IFC’s appraisal considered the environmental and social management planning process and documentation for the Project and gaps, if any, between these and IFC’s requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable period of time, are summarized in the paragraphs that follow and (if applicable) in an agreed Environmental and Social Action Plan (ESAP). Through implementation of these measures, the Project is expected to be designed and operated in accordance with Performance Standards objectives.
PS1: Assessment and Management of Environmental and Social Risks and Impacts
Environmental and Social Policy, Risk Assessment and Management System. LGI has established a comprehensive set of corporate-wide Sustainability and ESG Management Policies, demonstrating its commitment to sustainable development and responsible environmental and social (E&S) management. These policies are publicly accessible at LGI's website and cover a broad range of areas, including ethical standards, respect for human rights and dignity, prohibition of child and forced labor, fair treatment of employees, grievance handling, supply chain management, environmental pollution prevention, natural resources and biodiversity conservation, climate action, and the transition to renewable energy.
These corporate policies have been extended to LG Innotek Vietnam (LGI VN) and are highlighted in its annual Sustainability Reports. LGI VN manages E&S risks and impacts associated with its operations by complying with applicable national standards and regulatory requirements. The company has conducted environmental impact assessments (EIA) and risk analyses, receiving approval from the relevant authorities to expand its manufacturing facility in Trang Due Industrial Park in Hai Phong City. The EIA, which included detailed baseline studies has scoped and assessed all relevant industry-specific E&S risks for both the construction and operation phases. It has specifically identified all sources of air emissions, such as those from boilers and volatile organic compounds from the production process and conducted relevant air dispersion modeling. This assessment was reviewed by an expert panel appointed by the Ministry of Natural Resources and Environment. However, the EIA did not cover climate-related hazards such as cyclones, storms, floods, and extreme heat, which the project may face due to its location in An Hai, Hai Phong City, Vietnam. In addition, LGI VN is in the process of preparing regulatory EIA for its expanded wastewater treatment plant (WWTP) to support the new V3 factory when the new manufacturing lines become operational.
LGI VN has developed an Energy, Environment, Safety, and Health (EESH) management manual to support its operations, certified in accordance with ISO 14001 (Environmental Management System), ISO 45001 (Occupational Health and Safety Management System), and ISO 50001 (Energy Management System). The effectiveness of this EESH Management System is periodically audited and evaluated through internal and external audits.
As part of the IFC investment, LGI VN will (i) prepare and obtain regulatory EIA from the relevant authority for the WWTP before the new manufacturing lines become operational; and (ii) conduct an in-house climate risk assessment to identify climate-related hazards that could pose risks to workers, the environment, and, if applicable, communities. Based on this assessment, LGI VN will update and implement its EESH management manual and related standard operating procedures, including emergency preparedness and response procedures, to address climate-related risks and support the expansion of the new manufacturing plant (ESAP #1).
Organizational Capacity and Competency, Monitoring and Review. LGI has established a robust ESG organizational structure at both the corporate and plant levels to ensure compliance with its Corporate Sustainability and ESG Management Policies and EESH procedures. The CEO, supported by the Chief Health & Safety (H&S) Officer, oversees corporate H&S management, with implementation carried out by EESH department heads and plant-specific H&S managers.
At the plant level, an Occupational Health and Safety (OHS) committee, chaired by the H&S Manager and including employee and management representatives, meets quarterly to address safety and health issues. Additionally, a plant-level Supplier H&S Council, comprising the plant’s Chief H&S Officer and relevant managers, holds monthly meetings to discuss and update H&S policies.
For the new plant, LGI VN will establish an EHS department led by an EHS Manager reporting to the plant’s General Manager to ensure safe operations. The Corporate LGI ESG team regularly audits and evaluates the plant’s EESH Management System for compliance. Key ESG data is reported to the CEO and publicly disclosed in its annual Sustainability Reports, prepared according to Global Reporting Initiative (GRI) Standards 2021, the Task Force on Climate-related Financial Disclosures (TCFD) guidelines, and the Sustainability Accounting Standards Board (SASB) indicators. LGI VN will hire qualified EESH and HR/social staff to manage implementation of the facility level ESMS effectively. (ESAP #2).
Emergency Preparedness and Response. LGI has established a corporate-wide accident response system to ensure prompt incident reporting and the implementation of onsite safety measures. The incident response process includes the following steps: (i) accident reporting, (ii) onsite safety measures such as emergency response, safety actions, and evacuation, (iii) accident investigation, (iv) prevention of recurrence, and (v) reporting of results. Regular emergency response drills are conducted for various crises, including major disasters, fires, explosions, and chemical spills. Annual drills cover emergency evacuation, earthquake response, safety and major accident response, infectious disease outbreaks, gas and chemical leaks, wastewater spills, and facility downtimes such as power outages. Specific drills for fires and explosions are conducted biannually. These emergency situations are also addressed in the regulatory EIA for LGI VN’s expansion plant. LGI VN has implemented a similar emergency response system for its existing operations, complete with fire safety detection, alarm systems, and response equipment, which are regularly maintained and tested.
Supply Chain Management. LGI has implemented a documented Sustainable Supply Chain Management System to manage E&S risks associated with procurement and supply chain activities. The key components of this system include the Supplier Code of Conduct (SCOC), that integrate elements of labor standards such as prohibition of child employment and forced labor, as well as occupational health and safety (OHS) in accordance with PS2 requirements, supplier management regulations, raw material purchase management regulations, and conflict minerals management regulations. The SCOC outlines LGI’s commitments to respecting workers’ rights, ensuring a safe work environment, protecting the environment, upholding corporate ethics, and maintaining a robust management system. In addition, LGI has designed its conflict minerals management system to align with the OCED Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
Supplier selection and evaluation procedures assess suppliers based on their technology, quality, overall management, compliance, and environmental management to ensure alignment with LGI’s sustainability standards. Suppliers who do not meet these requirements are excluded from transactions. The SCOC, along with social responsibility and conflict mineral prohibition clauses, is incorporated into contracts with all selected suppliers upon registration.
LGI regularly monitors suppliers’ ESG performance, conducting semi-annual evaluations for key/significant suppliers and annual evaluations for others. The evaluation process includes self-assessment and onsite audit visits for high-risk suppliers. Before onsite audits, an online education program on ESG concepts and the evaluation process is provided. Initial onsite audits help identify areas for improvement and offer management support. For lower-performing suppliers, third-party audits by ESG consulting firms are conducted to identify deficiencies, and LGI provides educational support to improve compliance rates across all ESG areas. Follow-up audits verify the implementation of improvements.
PS2: Labor and Working Conditions
Workforce. As of December 2023, LGI VN employed 5,137 workers, with a gender composition of 25% female and 75% male. While female employees are represented across all divisions, they are predominantly concentrated in the inspection unit. The company's annual attrition rate is between 7% and 10%, below the national average of 15%, primarily due to better job opportunities and personal or family reasons. Additionally, LGI VN employs third-party workers, including 40-50 in the canteen, 200 in cleaning services, 106 as security guards, and 1,576 in construction roles.
Human Resource Policy and Procedures. The company has established HR policies and procedures that align with the national labor regulations and are generally consistent with IFC PS2 requirements. The company provides written employment agreements to workers on definite and indefinite contracts. According to reports, all workers receive the same statutory compensation and benefits, including wages, salary, social security, health insurance, and applicable paid leave. LGI VN’s HR policies and procedures are supplemented by its internal labor regulations and a Collective Bargaining Agreement (CBA) that governs key areas such as working hours, compensation, benefits, grievance mechanisms, and disciplinary measures. In addition, LGI VN has adopted a Global Labor Policy that includes a commitment to respect labor rights, including those concerning child labor, forced labor, discrimination, equal opportunity, and freedom of association.
Working Conditions and Terms of Employment. The company's direct workers operate on a schedule of two shifts: from 8:00 AM to 8:00 PM and from 8:00 PM to 8:00 AM. Four days of work are followed by two days of rest. The roster changes every six days, alternating between morning and night shifts after a two-day rest period. There have been no reports of overtime on rest days or public holidays.
Workers Organization. A trade union is present at the facility, and an interview with a trade union representative confirmed that the HR practices at least align with national labor regulations and client standards. The trade union representative also plays a role in HR development and management, being well aware of the relevant procedures and practices. The trade union and management hold bi-quarterly meetings to discuss working conditions and workplace concerns, primarily focusing on supporting services like food quality and improving workplace communication.
Non-discrimination and Equal Opportunity. No instances of discrimination or unfair treatment were reported. As informed, substantiated discrimination concerns warrant disciplinary action, which may include termination depending on the severity of the concerns and the applicable disciplinary process. As part of ESAP#3, the company will enhance its human rights policy and procedures by (i) providing regular training for line leaders and supervisors on harassment, abuse, and gender-based violence (GBV), including sexual harassment, and (ii) requiring all contractors to adopt the same anti-harassment policy and conduct regular training for workers at all levels.
Protecting the workers—child and forced labor. No instances of child or forced labor were reported. The HR department verifies applicants' ages by requiring and reviewing copies of age documentation. All workers are provided with written employment contracts. Additionally, the company uses an online recruitment system that ensures zero-fee recruitment and has established a hotline for reporting any cases of recruitment fees.
Retrenchment/relocation. There have been no reports of retrenchment due to financial reasons. Employee turnover is primarily due to voluntary resignations. Additionally, definite contract workers typically leave after their contracts end to seek employment with other employers.
Worker’s Grievance Mechanism (WGM). Grievance mechanisms are established at the company’s facility, including a hotline for addressing sexual harassment concerns and grievance boxes for general workplace issues, both allowing for anonymous reporting. The internal audit team manages the hotline, which also investigates complaints, while HR oversees the grievance boxes. Additionally, the trade union operates its own grievance mechanism, typically coordinating with HR or the relevant department to resolve issues. However, the company’s grievance mechanism does not cover third-party employees and construction contractors. As set forth in ESAP #4, the company will require contractors and subcontractors, including service providers, to update their grievance mechanism policies to comply with IFC PS2 requirements, enabling the submission and resolution of anonymous complaints, including grievances related to harassment, abuse, and GBV. Suppose contractors or subcontractors cannot provide a grievance mechanism. In that case, LGI VN will grant contracted workers access to its own mechanism and ensure that information about its existence is effectively disseminated.
Workers Engaged by Third Parties. LGI VN requires contractors and subcontractors to comply with national labor standards and laws to manage OHS and labor compliance. However, it appears there were no PS2 indicators embedded in the screening and monitoring of the contractor and subcontractors. As part of ESAP #5, E&S management procedures for contractors will be strengthened by (i) establishing contractual obligations to comply with national regulations and PS2 requirements and (ii) integrating relevant PS2 criteria into the existing processes for screening, monitoring, and evaluating contractor performance.
Workers’ Accommodation. The client offers dormitory accommodations for local office workers situated just outside the production premises, nearby. According to reports, line production workers reside in the surrounding area or nearby municipalities, making dormitory housing unnecessary. The dormitory comprises 50 rooms with a full occupancy capacity of 102 workers; currently, nearly 90% of these rooms are occupied.
Occupational Health and Safety. The OHS management system, that is developed at group level and for the construction phase, includes a set of policies and procedures for risk assessments, safe working instruction, safety training, and regular safety inspections. At the sub-project level, contractors are required to adapt/develop their policies, procedures etc. to meet the company’s EHS policies in addition to local requirements. There have not been any reported significant accidents or incidents at the sub-project construction sites in the last year since its commencement.
PS3: Resource Efficiency and Pollution Prevention
Resource Efficiency and GHG Emission. LGI is committed to environmental protection and climate action, with clearly defined KPIs, including (i) achieving 100% renewable energy usage (RE100) across all company operations by 2030, (ii) reaching carbon neutrality by 2040, and (iii) optimizing water resource management by promoting industrial water substitution and wastewater reuse. The company has implemented a GHG inventory system in line with ISO 14064-1 to calculate emissions and employs various strategies to reduce GHG emissions, such as transitioning to renewable energy, enhancing energy efficiency, and optimizing production processes.
LGI VN monitors energy, water, and fuel (mainly LPG) consumption and annually estimates direct and indirect GHG emissions. In 2023, total GHG emissions were 53,980 tCO2e, with 821 tCO2e from direct sources (e.g., fuel consumption) and 53,159 tCO2e from indirect sources (e.g., electricity usage), showing no improvement from previous years. Additionally, 80% of LGI VN’s water consumption in 2023 resulted in wastewater discharge, while the company-wide water reuse rate was 39.9%. As part of this investment, LGI VN will set and implement water usage efficiency and GHG emission targets to gradually align with corporate KPIs. (ESAP#6).
Industrial and Hazardous Waste Management. One of LGI’s environmental KPIs is to promote resource circulation and waste reduction, to achieve Zero Waste to Landfill (ZWTL) certification for all domestic and international worksites. In 2023, LGI VN's facility in Hai Phong, Vietnam, achieved Silver-grade certification for ZWTL, with a waste recycling rate of 84.5%. To manage non-recyclable wastes, LGI VN provides on-site temporary storage areas and commissions legally qualified environmental contractors for waste collection, transportation, and treatment services.
Air Emissions. The primary air emission sources of LGI VN’s new plant manufacturing process include dust, tin vapor, n-propanol, formaldehyde, isopropyl alcohol, and emissions from four LPG-fired boilers. The recent results of air emission monitoring of the existing plants were compliant with the national standards and WBG EHS Guidelines. LGI VN will install 12 air emission treatment systems utilizing filter bags and activated carbon membranes for production air emissions. Additionally, dust filter systems will be installed to treat emissions from the crushing plant for faulty finished and semi-finished products. These treated emissions will comply with national air emission standards, and the WBG EHS Guidelines for Semiconductors & Other Electronics Manufacturing (2007), particularly for HF and VOC concentrations. As part of ESAP#7, LGI VN will, as part of the environmental monitoring plan, monitor VOCs (including n-propanol and formaldehyde) and ensure that air emissions comply with the national air emission standards and WBG EHS Guidelines for Semiconductors & Other Electronics Manufacturing (Table 2 Air emission levels) (2007).
Wastewater Management. LGI adheres to relevant regulations and establishes standards for wastewater management. The company analyzes and monitors discharged pollutants, performs regular analysis of water pollutants in wastewater discharge by professional institutions, and conducts daily internal analysis of major pollutants. At this stage, the LGI VN facility complies with the receiving wastewater quality standards of the Trang Due Industrial Park for treatment at its centralized wastewater treatment plant (WWTP) before being discharged to the Thai Binh River. Due to the use of ultra-pure deionized water for manufacturing, the LGI VN’s wastewater characteristics comply with the effluent standards outlined in the WBG EHS Guidelines for Semiconductors & Other Electronics Manufacturing (Table 1) (2007).
PS4: Community Health, Safety & Security
Community Health and Safety. The LGI VN plant is in an established industrial area, approximately 200 meters from the nearest residential community. The plant will adhere to all applicable environmental and OHS permit requirements and WBG EHS Guidelines, ensuring effective management of community health and safety. Additionally, regular emergency response drills are conducted with neighboring industrial facilities and industrial park authorities.
Road Traffic Safety. During the operation phase, it is anticipated that up to 42 trucks (each with a 10-ton capacity) will enter or exit the LGI VN facility daily, averaging about three trucks per hour. LGI VN doesn't own any truck fleet, and the trucks are operated by third-party logistics providers. LGI VN, however, implements several measures to enhance safety, including (i) installing warning signs, such as speed limits (10-20 km/hr), and ensuring adequate lighting within the facility premises; (ii) conducting regular truck maintenance and adhering to load capacity limits; and (iii) providing driver awareness training. As part of ESAP#8, LGI VN will develop a Transportation Management Plan which covers the company’s safe driving policy, driver requirements, third party transportation service providers’ requirements, transport routes, onsite and offsite traffic management measures, site access, vehicle identification and maintenance, and monitoring and reporting requirements.
Security. The project (in construction and in the future for operations) is guarded by unarmed security guards.
