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) described in this document and the attached E&S Action Plan (ESAP).  Sugar cane plantation and harvesting is fully mechanized. Additional E&S risks and impacts of the project are linked to water consumption, air emissions from biomass boilers, generation of waste, reuse of industrial effluents for fertirrigation, bagasse fires and dust explosions in the industrial facilities, occupational health and safety, exposure of workers to heat and pesticides in plantations, provision of safe working conditions, and exposure of communities to pesticides, truck traffic, and malicious fires, and further fragmentation and degradation of natural habitats.

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

Environmental and Social Policies. In October 2023 VPM adopted CMNP corporate Sustainability Policy. The policy aims to reaffirm the institution's commitment to socio-environmental and safety responsibility, compliance with Brazilian legislation, risk prevention and good management practices. It establishes guidelines to conduct the company's activities in a sustainable manner, considering environmental, social and economic factors, as well as risks and opportunities for the business, including (i) energy efficiency, (ii) biodiversity protection, (iii) water resources, (iv) climate change, (v) innovation and technology, (vi) health and safety, (vi) human rights and labor force, (vii) career management, (viii) non-discrimination, and (ix) socioeconomic development promotion. The Sustainability Policy is partially aligned with IFC PS as it does not include commitments on managing social risks (e.g., retrenchment, grievance mechanism, impacts to communities, right to voluntarily join worker unions or collective bargaining mechanisms, and adequate training/safety equipment). As per ESAP#1, VPM will upgrade its Sustainability Policy to align its E&S performance against IFC PSs requirements. The updated Policy will include, but not limited to, the following explicit commitments (i) meeting IFC PSs and WBG General/Sector-Specific EHS Guidelines; (ii) meeting Bonsucro standard, including certification; (iii) not purchasing/using/distributing WHO Class Ia/Ib,  (iv) not purchasing/using/distributing WHO Class II (moderately hazardous) pesticides, unless the project has appropriate controls on manufacture, procurement, or distribution and/or use of these chemicals. These chemicals should not be accessible to personnel without proper training, equipment, and facilities to handle, store, apply, and dispose of these products properly; and (v) manage social risks associated with its operations, including the sourcing operations with third-party suppliers. VPM will communicate the upgraded Sustainability Policy to all employees and contractors, and relevant stakeholders and will provide annual report of implementation progress of its E&S performance.

Identification of E&S Risks and Impacts. VPM commissioned in 2004 an EIA to obtain the environmental license for the installation of a sugar, ethanol and energy production facility; and sugarcane plantations (28,717 ha). The EIA identified potential impacts to water resources, air quality, soil, and biodiversity. In addition, for all subsequent project expansions and modifications, VPM has obtained the required approval in the operating licenses, including increase in crushing capacity (from 2 to 2.4 million tons). Moreover, VPM verifies that the leased sugar cane plantations and the third-party suppliers have Environmental Compliance Authorization from CATI (Technical Assistance Coordination) of the municipality, as required by Brazilian law. VPM complies with the specified Terms and Conditions (T&Cs) in the environmental license. VPM keeps an updated registry of applicable environmental and social legal requirements and authorizations the company must comply with. VPM confirmed that it has not incurred any penalties or fines for legal, environmental, and social issues over the last two years.

VPM adopted management and monitoring measures (described in the following section) as required by Brazilian laws. The OHS risk assessment (a.k.a. hazard identification and risk assessments - HIRA) is described under Performance Standard 2 – Occupational Health and Safety section. However, VPM does not have an identification and risk assessment for environmental and social issues. As part of ESAP#2, VPM will develop an identification and risk assessment for E&S risks for its industrial and agricultural operations, and new developments.

E&S Management System and Programs. Although VPM does not have a fully documented E&S management system (“ESMS”) in place, its practices are conducted in line with environmental licenses and as per the Brazilian Regulatory Norms (NR) for OHS aspects. VPM implements environmental and OHS controls to manage related risks. Key environmental controls include (i) precision agriculture to avoid excessive fertilization; (ii) vinasse application program; (iii) integrated pest management (IPM); (iv) reuse of organic wastes (filter cake, vinasse and ashes from boilers) as fertilizer; (v) safe storage and handling of hazardous materials; (vi) fauna monitoring. OHS documented controls include: (i) workplace exposure monitoring (e.g., noise, dust); (ii) medical surveillance of workers exposed to heat, noise and pesticides; (iii) logout/tagout procedures; (iv) preventative and predictive maintenance of machinery and equipment; etc. Moreover, VPM has the following documented procedures: (i) dangerous work permits (works at height, hot work, and confined spaces); (ii) personal protective equipment (PPE); (iii) fertirrigation; (iv) mechanical harvesting and (v) chemical products management. In addition, VPM implements a Quality Management System (QMS) based on ISO 9001:2015, but it is not certified. Since VMP only produces raw sugar that will be further refined to food grade by their customers, its sanitary procedures and practices in place, are not as stringent as food safety measures (e.g., HACCP). In addition, as per ESAP#3, VPM will develop an Integrated E&S Management System (ESMS) Manual, in line with IFC PS and relevant sections of the WBG General and Sector-Specific EHS Guidelines. The ESMS Manual will consolidate and ensure a systemic implementation of its E&S Policies, risk identification matrixes, management plans, SOP/working instruction, training, EHS Key Performance Indicators (KPIs) and monitoring/reporting framework, emergency preparedness and response, and stakeholder engagement. As part of the ESMS, VPM will document and consolidate its environmental controls. The ESMS will undergo a verification audit by an independent consultant. In case of a Corrective Action Plan (CAP) following the ESMS verification audit, a time-bound CAP implementation schedule and CAPEX/OPEX will be assigned (ESAP#4).

E&S organizational capacity and competency. VPM has a dedicated Environment and Occupational Health and Safety (EHS) team. The responsibility for environmental issues at corporate level resides with the Quality Manager who reports to the Director. The Quality Manager is supported by the Standardization and Environment team (five employees) and is responsible for managing activities related to the Environment at corporate level. Moreover, at VPM a team of 11 employees work specifically in reforestation activities (nine agricultural assistants, one agricultural machine operator and one field inspector). VPM´s OHS Officer is supported by nine additional OHS specialists and reports to the Corporate OHS Manager. At corporate level, OHS reports to the HR Manager. In addition, the HR supervisor oversees social investment and reports to the corporate HR Manager. The HR team in VPM is made up of 16 employees, of which seven employees are responsible for occupational medicine. As per ESAP#5, VPM will strengthen its E&S capacity by hiring a full time E&S Coordinator responsible for the ESMS implementation.

E&S Training. VPM implements a training plan focused on operational requirements, specialized skills and OHS topics, such as (i) operation of automatic machinery, (ii) first aid, (iii) fire prevention and control, (iv) agrochemicals application, (v) fertigation, (vi) maintenance of agricultural machinery, (vii) confined space work, (viii) work at height. All workers (direct and indirect) go through an induction process which covers working conditions, health, and operational safety. VPM identifies training needs by position or function through a Training Needs Survey. VPM facilitates training on agrochemical application (provided by SENAR, the National Service of Rural Learning). In addition, the company monitors monthly the training plan implementation through its Balance Score Card (BSC). VPM will review/update its E&S training plan to integrate trainings relevant to the ESMS updates, technical and procedural updates and changes adopted as part of the ESAP for its workers, contractors and third-party suppliers (ref. ESAP#3).

Emergency Preparedness and Response. The company has defined an Emergency Response Plan (ERP), that establishes specific procedures to prevent, respond to, and mitigate emergency scenarios at the industrial facilities, including (i) fires (e.g. sugar dust, bagasse storage area, bio-ethanol tanks) (ii) explosions (at co-generation plant, GLP gas tank and boiler), (iii) leaks, and (iv) spills of hazardous chemicals. The plan also includes the roles and responsibilities and the communication strategy between the command center and the response teams. Additional elements of the fire detection and control system are (i) trained fire, first-aid and rescue brigades present at every work shift; (ii) regular temperature monitoring of bagasse for the early detection of hotspots (spontaneous fires can ignite in the bagasse stockpiles); (iii) fire hydrants located along the perimeter of the bagasse storage areas; and (iv) a schedule for periodic inspection of the emergency response equipment. In addition, VPM has developed a Drill Plan and a consolidated emergency brigade of 108 members. VPM identified potentially hazardous areas, and designated and clearly marked evacuation routes and assembly points. VPM obtained the fire fighters certification (AVISO) from the State of Sao Paulo authorities. In addition, in 2023 VPM carried out an audit of its Protection System against atmospheric discharges and concluded that the grounding and SPDA systems of the VPM meet the maximum requirements required by law, regarding the protection of people, equipment and property. As per ESAP#6, VPM will strengthen the ERP with diagrams of the risk in the mill (i.e. risk maps), fire protection system description and diagrams, evacuation plans, training program, and periodic audits of the emergency plan. VPM will also include detailed procedures to prevent, respond to, and mitigate explosions at the bio-ethanol plant, at the bagasse storage area, and at the sugar storage area); and procedures for emergency situations at plantations (including heatwaves and wildfires). In 2023, there was a fire outbreak in the bagasse, which was contained. In addition, in the agricultural fields, the last fire occurred in November 2023. Firebreaks are present in the fields with a minimum distance of 3m between the planted areas to contain any fires. Near communities and the industrial operations, a buffer of 15m firebreaks are observed. The fields are controlled via satellite and by direct observation. In addition, VPM adopted the Mutual Aid Plan, which establishes procedures in case of fires in agricultural areas. Since VPM is in an area susceptible to heatwaves with temperatures reaching 48°C and an increasing risk for wildfires, given the nature of the crops, the company will include in the ERP specific protocols for heatwaves (ref. ESAP#6).

Monitoring and Review. VPM’s monitoring and reporting activities are focused on EHS performance as defined by the T&Cs of the operational licenses and the Brazilian Regulatory Norms (NR) for OHS aspects. Environmental monitoring includes (i) ambient air quality, (ii) disposal of solid/hazardous waste, (iii) wastewater effluents, (iv) consumption of water, fuel and energy, (v) compliance with Brazilian biodiversity set asides, (vi) surface and groundwater, amongst others. As part of the OHS procedures, VPM monitors KPIs such as (i) number of injuries, (ii) accident frequency rate, (iii) accident severity rate, (iv) lost time accident (LTA) frequency rate, (v) root cause analysis. The OHS KPIs are followed up by senior management and included in the company´s BSC. Moreover, the VPM reports internally its EHS performance through CMNP´s corporates Sustainability Report based on the Global Reporting Initiative (GRI). VPM has not yet established a written procedure for monitoring/reporting on its E&S performance.  VPM will develop a written monitoring/reporting procedure for E&S performance. The procedure will consolidate all E&S monitoring/reporting requirements to comply with local regulation and as per IFC Ps and WBG EHS Guidelines (ref. ESAP#3). As per ESAP#7, VPM will strengthen its EHS KPIs and will develop social KPIs, to ensure continuous performance review of its operations, in accordance with the performance-based requirements which will be defined in its Sustainability Policy, and in compliance with IFC's PSs and applicable legal and regulatory requirements. For its OHS performance review, VPM will adopt additional OHS leading (workplace inspections per manager/supervisor; number of system audits; % completion of corrective actions; number of safety committee meetings; number of refresher trainings and incident near-misses, number of annual medical check-ups) and lagging OHS indicators (e.g., first aid cases; road safety; medical treatment and restricted work cases). VPM will adopt the following social indicators: grievances and on-going engagement with NGOs and stakeholders. All KPIs will apply to VPM employees and contractors; will be included in the BSC, including performance with respect to guideline values in WBG EHS Guidelines for Perennial Crop Production and for Sugar Manufacturing; will be reported in CMNP´s Sustainability Report. VPM's Senior Management will review on a quarterly basis these KPIs, including any corrective action identified and assignment of OPEX/CAPEX to address any performance deviations. Internal audits will be carried out by the E&S Coordinator. VPM will also define annual EHS objectives and targets as part of the ESMS (ref. ESAP#3), including resource efficiency at plantations, mill and refinery, and OHS statistics (for both direct employees and contractors). Going forward, VPM will annually disclose on its website the Sustainability Report, while local communication plan on E&S performance will be delivered at the local level, including affected communities (ref. ESAP#24).

Supply Chain Risk Assessment & Management System. As mentioned above, 80% of the sugarcane production comes from VPM’s leased land. The remainder 20% of the total sugarcane processed comes from 11 third-party suppliers. Contracts with third-party suppliers include E&S provisions including compliance with labor and environmental regulations (see PS2 – Supply Chain below). VPM does the planting and harvesting of the sugarcane with its own workforce on leased land. The sugarcane production around the VPM is located within consolidated agricultural areas (i.e., modified habitat with small patches of intact habitat to comply with the requirements for Forest Reserves and Areas of Permanent Protection under Brazilian law and registered in the CAR), hence risks contemplated by PS6 are considered non-material. See for further details in PS6 section below. The types of social risks and impacts contemplated by PS2 (child labor, forced labor, and OHS issues) were not considered as material for VPM’s sugar cane production, since all harvesting and planting in leased lands and in nine out of the eleven third-party suppliers, is mechanized. The two suppliers that still have manual practices are migrating to fully mechanized. As such, the risk is substantially reduced. VPM does not have a Supplier Code of Conduct for its leased land partners and third-party sugar cane suppliers, but expects its suppliers to adhere to the company’s Ethics Code (see PS2 – HR section below), which prohibits child labor and forced labor. Going forward, VPM will develop a Supplier Code of Conduct which is aligned with its Ethics Code, IFC’s supply chain requirements defined in IFC PS1, 2 and 6 and Bonsucro Production Standard (version 5.2) (ESAP#8).

PS2. Labor and Working Conditions

As of December 2023, VPM employed 1673 direct workers of which 12.7% were women and 99% are Brazilian. When hiring employees, the company prioritizes the local communities. In addition, 788 workers are employed by contractors and service providers.

Human Resources (HR) Policies and Procedures. VPM adopted CMNP’s corporate code of conduct, that includes the commitment to comply with labor law, provide a safe working environment, and prevent harassment in the workplace. In addition, VPM is in the process of operationalizing CMNP´s HR corporate procedures including: (i) manual for issuing and checking training reports and documents, (ii) competence matrix, (iii) onboarding, (iv) training needs assessment, (v) training effectiveness assessment, (vi) scholarship policy, and (vi) staff management. The implementation of HR policies and procedures for the workforce is led by an HR Director and supported by an adequate number of site HR and payroll officers. As per ESAP#9, VPM will develop an HR Manual including relevant policies and procedures, consistent with the requirements of IFC PS2 and national labor laws. The HR manual will include as a minimum the following policies/procedures: (i) collective bargaining and freedom of association, (ii) retrenchment process, (iii) workers’ access to grievance mechanism, (iv) equal opportunity, and (v) measures to prevent and address gender-based violence. The implementation of this manual will be accompanied by an induction training and communication material applicable to all workers regardless of the type of contract (permanent, temporary, apprentice, professional services, seasonal work). In addition, VPM will align its Code of Ethics with IFC PS2 and will incorporate the following principles: (i) equal opportunity and equal pay for equal work; (ii) protection of workers against any form of forced or child labor; (iii) freedom of association; (iv) right to collective bargaining.

Working Conditions and Terms of employment. Terms of employment for direct employees and contracted workers are established as per Brazilian labor laws and Collective Bargaining Agreement with unions. This complies with PS2 objectives. All workers have contracts in place that state the nature and category of employment, place of employment, start date and duration, working hours, remuneration, leave, benefits, and employee rights and obligations as applicable. All direct employees are onboarded on key HR procedures, work schedule, and OHS requirements at induction. All employees receive pay slips showing the number of hours worked, wages and statutory social security deductions, and union deductions, where applicable. The standard working period is 44 hours per week and the daily working period cannot exceed 10hs (overtime included). There are mandatory 1-hour breaks for meals (lunch or dinner) during the day and also 15 minutes breaks. Depending on the specific job to be carried out, workers may have eight or nine-hour shifts. For harvesting, the company operates 7 days a week in three daily shifts. Administrative functions work from 07:00-16:40hrs from Monday through Friday. Time clocks are biometric and readily accessible to the workforce, and overtime is calculated and paid using this information. VPM reported paying all employer social security taxes and other legally mandated benefits. VPM pays overtime as agreed in the Collective Bargaining Agreements (CBAs). In addition, the company pays a minimum wage that is above the national minimum wage, and as agreed in the three CBAs. In addition, bonuses are paid based on production performance. Transportation time is paid in addition to their regular salary, although this payment is not a legal obligation anymore. Sick leave is granted but requires a physician assessment/request, and after 15 days of absence, workers are covered by mandatory social security program, while the first 15 days are covered by the company. Moreover, the company offers maternity and paternity for direct employees above that required by law. Maternity leave is extended from 120 days to 180 days, and paternity leave is extended from 5 days to 20 days.

Non-discrimination and Equal Opportunity. Non-discrimination in the workplace is covered under VPM’s Code of Conduct, which includes commitments to equal treatment of workers in the organization and of candidates in selection processes, without distinction with regards to race, religion, gender, age, nationality, marital status, sexual orientation, and physical condition. The company provides equal opportunities in both internal promotions and external hiring. The recruitment and selection process is based on competence, and there is no discrimination.  Overall women representation in VPM’s workforce reached 12.7% in 2023, and contractors’ female workforce is similar at 11.16%.  The Code of Conduct also includes commitments against moral, sexual, economic harassment or situations that constitute pressure, intimidation, or threats, regardless of the level hierarchical structure of those involved. VPM will develop a gender strategy with specific objectives and KPIs for the recruitment, retention, training, and promotion of women within the organization. To develop the gender strategy, VPM will assess (by consulting and surveying) barriers and opportunities for women (ESAP#10). As per ESAP#11, within the grievance mechanism, VPM will provide an option for employees to make a choice about the person they speak to when reporting sexual harassment. In addition, VPM will identify and appropriately train dedicated focal points to receive reports of sexual harassment incidents and will provide training to managers and focal points on how to respond to incidents of sexual harassment.

Workers’ Organizations. Brazilian regulations include the right for most categories of workers to belong to a union. In VPM’s case, the workforce can belong to one of three unions depending on the nature of the job (road transportation, Alcohol, Ethanol, Bioethanol and Biofuel industries, and rural work). Annually, VPM negotiates collective bargaining agreements with the unions, and this includes economic and social aspects. The union representatives organize internal workers’ committees to participate in the collective bargaining process. As of December 2023, there were 102 unionized workers. VPM will develop a policy on Union Relations that guarantees the right of collective bargaining and freedom of association in accordance with PS2 (ref. ESAP#9).

Grievance Mechanism. VPM has a workers grievance mechanism in which complaints could be made directly to HR or through the whistleblowing channel (0800), safeguarding anonymity. The complaint is analyzed by the Board of Directors and HR Management. VPM will improve its workers grievance mechanism in line with IFC PS2 requirements, including (i) development of a written procedure, (ii) providing timely feedback to those concerned, without any retribution, (iii) allowing for anonymous and gender-specific complaints, (iv) facilitating platforms to file complaints, (v) requiring contractors to implement grievance mechanisms, (vi) allowing contractors workers to access VPM’s grievance mechanism.  The improvement of this grievance mechanism will be accompanied by an induction training and communication material applicable to all workers regardless of the type of contract (permanent, temporary, apprentice, professional services, seasonal work) (ref. ESAP#11).

Protecting the Work Force. VPM follows Brazil's legislation regarding minimum age required for employment (18 years old.) The company checks the worker's age at time of application, recruitment, and contracting. In addition, the company hires people with disabilities seeking to meet mandatory quota of 5% from Ministry of Labor in Brazil. However, due to the nature of the activities and the lack of candidates, the company is below the quota.

Workers Engaged by Third Parties. VPM hires circa 183 contractors/service providers. Some of their main services include aerial spraying, maintenance, and repair work. The Company has a software (Vertch Portal) to monitor contractor’s compliance with company’s and legal requirements. In addition, VPM designated staff to supervise contractors work in the field.  Contractors are required to adhere to VPM’s OHS Manual. Third-party workers undergo an OHS induction process upon their arrival to the site and contractors completing high risk task will be issued with a working permit. VPM recently implemented the OnSafety application to assist in the formalization of third-party inspections and management of non-conformities from third party contractors.

Occupational Health and Safety. Possible risks of injuries for workers in sugar cane plantations include musculoskeletal conditions, cut from sharp tools, snake bites, infectious diseases (e.g., malaria and leptospirosis), road accident, heat stress, and potential exposure to pesticides and herbicides. Risks at sugar cane mills, and ethanol and energy production include explosion, fire, slippery working conditions, working at heights, hot work, confined space, and electrical work. However, VPM has automated many industrial processes which results in a limited number of workers being inside the operational area, while its planting and harvesting sugarcane operations are fully mechanized. These measures reduced the exposure of workers to inherent risks typically found in a sugar and ethanol mill operation. VPM has OHS programs as per the Brazilian Legislation (Portaria 3214/78), defined by the Regulatory Norms (NR) of the Ministry of Labor NR 07, NR 09 and NR 31. The company implements HIRA matrixes for its activities, validated by each area leader and communicated throughout the organization including (i) production, storage and loading of ethanol and biomass; (ii) plantation area preparation; (iii) agricultural production, (iv) mechanical harvesting and (v) fertigation. The latest OHS risk identification exercise against the Brazilian OHS regulatory standards (Normas Regulamentadoras) was conducted in 2023. In addition, VPM implements a series of OHS Standard Operation Procedures (SOPs) following ISO 45001 requirements. The company implements SOPs and a working permit system for approving hazardous work activities, including (i) works at height, (ii) power blockage, (iii) hot work, and (iv) confined spaces. This includes both the company’s own workers and contractors. VPM implements LOTO protection system against unintentional exposure to hazardous energy from equipment and machinery. The company requires all service companies, visitors, and suppliers to receive the OHS induction before entering its premises. In addition, VPM requires its contractors to present training certificates for high risk works. VPM monitors these requirements through the Vertch Portal. VPM monitors occupational health through the Occupational Health Monitoring Plan (Programa de Controle Medico da Saúde Ocupacional – PCMSO). In addition, to monitor physical, chemical and biological agents, VPM follows the guidelines from the Regulatory Standard No. 09. The company documents the monitoring results in the Risk Management Program and the Risk Management Program for Rural Work. Nevertheless, VP does not have these monitoring procedures documented. VPM will strengthen its OHS management practices at the mill and plantations, by developing an OHS policy and monitoring procedures for exposure to physical, chemical and biological hazards (ESAP#13). VPM has an accident/incident investigation procedure to review and complete a root cause analysis. VPM monitors leading and lagging OHS indicators, including training hours, safety inspections, and safety behavioral index (leading) and accident frequency rate, and accident severity rate (lagging). As mentioned above, VPM will adopt additional OHS leading indicators (ref. ESAP#7).

In 2021, VPM registered a Lost Time Injury Frequency Rate (LTIFR) per million hours worked of 5.23. For 2022, the LTIFR decreased to 4.55, below the OHSA reference values of 4.6 for agriculture and sugar manufacturing. No fatalities were recorded over the last three years. As mentioned above, OHS KPIs are reported monthly through the BCS and immediately to the Board of directors via WhatsApp group. Moreover, the company recently implemented the OnSafety Application to manage OHS inspections and monitor non-conformities. Going forward, VPM will establish an OHS Committee, that will help ensure workplace safety, and will participate in the development, implementation and monitoring of company health and safety policy and procedures (ESAP#14). VPM has appropriate preventative safety measures in place, including machine guarding, emergency stops, handrails, emergency signing. In addition, VPM provides the appropriate Personal Protective Equipment (PPE) complying with the NR 06, which prescribes provision of individual PPE only approved by the Ministry of Labor. In addition, the company identified all confined spaces, which are identified with warning signs and workers must follow safety rules for working inside them. When repair or maintenance is undertaken a LOTO procedure is applied. The company instituted rest stops ‘’Stop Work’’ guidelines for periods of high temperatures. In addition, VPM provides rest areas in the agricultural work fronts, with fresh water, restrooms, and a place to eat and rest. VPM reported that there are no recorded cases of chronic kidney disease (CKD) among their workers. VPM has a workplace exposure program in the industrial (noise, illumination, heat) and agricultural (heat, dust, chemical) operations. In addition, the company has a health clinic staffed with one doctor, one nurse, a hearing specialist, two technicians and with an ambulance. VPM conducts mandatory pre-hiring, periodic and contract termination health assessments of all employees that include basic clinical assessment and additional tests, depending on an individual’s job function and exposure to identified risks.

Supply Chain. VPM implements different procedures to ensure that its third-party suppliers comply with labor laws, EHS standards, and principles. The company includes socio-environmental clauses in the purchasing contracts with suppliers, such as harvesting sugarcane without burning, existence of fire brigades in the field, and alignment with the requirements of ISO 9001. In addition, VPM has an OHS Manual for third party contractors. VPM also verifies that all contractors or third-party suppliers are up to date with the payment of its labor and social security obligations regarding its employees. In addition, VPM monitors the regulatory requirement of set-aside of 20% of land as biodiversity conservation areas through the Rural Environmental Registry (CAR), making payment conditional on presentation of a valid document. VPM monitors compliance with these requirements, and if the Company identifies infringements, the contract with the supplier is suspended. In addition, as explained above, VPM’s harvesting and planting in leased land and in nine out of the eleven third-party suppliers, is mechanized. The two suppliers that still have manual practices are migrating to fully mechanized. As such, PS2-related supply chain risks (child labor, forced labor, and significant safety issues) are substantially reduced. To strengthen the above controls, VPM will develop and implement a Supplier Code for third-party suppliers. The code will include E&S requirements including: (i) prohibition of forced and child labor, (ii) non-discrimination, (iii) respect for human rights, (iv) guaranteeing free association with labor unions, (v) prohibition of illegal deforestation practices, (vi) compliance with all environmental laws (ref. ESAP #8). Furthermore, VPM will develop and implement a supplier management plan to provide guidelines for (i) monitoring suppliers through key indicators, (ii) classifying them based on their criticality, (iii) engaging with these partners, (iv) training and promoting their continuous development (ESAP#12).

PS3: Resource Efficiency and Pollution Prevention

The mill crushed 2.3 million tons of sugar cane in FY 23/24, supplied from 27,785 ha. Agricultural operations take place all year round.

Resource Efficiency. Energy. VPM self-generates all its energy needs from sustainable resources through co-generation of electricity from one power plant fed with sugarcane bagasse with a generation capacity of 48.5 MW. Of the total electricity generated at the mill in 22/23, 62% was delivered to the National Interconnected System, contributing to increasing the renewable energy index in the national energy matrix. The sugar mill consumes an average of 174 kWh per ton of sugar. In addition, all the harvesting is mechanized and the equipment - harvesters and trucks - are fully coordinated among them using a software (Solinftec) that provides real time tracking to the plants’ control unit. Control of the cane intake pace is key to optimize the mills´ utilization. These systems have contributed to an increase in industrial time optimization from 94% in 2020 to 98% in 2023 for VPM.

GHG Emissions. VPM prepared its first greenhouse gases (GHG) inventory in 2023, with base year 2022 The emissions inventory followed the calculation methods and estimates specified in the Brazilian GHG Protocol Program and in the guidelines of the ABNT NBR ISO 14064-1/2007 standard. The GHG inventory, favors the verification of fugitive sources, totaling an emission of 40,614 tCO2e/year for Scope 1 (0.032 ton CO2e per ton of sugarcane crushed), all are attributed to scope 1 emissions. The most significant GHG emission contributor was agriculture activities (~40%), including fertilizer usage, crop treatment, followed by mobile combustion (34%) and stationary combustion (24%). The emissions from mobile combustion were mainly from light and heavy-duty vehicles, and harvesters. For Scope 2, the technical note from the Programa Brasileiro GHG Protocol (PBGHGP) indicates what must be considered is the annual energy balance, that is, if the energy sold is equal to or exceeds its consumption, there is no need to carry out emission estimates using the grid's electrical energy consumption values. Hence, Scope 2 emissions for VPM are zero, since it sells more energy than it acquires from the grid (net 96 MWh sold into the grid). VPM’s GHG emissions (40,614 tons of CO2) exceed IFC GHG threshold of 25,000 tons annually. In addition, the Project also produces renewable energy fuel (ethanol) that will be used in the national vehicle fleet. The emission intensity of the ethanol is estimated to be ~55 gCO2e/MJ, which is substantially lower than the emission intensity of gasoline (83.8 gCO2e/MJ). Therefore, although VPM generates high volumes of GHG emissions, net emissions from the company's operations can be considered negative compared to the GHG emissions that would otherwise be generated by gasoline fuel.

VPM certified its biofuel production through the Government of Brazil National Biofuels Policy (RenovaBio) scheme. The RenovaBio program which issues tradeable carbon credits known as CBIOs granted to certified producers. RenovaBio program is a federal program to curb carbon emissions by 10% in 2028 in line with the UN Paris Agreement on climate change. The process is audited by independent auditors and approved by the ANP (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis). In 22/23 crop year, the company generated 40,229 certified CBIOs. 

Water Consumption. VPM sources water for its industrial and agricultural operations from surface and underground water. VPM has permits from the Sao Paulo State Authorities to extract water from 113 surface locations from the Ilha Solteira Reservoir and from seven underground water wells. The Ilha Solteira Reservoir has an estimated volume of 21 billion m³. In 2023, the percentage of water extracted from this reservoir by VPM represented circa 0.16% of the reservoir’s volume.  Water efficiency measures implemented by VPM include reuse of water for the industrial process within a closed system, consideration of the water balance and monitoring of soil humidity in the farms. In the industrial process, new water enters the system only to replace losses in the cooling and washing systems due to evaporation (150 m³/h) and disposal (450 m³/h). Water for domestic consumption comes from the underground water wells, duly licensed by the Department of Water and Electric Energy of the State of São Paulo. For the 23/24 harvest, VPM consumed 1.758.657 m3 of water to process 2.3 million tons of sugar cane; consumption of process water (0.7 m3/ton of sugar cane) complies with WBG EHS Guidelines for Sugar Manufacturing (0.5 – 0.9 m³/ton-cane).

VPM’s sugar cane cultivation relies mainly on rainfall and pivot irrigation (powered 50% by cogeneration energy and 50% by diesel). The company uses a combination of drip and aspersion irrigation to cover 60% of its cultivated areas, on a 24/7 basis from March to November. In addition, VPM implements salvation irrigation (irrigation 1-2 weeks after cutting the cane, to kick start faster the sprouting, prolonging the time for the cane to grow and resulting in higher yields) with successful results. VPM does not use surface or flood irrigation which is the least efficient system of irrigation. In FY22/23 VPM consumed about 16.685.926 m3 of water to irrigate 19.391 ha. The average yield for irrigated plots is 100 ton/ha, and for non-irrigated plots is 90 ton/ha of sugar cane. VPM monitors water consumption and water levels in all extraction points and is required to report data to the State Water Authority (ANA); water extracted in these points is consistently below permitted extraction levels. 

Pollution Prevention

Wastes. In FY22/23, VPM generated about 380,843 tons of non-hazardous wastes. 92% percent of the waste is bagasse which is used as feedstock for the boilers, 3.7 tons are filter cake which is composted and reutilized as soil amendment. Ashes from biomass-boilers (27.6 tons) are taken to a composting area where they are mixed with the bagasse.  This mixture is left to rest for 30 days and then applied onto the fields. VPM uses this organic waste as fertilizer in the sugar cane plantations, replacing the use of chemical fertilizers. In addition, the company disposes all hazardous and non-hazardous waste through licensed waste management companies including, pesticide containers, biohazardous waste (gauze, bandage, cotton, tape, syringe, needle, etc.), industrial waste (oil sludge, oil filter and packaging, Styrofoam, fluorescent lamps, hydraulic hoses, batteries, expired chemicals, waste contaminated with hydrocarbons, etc.), and non-recyclable waste from offices and from the cafeteria. Metallic and non-metallic scrap is segregated, stored outdoors and sold for recycling. In addition, organic waste from the cafeteria is destined to complement animal feed. The remainder of the unusable waste is sent to the sanitary landfill in the city of Santa Fé do Sul with authorization. VPM verifies the final disposal sites of its wastes upon entering the contract. For each waste dispatch VPM, the waste company and the authorities receive a certificate. No further control on the waste treatment and final destination is done by VPM. As per ESAP#15, VPM will conduct an audit of the waste treatment facilities (hazardous and solid waste) to ascertain whether the licensed processing and disposal sites are being operated to acceptable standards. VPM will retain chain of custody documentation to the final destination, and as needed a corrective action plan should be agreed. Going forward the company will conduct these audits periodically in accordance with a set audit plan. In addition, as per ESAP#16, VPM will build an enclosure and a roof on the storage area for non-hazardous waste.

Wastewater. Wastewater is derived from: (i) process wastewater from ethanol production (vinasse), (ii) wet scrubber blow down from stack gas scrubbing, and (iii) miscellaneous wastewaters. VPM does not discharge industrial wastewater into rivers or surface water bodies. Sanitary wastewater is treated through a septic tank, biological filter and drainage well. In addition, VPM has been increasing the use of the vinasse from the production process as a fertilizer for the fields. The company has implemented the fertirrigation (irrigation with vinasse) with sprinklers and mostly localized application systems (such as drip irrigation) with an extension of 27,000ha. Their aim is to reach 100% of the fields. The total amount of applied vinasse in FY23/24 was 1,125,585 m3 in 15,715 ha. Vinasse is stored in tanks to prevent groundwater contamination. The amount of wastewater applied in the plantations is determined by the soil characteristics and the nutrient needs of the crop. All plantation areas destined for fertigation are leased. For the application of vinasse in the fields, the company must submit annually a vinasse application plan to the environmental authorities to obtain approval. The company conducts monitoring of surface and underground waters twice a year, based on the monitoring plan and in line with the regulations. Review of the 2022 monitoring reports demonstrated that there is no evidence of contamination with industrial effluents, such as wastewater and vinasse.

Air Emissions and Ambient Air Quality. The bagasse fueled boiler is the largest source of air emissions from VPM’s operations. The company monitors its air emissions on an annual basis, achieving compliance with Brazilian requirements under CONAMA Res. 382/06 and CONAMA 436/2011 (PM 200mg/NM³ and NOx 350 mg/Nm³). Review of the 2023 monitoring report demonstrates that the boiler meets the regulatory requirements and the WBG EHS guidelines limits for NOx 650 mg/Nm³, but is slightly above WBG EHS guidelines limits for PM.  Although the emissions control system is not designed to comply with WBG/IFC 50mg/Nm3 standard, it is not expected to have a significant impact on the community health conditions, since the ashes are from sugar-cane bagasse (biomass), which is not hazardous when compared to fossil fuels emissions, and the closest community is 9 km far from the mill. VPM did a Pollution Dispersion Model which conclude that 1.4 Km far from the mill the PM concentration would be 2µg/m3, far below the 50µg/m3 primary standard for Air Quality (CONAMA 03/90).

In addition, at the mill area the road is unpaved, hence vehicular traffic generates soil-derived dust affecting local visibility and degrading air quality. As per ESAP#17, VPM will develop and implement technically feasible and financially viable mitigation measures to reduce soil-derived dust from vehicular traffic in the industrial area.

Hazardous Materials Management. VPM consumed 7 million gallons of diesel in 2022. Diesel is stored in 4 underground storage tanks with a total capacity of 170,000 liters. Annual tank tightness testing is carried out for all underground tanks to control their integrity. VPM’s ethanol storage capacity is 57,200 m3. In the 23/24 harvest VPM produced a total of 46.61 m3 of hydrous ethanol and 49.59 m3 of anhydrous ethanol. The storage tanks for hazardous products such as ethanol, fuel, phosphoric acid and caustic soda have a secondary containment basin, and are protected by a fire suppression system approved by the Fire Department, as per AVCB Report (Auto De Vistoria Do Corpo De Bombeiros – in Portuguese). Periodically, during the off-season, these tanks undergo inspection and maintenance by qualified teams. In addition, these tanks are covered under the current operating licenses which are up to date.

Pesticide Use and Management.  In FY22/23, VPM used 12,166 tons of mineral fertilizers and 221,926 kg/l of pesticides. However, for the 23/24 harvest, the company has substantially decreased the use of these mineral fertilizers to 6,928 tons due to the increase in the consumption of fertigation and organic fertilizers. In addition, VPM implements Integrated Pest Management (IPM) and biological pest controls. The company prioritizes biological control techniques over chemical ones, including to control the sugar cane borer population with Cotesia flavipes and the Drury larvae with Metharizium Bacteria. VPM uses only approved agrochemicals, and a review showed that they do not include WHO Class 1a and 1b pesticide. Application rates and methods are adapted to minimize consumption and handling, storage and use of agricultural chemicals follow national regulations. VPM monitors pests at the air and soil and treats them with the help of drones to allow for precision delivery. The company avoids using pesticides in a preventive manner, as this was proven to be less efficient and more costly. It also uses biological pesticides such as rust, coal and stretch mark for the pest control. Moreover, VPM has increased the use of organic fertilizers - such as chicken bed and bovine composting and from industrial waste (filter cake and boiler soot) - in the sugarcane fields as these are less expensive than the chemical ones (~half of the cost) and show the same of better results.

PS4: Community Health, Safety and Security

Community Health and Safety. VPM’s industrial operation is located in a rural area far from communities. The closest community is Nova Canaã Paulista (8.83km from the mill) and the other nearby community is Suzanápolis (12.13km from the mill). However, some communities are located near the agricultural fields. Potential impacts to communities from VPM’s operations could arise from the explosions of ethanol tanks, fires in industrial and plantation areas, fugitive air emissions from trucks (dust), noise, and drifts from aerial application of pesticides that could cause health problems and/or contaminate water bodies.

Fires. As mentioned above, the last fire in the agricultural fields occurred in November 2023. Firebreaks are present in the fields with a minimum distance of 3m between the planted areas to contain any fires. Near communities and the industrial operations 15m firebreaks are observed. The fields are controlled via satellite and by direct observation. VPM has trained fire, first-aid and rescue brigades (108) members.

Infrastructure and Equipment Design and Safety. The Supplementary Law nº 1.257 of 2015, establishes the São Paulo State Code against Fires and Emergencies and includes licensing procedures applicable to application for permits from the Military Fire Department of São Paulo (Fire Department). VPM has received the current Fire and Emergency Inspection Certificates (AVCB). As stated above, the mill is located in a rural area with no close by communities or busy roads, therefore there is no possibility of communities being affected during emergency events at the mill. Based on the Brazilian safety standard NR10, industrial sites must be protected based on the risk of fire and explosion, and in those areas considered to be of high risk (e.g., distilleries, sugar storage warehouses or grain silos, flammable storage tanks). Equipment utilized at VPM meets regulatory NR requirements regarding use of safety devices (relief valves, ATEX certified equipment, integrity testing of tanks, earthing, etc.); such equipment is periodically inspected and included in a preventative maintenance program.

Hazardous Materials Management and Safety. VPM conducts aerial spraying of crops by contracted companies using crop-spraying airplanes. A specific procedure is in place to avoid the risks and impacts to health and other crops associated with aerial spraying of chemicals.

The document provides procedures for monitoring weather conditions during aerial spraying, and establishes buffers around sensitive receptors and water sources, as per Normative Instruction No. 2, of January 3, 2008. Risk exposure to pesticide drift will be included in the updated assessment of risks and impacts to the health and safety of Affected Communities (ref. ESAP#2). 

Road Traffic Safety. The company relies on a large number of owned trucks (317) to harvest and transport the sugarcane from the fields to the mill. Basic maintenance to trucks occurs inside the mill’s area. However, vehicle washing, and oil change is done in workshops outside VPM. All drivers receive driver safety training and annual medical checks. The average distance of sugarcane plantations is about 26 km from the processing operations. Transport over public roads cannot be avoided, however, VPM carries out the maintenance of the municipal roads that it uses. In addition, a several contractors provide the transportation services for employees, sugar and ethanol. The company uses the recently implemented the OnSafety application to assist in the monitoring of the contractor responsible for employee transportation. The cooperative Copersucar oversees hiring the contractors for ethanol and sugar transportation. Copersucar requires vehicles to be inspected before loading.

Security Personnel. VPM does not have corporate policies regarding physical security. The company hires the security service at the mill through a third-party contractor. A total of nine armed guards oversee access control and surveillance of the mill. Guards are required to comply with federal police requirements.  Rules for security personnel follow the Federal Law and are regulated by Brazilian Federal Policy. Security personnel are vetted for any past criminal activity or similar disqualifications from service, and according to Brazilian federal regulations governing private security agents, they are trained at accredited training centers and issued certificates by the Ministry of Justice and Federal Police allowing them to serve (the Carteira Nacional de Vigilante, or CNV).  No armed security is used for the transportation of personnel, materials, or products. To qualify for a security position, prospective candidates must have a certificate of training issued by the federal police. Guards are screened based on background checks including review of criminal records.  VPM will develop a Security Management Plan as per PS4 requirements and as guided by the IFC Good Practice Handbook on the Use of Security Forces: Assessing and Managing Risks and Impacts (ESAP#18).

PS6: Biodiversity conservation and sustainable Management of Living Natural Resources

Protection and Conservation of Biodiversity.  Risks to biodiversity associated with the project are mainly related to further fragmentation and degradation of natural habitats. No significant additional loss of natural or critical habitat is expected in this region. The project is located in a consolidated agricultural landscape (sugar cane, extensively managed pasturelands), near HPP Ilha Solteira in Paraná River. It belongs to the Alto Paraná Atlantic Forests ecoregion, and to the Upper Parana freshwater ecoregion (WWF). There has been very little forest cover dynamics since 2008 (cut-off date for Brazil’s Forest Code). This is also true over the last five years, indicating stability as regards the agricultural land use. Recent forest cover losses in the region were of punctual nature and scattered, a pattern akin to degradation as opposed to deforestation. This is evidenced using Global Forest Watch cartography over a radius of approximately 15 km from the industrial facility, i.e., a territory of ~70.000 hectares (an approximation to the company’s own/leased planted area). On the other hand, tree cover gains consisted mostly of forest plantations and other permanent crops (e.g., eucalyptus, fruit trees). The landscape shows few scattered remnants of natural (forest) habitat, probably consisting of Legal Reserve areas, also many thin riparian corridors (Areas of Permanent Preservation, as per Brazil’s forest code) along small order drainages and reservoir arms.

VPM utilizes a total of 21,827 ha to harvest and source sugarcane. 80% percent of these are leased properties, and the remainder are third-party suppliers. For the State of Sao Paulo, farmers are required to set aside 20% of their farmlands as biodiversity conservation areas and to protect buffer zones along rivers and around water bodies. If deficient, riparian buffer zones should be reconstituted, and biodiversity conservation areas can be offset through the protection of intact areas in the same region. VPM has a nursery for its own production of native tree seedlings. In 2023, VPM produced 5,917 seedlings of 27 different species and planted 752 seedlings. The company will finalize the reforestation efforts required  to compensate for cutting scattered trees inside sugar cane farm, by March 2024, as required by the environmental authority. In addition, since 2018 the company has carried out annual wildlife monitoring campaigns.

VPM checks compliance of its leased plantations and third-party suppliers with the mandatory environmental and rural cadaster (CAR) registration. In addition, VPM complies with the required 20% biodiversity conservation for the mill’s area, by the establishment of a conservation area of 57 hectares. Moreover, VPM is certified in the RenovaBio scheme. To join the program, mills must have their production process audited, including the origin of their biomass, which must respect the zero-deforestation policy. Biomass cannot come from the areas where there has been suppression of native vegetation. Additionally, biofuels producers must also demonstrate that biomass was produced in accordance with Brazilian environmental legislation, as demonstrated by the regularity in the Rural Environmental Registry (CAR). Going forward, VPM will develop a procedure for selection of new production units to exclude lands (own/leased/suppliers) that (i) require conversion of Natural Habitat; (ii) converted habited after the 2008 cut-off date for Brazil’s forest code (ESAP#19).

Sustainable Management of Living Natural Resources. As stated above, sugarcane plantations are located on already-converted land and consolidated areas of crop plantations in the State of Sao Paulo. In addition, VPM takes advantage of all possibilities to use organic wastes from ethanol production, including vinasse mixed with filter cake and industrial process water, in the plantation fields to reduce the need for chemical fertilizers. When such chemical fertilizers are applied, the prescription is based on soil fertility analysis and plantation extraction needs. As mentioned, VPM seeks first to control pests through biological agents. When used, agrochemical products are prescribed by a qualified agronomist based on pest infestation and economical level of control. The pesticides (fungicides, herbicides, and insecticides) applied by the company fall into the WHO classes of II, III and U. No pre-harvesting burns of sugarcane fields is allowed. The straw is partly left on the fields to better protect the soil from erosion effects. As per ESAP#20, to continue the implementation of good management practices in their sugar cane production, the company will obtain Bonsucro certification to the mill and all leased sugar cane farms. VPM will provide the certification audit report. Any measures and procedures as required by the Bonsucro production standard (version 5.2) will be managed as part of the ESMS (ref. ESAP#2).

Supply Chain. As mentioned above, VPM has 11 third party suppliers from whom its sources sugar cane annually. As part of the supplier contracts, they need to have the CAR registration in place. To mitigate operational risks in the supply chain, VPM carries out a supplier qualification process. Moreover, VPM’s contracts with third-party suppliers have E&S clauses including harvesting sugarcane without burning and presence of fire brigades in the field. The company monitors third-party suppliers harvesting operations. If any infringement is found, the contract is suspended.  In addition, VPM monitors the validity of the Rural Environmental Registry (CAR) of its suppliers, making payment conditional on presentation of a valid document.

VPM invests in social projects in nearby communities and through the municipalities. The company has a mechanism in which complaints could be made via telephone, WhatsApp and social media. VPM stated that it hasn’t received community grievances. To further strengthen and formalize its stakeholder engagement, as per ESAP#21, VPM will formulate a documented stakeholder engagement plan (SEP), and community grievance mechanism in line with IFC PS. Community concerns and grievances about the company’s E&S performance shall be resolved using such mechanism. The communication and engagement program designed for affected communities will include communication of the grievance mechanism, E&S performance and aerial spraying activities.

Company Name: Companhia Melhoramentos Norte do Parana

Point of Contact: Marcelo Fernandes de Olivera

Title: Chief Financial Officer

Telephone Number:+551121259513 / +5511986447478

Email:  marcelofoliveira@cmnp.com.br

Website: https://www.cmnp.com.br