff optimization process is currently being implemented by ZGH, which will consolidate supporting functions (legal, finance, H&S, etc.). As part of this process, ZGH plans to create an Environmental, Social & Governance (ESG) department. ZGH will update its E&S organizational structure to incorporate competent E&S resources from its subsidiaries, formalize reporting lines, and clearly define roles and responsibilities for implementing its ESMS (ESAP3).                                                     

As of June 2023, the group employed 7,126 direct employees (97% permanent and 3% temporary, and 75% male and 25% female). ZGH does not employ contractors, although contractors are engaged at the subsidiary level.

Croatia has ratified the ILO core labor standards, which are incorporated into the national labor laws that are followed by ZGH and its subsidiaries. The labor code of Croatia forbids forced labor and child labor. The group does not employ anyone under the age of 18 years, and the employee’s age is verified and recorded during the recruitment process.

ZGH has Human Resources (HR) procedures in line with local and EU labor requirements, which are generally aligned with IFC PS2, and cover aspects such as hiring, rights, obligations (including non-discrimination and equal opportunities), freedom of association, and working conditions. The principal documents regulating labor-related issues include a Standard Operating Procedure on Employment and Selection and a Worker Rulebook on Working Conditions. These procedures apply to all group employees and extend to third-party workers. ZGH operates under a Collective Agreement (CA), signed in 2019 and renewed in February 2023, defining working conditions and employment terms. The subsidiaries operate under collective agreements aligned with ZGH’s.

All group employees are provided with written employment contracts, which specify the terms of the employment, including the salary, working hours, overtime arrangements if applicable, holidays, rights in terms of freedom of association, and rights related to submitting internal complaints.

ZGH has a formalized worker grievance mechanism (WGM) described within its Code of Ethics and Conduct procedure. The WGM describes the process, roles, and responsibilities for handling grievances and is open to all staff and third-party workers. As per ESAP4, ZGH will revise its existing WGM and update it per IFC's PS2 standards and national laws.

During 2021/2022, a staff optimization process was implemented, resulting in approximately 689 (~8.8% of total workforce at the time) employees being made redundant across the group over twelve months. Additionally, approximately 60 workers engaged via agencies were disengaged. The optimization was completed in accordance with local requirements, which are aligned with EU regulations and related claims are being handled through the court system. As per ESAP5, ZGH will develop a Retrenchment Policy aligned with national requirements and IFC PS2 to apply to any future retrenchment across the group.

ZGH has developed an overarching OHS management system (OHSMS) that complies with all national legal requirements generally aligned with IFC PS. ZGH’s subsidiaries operate under their own OHSMS tailored to their business activities and aligned with ZGH’s systems. All workers, including contractors, must be adequately trained and equipped with personal protective equipment per the type of performed work. ZGH conducts internal and external audits to ensure compliance across its subsidiaries, and national authorities undertake periodic announced and unannounced audits.                                                   

Annual greenhouse gas (GHG) emissions from Zagreb group activities are less than 25,000t CO2 eq. As part of its energy efficiency efforts, ZGH is considering installing 15 MW of solar energy capacity to generate electricity for its own consumption.

Potential negative environmental impacts related to ZGH activities (such as waste management and road maintenance) include air and dust emissions, elevated noise levels, water discharge and runoff, waste generation, potentially hazardous materials, and hydrocarbon spills associated with heavy equipment operation. ZGH implements an environmental monitoring program aligned with national requirements. ZGH subsidiaries monitor air and noise emissions with no exceedances of regulatory requirements reported during 2021/2002. Wastewater from several ZGH subsidiaries is discharged into a public drainage system through a wastewater treatment device (separator) per discharge requirements defined within ZGH’s water permits. An accredited laboratory monitors the quality of discharged wastewater. As part of ZGH’s ESMS (ESAP1), an E&S Monitoring Program will be developed and implemented to monitor air, dust, water, and noise emissions generated during construction activities (including during asphalt production), and corrective actions will be implemented if impacts on local communities are identified.

ZGH’s Cistoca subsidiary manages and collects municipal waste across the City of Zagreb and transports it to dedicated recycling and disposal facilities. Cistoca manages two waste streams, mixed municipal waste (which is landfilled) and bulky waste. ZGH’s Zrinjevac subsidiary manages bio-waste, which is composted at ZGH’s bio-composting plants. ZGH’s Zagrebacke ceste subsidiary manages construction waste. Other waste streams are disposed of or treated by appropriately licensed third-party operators. Municipal mixed waste is disposed of at the Cistoca operated Jakuševec landfill, located approximately 5 km from Zagreb city center. The Jakuševec landfill began as an uncontrolled landfill in the 1960s and was progressively rehabilitated in the 1990s and early 2000s. The landfill is lined, has a perimeter channel for stormwater collection, leachate drainage and collection, and a gas evacuation system with gas engines for conversion of landfill gas into electrical energy, and complies with the relevant EU Directives. An authorized laboratory regularly monitors groundwater which complies with national requirements. The landfill is scheduled to be closed in the coming years, with the closure timeline to be defined by the Ministry of Economy and Sustainable Development. After the Ministry decides to close the Jakuševec landfill, ZGH will complete the closure in accordance with all relevant EU requirements, including the EU Waste framework directive and Landfill Directive. In the meantime, ZGH has received community grievances related to strong odors reportedly generated by the facility (particularly the bio-composting facility) and impacting local residents. As per ESAP 6, ZGH will review current operating practices at the Jakuševec landfill and related facilities (including its bio-composting facility), concerning odor management, including engaging with Affected Communities, and ensure that they are consistent with national requirements, IFC PS3, WBG EHS Guidelines, and GIIP, and will agree with IFC on any additional measures required if any gaps are identified.                                                  

For this proposed investment, life and fire safety (L&FS) of publicly accessible buildings, i.e., pharmacies, youth hostels, and camps, preventing unauthorized access to utility infrastructure, and traffic and road safety are key considerations.

The group’s facilities are constructed and maintained following Croatia’s Life and Fire Safety (L&FS) regulatory framework, which is largely aligned with EU regulations (i.e., Eurocodes). ZGH has internal L&FS specialists and works with external providers to complete internal fire safety inspections and audits, and conduct fire drills across the group’s facilities.

ZGH’s subsidiaries have individual emergency response and preparedness plans for specific operational risks. The group's emergency preparedness planning and response coordination for significant incidents is centralized and managed by ZGH. As the group is a supplier of public services, some of which are extremely sensitive to crises caused by natural disasters, ZGH actively participates in the work programs of the City Office for Emergency Management and the Prevention Council of the City of Zagreb with a focus on preventive action and including communication mechanism with the public. ZGH also participates in the work of the Civil Protection Headquarters, which, as an expert, operational, and coordinating body, coordinates the operations of civil protection operational forces in the preparedness phase and during the implementation of civil protection measures and activities as a response to major accidents and disasters.

ZGH and its subsidiaries operate their own fleet of vehicles (a combination of owned and leased), fitted with a GPS vehicle monitoring system that monitors location, distance traveled, vehicle speed, etc. The group requires all drivers to comply with national traffic laws and implements internal policies to manage occupational road risks. As part of their ESMS (ESAP1), ZGH will review its Transport Plan and ensure that it’s aligned with national requirements, IFC PS4, and GIIP, and extended to all contractors and sub-contractors.  

Neither ZGH nor its subsidiaries engage public security forces. Physical security at group facilities is provided by in-house and private security companies approved by the Ministry of the Interior (MoI). ZGH, in cooperation with the MoI, conducts screening of all security personnel. Security personnel are generally unarmed; however, armed security is required to protect critical infrastructure (i.e., water pumping stations and water chambers) per the provisions of the National Law on Private Protection and the Law on the Protection of Financial Institutions. Security personnel, in addition to fixed physical security measures, prevent unauthorized access to high-risk utility infrastructure. As per ESAP7, ZGH will develop and implement a Code of Conduct (CoC) for security personnel, aligning with national requirements, IFC PS4, and the Voluntary Principles of Security and Human Rights. The CoC will be applied to all ZGH subsidiaries.                                                  

Being a municipal utility holding company, ZGH regularly engages with public stakeholders. Specific public consultation is conducted for projects aligned with national EIA requirements. As part of their ESMS (ESAP1), ZGH’s E&S Assessment and Management Procedure will include a requirement to conduct stakeholder engagement as per IFC PS1. ZGH’s website contains information on policies, projects, and corporate updates, and there are separate websites for each of its subsidiaries containing similar information. ZGH has an external grievance mechanism, generally aligned with IFC PSs, which includes multiple entry points to raise and address grievances, including options to report anonymously if preferred.