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.
PS 1. Assessment and Management of Environmental and Social Risks and Impacts
Environmental and Social Management Systems. Magalu’s E&S policy (“Core Principles”) provides framework for safe and healthy working conditions, respect of labor rights and environmental protection, among others. The Company identifies and manages E&S risks and impacts through compliance with applicable national standards and E&S regulatory permits and requirements. The Company yet to establish an Environmental and Social Management System (ESMS) that is commensurate to the size of its operations. Therefore, as per ESAP #1, the Company will establish a corporate level ESMS, aligned with national law and the requirements of IFC PSs. The ESMS will include, but not be limited to, the following documented elements: procedures for the identification of hazards and assessment of risks and impacts and associated matrixes, legal requirements (all sites and new infrastructure), management and monitoring plans, training plans, performance indicators and a stakeholders engagement framework. As part of the ESMS, Magalu will prepare a Climate Change Risk Assessment framework. Further, as per ESAP#2, Magalu will regularize all its permits and licenses, including environmental, water abstraction for the DC’s, vegetation removal permits and fire permits (AVCBs) as applicable.
Organizational Capacity and Competency. The Company has established a corporate sustainability team that coordinates the implementation of its E&S policy and external communications as well as environmental management across all facilities. There is an OHS manager that is supported by a group of safety coordinators and technicians, doctors and nurses in each facility. Hence, EHS organizational structure need to be strengthened. As per ESAP #3, Magalu will strengthen its organizational structure by i) engaging an Environmental Specialist leader under the corporate Health and Safety team, ii) establishing an E&S cell, led by the Environmental Specialist, to directly oversee the DCs, iii) assessing and monitoring supplier’s E&S performance focusing on suppliers that are strategically important to Magalu, especially those directly involved in the resale process..
Emergency Preparedness and Response (EPR). Magalu has documented Emergency Action Plans (EPRPs or PAEs by its acronym in Portuguese) for its distribution centers (DCs) in Brazil. However, these plans need to be strengthened to encompass all potential emergency scenarios in line with the good international industry practices. As part of ESAP #4, the Company will augment the EPRP for its DCs to include comprehensive risk assessments, identification of probable risk scenarios, including climate related events, response procedures, available resources, communication protocols, training requirements for the emergency response teams and strategies for protecting surrounding communities.
Magalu will develop and adopt a corporate EPRP per national law and requirements of IFC PSs for all types and sizes of stores (ESAP#5). Store managers and regional directors will be responsible to hire specialized and licensed professionals to customizing the site -specific EPRP to the specificities of each store.
EHS Monitoring and Reporting. Magalu monitors energy consumption across its facilities and has recently started to monitor water consumption at some of its DCs. However, environmental monitoring needs to be strengthened consistently across its operations. In terms of occupational health and safety, the Company monitors work related incidents and accidents. As part of the ESMS, Magaly will establish a comprehensive EHS monitoring and reporting program, covering labor, OHS, energy and water consumption and waste management, among others. Further, Magalu will establish regular practice of internal annual EHS audit programs of its facilities (ref. ESAP#1).
PS2. Labor and Working Conditions
Human Resources Policies and Procedures. The human resources (HR) team is led by the HR executive director and includes a people and organizational culture committee, which models the organizational structure model, recommends and monitors the process of defining and evaluating the members of the board of directors and is responsible for proposing the remuneration policy and monitoring the main labor risks, among other issues. The Company has adopted a Human Rights Policy in line with the fundamental guarantees established in the Brazilian Federal Constitution and the principles of the UN Universal Declaration of Human Rights. This policy includes documents that guide all employees and partners who provide services to the Company. Magalu also has a set of labor policies covering several topics such as a diversity and inclusion and disciplinary practices, among others. As part of ESAP#6, the Company will develop an HR Policy per requirements of IFC PS2 and national law, that integrates all existing human resources practices such as recruitment, onboarding, compensation, including overtime, employee development, performance management and employee relations. The HR Policy will cover all employees, contractors, apprentices and temporary workers across the Company's operations, will serve as the basis for all human resources activities and will include monitoring procedures to ensure its correct implementation.
Working Conditions and Terms of Employment. Magalu employs almost 37,000 people nationwide, out of which, 51.5% are men and 48.5% were women. Most of the employees are hired under permanent contracts following CLT (Consolidação das Leis do Trabalho) requirements, including minimum wage. The Company uses a “flexible time bank" system which allows Magalu to accumulate and record employees' overtime hours, instead of paying them immediately. Brazilian law requires these accumulated hours to be compensated within a certain period, which can be up to six months or a year, depending on the agreement. The company will continue to monitor overtime on a weekly basis to ensure the effectiveness of controls in place and take action in situations that could lead to non-compliance.
Magalu respects freedom of association and 100% of employees are covered by collective bargaining agreements. Magalu has more than 560 collective bargaining agreements, 23 collective agreements and mor than 300 labor organizations.
Non-Discrimination and Equal Opportunity. Magalu has a Diversity and Inclusion Policy that outlines its commitment not to tolerate any kind of discrimination and harassment based on race, color, religion, sex, origin, age, disability, pregnancy, sexual orientation, gender identity or expression. In addition, the Company has various training programs for all its employees, including gender, people with disabilities, race and LGBTQIA+, among others. Magalu has initiatives to prevent and respond to gender-based violence, including the Magalu Fund to Fight Gender Violence and the Vozes Program.
Grievance Mechanism. Magalu offers different grievance mechanism channels, all of which are available 24 hours a day and can receive anonymous reports, including i) Disque Luiza which is a direct communications channel with the Chairman of the Board, Luiza Helena Trajano; ii) a channel for reporting violations to the Code of Conduct which is managed by an independent and specialized third party and is available for both internal and external audiences, and iii) a women channel to receive reports from people experiencing domestic violence. As part of ESAP #7, The Company will establish a clear procedure outlining the different channels, the audience for whom the channel is destined, responsibilities for handling workers’ complaints, as well as confidentiality, prohibition of retaliation, and the possibility of using the mechanism anonymously. Further, as part of the procedure, Magalu will improve its workers grievance mechanism per requirements of IFC PS2 and management GBVH. The company will develop and implement a centralized record of all complaints and their severity classification, timing and evidence of closure or due diligence.
Retrenchment. As of today, there isn’t any plan for retrenchment. However, prior to implementing any collective dismissals and as part of ESAP #8, Magalu will develop a retrenchment framework per national law and the requirements of IFC PS2.
Protecting the Work Force. Magalu’s Human Rights Policy includes provisions that prohibit the use of child and forced labor and combat the sexual exploitation of children and adolescents. In addition, as part of the HR policy per IFC PS2 (ESAP #6), the Company will strengthen protection of vulnerable categories of workers such as children and workers engaged by third parties.
Supply chain management: Magalu has a supplier base of approximately 4,700 domestic and international suppliers. The company has established the supplier management system, which included the Supplier Code of Conduct (SCoC)conduct and several risk assessment tools depending on the type of supplier. The Supplier Code of Conduct is applicable to all suppliers and requires compliance with respective national regulations and standards, prohibits child labor and sexual exploitation, ensures decent working conditions, and upholds labor rights and occupational health and safety standards. The compliance with the Magalu’s SCoC is the part of contractual agreements with suppliers who are then also required to contractually cascade these down their own supply chains.
The Company performs for all suppliers an initial integrity risk assessment (using an external third-party risk and compliance platform) using public databases to check for issues like forced labor and legal proceedings also to ensure suppliers are legally constituted companies and verifies that products are consistent with the registration in the National Classification of Economic Activities (CNAE by its Portuguese acronym). International suppliers must comply with Sedex audits, while textile local suppliers (all fashion brands) are required to obtain ABVTEX certification. Suppliers who are identified as high risk in the integrity screening or part of the 50 largest contracts are subject to additional due diligence through a sustainability questionnaire that addresses environmental, ethical, health, safety, and social aspects, further follow up corrective actions are stablished according to results of the sustainability questionnaire. As per ESAP #9, Magalu will i) Engage an external specialized consultancy firm to conduct a comprehensive review of Magalu’s supply chain risk assessment and management processes against the requirements of PS2 ii) based on the findings, develop a corrective action plan and roadmap for the strengthening of the supply chain management system, including outline short-term and long-term goals improvement actions, focusing monitoring on suppliers that are strategically important to Magalu, especially those directly involved in the resale process..
Workers Engaged by Third Parties. Magalu relies on third-party contractors mainly for security services, maintenance, and product transportation. The Company has over 16,000 registered deliverers who support Magalu’s logistics strategy, including same day delivery, light cargo and heavy cargo. The Company will as part of the HR policy per IFC PS2 (ESAP #6), strengthen protection of workers engaged by third parties.
Occupational Health and Safety. Magalu has an Occupational Health and Safety Policy aligned with national law that establishes its commitment to promote a safe and healthy working environment. The management of OHS risks follows legal requirements and is based on the Risk Prevention Program (Programa de Gerenciamento de Riscos) and the occupational health medical control program (Programa de Controle Médico de Saúde Ocupacional) that describe main occupational risks per type of job and associated medical exams. Based on the risks, Magalu has developed standard operating procedures, covering work at heights, use of personal protective equipment and powered industrial vehicles, among others. In addition, Magalu follows special provisions for products regulated by ANVISA (National Health Surveillance Agency) such as non-perishable food, beauty, and personal care products.
All incidents are investigated to identify corrective measures and Magalu has a documented procedure describing the incident investigation process. The lost time injury frequency rate (number of lost time injury cases per hundred full time employees) is around 0.34 in 2024 and 0.47 in 2023 which is below the 1.9 industry benchmark for retail trade (www.bls.gov). Main accidents are related to falls and sprains. Magalu has an ergonomics program which includes technical analysis in the acquisition of furniture and expansion projects and labor gymnastics. As per ESAP #10, the Company will develop an OHS Manual per national law and IFC PS2, covering the OHS policy, leading and lagging key performance indicators, standard operating procedures, training requirements, workplace monitoring, accident investigation methodologies and audit and housekeeping procedures for stores, cross dock stations and distribution centers.
PS 3. Resource Efficiency and Pollution Prevention
Resource consumption. Magalu monitors water and energy consumption across most of its operations. All Magalu’s energy needs are fulfilled by renewable sources, and water is sourced either from the grid or from underground wells under water abstraction permits granted by the local authorities. As of 2023, 100% of DCs and 73% of stores measured water consumption through water bills or well records. The Company has also implemented measures to reduce paper and cardboard used for packaging. As per ESAP #11, Magalu will develop a corporate resource efficiency strategy to gradually implement technically and financially feasible and cost-effective measures for improving efficiency in its consumption of energy and water.
Liquid effluents. Magalu’s liquid effluents are limited to those generated at mechanical workshops where the maintenance of powered industrial vehicles is conducted. These effluents are temporarily stored in underground chambers and sent for treatment and final disposal by licensed third parties. Sanitary wastewater is discharged to the municipal sewer except for some distribution centers where on-site wastewater treatment plants have been installed. Effluent monitoring results for some of parameters exceed WBG EHS General Guidelines (2007) levels for domestic effluents. Hence, as per ESAP # 12, Magalu will improve the efficiency of its domestic wastewater treatment to comply with effluent levels defined by WBG EHG General Guidelines (2007).
Green House Gas (GHG). The Company has published its GHG emission inventories according to the GHG Protocol since 2020. Magalu estimates that scope 1 and 2 emissions in 2023 totaled 19,454 tCO2eq/year, with over 70% of scope 1 emissions coming from fugitive emissions. Magalu is working to gradually replace AC equipment using R-22. As part of ESAP #13, the Company will develop a procedure to reduce fugitive emissions and a time-bound action plan to replace ozone deploying refrigerant gases. The Project’s annual total emissions are estimated to be less than 25,000 tCO2eq/year.
Waste and hazardous materials. Magalu records and reports the quantity and type of solid and hazardous waste. In alignment with local regulations, distribution centers and stores follow Waste Management Plans (Plano de Gerenciamento de Resíduos Sólidos) that outline the procedures for the segregation and handling of waste. As part of the Extended Producer Responsibility requirements, Magalu receives e-waste at its stores to ensure its adequate disposal. Hazardous waste represents less than 1% of the Company’s waste generation and is mainly composed of batteries, light bulbs, lubricants, and oil contaminated rags. Hazardous materials are limited to fuels and chemical productors. As part of the ESMS, Magalu will develop and implement a procedure for the management of hazardous materials (ref. ESAP #1).
Pest management. Magalu hires the services of external providers for pest management. As per ESAP #14, the Company will request all service providers to replace any product on WHO’s Ia or Ib list and include this requirement in contractual agreements, as art of an integrated pest management plan.
PS 4. Community Health, Safety and Security
Community Health and Safety. One of the main risks associated with retail services stems from product transportation. Magalu has integrated logistics through a Transportation Management System that optimizes route planning and scheduling. Fleet and transportation services are outsourced to selected companies, monitored via GPS, and managed by an Operational Monitoring Control Center. The Company closely tracks fleet maintenance and defined routes, which aids in reducing emissions, optimizing fuel usage, and preventing accidents. However, Magalu does not identify and/or monitor the community health and safety risks of its transportation route and the practices of the transport companies. As part of the ESMS (ESAP #1), Magalu will develop and implement a Corporate Transportation Manual for Community Safety to include training and awareness in pedestrian safety, emergency response for road accidents potentially affecting communities, Code of Conduct and GBVH prevention in resting areas or locations where drivers engage with communities. The corporate transport management plan shall be contractually cascaded down to all transport service providers.
Life & Fire Safety. Magalu’s stores comply with the building and fire codes of their respective Brazilian State or region, are equipped with adequate firefighting equipment and have a basic Emergency Brigade responsible for emergency preparedness in the DCS and office buildings, Ongoing compliance with legal life and fire safety requirements is ensured by the store managers who can report unsafe conditions via an intranet system. To guarantee timely maintenance of fire protection equipment of the stores and as part of ESAP #15, Magalu will enhance the corporate reporting system of fire protection equipment issues in the stores, to prioritize corrective actions and ensure any required maintenance is completed within 48 hours.
Magalu’s distribution centers adhere to fire protection system standards consistent with international regulations and best practices and maintenance of life and fire safety equipment is managed by authorized third-party companies, which conduct evaluations and maintenance according to an established program. Any deficiencies and corrective actions are reported to the Director of Security by the DC manager. As per ESAP #16, Magalu will develop a LFS management for DCs that are located in industrial sites managed by third parties. This procedure will include an audit plan and response actions, to confirm that the industrial site’s fire protection systems are always operative and available. Additionally, as per ESAP #17 above, Magalu will develop a procedure for management of change (MOC) in the DCs.
In its future growth strategy, Magalu plans to establish stores primarily in leased areas on existing buildings at ground level, with an average size of 300 m². As outlined in ESAP #17, the Company will commission an independent specialized and licensed fire safety professional to produce the comprehensive Life and Fire Safety Master Plan for constructing and renovating of new stores. This plan will be integrated into the corporate design manual, including stores and DCs, ensuring compliance with local legal requirements, and addressing factors like occupancy levels, egress options, and fire prevention, detection, and fire suppression systems as outlined in the WBG General EHS Guidelines.
Security Personnel. Magalu hires external companies to provide security services. Distribution centers have armed guards and Magalu is currently working to replace armed guards in stores with unarmed personnel. All security guards should be registered in the Federal Police and undergo a 200-hour training course covering human rights and ethical conduct. In addition, all security personnel receive annual training on Magalu’s corporate policies and procedures related to human rights. As per ESAP #18, the Company will develop a corporate Security Management Plan, in line with PS4 and the IFC Good Practice Handbook on the Use of Security Forces, ensuring procedures for the use of force and firearms, reporting of incidents, assessment of risk and implementation of good practice in hiring, training, and employment of private security forces.
