Milenium Construcasa, S.A. de C.V.

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Project Number: 
ME4087A-01
Expected Consideration Date by the Board: 
08/28/2015
Date Posted: 
07/20/2015
Company: 
Milenium Construcasa, S.A. de C.V. (“Milenium”)
Sponsoring Entity: 
not applicable
Financing Requested: 
Loan of up to MX$60 million
Sector: 
Construction, Materials, and Fixtures
Location: 
Mexico
Country: 
Scope Objective: 

The proceeds from the IIC loan will be used to acquire a land bank for the housing developments to be built by Milenium.

Milenium is a company that develops and builds housing developments in Mexico with a focus on social interest and middle-income housing. It was founded in 1999 in the city of Sonora, Hermosillo, in the country’s north, and is currently developing projects in the states of Sonora and Jalisco that together represent close to 5,500 homes, to be completed in the coming years. 

Environmental Review: 

Environmental and Labor Issues:

This is a category B project according to the IIC’s Environmental and Social Sustainability Policy because it could produce certain effects that may be avoided or mitigated by following generally recognized performance standards, guidelines, or design criteria. The main environmental and labor considerations related to the project are: land purchases and permitting; assessment and management of environmental and social risks and impacts; workplace and labor conditions; efficient resource management and pollution prevention; and community health and safety. During the assessment of the project, Milenium housing developments located in the cities of Hermosillo and Guadalajara were visited.

Milenium has a corporate social responsibility program in place and has been recognized for a third year in a row as a “Socially Responsible Company” by the Mexican Center for Philanthropy (Centro Mexicano para la Filantropía, CEMEFI). Such recognition is based on a self-assessment of a number of indicators, which is verified by CEMEFI, and bestowed on companies that meet corporate social responsibility standards, such as environmental stewardship and conservation and engagement with the community. In line with these accomplishments, Milenium has drafted a code of ethics and conduct and joined the United Nations Global Compact and its 10 guiding principles in the areas of human rights, labor rights, environment, and the fight against corruption. Milenium’s corporate social responsibility practices include a volunteer program through which its employees undertake activities to benefit the community in coordination with municipal authorities and non-governmental, non-profit organizations.

The IIC will also require Milenium to adopt certain good practices in addition to those it currently follows, as outlined in this summary, and to formalize and put into practice an Environmental and Social Management System (ESMS) at the corporate level in order to improve its management of the environmental, labor, and social issues related to its operations. The ESMS must be in line with the nature and scale of its operations and incorporate the following elements pursuant to Performance Standard 1 of the International Finance Corporation (IFC): (i) Milenium’s environmental and social policy; (ii) the identification of risks and impacts; (iii) management procedures and programs; (iv) the name of the Milenium representative responsible for guaranteeing compliance with and execution of the ESMS; (v) emergency preparedness and response; (vi) participation of stakeholders; and (vii) follow-up and evaluation. The ESMS must cover all aspects of workplace safety and health. The Milenium representative responsible for the ESMS shall ensure that the employees and contractors are informed of the ESMS and will supervise compliance with it. In addition, it is important that Milenium introduce an environmental and social management unit at the corporate level to enhance the monitoring of compliance with all the environmental and labor requirements stipulated under Mexican law.

Milenium also must prepare and implement the following policies and procedures that will form part of the ESMS: a formal procedure to identify and manage any situation of involuntary resettlement of persons or involuntary economic displacement; occupation safety and health policy and procedures; a procedure for safety signage and vehicle traffic management during the construction stage; a human resources policy with written procedures for recruiting and selecting personnel; a procedure for external communication and a grievance mechanism for receiving and evaluating matters brought forward by the public or stakeholders and providing the corresponding responses; and a written procedure for dealing with the chance discovery of archeological remains.

During the project with the IIC, Milenium will prepare and execute an Environmental and Social Action Plan (ESAP) that will include the measures outlined in this summary and that once completed, will ensure compliance with the IIC’s environmental requirements established in its Environmental and Social Sustainability Policy.

Land Purchases and Permitting:  Milenium has a planning committee that acquires land only in areas zoned for urban infrastructure; that is duly titled; and that complies with all national and local regulations on urban development and environmental protection. The land for Milenium’s projects is acquired through purchase agreements. The project does not involve the displacement of any people occupying land purchased for future housing developments. Milenium’s policy is to not acquire land that could involve conversion or degradation of critical natural habitats or natural areas or affect indigenous communities. However, it is important to strengthen certain aspects of the land acquisition process. Thus, at the request of the IIC, Milenium will implement a formal procedure for identifying and handling any situation of involuntary resettlement of persons or involuntary economic displacement. This mechanism must follow policies and standards including Performance Standard 5 of the IFC on land acquisition and involuntary resettlement and the Involuntary Resettlement Policy (OP-710) of the Inter-American Development Bank (IDB).

Also, it is standard practice for Milenium to make sure it complies with all applicable national and local requirements regarding obtaining necessary licenses and permits, including the construction permit, as well as approval of the environmental impact statement (EIS), which is one of the most important requirements in terms of compliance with local environmental regulations for approval of housing development projects.

Assessment and Management of Environmental and Social Risks and Impacts: Milenium hires external consultants to prepare and file with the appropriate authorities any environmental impact studies necessary for approval of the EIS. In Guadalajara, local contractors are in charge of construction, and Milenium delegates responsibility to them for obtaining approval of the EIS. The EIS includes an environmental assessment with an analysis of the baseline environmental and social conditions; the requirements of Mexican law and regulations; the sustainable use of natural resources; land use and the availability of basic services such as electricity, drinking water, and sewer systems; access roads; and the availability of social services infrastructure such as hospitals, schools, and shopping centers. In addition, the EIS includes a section on preventive measures and mitigation of identified environmental impacts, for both the construction and operation phases. However, Milenium must have a written procedure in the event of chance finds of archeological remains, in accordance with international best practices established in IFC Performance Standard 8 on the protection of cultural heritage. Milenium will take steps to ensure that this procedure is implemented at its project sites during the construction phase in those instances where the land is located within a cultural heritage zone identified as such in urban development plans or whenever archeological remains are discovered.

Workplace and Labor Conditions: Milenium provides all its employees with the benefits established under Mexican labor regulations. During construction in Hermosillo, Milenium hires local manual labor that it puts on its payroll and provides with medical insurance by registering the workers with the Mexican social security agency (Instituto Mexicano del Seguro Social, IMSS), in keeping with the provisions of the Federal Labor Act. It is common practice for Milenium to hire workers who are members of a Mexican construction workers’ union. Workers involved in the construction phase in Guadalajara are hired and managed by the construction contractors with which Milenium works. These contractors are therefore the ones responsible for providing all the contributions and benefits required under Mexican law as far as employer-employee labor obligations. Milenium requires that its contractors’ employees be registered with the IMSS.

During the field visit to housing development construction sites, it was observed that Milenium supervises its personnel to ensure they are provided with adequate personal safety equipment for their work (safety boots, helmet, safety glasses, etc.). Milenium’s site bosses monitor occupational health and safety.

However, a need for certain improvements was identified. For this reason, the IIC will require Milenium to take certain corrective actions to improve its performance in some workplace health and safety issues in order to meet the IIC requirements pursuant to IFC Performance Standard 2 on work and labor conditions. These actions will include the following: a) Milenium must prepare and implement an appropriate workplace health and safety program, with written procedures, that is in compliance with domestic laws and regulations as well as adhering to international good practices for the construction industry; b) Milenium shall strengthen oversight of and personnel training on workplace health and safety issues; c) Milenium shall review and make pertinent adjustments to its current model agreement for contractors to require them to comply with Milenium’s workplace health and safety policies and program; d) Milenium will improve its management of human resources to ensure ongoing compliance with Mexican labor laws and with the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work. For this, Milenium will adopt a human resources policy and procedures appropriate to its size and labor force. They will include written procedures for recruiting and selecting personnel, and it will stipulate that the hiring process for personnel that work on the projects must open up job opportunities to women and other vulnerable groups, thereby preventing any kind of discrimination. Currently, close to 28% of Milenium’s workforce (administration, commercial, and production) are women.

Efficient Use of Resources and Pollution Prevention:  The homes are equipped with devices designed to reduce consumption of electricity and water, such as energy-efficient light bulbs and water-saving toilet and shower designs. The design of the housing developments includes separate drains for domestic wastewater and rainwater. Domestic wastewater is discharged into the municipal sewage system for subsequent treatment by the municipality. In housing development common areas, such as parks and recreational facilities, trash cans are provided to facilitate the separation of organic and inorganic solid waste. Milenium has an environmental sustainability program in place that covers efficient use of the resources consumed during construction. Scrap brick, plastic, cardboard, wood, and metal are recycled at the construction site or through licensed operators. The final disposal of solid waste generated during the construction and operational phases is carried out by licensed operators or the municipal waste management service in accordance with local regulations.

Community Health and Safety: Beginning with the project planning phase, Milenium endeavors to ensure that its housing developments are equipped with the necessary infrastructure for accessing electricity, potable water, sewerage services, transportation, schools, shopping centers, and hospitals. The company has reached agreements with municipalities to donate urban facilities (for example, a school, sports fields, or green spaces) while taking into consideration the socio-economic characteristics of the project area and existing need. Milenium ensures that all of its construction projects comply with the quality standards mandated in Mexico’s building code. Access to the housing developments is restricted. The company has a procedures manual governing the delivery of housing to its customers and management after the sale. This manual includes the procedure for addressing customer warranty claims and potential latent defects.

The housing developments include a customer service area and a community development program that advises residents on forming a housing association that is legally established as a civic association. Once formalized and trained, the association takes over the management of the housing development and its services, governed by internal rules that establish the rights and obligations of residents in order to ensure appreciation of their homes, the safety of the environment, and good will among neighbors.

However, Milenium lacks well-structured procedures for effectively handling the complaints and grievances of neighboring communities and other stakeholders should they be affected by the project during construction. For this reason, at the IIC’s request, Milenium will implement a grievance and complaint mechanism to follow up on and provide solutions for all complaints from neighboring communities or other stakeholders affected during the construction stage of the housing developments.

Also, Milenium will implement an emergency preparedness and response plan and a procedure to put up safety signs and direct vehicular traffic during the construction phase of the housing developments.

Monitoring and Reporting:  The actions addressed in this summary will form part of an ESAP that Milenium will prepare jointly with the IIC and that the company will carry out during the project. The ESAP will include a schedule of milestones for its implementation. The company will submit annual progress reports to the IIC on the implementation of the ESAP. During the project life, the IIC will oversee compliance with the provisions of its Environmental and Social Sustainability Policy by assessing the annual social and environmental compliance reports and any other documentation that Milenium may be required to submit to the IIC, and conduct periodic visits to Milenium’s premises as part of project supervision.