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
KONCAR established overarching Quality, Environment, Health and Safety (QEHS) policy defining its E&S objectives and providing a framework for E&S assessment and management processes (https://www.koncar .hr/sites/default/files/dokumenti/inline_dokumenti/certifikati/6.%20Policy%20IMS_en_12.05_20260126.pdf). Sustainability policy, HR policy and code of conduct, diversity and inclusion policy, privacy policy, worker wellbeing policy, supplier code of conduct, conflict minerals policy are also in place (E&S related policies and HR code of conduct are available at the Group’s website www.koncar .hr).
All Group companies have implemented an integrated QEHS Management System certified as per International Organization for Standardization (ISO) 9001 (quality), ISO 14001 (environmental), ISO 45001 (OHS) standards. The certification against ISO 50001 (energy management) standard certification will be completed in 2027 for all Group companies. The QEHS Management Systems are aligned with the objectives of IFC PS1 and commensurate with the scale and E&S impacts of their respective operations. Internal IMS teams conduct regular audits to review effectiveness of the QEHS programs and procedures and augment them based on monitoring. In addition, annual third-party audits are conducted to ensure compliance with the ISO management systems requirements. KONCAR’s EHS procedures cover waste management, environmental monitoring, energy efficiency, greenhouse gas (GHG) emissions management, supply chain management, emergency planning, contractor management, OHS procedures/instructions among others. The Company will maintain the QEHS management system, including certification to ISO 14001 and ISO 45001 standards (ESAP # 1).
KONCAR has established a corporate-level E&S and governance (ESG) framework. Overall responsibility lies with the Management Board, which approves the sustainability strategy, relevant policies, and the management of material ESG risks. Oversight is provided by the Supervisory Board, while the Audit Committee monitors sustainability-related reporting, risk management processes, and internal control systems. Central sustainability department coordinates sustainability activities and contributes to internal and external ESG audit processes, risk assessment and monitoring. The sustainability department comprises a manager and three employees. Implementation of E&S measures is delegated to operational business units and supported by a central IMS and OHS department Each plant employes an OHS and environmental officer. The Group management systems department is responsible for QEHS management system documentation and audits. A designated person responsible from each facility collects and coordinates all E&S data, uploading it quarterly to ESG Hub on SharePoint.
Going forward, to effectively monitor the project’s E&S performance, a Project Implementation Unit (PIU) will be established within the Group and will be responsible for overseeing the project implementation, including managing and monitoring E&S aspects throughout the project implementation. The PIU will regularly monitor the project development alongside E&S performance and will prepare annual progress reports. At least one senior OHS specialist will be included in the PIU. Monitoring shall cover EHS and social performance; compliance with applicable national and IFC PSs requirements; contractor and subcontractor performance; grievance management; waste management; and progress against ESAP commitments. This will be achieved through regular, at least monthly meetings with the Supervision Engineers of the project and a review of their reports on the implementation of E&S measures (ESAP #2).
The Group companies identify and manage E&S risks and impacts associated with their operations through compliance with applicable national and European Union (EU) standards and E&S regulatory permits and requirements. All project sites will be located within existing industrial zones and will be situated neither within nor in proximity to protected areas or areas of cultural heritage significance. According to the ESDD, under the applicable national regulatory requirements, the planned sub-projects are not subject to Environmental Impact Assessment (EIA) procedures. Nevertheless, after the designs are completed, the Group will obtain an opinion on the need for an EIA for sub-projects financed under this project from Croatian Ministry of Environmental Protection and Green Transition and construction permits (ESAP #5). The planned sub-projects, financed under the proposed investment, will be designed and operated in accordance with GIIP and meet the requirements of the EU directives and national requirements.
The ESDD identified that construction-phase risks require more formalized, contractually binding management plans and supervision. As indicated in ESAP #3, KONCAR will ensure all contractors and subcontractors establish and execute a comprehensive Contractor Environmental and Social Management Plan (CESMP) compliant with IFC’s PSs and local legislation. All relevant procurement documentation will explicitly define the required scope of this plan. CESMP will feature a general waste management plan and a site-specific Construction and Demolition Waste Management Plan (CDWMP) for the switchgear factory in Sesvetski Kraljevec (some structures of the existing plant will be demolished, and a new switchgear plant will be constructed in the same location). This site-specific plan will govern waste classification, segregation, and material handling procedures for general construction waste and asbestos-containing materials (ACMs), incorporating KONCAR’s official asbestos survey findings (ref: ESAP# 12). Additionally, the final CESMP will encompass robust sub-plans dedicated to pollution prevention and control, OHS and traffic management (especially the Sesvetski Kraljevec site prone to traffic congestion). As per ESAP #4, the company will also prepare and implement an operational phase ESMS for the project sites in accordance with PS1.
The Group established a tool called “Green Checker” which identifies how projects correspond and align with the six environmental objectives of the EU taxonomy as well as minimum social safeguard.
In 2024, the Group conducted a detailed Climate Risk and Vulnerability Assessment; developed a framework for physical risk identification, evaluation, management, and governance; located its production facilities in existing industrial zones already equipped with mitigation measures (e.g., established drainage); and introduced specific operational measures to reduce the potential consequences of the risks.
The proposed locations of the sub-projects are not located within or in the vicinity of any identified or known cultural heritage sites. Nevertheless, considering that construction activities may accidentally uncover cultural heritage, the Group will ensure in accordance with ESAP #13—that contractors develop and implement a Chance Find Procedure compliant with IFC PS8.
KONCAR has a training program (KONCAR Academy platform) that aims to enhance and maintain employees’ environmental and OHS awareness and competency. The training status of the plant employees is monitored by the plant OHS leads and the IMS and HR teams. In addition, courses on gender equality awareness and fire safety are periodically offered to all employees. Contractors’ EHS staff deliver similar training for contracted workforces.
KONCAR has a group-level, documented emergency preparedness and response plan/framework (EPRP) to guide its operational facilities. In addition, plant-level EPRPs have been developed, and emergency drills are periodically implemented in all plants. This practice will roll out to all sub-projects. The roles and responsibilities of employees regarding evacuation, rescue, and firefighting are clearly defined in these plant-level EPRPs and are displayed at visible locations across the sites. Evacuation route maps, assembly point signs, and water hose reels are also placed at appropriate locations throughout the facilities.
An EHS monitoring program has been established at KONCAR in compliance with relevant regulatory requirements and its management systems. Key E&S performance indicators for each subsidiary comprise resource efficiency (electricity, fuel, renewable energy consumption), CO2 emissions, water consumption, waste generation, OHS leading/lagging indicators (Lost Time Incident Frequency Rate (LTIFR)), gender equality (percentage of woman employees) among others. Annual IMS management review meetings are organized to assess the Company's overall E&S performance and sustainability goals and projects. Pursuant to the Accounting Act (Official Gazette Nos. 85/24, 145/24, and 151/25) and the legislative framework aligned with EU directives, KONCAR is obligated to prepare a Sustainability Report, available on its website (https://www.koncar .hr/en/sustainability-reports)
The primary materials used in production are metals such as steel, copper, and aluminum, as well as composite materials and plastics. They are mostly supplied by companies of European origin. KONCAR has established a Supplier Code of Conduct, which serves as the primary supply chain policy applicable to all suppliers, contractors, and business partners. The Code defines minimum standards for ethical, sustainable, and responsible business conduct, covering areas such as human and labor rights, prohibition of child and forced labor, environmental protection, quality, and corporate ethics, in line with internationally recognized frameworks and IFC’s PSs. The Code establishes a strict zero-tolerance policy toward forced labor, child labor, and human trafficking, meaning that any such violations can lead to immediate termination of the business relationship. KONCAR is planning to install rooftop solar PV panels in the project. As per ESAP #7, KONCAR will consider procurement of renewable energy products such as BESS (Battery Energy Storage System) or solar PV from Green Technology Selector platform (https://www.techselector.com/ts-en/) which promotes technologies for sustainable economy transition, and will conduct supply chain due diligence and risk screening for materials present in the core components of procured renewable energy products to mitigate potential forced and child labor risks in line with PSs. Renewable energy suppliers will be required to provide a Bill of Materials (BoM) for the core components, enabling the company to trace sourcing locations and perform accurate risk screening.
PS2: Labor and Working Conditions
KONCAR employs approximately 6,500 people, comprising roughly 80% men and 20% women. The share of foreign-origin employees is up to 3%, while up to 30% of the workforce holds administrative roles. All core production-related activities are undertaken by direct employees.
KONCAR has adopted an HR policy, procedures and Code of Conduct consistent with the national law and requirements of IFC PS2. The Group complies with the Croatian Labor Law (OG 93/14, 127/17, 98/19, 151/22, 46/23, 64/23, 106/23) which regulates the conclusion/termination of employment contracts, work hours, salaries, the rights and obligations related to employment and other employment issues, and which broadly conforms to the requirements of PS2. Workers work 40 hours per week, and overtime work is paid per national regulations. The company guarantees minimum base wages for all workers. The minimum wage in the Group is noted to be above the minimum wage established by Croatian labor law.
Approximately 3% of the workforce are engaged through local labor agencies with workers from Asia (e.g., Nepal, India, Bangladesh). KONCAR has implemented a structured onboarding process in which migrant workers are assigned an administrative “buddy” to support them with local bureaucracy, language barriers, and daily workplace integration. KONCAR ensures that migrant workers are legally and procedurally entitled to the same pay scales, safety standards, and career advancement opportunities as local employees. Going forward, as per ESAP #6, KONCAR will update its Recruitment and Selection Procedure to define requirements for labor agencies recruiting workers from overseas. These updates will ensure the clear communication of employment conditions to workers in their home countries before they travel to Croatia to start their assignments, as well as a strict prohibition on agency placement or transportation fees for overseas workers. Furthermore, KONCAR will assess compliance with this procedure based on requirements reflected in contracts with labor agencies, contractors, and subcontractors. A requirement to monitor these labor agencies periodically will be included in the procedure.
Majority of the blue-collar workers are members of the Croatian Metalworkers' Union - Industrial Union (SMH-IS) and are covered by the collective bargaining agreement (CBA). Each plant has union representatives, and the CBAs are renewed every two years. The latest collective agreement was officially finalized in January 2026.
KONCAR implements Non-Discrimination and Equal Opportunity policies through Sustainability Strategy 2024–2026 which establishes inclusion and diversity as core values, with a specific focus on gender equality and the inclusion of persons with disabilities. Policy on Equality, Diversity, and Inclusion which reaffirms a zero-tolerance approach to discrimination based on age, gender, race, ethnicity, or national origin.
KONCAR’s HR policy and procedures include the prohibition of any forms of harassment, including sexual harassment along with the corresponding disciplinary measures which applies to its all employees. “Protection of Workers’ Dignity’ channel for handling harassment cases, is implemented in accordance with the national labor law. Furthermore, KONCAR will update its HR policy and procedures by including provisions and activities for raising awareness of GBVH (Gender Based Violence and Harassment) as per ESAP #1.
KONCAR has a formal grievance mechanism (GM) allowing anonymous submissions. GM emphasizes anonymity, strict confidentiality, and total protection against retaliation. A dedicated and trained focal point and her deputy handle GM, and the workers were informed about the grievance procedure at the time of hiring as part of their onboarding. In addition, if preferred, employees can express their concerns or complaints by contacting their immediate or higher-level supervisors and/or the dedicated HR officer or through complaint boxes. According to the GM procedure, the company logs all complaints or inquiries, provides an appropriate response explaining the issue (max in 8 days) or conducts a formal investigation with the involvement of relevant department heads and a written response to the complainant.
The most significant OHS risks associated with KONCAR’s operations include exposure to electrical, mechanical, and chemical hazards, as well as heavy lifting, working at heights, and confined spaces. KONCAR has an established corporate and plant level OHS management system including documented plans, procedures, instructions, risk and job safety analyses, hazardous work permit system in line with ISO 45001 management system and local legislation to mitigate OHS hazards. Lost time accidents, first-aid cases, and near misses are recorded. The OHS teams at plants with oversight from the Group’s safety manager implement site-based procedures to manage OHS risks in compliance with national laws and the management system.
Occupational exposures such as noise and vibration indoor workplace air quality, temperature, periodic replacement of air conditioning filters, and similar factors at each location are monitored systematically. Additionally, licensed companies prepare occupational hygiene reports for each plant periodically in accordance with national legislation and the plant’s risk assessment.
In the last two years, the average LTIFR of the Group was 8.17, 7.71 respectively, below the sector average (13.5 - sector US data). The group reported that the increase is attributable to improvements in monitoring systems and the standardization of occupational injury records, resulting in more consistent and comprehensive data coverage. No fatality was recorded during the last 5-year period.
ESDD identified that contractor accidents are not recorded systematically. As per ESAP #1, the Group will define clear roles and responsibilities to track, report, and audit workplace accidents of contractor/subcontractor employees. In accordance with ESAP #9, KONCAR will incorporate provisions into tender documents and contractual agreements with contractors and subcontractors to identify hazards, assess risks, and prevent accidents, injury, and ill-health to project workers. KONCAR will regularly monitor and audit external contractors and subcontractors on a semi-annual basis to ensure they perform work in a safe manner (ESAP #10).
As previously mentioned in PS1 section (ref: ESAP #3), At the Sesvetski Kraljevec location for the new switchgear factory, KONCAR will ensure that an asbestos survey is completed by contractor to verify the presence or absence of ACMs in the existing buildings designated for demolition. The findings will be incorporated into CDWMP. Workers handling ACMs will follow strict dust control measures, utilizing wet methods and HEPA-filtered equipment to prevent the inhalation of fibers. All asbestos waste will be sealed, labeled, and disposed of at authorized, licensed facilities. KONCAR will monitor and audit the removal of ACMs and overall compliance on a weekly basis (ESAP #12).
KONCAR does not use a third-party workforce for its operations but commissions contractors for the construction works. KONCAR will monitor and verify that all contractors and subcontractors establish and execute comprehensive CESMP compliant with national legislation and IFC’s PSs. (ref: ESAP #3). KONCAR will require its contractors to apply provisions for construction workers' accommodation aligned with Good International Industry Practice. Compliance will cover location, structural construction, transport systems, general living amenities, room/dormitory specifications, sanitary and canteen facilities, food safety, medical provisions, and leisure/social areas, strictly in accordance with the 2009 EBRD/IFC Guidance Note, 'Workers’ accommodation: processes and standards”
(ESAP #11).
PS3: Resource Efficiency and Pollution Prevention
The primary materials used in production are metals such as steel, copper and aluminum, as well as composite materials and plastics. The Group considers energy efficiency when selecting new equipment and integrates eco-design principles, including material intensity reduction, improved recyclability, and energy-efficient infrastructure upgrades, to minimize environmental impact across its products life cycle. KONCAR has ISO 50001 implementations (certification in the majority of the facilities) including the ones in the project scope. The Group currently procures appx. 89% of its purchased electricity from renewable sources (HEP ZelEn programme). On-site solar PV systems installed on the roofs of selected subsidiaries currently supply approximately 10% of the Group’s electricity consumption. The goal is to supply 15% of electrical power from the Group’s own renewable resources by the end of 2026. KONCAR has a continuous program for replacing obsolete equipment with energy-efficient alternatives, improving thermal insulation, and optimizing lighting systems. The project’s building structures are planned to be constructed according to DGNB (German Sustainable Building Council) principles.
Through its tender specifications and contractual frameworks, KONCAR will include the clauses in the relevant legal documents that contractors and subcontractors precise their material quantity planning to eliminate overordering. This will be complemented by mandatory on-site material management protocols designed to prevent the damage, degradation, and waste of construction materials and supplies (ESAP #8).
Water use at KONCAR facilities is limited to domestic and cleaning purposes, as well as heating and cooling via water-source heat pumps. The project is not expected to use significant water. While electricity is the main energy source in KONCAR, natural gas boilers are used for heating purposes, and relevant air emission measurements are in line with local and WBG General EHS Guideline limits.
KONCAR monitors Scope 1 (direct) and Scope 2 (indirect) GHG emissions. The goal is to achieve a 45% reduction in these emissions by 2030, compared to 2019 levels. The ex-ante gross GHG emissions for the project are estimated at 16,113.99 tCO2e per year. This total comprises 5,862.44 tCO2e/year from Scope 1 and 10,251.55 tCO2e/year from Scope 2. The estimate was calculated and provided by the IFC Climate Team based on the project information and assumptions available during the appraisal process.
In accordance with national regulatory requirements, KONCAR systematically sorts, handles, stores, and disposes of both hazardous and non-hazardous waste (insulating oil, metal scraps, chemicals, cardboard, mixed solid waste). Specialized and authorized companies handle the collection and final disposal of all waste types. At the facility visited, all waste types were properly labeled and kept in designated, secure areas.
KONCAR’s strategy involves replacing traditional hazardous materials with more sustainable alternatives, such as biodegradable fluids in transformer production, which are less harmful to the environment than conventional mineral oils. In 2025, the Group generated 1,139.40 tons of hazardous waste. Hazardous waste diverted from disposal amounted to 189.34 tons, of which 125.56 tons were prepared for reuse, 35.09 tons were recycled, and 28.69 tons underwent other forms of recovery. Hazardous waste directed to disposal totaled 950.06 tons, with 323.46 tons incinerated, 249.78 tons landfilled, and 376.82 tons treated through other disposal operations.
PS4: Community Health, Safety and Security
Potential risks and impacts to local communities are identified through internal environmental and social risk assessments (Green Checker Tool) conducted for new investments. The planned sub-project sites will be located in industrial zones not surrounded by community settlements. Hence, no significant impacts on the health, safety, and security of the local community are expected due to the construction and operations of these plants. Nevertheless, possible risks are mitigated through technical and organizational controls, which encompass fire prevention and emergency preparedness measures at facilities, strict access control and site security arrangements, traffic management, the safe design and operation of electrical and energy infrastructure, and contractor management requirements to ensure safe working practices that minimize risks to third parties. These measures are systematically implemented in alignment with ISO-certified management systems.
KONCAR employs 54 unarmed security personnel in the HQ and its subsidiaries. Security personnel trainings in Croatia are strictly regulated by the Ministry of the Interior under the Private Security Act. All security personnel are certified after a background screening and regularly trained as per the local regulatory requirements in collaboration with relevant public institutions.
