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
The company has a corporate E&S management system (ESMS) supported by key policies, including an Environmental Policy, a Human Rights Policy, OHS Policy, and a Kostal Group Code of Conduct. These corporate policies are implemented at the plant level, where there are also additional policies in accordance with national legislation.
All Kostal Group production plants are ISO 14001 (Environmental Management System) certified, and some manufacturing sites, including Kostal Bulgaria, have a certified ISO 45001 (OHS Management System). There is a group commitment to ensure all sites have an OHS management system in line with the requirements of ISO 45001 by 2030. At the plant level, the E&S management systems are developed and implemented to identify and manage E&S risks in line with national legislation and ISO 14001 standards.
As part of their ESMS, Kostal undertakes E&S risk screening for new projects. However, there is no evidence of a procedure for assessing environmental and social risks prior to investment decision-making. As part of ESAP#1, Kostal will develop and implement an E&S risk screening procedure for potential new developments, including acquisitions and the construction of new facilities, aligned with IFC PSs requirements, including but not limited to identifying and managing impacts and risks related to OHS, construction contractors, land acquisition, historical contamination and biodiversity. For biodiversity, in line with IFC PS mitigation hierarchy, Kostal will use the E&S risk screening procedure to assess the feasibility of avoiding new facilities within Protected Areas, including both Legally Protected and Internationally Recognized Areas. Where avoidance is not possible and facilities overlap with Protected Areas, project sites will be developed in alignment with PS6 requirements.
Kostal has a corporate sustainability strategy focused on reducing energy consumption and carbon emissions, increasing the percentage share of renewable energy at its manufacturing sites, and encouraging suppliers to do the same. Kostal’s corporate E&S team oversees sustainability, compliance, HR, environmental management, and audits, ensuring policy implementation, global alignment, ESG data collection, and external reporting. Senior management committees guide E&S strategy and monitor sustainability commitments. At the plant level, qualified teams implement E&S policies and report performance to the corporate office, including performance against Key Performance Indicators (KPIs), covering health and safety, waste management, energy efficiency and carbon reduction.
In terms of monitoring, Kostal’s corporate team conducts annual EHS audits reported to the Board, while plant teams monitor performance through various audits and daily inspections. However, labor management inspections are limited. As part of ESAP#2, Kostal will formalize and roll-out a documented program of internal labor management inspections for Kostal employees and contractors, to ensure the effective implementation of Kostal’s HR and labor management policies and procedures, including the Kostal Human Rights Policy, Code of Conduct, internal regulations and grievance mechanism.
Emergency preparedness and response are managed at the plant level in accordance with national legislation and IFC PS1 and PS4. Each site has established emergency response plans and trained staff responsible for overseeing emergency situations including fire incidents. Kostal’s plants are located in industrial zones with access to external emergency support and each site has in-house medical personnel available, specialized in handling emergencies. Fire drills are carried out frequently to address all types of emergencies, and buildings are fitted with fire detectors and sprinkler systems, along with clear safety signage to raise worker awareness.
PS 2 – Labor and Working Conditions
Kostal Group employs around 20,000 employees worldwide across 22 countries and 64 sites. In the Project Countries, at the time of the site visit, there were 1,800 workers in Bulgaria, of which 882 (49%) were female; 1,149 workers in North Macedonia, of which 569 (49%) were female; 136 workers in Poland, of which 94 (69%) were female; and 895 workers in Ukraine, of which 496 (55%) were female. Most workers are employed on permanent contracts, while some hold fixed-term agreements. All contracts clearly outline employment terms, duration, remuneration, working hours, and leave, in full compliance with legal requirements.
Kostal offers a paid summer apprenticeship program at its North Macedonian plant for workers aged 15 and above, limited to 30 hours per week and governed by national legislation. The company also employs migrant workers, including those at Kostal Bulgaria from the Czech Republic, Ukraine, and Moldova. In Bulgaria, about 200 workers, including migrant workers, reside in company-provided accommodation, which was checked and confirmed to meet high standards. Additionally, Kostal has supported the voluntary relocation of Ukrainian workers to Poland, providing new contracts and two months of paid accommodation to support their transition. Kostal partners with an employment agency in Bulgaria to hire 20% of its permanent workforce, who are employed on equal terms and conditions as direct employees. Kostal also engages contractors across all project countries for services such as catering, quality testing, cleaning, security, facility management, logistics, and warehousing.
HR management at each Kostal country operation is led by the plant HR Director, following national laws and overseen by European and Global HR Heads. All sites adhere to Kostal Group’s global HR policies, including the Human Rights Policy, which covers transparent recruitment, prohibition of child and forced labor, freedom of association, collective bargaining, fair working conditions, training, health and safety, and whistleblowing. Each plant also has local HR policies and internal regulations aligned with national labor laws. There are no Kostal company employee-formed unions. However, trade unions exist at the national and sector-wide levels, which employees reported feeling free to join if they wish.
In accordance with Kostal’s Human Rights Policy and Kostal Group Code of Conduct, the company prohibits discrimination and violence and promotes the principles of equal treatment and equal opportunities, as well as equal pay for work of equal value, regardless of gender. Offensive, hostile or intimidating behavior, including sexual harassment, is not tolerated, however, Gender-Based Violence and Harassment (GBVH) is not specifically mentioned and there is no reference to the procedure which should be followed in the event of incidents or cases. As part of ESAP#3, Kostal will develop and implement a standalone policy to define “sensitive cases” and prohibit those behaviors (such as violence, harassment and discrimination, and Gender-Based Violence and Harassment (GBVH)), referenced in the current Code of Conduct and communicated via multiple employee channels, including intranet, emails, posters, and onboarding and refresher trainings. A Compliance Investigation Policy/Guidebook will also be developed and rolled out on the handling of sensitive cases, including providing information on timelines, reporting lines, stakeholder engagement standards, and upholding confidentiality. Kostal will communicate the new Policy and Guidebook to all workers.
Kostal’s ‘Speak Up’ whistleblower system, explained in the ‘Kostal Guideline for Reporting Violations’ procedure, enables workers to confidentially and anonymously report violations of laws or internal rules, including incidents of violence, harassment, and discrimination, which receive priority and immediate support. Employees are trained on the system during onboarding, and it is promoted through leaflets and QR codes. Reports can be made via the web, phone app and hotline, email and comment boxes on-site. For each case, compliance officers are assigned to conduct an investigation, with consultation, leading to the development of an investigation report and corrective actions where necessary. No cases of violence, harassment, or discrimination were reported in the past year across the four project countries. As part of ESAP#4, Kostal will address incidents relating to violence, harassment and discrimination, including GBVH, through the Compliance Investigation Policy to be developed as part of ESAP#3, which will set clear rules prioritizing such cases, establish defined response and investigation timelines, provide an assigned qualified and trained same-gender investigator to oversee sensitive cases where appropriate, and establish support mechanisms to provide victims access to external psychological, medical, legal, or judicial services as needed. Workers will be informed of the policy, procedures and their rights through internal communications, onboarding and annual training, and awareness campaigns.
Aside of the Kostal ‘Speak Up’ whistleblower system, there is currently no centralized or formalized corporate approach to worker grievance management, with Kostal country operations managing general worker grievances differently in accordance with local law. As part of ESAP#5, Kostal will formalize and communicate to all workers, including third party workers, a worker grievance management procedure in each Project Country, utilizing existing reporting channels and tools, ensuring accessibility, anonymity, and compliance with local legal requirements, including works council involvement as appropriate. There will be a dedicated and trained grievance officer in each Project Country for overseeing worker grievances and a centralized grievance tracking system to monitor grievances, ensuring that all grievances are investigated and resolved within the stipulated timelines, along with a mechanism to report back to complainants in a timely manner on the status and resolution of the complaint/issue. The company will also provide a dedicated procedure, including a trained focal point for handling “sensitive cases” while also ensuring multiple options for reporting (in person, writing, via phone and email). It will also identify and provide accessible referral pathways for complainants, accessible to all workers. Updates to the worker grievance management process will be communicated to all workers during onboarding and annual training, and through internal communications. Kostal’s annual EHS audits led by the corporate team will review on an annual basis the effectiveness of each country’s worker grievance management system and ensure the timely and effective resolution of worker grievances at the country level.
Kostal has an operational excellence program which aims for zero accidents and work-related injuries, and a Kostal Health and Safety Guideline, which sets out the company’s commitments to health and safety at work, risk assessment and management, monitoring accidents and incidents, emergency planning, fire protection, first aid, health protection, personal protective equipment, communication and consultation with external parties, and continuous improvement. OHS is managed at the plant level by the HSE Team in accordance with local legislation. When workers join the company and periodically, they undergo occupational health examinations, mandated by law, to ensure workers are medically fit to perform their tasks without endangering themselves or others. There are also country and plant-specific H&S policies and procedures in place, including risk assessments and safety instructions for each operation.
Kostal maintains high workplace health and safety standards, demonstrated by regular safety training, PPE use, clear safety signage, and thorough internal and external audits. Worker accidents and incidents are closely monitored, with full investigations and corrective actions taken as needed. From 2022 to 2024, there were no reported fatalities and low rates of work-related injuries and lost days across Kostal employees and third parties, reflecting effective OHS practices. Each month, plant-level EHS data is reported to the headquarters and published annually in the Kostal Group Sustainability Report. Electrical equipment is inspected at least annually to prevent hazards, protect workers, and ensure legal compliance.
Kostal reviews the environmental and social performance of all prospective new business partners at the corporate level, and if successful, are provided with a contract which refers to compliance with national law and includes relevant environmental, labor and OHS contractual provisions. The operational sites undertake regular monitoring of third parties, via inspections and audits, to check they comply with Kostal’s standards. All third-party workers are required to follow the same Kostal labor and OHS standards as employees and have access to ‘Speak Up’. Any accidents or incidents associated with third party employees are also recorded and monitored.
Kostal’s Code of Conduct for Suppliers and Business Partners sets clear expectations on issues such as child labor, forced labor, violence, harassment and discrimination, including sexual harassment and abuse, freedom of association, working conditions, wages, OHS, waste, and resource use, and is included in all supplier contracts. Suppliers must also complete assessments on the EcoVadis platform, covering 21 criteria in environment, labor, human rights and ethics and business conduct, and are rated on their performance. Supplier performance is monitored through EcoVadis and third-party audits.
PS 3 – Resource Efficiency and Pollution Prevention
Kostal sets corporate and plant-level targets to reduce emissions, waste, and water and energy consumption, with plants implementing management measures and reporting their performance to headquarters through KPIs to ensure alignment with company-wide goals.
Electricity, primarily supplied from the national grid, is Kostal’s main energy source, with diesel generators used solely for emergency backup. The company aims to reduce electricity consumption in production processes by 25% by 2030, thereby enhancing energy efficiency and lowering costs. In 2024, Kostal reported that 41.8% of its electricity came from renewable sources, supporting its goal to achieve 90% renewable energy by 2030. At the plant level, various energy-saving initiatives are underway, such as replacing conventional lighting with LEDs and transitioning to green energy providers.
Kostal has set an ambitious target to reduce greenhouse gas emissions across its entire value chain by 40% by 2030. To achieve this, the company has identified its Scope 1 and Scope 2 emissions and is focusing on optimizing energy consumption to meet this target. Each plant is required to monitor its emissions and report them to the corporate level, where the data is consolidated into centralized reporting. Between 2022 and 2024, Kostal achieved an 11% reduction in GHG emissions.
The main source of air emissions from its facilities includes soldering, coating and back-up generators. Soldering areas have air suction and cleaning systems. Air emissions are monitored in accordance with local legislation, environmental permit commitments, and the Building Management System and no non-compliances are identified.
The manufacturing operations of Kostal do not require a significant amount of water input and the company’s primary water usage is related to domestic purposes in the company’s buildings, including for cleaning, air conditioning and kitchen facilities. Each plant is required to monitor its water consumption and report this data to the Kostal headquarters. Water for Kostal operations is supplied from municipal sources, tested periodically, and generally filtered or pre-treated before being discharged to the municipal sewage network. The plants also have stormwater drainage systems in place.
The company aims to divert 90% of production waste from landfills by 2030 through recycling, setting waste targets across operations, and applying circular principles. Kostal has also set a target of 3.5% annual reduction in waste intensity, with a 5% reduction already achieved between 2022 and 2024. Each plant has a Waste Management Plan that identifies, quantifies, and classifies all waste streams, and details storage and handling by accredited companies. Waste is segregated on-site in dedicated containers and managed by licensed third parties for collection, recovery, disposal, or recycling.
Kostal has established policies and procedures in place for handling hazardous materials, covering safe storage, use, transportation and disposal, with employees trained and external third parties contracted to handle and dispose of hazardous waste, in accordance with strict internal company requirements and external legal and industry requirements.
PS 4: Community Health, Safety and Security
All four Kostal operational facilities are situated in designated industrial areas, generally away from residential communities. Each facility fully complies with relevant environmental and occupational health and safety (OHS) permit requirements, supporting best practices in community health, safety, and security. Regular emergency response drills are conducted to assess the preparedness of the company’s emergency response teams. When required, these drills are coordinated with neighboring industrial units or industrial zone authorities, and cover OHS, environmental, fire, and emergency services.
Traffic management is implemented as part of each plant’s OHS Management System. However, the plants do not have a standalone Traffic Management Plan. As part of ESAP#6, each operational site will develop its own standalone Traffic Management Plan, or dedicated section within a H&S Management Plan, dedicated to the movements in and out of each site, potential risks and impacts, and management measures.
Kostal’s operational sites employ trained security personnel from licensed third-party providers. Security teams work in shifts to enforce documented access procedures for visitors and vehicles, perform routine identification checks, and conduct surveillance in compliance with national laws. As part of ESAP#7, the company will provide comprehensive training to both existing and newly hired security personnel and drivers on the company’s policies, regulations, procedures, and grievance mechanism, with a particular focus on addressing issues such as violence, harassment, discrimination, and GBVH.
PS 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources
Kostal’s existing facilities in Bulgaria, Poland and Ukraine are in industrial areas in converted land, where the sites do not overlap with Legally Protected or Internationally Recognized Areas, Natural Habitat or priority biodiversity values.
In North Macedonia, Kostal plant falls within the boundaries of Natural and Cultural Heritage of Ohrid Region Mixed World Heritage Site (WHS). The WHS was designated both for cultural and natural values, including endemic and relict freshwater species associated with Lake Ohrid. The plant is located more than 6 km to the east of the Lake, in a developed section of the WHS on the outskirts of Ohrid and has been in operation since 2016. Project activities are confined to the existing footprint with no greenfield expansion. Impacts on Lake Ohrid and associated biodiversity values are therefore not anticipated. As part of ESAP#8, Kostal will engage with UNESCO, Protected Areas managers (e.g. the Ministry of Environment, the Glichica National Park, the Institute of Hydrobiology, the Ministry of Culture, the Institute for Protection of Monuments of Culture, and Museums in Ohrid) and other relevant stakeholders, and request their input on additional conservation programs to support the biodiversity values and cultural heritage, and promote the conservation objectives at the WHS.
For future project locations, as mentioned in PS1 and as part of ESAP#1, Kostal will develop and implement an E&S Risk Screening Procedure, which will screen biodiversity risks related to future assets. In line with IFC PS mitigation hierarchy, Kostal will assess the feasibility of avoiding new facilities that may overlap with Protected Areas, including both Legally Protected and Internationally Recognized Areas. Where avoidance is not possible and facilities are in Protected Areas, project sites will be developed in alignment with PS6 requirements, notably with respect to stakeholder consultation.
PS 8: Cultural Heritage
Kostal's existing production facility in North Macedonia is located within the boundaries of Natural and Cultural Heritage of Ohrid Region Mixed World Heritage Site (WHS). The site meets WHS criteria for historic, architectural, cultural and artistic values, which gives it a unique diversity of material and spiritual heritage, combined with well-conserved natural values. However, the plant site is located in an industrial complex where there will be no footprint expansion. In line with PS6 and PS8, Kostal will engage with UNESCO, Protected Area sponsors and other relevant stakeholders and request their input on additional conservation programs to support the biodiversity values and cultural heritage and promote the conservation objectives at the WHS (ESAP#8).
