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 Impact
E&S Policies. ISM has established and implemented an E&S management system (ESMS), largely aligned with the requirements of IFC PS1. The ESMS is underpinned by several policies including a Code of Conduct and Business Ethics, Safety, Health and Environment (SHE) Policy, Sexual Harassment Policy, Anti-Child Labor and Modern Slavery Policy, and Recruitment Policy among others. ISM also maintains a legal register, permits register and conduct periodic compliance audits.
Identification of Risks and Impacts. ISM undertakes various processes to identify and manage prevalent risks and impacts associated with its operations, including the maintenance of an HSE risk and impact assessment and completion of periodic E&S impact assessments (ESIA), with the most recent update completed in August 2023. While ISM maintains an overarching risk register, this will be updated, as per ESAP #1, to include specific risks associated with the Project. Further, ISM maintains a legal compliance and permits register, with all required permits currently in place.
For the proposed bulk water project, ISM completed an E&S Management Plan (ESMP), assessing the key risks and impacts of the Project as per the requirements of the Malawian Environment Management Act and IFC PS1. The ESMP was formally approved by Malawi Environmental Protection Authority (MEPA) in May 2023. The ESMP adequately identifies key risks and impacts associated with the bulk water project, including consideration of auxiliary activities (stone quarrying and sandmining), however, it is noted that the ESMP does not assess surface water quality or aquatic ecology within the proposed sand mining area of influence, hence as per ESAP #2, ISM will conduct the above mentioned supplementary studies and as needed, identified corrective actions will be implemented.
As noted, a component of IFC’s proposed investment will entail the installation of new boilers and emission abatement equipment at the factory. As per ESAP #3, ISM will complete an ESIA, and associated ESMP, aligned with the requirements of both the Environment Management Act and IFC PS1, prior to the commencement of construction. ISM will also ensure regulatory approval is obtained and ensure the associated ESMP is implemented.
The bulk water component of the project will connect to Phase 1 of the SVTP via Main Canal 3 (MC3). While ISM will be an anchor offtaker, the SVTP is not considered an associated facility as the scheme was designed, and construction commenced, prior to ISM’s involvement, and further, will have multiple offtakers. E&S risks and impacts associated with the SVTP, including MC3, have been identified and assessed in a project ESIA and associated ESMP. It is noted that the construction of MC3 will result in physical and economic resettlement. The management of this resettlement falls to the SVTP as per the requirements of a defined Resettlement Policy Framework (RPF) and associated Resettlement Action Plans (RAPs). These documents are aligned with the WB E&S Framework (ESF) and are available at https://svtp.gov.mw/reports-2/svtp-1-safeguards-documents/
Management Programs. ISM has developed a project specific ESMP, as well as specific E&S management plans tailored to the anticipated risks and impacts. ISM also maintain a compliance checklist which sets out the ESMP mitigation measures for the bulk water supply infrastructure, the sand mining and the gravel mining. This will be used during construction to assess compliance with the ESMP. Further, under its ESMS, ISM also implements a number of guidelines and management plans including those related to pollution prevention, water use, wastewater and ambient water quality, biodiversity, air quality management and waste management among others. These management measures are considered to be commensurate to the nature of identified risks and impacts.
Organizational Capacity and Competency. ISM currently has a Health, Safety and Environment Head who reports to the Managing Director. The Nchalo leadership team has a Safety, Health, Environment, Reporting and Quality (SHERQ) manager responsible for oversight and management of Environment and Safety aspects of the Nchalo operation. The manager is supported by several SHERQ officers and a SHERQ administrator. To support the ongoing implementation of the ESMS for the project, as per ESAP #4, ISM will employ a supplementary resource, an Environment and Social Manager/Specialist, with the requisite knowledge, skills, and experience necessary to perform their work, including current knowledge of Malawi’s regulatory requirements and the applicable requirements of IFC’s PS.
Emergency Preparedness and Response. ISM implements an Emergency, Evacuation, Business Contingency Plan and Crises Management Procedure which cover the operations emergency response structure, crises management response, emergency situations and response and business contingency plans. The plan includes procedures for managing key risks such as cane fire, flooding, chemical spillage among others. This plan is considered suitable to adequately manage potential emergency situations and events.
Monitoring and Review. ISM monitors its E&S performance and compliance across several platforms and activities. This includes key performance indicators (KPIs) related to training, incidents etc., SHE monitoring programs related to stack emissions, air quality, air contaminants, biological, dust, legionella, noise, thermal, water quality, effluent, waste, and medical surveillance. The project ESMP also includes a detailed monitoring program that will be implemented upon commencement of the Project.
In 2023, the Nchalo Estate undertook a Sedex Members Ethical Trade Audit (SMETA) that covered labor and working conditions, health and safety, environment, and business ethics. Further, the company also undertakes independent E&S compliance audits to determine compliance against both national and international standards. The last audit was conducted in September 2024. Neither of these audits identified material non compliances and/or systemic issues within ISM’s ESMS.
PS 2 – Labor and Working Conditions
Human Resources Policies. ISM employs approximately 10,000 people across its operations. At the Nchalo Estate, ISM employs approximately 3,200 direct workers with a male to female ratio of approximately 93:7. Additionally, Nchalo also employs seasonal workers whose numbers peak at approximately 2,100 from July to December due to seasonal demands. The male to female ratio of the seasonal workforce is approximately 80:20. ISM has implemented several policies and procedures related to labor and working conditions, including recruitment, termination, retrenchment and redundancy, child labor, and procurement among others.
Working Conditions and Terms of Employment. ISM’s labor and working conditions are aligned with the requirements of the Malawian Employment Act and associated regulations. All workers are provided with written contracts detailing their terms of employment. Direct workers are also provided with bonuses, housing and food allowances, and free medical support, while seasonal workers are provided with food allowances and pension contributions. These provisions and overall compliance were confirmed through worker interviews and review of records.
Working hours are limited to 48 hours per week, as per national legal requirements, and overtime is capped at 40 hours per month. Where overtime is required, workers are remunerated at either 1.5 or 2 times the rate as required by law. In terms of remuneration, Malawi’s new minimum wage, pending official publication, has increased from K50,000 to K90,000 per month. It was confirmed that all workers earn above this threshold.
Workers Accommodation. Nchalo Estate offers onsite accommodation to workers, where relevant, and currently accommodates approximately 2,600 workers across the estate villages. Currently, the condition of some houses does not fully comply with the requirements of PS2 or IFC/IBRD Guidance on Workers’ Accommodation especially related to overcrowding, sanitation, ventilation, and fire and electrical safety. ISM has commenced with the implementation of a project to upgrade existing accommodation. As per ESAP #5, ISM will develop a timebound action plan, including capital expenditure requirements, for the completion of the ongoing accommodation upgrade project.
Workers’ Organizations. As per the Malawian constitution, all workers are free to join and/or form trade unions and participate in collective bargaining. Currently most workers at the Nchalo Estate belong to the Sugar Plantation Allied Workers Union of Malawi. The company engages with worker elected representatives on an ongoing basis via established platforms, and on an annual basis, engages and concludes a wage agreement. At the time of appraisal, the current wage agreement was under negotiation. Union dues, as evidenced in payslips, are deducted monthly.
Non-Discrimination and Equal Opportunity. ISM does not have a stand-alone non-discrimination policy; however, these principles are embedded in several policies and procedures, including the Code of Ethics, Recruitment Policy, Human Rights Policy, Harassment Policy and Disciplinary Codes.
Protecting the Workforce. ISM enforces policies against child labor, forced labor, and exploitative practices and monitors contractors and sub-contractors to ensure compliance. In this regard, ISM has implemented a Child Labor and Anti-Modern slavery policy detailing the company’s approach to these issues, including monitoring and reporting requirements. Further, Nchalo’s five outgrowers are Fairtrade certified which includes requirements based on the ILO conventions on child and forced labor. Based on the ESDD, no evidence of child and/or forced labor was identified at the Nchalo Estate.
Grievance Mechanism. ISM has an existing Whistleblowing Policy and a Human Resources grievance policy and procedure detailing the approach for the submissions and management of worker grievances, including contract workers. While various submission channels are available, and anonymous complaints permitted, the procedure is largely operationalized through the ‘Speak Up’ platform whereby direct and contract workers can submit grievances telephonically or via an online platform. The closure of reported matters can only be actioned following investigation. HR grievances are typically addressed by the HR department.
Occupational Health and Safety. ISM implements a robust OHS management system including dedicated OHS personnel, adequate provision of personal protective equipment (PPE), ongoing training, and periodic medical examinations. The company also has a robust permit to work system in place which covers high risk activities (e.g. hot work, working at height, confined space entry, etc.). In FY 23/24, the operation had two fatalities and reported a lost time injury frequency rate (LTIFR) of 0.24. As a component of ESAP #1, ISM will include an OHS risk assessment or task-based risk assessments for the project prior to commencement of construction. Based on the assessment, any additional mitigation measures will be implemented.
Workers Engaged by Third Parties: ISM has a defined procurement policy detailing its approach to the tendering and contracting of external service providers. As per the policy, contractors and suppliers are expected to comply with ISM policies and procedures, including its code of conduct and health and safety policies. Further, contracts with third-party service providers stipulate the prohibition of child labor, required compliance with the Employment Act, minimum wage and health and safety requirements. All third-party service providers are required to undertake a general SHERQ induction prior to the commencement of any work.
Supply Chain: Nchalo Estate currently sources ~ 275,000 tons of cane annually from five primary outgrowers through the implementation of Cane Supply Agreements. These five outgrowers source their cane from over 2,000 local cane farmers. Two of the outgrowers are owned and managed by a corporate entity, Agricane (https://www.agricane.com/), while the other three, Phata, Kasinthula and Chisanja, are managed through community cooperatives and trusts. Through dedicated resources, ISM engages their outgrowers across several platforms, supports with best farming practices and provides inputs (fertilizers, chemicals, PPE etc.). While the Cane Supply Agreements require the outgrowers to comply with ISM’s Code of Conduct and local labor legislation, these operations are managed independently under their own ESMS. All five outgrowers are currently Fairtrade certified.
PS 3 – Resource Efficiency and Pollution Prevention
Resource Efficiency The Nchalo Estate’s primary energy usage results from pumping of water from the Shire River for irrigation purposes. The company currently sources its power from the national energy provider, ESCOM, with an annual usage of approximately 62 million kilowatt-hours (kWH) per annum. As a component of the Project, the company will source water from the SVTP MC3, at a head of 25 meters. This gravity fed irrigation, coupled with the installation of variable speed drive pumps, will result in reduced energy demand from the existing 17 MW to 1.4 MW (an energy demand saving of approximately 15.6 MW or ~91%).
Water Consumption. The Nchalo Estate currently sources water via a pump station on the Shire River. Water is pumped from this point via four 2,000 l/s pumps to various points on the estate where it is gravity fed to water points via a system of canals. The site has a water abstraction license from the National Water Resources Authority that allows for a maximum abstraction of 422 million cubic meters (Mm3) per annum.
As noted, the implementation of the Project will result in Nchalo Estate sourcing water from the SVTP and the conversion of large areas from furrow and sprinkler irrigation to drip irrigation, and to a lesser extent, pivot irrigation. This will result in an estimated water saving of 33 Mm3 per annum, or 17.5%. Further, planned upgrades of the bulk irrigation reticulation infrastructure from open canal to an embedded pipeline conveyance system will result in minimal evaporation and additional water use efficiencies.
Air Emissions and Greenhouse Gases. The Nchalo Estate’s air emissions are primarily related to particulate matter (PM) generated from its five bagasse-fired steam boilers. The site has implemented an air quality management plan and is in possession of an Air Emissions License issued by the Ministry of Environment, Tourism and Wildlife for the release of gaseous emissions, including carbon monoxide (CO), carbon dioxide (CO2), nitrogen oxides, sulphur oxides and fine PM.
The existing plant, and boilers, were commissioned in 1963 and are not currently compliant with the WBG EHS Guidelines nor Malawian standards for industrial emissions. The company has?received a government concession to exceed the national emission limits until 2029. As a component of the Project, the company plans to replace three of the five old technology boilers, retrofit emission abatement equipment on two boilers, and install enhanced in-line stack emission monitors and flue gas monitoring points. As per ESAP #3, ISM will ensure that the design of the boilers and performance guarantee is in line with the national emission standards, and WBG EHS Guidelines. Following the commissioning of the new boilers, ISM will commence with continuous air emission monitoring to ensure compliance with these standards.
Current (23/24 reporting year) Scope 1 and 2 greenhouse gas (GHG) emissions from the Nchalo operation are approximately 57,000 tonnes of CO2-equivalent (TCO2e). It is anticipated, given the significant reduction in imported electricity demand due to the Project, a reduction of approximately 23,000 TCO2e could be realized.
Waste Management. The Nchalo Estate has implemented a waste management plan, as well as an onsite incinerator. All records of waste disposal and waste incineration are maintained, including emissions from the incinerator that are aligned with local legislation and WBG EHS Guidelines. Hazardous waste streams, such as used oil, are disposed of by accredited third party service providers. Medical waste from the hospital is sent to the Chikwawa District Hospital for incineration.
In relation to wastewater, the company has implemented a group level guideline for water use, wastewater and ambient water quality. The process effluent from the factory goes directly to a treatment facility for removal of solids, settling, and aeration before being released into the irrigation canals. The water quality in the irrigation canals is monitored by the Malawi Bureau of Standards and is compliant with local legislative requirements. The company also has an on-site microbiological laboratory, and a contract with an independent laboratory for further analysis.
While the implementation of the Project will result in less irrigation return flows, the company does not currently adequately monitor return flows into the Shire River, which can also include stormwater runoff. As per ESAP #6, ISM will develop and implement a water quality monitoring programme to assess the quality of return flow into the Shire River, as well as both immediate upstream and downstream water quality.
Pesticide Use and Management. Illovo Malawi’s agricultural activities utilize a wide range of herbicides and pesticides as part of the broader pest management approach. The company maintains a hazardous substance register and a group level guideline for hazardous materials management, which also addresses the management of pesticides and herbicides.
The company does not purchase or utilize any products, as per the World Health Organization (WHO) Recommended Classification of Pesticides by Hazard, that fall under either Class Ia (extremely hazardous) and Ib (highly hazardous). Where Class II (moderately hazardous) pesticides are required, appropriate controls for the storage and use of these chemicals are in place, and personnel are provided with training, equipment, and facilities to handle, store, apply, and dispose of these products properly.
Additionally, where the company utilizes drip irrigation, fertilisers (fertigation) and herbicides (herbigation) are fed directly into the feed water which negates the need for aerial spraying, resulting in reduced exposure of aerial spraying for workers and communities due to this project.
PS 4 – Community Health, Safety and Security
Community Exposure to Disease. ISM’s Nchalo Estate is surrounded by more than 25 communities governed under both formal and traditional leadership structures. ISM is the major direct and indirect employer and has various active corporate social responsibility (CSR) initiatives.
Vector borne disease, such as Malaria and Bilharzia, are endemic in local communities around the operation, while water borne diseases such as cholera are also common. As per PS4, ISM is required to avoid or minimize the potential for community exposure to water-borne, water-based, water-related, and vector-borne diseases that could result from project activities. In this regard, the company currently conducts periodic engagement, and awareness campaigns and supports local health and safety initiatives through various CSR programs.
Further, the implementation of the Project will result in the decommissioning of open irrigation canals that will be replaced by buried GRP pipes. This will reduce the extent of open water sources that could exacerbate the spread of Malaria and Bilharzia.
Security: Predominant security risks for ISM include cane, equipment, and cable theft. To manage these risks, ISM has a security and emergency response manager and a contingent of approximately 480 unarmed security guards provided by a private security company. ISM has a current Security Services Agreement that sets out the requirements and conditions for the provision of security resources, including contractual requirements to perform its services in accordance with Malawian legislation and international best practice. In this regard, the service provider implements a range of policies and SOPs to ensure best practice and continuity across its security operations, including a stakeholder grievance process, code of ethics, and human rights policy. In addition, security guards are provided with training in relation to the Voluntary Principles on Security and Human Rights, community relations, use of force, and prevention of sexual exploitation and abuse, among others.
ISM also engages with local communities to support the formation of community policing forums. The Malawian Police Force also provide support to the operation through the provision of approximately 80 police officers deployed at the estate. Where such support is provided, ISM has defined memorandums of understanding (MOUs) defining the role of public security.
PS 6 – Biodiversity Conservation and Sustainable Management of Living Natural Resources
Protection and Conservation of Biodiversity. The Nchalo Estate is considered modified habitat due to ongoing cane cultivation and is largely surrounded by communities where activities such as agriculture, charcoal production, and grazing have degraded the surrounding habitats. The Lengwe National Park borders the operation to the East, while Elephant Marsh, a Ramsar site, is located downstream in the lower Shire valley. The proposed Project is not anticipated to have any direct impact to any critical and/or natural habitat as no expansion of the existing estate footprint will occur. Further, the utilization of MC3 will result in the decommissioning of the existing pump station on the Shire River, hence reducing potential impacts to the aquatic ecosystem.
ISM implements a group level biodiversity guideline, which aims to provide requirements in respect of biodiversity and the management thereof on all estates. ISM has also initiated various biodiversity programs on and around its operations, such as the Nyala Reserve, a 350 ha nationally recognized reserve, provision of watering points within Lengwe National Park, and the establishment of an 80-ha indigenous tree?nursery, with the aim of replanting trees in degraded?areas.
Invasive Alien Species. Existing water courses and irrigation canals within the Nchalo Estate are susceptible to the proliferation of alien invasive plant species. As these invasive species may be easily spread via water ways and wind, and potentially further exacerbated by land disturbance associated with the Project, a plan for their eradication and management will be developed as per ESAP #7.
Management of Ecosystem Services. Climate change impacts, such as shortening of the rainy season, drought, significant increase in temperatures and frequent flood events, are the primary risk to existing ecosystem services such as subsistence agriculture, wood collection or charcoal, sand mining, and grazing. Due to the nature of the Project, adverse impacts to existing priority ecosystem services are not anticipated.
Sustainable Management of Living Natural Resources. As ISM is involved in the primary production of living natural resources, i.e., the cultivation of sugar cane, the company is required to manage these resources in a sustainable manner, through the application of industry-specific good management practices and available technologies. In this regard, in 2022, the company’s Malawian operations, including Nchalo, were certified under the Sustainable Agriculture Initiative (SAI) platform’s Farm Sustainability Initiative (https://saiplatform.org/fsa/). In addition, two of ISM’s out growers, Phata and Kasinthula, were also verified.
