Prior to its acquisition in 2022, the Engano Farm had no occupants, except for 9 employees dedicated to raising livestock who were subsequently transferred to TIG. The socio-economic baseline conducted during the E&S Impact Assessment (ESIA) confirmed that no individuals rely on the provisioning ecosystem services provided by the remaining native vegetation on the farm. Consequently, Performance Standard 5 (Land Acquisition and Involuntary Resettlement) was not considered relevant for the review of this project.

TIG’s E&S due diligence process for land acquisition involves identifying Indigenous Peoples (IP) in the territory to avoid purchasing land with presence of IP in its area of influence. The ESIA for the Engano Farm confirmed the absence of IP inside the farm’s operational footprint and its area of influence. There is one Afro descendant Quilombola community located 9 km away; the ESIA confirmed that no negative impacts on this community are expected from the company’s operations in the Engano Farm. For these reasons, Performance Standard 7 (Indigenous Peoples) is not considered relevant for the review of this project. Finally, Performance Standard 8 (Cultural Heritage) is not considered relevant for this project as the ESIA did not identify any cultural heritage in the Engano Farm, and no excavation works are required.

This is a Category B project according to IFC's Policy on Environment and Social Sustainability (2012). Based on information reviewed by IFC, 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 (GIIP). Key E&S risks and issues for this investment include the adequacy of the company’s (i) E&S due diligence (ESDD) to avoid the acquisition of lands recently converted or subject to claims by IP or local communities; (ii) E&S management system (ESMS) to assess and mitigate E&S risks and impacts from regular plantation operations (e.g., impact on water resources due to soil preparation, use of agrochemicals, and increased evapotranspiration) and emergency situations (e.g., accidental forest fires); (iii) contractor management system to ensure fair and safe working conditions for contractors’ workers; and (iv) stakeholder engagement process to promptly identify and resolve inquiries, concerns and complaints by stakeholders.

Before the acquisition of the Engano Farm in 2022, TIG conducted an E&S Due Diligence (ESDD) to assess the property's compliance with Brazilian legal requirements and verify the absence of Indigenous People within the farm's footprint and its area of influence. TIG's subsidiary, TTG, is responsible for managing TIG's forestry assets, while on-the-ground activities are carried out by contractors. TTG has established an E&S Management System (ESMS) in line with both legal mandates and voluntary standards, such as the Forestry Stewardship Council (FSC). These ESMS policies and procedures are integral components of contractors' contractual requirements, and TTG actively monitors and enforces compliance. According to the attached E&S Impact Assessment/E&S Management Plan (ESIA/ESMP) and the E&S Action Plan (ESAP) disclosed in IFC’s website, TIG/TTG will implement additional mitigation measures to align with IFC's Performance Standards. This includes (i) ensuring adequate staff resourcing is available to secure the implementation of the Stakeholder Engagement Plan for Engano Farm; (ii) ensuring that TTG's Grievance Mechanism complies with PS1 requirements; and (iii) adopting additional measures to address Gender-Based Violence and Harassment (GBVH) risks among the workforce and local communities. Furthermore, (iv) TIG/TTG will establish a water security policy to enhance its water monitoring program, making commercially reasonable efforts to ensure activities do not adversely impact water quality and availability for water users within its area of influence; and (v) conduct a loss and gain assessment for Natural Habitat, to ensure that planned forest plantations vis-a-vis habitat restoration and protection plans, meet No Net Loss.

PS1: Assessment and Management of Environmental and Social Risks and Impacts

E&S due diligence (ESDD) for farm acquisition. In Brazil, TIG relies on consultants to conduct ESDD prior to land acquisition. The ESDD's scope encompasses an analysis of compliance with the Brazilian Forest Code and other legal environmental requirements, the conversion of native vegetation, the presence of areas of biodiversity significance and protected areas, and the identification of Indigenous Peoples (IP) communities. Regarding the Engano Farm, the ESDD involved reviewing publicly available documentation and conducting a site visit to the area.

E&S Impact Assessment (ESIA). While no ESIA is mandated for forest plantations in Mato Grosso do Sul (MS), TIG opted to conduct an ESIA for the Engano Farm. The ESIA, publicly available on IFC's website, involved gathering baseline data on ambient water quality, biodiversity, and socio-economic conditions within the area of influence. The ESIA process also incorporated interviews with contractors' workers, Engano Farm employees, and members of the local community. The findings of the ESIA have prompted TTG to enhance its E&S Management System (ESMS) by implementing additional management and monitoring measures, complementing the existing ESMS procedures already in place. The E&S management and monitoring programs include: (i) Environmental Management Plan for the Implementation and Operation of Forestry at Engano Farm; (ii) Qualitative and Quantitative Control and Monitoring Program for Surface and Groundwater; (iii) Erosive Processes Control and Monitoring Program; (iv) Solid Waste Management and Chemicals Management Program; (v) Program for Recovery, Restoration, Monitoring of Flora with Control and Eradication of Invasive and Exotic Species; (vi) Fauna Displacement and Possible Rescue Program; (vii) Environmental Quality Indicator Fauna Monitoring Program; (vii) Social Communication Program; (viii) Environmental Education Program; and (ix) Socioeconomic Indicators Monitoring Program.

E&S Management System (ESMS). TTG has implemented an ESMS to ensure adherence to pertinent E&S regulatory requirements and Forest Stewardship Council (FSC) standards. The ESMS encompasses management system procedures, such as E&S risk assessment (including the systematic identification of E&S legal requirements by a specialized service provider), management of non-conformities, emergency plans, disclosure of information and external communication, and monitoring programs. The ESMS also includes detailed environmental, occupational health and safety (OHS), and operational management plans, procedures, and work instructions. This documentation is made available to operational contractors forming the basis for routine inspections. Detected non-conformities are documented in a shared platform and classified based on severity. Critical non-conformities trigger work stoppages until contractors provide evidence of compliance.

Emergency Preparedness and Response. TTG has documented an Emergency Response Procedure with protocols for various emergency scenarios like fires, chemical spillages, work accidents, and natural disasters. The procedure isn't specific to the Engano Farm, but each operation must compile contact information and locations of emergency and first aid responders. Trained emergency brigades must be present in each workfront, which is monitored during EHS inspections. As forest fire is the primary emergency risk for forestry plantations, TTG has a manual for fire prevention which is reviewed annually. Additional details on fire detection and control are outlined in Performance Standard 4.

PS2: Labor and Working Conditions

Human Resource Policy and Procedures. TTG's Corporate Social Responsibility (CSR) Policy and Diversity, Equity, and Inclusion Policy adhere to PS2 requirements concerning equal opportunities and non-discrimination and the prohibition of child and forced labor. In addition, workers, including contractor employees, have the right to associate with trade unions and TTG maintains open channels of communication with representatives from labor unions in the regions of origin of contractor companies.

Workers engaged by Third-Party. TTG mandates that contractors adhere to national labor laws and meet specific EHS requirements outlined in documented procedures and work instructions, which are annexed to the contract. Contractors must upload labor statutory documentation, including records of work hours and payment of wages, into a shared IT platform at specified frequencies. The documentation is reviewed by TTG before approving payments to contractors. Regular inspections of workers' accommodations, transportation, and work fronts are conducted by a service provider. In addition to inspections, suggestion boxes are placed at contractors’ work fronts and opened every 15 days by TTG, and confidential worker interviews are regularly conducted to gather feedback on their working conditions. Non-conformities with contract requirements are handled as described under section Performance Standard 1-ESMS.

Worker’s Grievance Mechanism. TTG has established a 24/7 grievance mechanism, overseen by a qualified service provider, allowing for the submission of anonymous grievances by both internal and external stakeholders. During IFC's appraisal, TTG was in the process of negotiating a contract with a new service provider. Once the new contract is approved, TTG will update the contact information across all contractors' workfronts. To enhance the effectiveness of TTG's Grievance Mechanism, TTG will (i) document a gender-based violence and harassment (GBVH) policy; (ii) document a complaint management and resolution procedure, including provisions for GBVH complaints; (iii) ensure that individuals conducting investigations of GBVH complaints are qualified to handle such cases; and (iv) incorporate TTG's labor policies (i.e., Diversity, Equity and Inclusion, GBVH) and Grievance Mechanism into the induction training for both employees and contractors' workers (ESAP#4).

Retrenchment. In the process of acquiring the company that owned the Engano Farm, 9 employees transitioned to become TIG employees. Since TIG’s acquisition, several of them chose to leave voluntarily to work on other livestock farms. Presently, there are two remaining workers working on the demobilization of the cattle activities who stay on-site during the week. For workers who were dismissed or voluntarily left after the acquisition by TTG due to the gradual demobilization of the cattle activities, TIG will demonstrate that they received notice of dismissal and severance payments mandated by law and collective agreements (including social security benefits and pension contributions, as applicable). For workers who remained working at the Engano Farm in demobilization of the cattle activities, TIG will carry out an analysis of alternatives prior to dismissal. If the analysis does not identify viable alternatives to retrenchment, a retrenchment plan will be developed in consultation with workers to reduce the adverse impacts on them. TIG will ensure that all workers receive notice of dismissal and severance payments mandated by law and collective agreements (including social security benefits and pension contributions, as applicable). Considering there are workers living on the farm, TIG will provide them with moving and transition allowances to support them in their efforts to secure alternative employment and housing (ESAP#5).

Occupational Health and Safety. TTG's Occupational Health and Safety (OHS) program at the Engano Farm includes the documentation of a Risk Management Program (PGR, in Portuguese) and the Medical Surveillance Program (PCMSO, in Portuguese) for all job positions, complying with national legal requirements. The PGR assesses risks, establishes controls, and outlines the required personal protective equipment (PPE) for each job position. Similarly, TTG mandates that its contractors provide this documentation as part of their contractual obligations. As of October 2023, TTG reports no fatal accidents among employees and contractors in the last 5 years, and no lost-time injuries (LTI) among TTG's employees in the last 3 years. Only one LTI has occurred in the Engano Farm since the beginning of TTG’s operations resulting in a LTI frequency rate (LTIFR) of 5.6, below OSHA 2019 reference values for the sector. While in forestry operations, hydration and shaded resting areas are made available at contractors' workfronts, the reviewed PCMSOs lacked a specific program to evaluate the risk of chronic kidney disease (CKD) among workers exposed to heat, such as those involved in manual planting. TTG will require contractors to regularly assess the risk of heat stress related illnesses among its workforce and implement the necessary controls and monitoring measures (ESAP#6). Additionally, the PGRs and PCMSOs reviewed by IFC did not include the assessment of the specific risks faced by workers involved in fire response. TTG will require contractors to regularly assess the risks to fire brigades and all workers involved in fire response and implement the necessary controls and monitoring measures (ESAP#7).

PS3: Resource Efficiency and Pollution Prevention

Water Quality: TTG’s operations involve the cultivation of fast-growing tree species and the protection and restoration of native vegetation. The primary potential environmental impacts are related to ambient water quality, stemming from soil erosion and agrochemical use. To address this, in the Engano Farm, TIG has implemented a precautionary measure of establishing 400-meter buffer zones around all water bodies. In addition, fertilization practices are based on soil analyses, and pesticide use is determined through pest scouting results analyzed by a consulting company offering Integrated Pest Management (IPM) services. No WHO Ia (extremely toxic) or Ib (highly toxic) pesticides are used by TTG. Finally, specific construction techniques are employed on unpaved roads to reduce the speed of runoff and the construction of roads close to water bodies is avoided. A baseline study of ambient water quality was conducted for Corrego Engano as part of the ESIA, the water body traversing the property, revealing good water quality. Ambient water quality will be monitored every six months and will include monitoring for the presence of glyphosate and sulfluramide, and their degradation compounds, among the parameters.

Water Resource Assessment and Monitoring. While forest plantations do not require irrigation and have minimal water usage during plantation, tree plantations may exhibit higher evapotranspiration rates compared to other land uses. The transformation of pastures into tree plantations could potentially impact water availability. As part of the water monitoring program established in the ESIA study, TTG will establish a comprehensive water security policy, incorporating the following components: (1) identification of households and other water users within the project's area of influence susceptible to potential impacts from project activities, (2) assessment of the current status of water security among these users, (3) active monitoring of water security status, and (4) a commitment to promptly take appropriate actions should water security become impaired (ESAP#8).

Storage of Hazardous Materials. Existing pesticide, fuel, and temporary waste storage facilities at the Engano Farm were built by the previous owner. The current pesticide storage facility adheres to good international industry practices (GIIP) with an impermeable floor, secondary containment, proper ventilation, and restricted access. Safety data sheets are readily available to personnel managing pesticide storage, and an emergency eye wash and shower in good working condition is easily accessible outside the storage area. Instead, the fuel and hazardous waste storage facilities do not comply with GIIP standards.

TTG will build a new temporary solid waste and hazardous waste storage aligned with GIIP (ESAP#9). Concerning fuel management, TTG will not maintain on-site fuel storage but will utilize fuel from designated fuel trucks, while ensuring adherence to all safety standards.

Greenhouse Gases (GHG). The project will not be a significant emitter of GHG (limited to few thousand tons of CO2 equivalent (CO2e) due to fuel consumption and use of fertilizers). On the contrary, the project is expected to capture nearly 8.5 million tons of CO2e through tree planting and forest restoration.

PS4: Community Health, Safety and Security

Fire. TIG ensures continuous surveillance of all its plantations through 24/7 camera monitoring. These cameras are equipped to send alerts upon detecting smoke. Additionally, the plantations undergo satellite monitoring, which detects fire hotspots every 15 minutes to 2 hours. The centralized monitoring center is situated at TTG’s office in Agua Clara. Upon suspicion of a fire, a security personnel member, patrolling the site on a motorcycle, is dispatched to investigate (average response time of 15 minutes). If a fire is confirmed, the fire response team is immediately mobilized. The average time from fire detection to control is approximately 45 minutes. TIG owns pick-up trucks for rapid response (500 liters) and water trucks (10,000 liters), which are also operated by the contracted physical security company. One of each is stationed at the Engano Farm. TTG is also an active member of the Reflore MS - Associação Sul-Mato-Grossense de Produtores e Consumidores de Florestas Plantadas, primarily focusing on mutual aid for fire protection. The annual casualty loss rate from all causes for TIG’s assets under management in Brazil has averaged 3 basis points per annum from 2012-2022.

Transportation. Once the tree plantations reach maturity, wood will be sold as stumpage and buyers will be responsible for harvesting and wood transportation. TTG will conduct a risk assessment of proposed logistics routes to access Engano Farm before the start of harvesting and wood transportation operations (ESAP#10). The assessment will identify risks related to community health and safety and gender-based violence and harassment (GBVH), with particular attention to vulnerable groups. Based on the results of the assessment, TTG will prepare and implement additional prevention and response measures to mitigate any identified impacts and monitor them, such as enhancement of the engagement activities with local authorities and communities; and awareness campaigns and dissemination of TTG's GBVH Policy (ref. ESAP#4) and TTG’s Grievance Mechanism (ref. ESAP# 3) among communities, wood buyers and their harvesting/transportation service providers.

Project influx. The majority of workers employed by forestry contractors come from other regions. Presently, these workers are residing in accommodations provided by their employers in Figuerao (3,000 inhabitants) and Costa Rica (20,000 inhabitants). Given the anticipated peak workforce of approximately 220, it is expected that there will be no significant impacts from the project-related labor influx. However, under PS1, in line with ESAP#1, TTG will incorporate the engagement with local communities in the vicinity of workers' accommodations and with local authorities into its Stakeholder Engagement Plan to monitor potential impacts associated with labor influx on these municipalities.

Security Forces. TTG engages private security companies for various responsibilities, including patrolling plantations, monitoring and controlling fires, and managing the facilities on the farms. At the Engano Farm, a contracted security company, consisting of three guards and one coordinator, is responsible for these activities. Since the acquisition of the farm, there have been no reported instances of theft or natural species, hunting, fishing, or land occupation. The security guards are unarmed, and TTG’s documented work instructions (ISG 004) explicitly instruct guards not to confront individuals committing illegal activities, and to request the support of public security forces. While the contracted security company for the Engano

Farm has a Code of Conduct that expressly prohibits sexual harassment and violence, TTG has yet to develop a specific Code of Conduct outlining the expected behavior of security guards. TTG will undertake the following actions: (i) formulate a Code of Conduct for Security Forces based on the International Code of Conduct for Private Security Service Providers (ICoCA); (ii) obtain acknowledgment of receipt of the updated CoC from the security contractor; and (iii) implement regular training sessions for security guards based on the updated CoC for Security Forces (ESAP#11). TTG will also assess the risks posed by public security forces when requested to intervene and will communicate to them TTG’s Code of Conduct for Security Forces (ESAP#12). TTG will document the engagement process with public security forces keeping a log of interactions, including date, type of communication (e.g., email, phone, in-person meeting), individuals involved, and topics discussed.

PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resources

Biodiversity Conservation. The Engano Farm is located within the Cerrado Woodland and Savannas ecoregion (WWF), which is characterized by high levels of endemism and considered one of the richest of all tropical savanna regions. Deforestation within the property took place mostly between 1991 and 1992, and very little deforestation has taken place after 1994. TIG’s ESIA baseline identified several priority biodiversity values associated with the project area, including (i) the globally Vulnerable (VU) and nationally Critically Endangered (CR) bird Crax fasciolata (Bare-Faced Curassaw); (ii) the nationally Endangered (EN) fish Myloplus tiete; (iii) the endemic, range-restricted, fish Melanorivulus ofaie; and 7 species of mammals categorized as VU either globally or nationally.

At the time of acquisition in 2022, the property had ~6,400 ha of natural habitat consisting of Cerrado vegetation, as well as ~18,000 ha of modified habitat consisting of pastures with exotic grasses and a small pine plantation.

TIG will establish eucalyptus plantations in 62% of the Engano Farm project area (~14,600 ha) consisting of pastures and pine plantation. TIG will conserve/restore the remaining 38% consisting of ~6,400 ha of natural habitat and 2,500 ha of pastures in different stages of natural regeneration. TIG will register the conserved/restored area as Legal Reserve beyond the 20% Legal Reserve set aside requirement under the Brazilian Forestry Code.

TIG will hire qualified consultants to carry out a supplemental baseline assessment focusing on herbaceous flora to finalize the habitat mapping, as per PS6 definition (ESAP#13). TIG will develop and implement a Biodiversity Action Plan to meet No Net Loss which will be based on a loss and gain assessment for Natural Habitat, considering the area to be dedicated to tree plantations, vis-a-vis habitat restoration and protection (ESAP#14). The strategy will also include a Biodiversity Monitoring Program to ensure No Net Loss is achieved. TIG will adapt its management practices based on the monitoring results.

Sustainable Management of Living Natural Resources. TIG will plant eucalyptus trees in approx. 14,600 ha of the Engano Farm. All TIG’s plantations are FSC certified. The Engano Farm obtained the FSC certification in December 2023.

Stakeholder Engagement. According to TTG’s ESMS procedures, TTG shared information on the company’s operations with households situated within a 3 km buffer of the Engano Farm and the Quilombola community of Santa Teresa, 9 km away, before the commencement of plantation activities in December 2022. During this engagement, community members expressed no grievances but sought information about the anticipated changes. In mid-2023, as part of the ESIA, TIG conducted a socio-economic baseline assessment of the 21 households within the 3 km buffer of the farm (community of Santa Barbara), and the Quilombola community of Santa Teresa, to establish a social development index, which will be subject to regular monitoring. TIG has also partnered with a local organization to provide training to the Santa Teresa community in the collection of native seeds for sale to native tree nurseries or to support regional restoration activities.

Both the initial engagement and the collection of socio-economic data were carried out by a social consulting firm, as TTG does not maintain an in-house community relations team. TTG will develop and implement a Stakeholder Engagement Plan (SEP), tailored to the project risks and impacts, consistent with PS1 (ESAP#1). TTG will ensure adequate staff resourcing is available to implement the SEP, strengthen engagement with neighboring communities and neighbors within the area of influence of the Engano Farm and workers’ accommodations, and identify potential grievances (ESAP#2).

TTG has established a 24/7 grievance mechanism, overseen by a qualified service provider, allowing for the submission of anonymous grievances by both internal and external stakeholders (ref. PS2 for information on workers’ grievance mechanism). Grievances can be filed at TTG's website https://ttgbrasil.com/contato/, by email contato@ttgbrasil.com, phone and WhatsApp. During IFC's appraisal, TTG was in the process of negotiating a contract with a new service provider. Once the new contract is approved, TTG will review its grievance mechanism procedure, consistent with PS1, with a defined methodology to (i) receive, register, and address grievances; and (ii) provide timely feedback to complainants (ESAP#3). The mechanism will allow for anonymous complaints to be raised and addressed and will be communicated to surrounding communities and other relevant stakeholders.

Contact Person:

Company: BTG Pactual Timberland Investment Group

Point of Contact: Mark Wishnie

Title: Chief Sustainability Officer and Head, Impact Investment Management

Telephone Number: +1 212-293-4600

Email: mark.wishnie@btgpactual.com

Mailing Address: BTG Pactual, 601 Lexington Ave #57, New York, NY 10022, USA

Website: www.btgpactual.com and www.timberlandinvestmentgroup.com