Latin American Agribusiness Development Corporation S.A., “LAAD”

For inquiries and comments to IIC, contact:
IIC’s Communications Group
E-mail: divulgacionpublica@iadb.org

For project inquiries, including environmental and social questions related to an IIC investment, please contact the client or the IIC using the contact information provided above. In addition, project affected communities have access to the IIC Independent Consultation and Investigation Mechanism.
Tel:+1 (202) 623-3952
Fax: +1 (202) 312-4057
Address: 1300 New York Ave. NW Washington, DC. USA. 20577
E-mail: mecanismo@iadb.org or MICI@iadb.org

Project Number: 
12098-01
Expected Consideration Date by the Board: 
10/10/2017
Date Posted: 
08/30/2017
Company: 
LAAD Americas N.V.
Sponsoring Entity: 
Latin American Agribusiness Development Corporation S.A.
Financing Requested: 
Up to US$45 million
Sector: 
Agriculture and Rural Development
Environmental and Social Category: 
FI-2
Location: 
Dominican Republic, Nicaragua, Guatemala, Costa Rica, Colombia, Peru and Chile
Scope Objective: 

The IIC seeks to provide to LAAD Americas N.V. (the “Company” or “Borrower”) a senior unsecured of up to US$45 million A Loan. The structure of the transaction is aligned with LAAD business model of providing medium-long-term financing to small and medium, privately-owned agribusiness companies (sub-projects) that are export oriented. During 2016 LAAD's greatest portfolio growth in absolute terms occurred principally in Brazil, Ecuador, Nicaragua, and Peru. LAAD subprojects in general generate socioeconomic benefits through full time and part time employment in the poor rural areas of the countries where it operates, where the poorest of the poor have no other means of income.

Knowledge dissemination is a key element of agricultural sector development promoted by LAAD. Best practice lessons learned from clients and from innovation are scaled up throughout the LAC region to other producers.

LAAD has raised donor funds for technology dissemination and compliance with voluntary certifications, which in turn will improve market access. One example are the funds raised by LAAD to assist subprojects to achieve third-party certifications, such as RSPO for palm oil clients (a tree crop considered as a driver of deforestation, and standard-compliant production in the palm oil sector has the highest annual growth rate in market penetration worldwide).

Environmental Review: 

1. Environmental and Social Categorization and Rationale: This is operation is classified as an FI-2 under the IIC’s Sustainability Policy. Based on information reviewed by IIC, the proposed Project will have limited adverse environmental and social (E&S) impacts. LAAD’s portfolio may present risks in the form of deforestation and land-use changes. LAAD asseses deforestation and land use changes for all new loans.  When changes in use of land occur, LAAD ensures that it is done in compliance with local legislation and PS6 performance standard. All relevant permits are requested from prospective clients before loan approval.

2. Environmental and Social Risks and Impacts: Key E&S issues associated with sub-projects under this investment are: i) on-farm working conditions and prevention of harmful or exploitative forms of child labor (PS2); ii) occupational health and safety on farmer fields, appropriate use of PPE; iii) on-farm agrochemical hazards, WHO banned pesticides; and capacity building in Integrated Pest and disease management (IPDM); iv) on-farm land use change/deforestation, including conversion of natural / critical habitats and biodiversity risk of investments in proximity to sensitive geographical areas (i.e. Chaco, Cerrado, etc.) (PS6); v) supply chain (issue of concern in certain geographical areas and sectors in LAC); vi) sub-project use of ozone depleting substances (chemicals, refrigerants, etc.) and compliance with the Montreal Protocol. Mitigation measures for these impacts are described below and being incorporated into the Environmental and Social Action Plan (ESAP).

3. Environmental and Social Management System (ESMS): IIC carried out an evaluation of LAAD's compliance with PS1, to determine the company's parity with the nine elements of an ESMS defined in PS1; the level of maturity of each of these elements; and, the level of implementation of the system.  The nine elements (requirements) of an ESMS defined by PS1 include: Policy, Identification of Risks and Impacts, Management Programs, Organizational Capacity and Competency, Emergency Preparedness and Response, Stakeholder engagement, External Communication and Grievance mechanism, Ongoing Reporting to Affected Communities, and Monitoring and Reporting.  The overall assessment is very positive and showed that LAAD’s ESMS is well developed, reflecting compliance with Performance Standards. And, there are some areas highlited in the improvement plan. Also, the examples of LAAD’s investments discussed during the meetings with IIC indicate that the ESMS has undergone considerable practical and successful implementation with LAAD clients in Latin America and the Caribbean.

The ESMS Improvement Plan includes the following ameliorative tasks:

I. Management Programs:  Where applicable, LAAD will require clients to consider external stakeholder feedback in reviewing and updating established action plans and objectives and targets. It should also integrate continual improvement plans agreed upon with its clients. In addition, and especially important for sub-projects in natural and critical habitats, LAAD will formalize current practices into a management system procedure to avoid impacts on biodiversity and ecosystem services in sensitive geographical areas (for example Chaco, Cerrado, others). The procedure shall include use of satellite imagery, land use maps, and other mapping efforts. Examples of these tools that could be used are: World Resources Institute (WRI), Global Forest Watch, others; for ex-ante project assessment and monitoring. A management system procedure appropriate to the nature and scale of LAAD sub-project investments shall be developed to quantify GHG emissions for IIC funded subprojects. Sub-project use of ozone depleting substances (chemicals, refrigerants, etc.) requires an ESMS procedure for sub-clients to ensure tight control of leaks to the air.

II. Stakeholder Engagement: Important stakeholders for LAAD’s clients are also the inhabitants (employees) living in any company provided quarters.  If a subproject requires it or is applicable, LAAD shall request its client to create and implement communication channels for these stakeholders, in addition to the employee grievance mechanism.

III. Ongoing Reporting to Affected Communities: LAAD may profit from reviewing its web page and include a clearly visible tab and contact person at LAAD for accessing a grievance mechanism’s contact points. 

IV. Reporting to IIC: To address potential exposure to E&S operational business risks in the short and long term, LAAD has established a plan for monitoring and reporting to senior management on E&S risks and impacts of its subproject operations. When reporting to IIC, LAAD shall include exemplary subprojects in terms of E&S and transactions declined on E&S grounds.

4. E&S Risk Management at LAAD: To assess and manage E&S risk at the client and portfolio level, LAAD has developed and implemented an Environmental and Social Management System. This system provides tools, procedures and information for aggregated E&S reporting, for reporting E&S issues to senior management, ensure quality of reporting across country offices and provide measures undertaken to promote E&S sustainability (opportunities) and mitigation of E&S impacts in line with the 2012 Performance Standards. Training in E&S risk assessment has been done for country staff. LAAD will continue to work with its clients to encourage them to obtain certifications, as one way of ensuring sustainable environmental and social practices in the supply chains of companies financed.

During the Due Diligence, LAAD provided samples of its ESMS implementation to assess PS6 (Biodiversity Conservation and Sustainable Management of Living Natural Resources) of a livestock subproject in the Chaco region of Paraguay. Information requested from the client included the approval of the Environmental Impact Assessment by the Secretaría de Ambiente-SEAM; the resolution of the Instituto Forestal Nacional’s (INFONA), approving the “Estudio Tecnico del Plan de Uso de la Tierra for farms where land use changes were made after the year 2006, or will be made as part of the project. These are supported by information such as: Geographic coordinates of farms; Environmental & Social questionnaire; Agrochemical use form; Labor self-evaluation form. For analysis of information, the geographic coordinates are entered in ArcGIS to verify location in relation to protected or environmental sensitive areas and land use changes since year 2000. If the project involved a change of land use after the year 2006 (or a change in land use is planned as part of the subproject operations), then the farm’s limits are geo-coded using the maps of the “Estudio Tecnico del Plan de Uso de Tierra”.  These maps indicate the authorized uses by SEAM and INFONA.  Compliance with approved land use is verified utilizing Global Forest Change 2000-2015 data (Hansen, 2015), and Sentinel Satellite images to assess current land cover.

Improvement actions requested are registered in the ESMS database with action items, compliance indicator/documentation, due dates, assignees and status.

5. E&S Action Plan (ESAP)

Task Title/Description

Anticipated Completion Date

Indicator of Completion

PS 1 Environmental and Social Management System (ESMS) Compliant: a) LAAD is required to implement the ESMS Improvement Plan described in this table, aimed at closing gaps between the ESMS and the 2012 PS1. The Company will provide to IIC its updated Procedures Manual.

 

b) Compliance with the 2012 PS1 ESMS element requirements will be verified by IIC through supervision.

08/31/2018

a) Procedures manual for the ESMS to the satisfaction of the IIC

b) PS 1 ESMS Compliant verified by IIC

Exclusion of Category A for IIC funded sub-Projects, according to IIC definition.

Duration of loan

Annual report to include LAADs portfolio and subproject E&S categorization

Formalize current practices into a management system procedure to avoid impacts on biodiversity and ecosystem services in sensitive geographical areas. The procedure shall include use of satellite imagery, land use maps, and other mapping efforts. Examples of these tools that could be used are: World Resources Institute (WRI), Global Forest Watch, others, for ex-ante project assessment and monitoring.

04/30/2018

Management system procedure to assess Biodiversity Conservation and Sustainable Management of Living Natural Resources in Subprojects.

LAAD will review its web page and include a clearly visible tab and name of contact person at LAAD (i.e. a grievance mechanism) such that LAAD may receive and become aware of any queries/questions, particularly as they relate to LAAD’s E & S procedures. 

04/30/2018

Website updated with name of LAAD contact person for accessing a grievance mechanism’s contact person.

Reporting to include list of exemplary subprojects in terms of E&S and transactions declined on E&S grounds.

Annual Report

E&S Annual Report, to be delivered each year 120 days after the closing of LAADs fiscal year. Report will include exemplary subprojects and transactions declined on E&S grounds.

GHG emissions: LAAD will create a procedure to quantify GHG emissions for its IIC funded subprojects, at the beginning of the subproject’s subloan. If a sub-project exceeds 25,000 tonnes of CO2 equivalent, GHG for that subproject will be reported annualy.

IIC’s Subportfolio report. 08/30/2018

Report to IIC GHG footprint of IIC funded subprojects.

 

a) For new Sub-projects, LAAD will ensure that sub-projects look beyond R22 refrigerants when installing new equipment. 

b) LAAD will look into specific updated country phase out plans on control of ozone-depleting substances (ODS) based on Montreal Protocol.

c) When investing in new projects, LAAD will make sure that IIC proceeds are not used in loans to sub-projects that use any ozone-depleting substances controlled by the Montreal Protocol.

Duration of loan

a) Annual report to include data on change of refrigerants in sub-projects

b) Subportfolio report to IIC to include data on country updated phase out plans for sub-projects using ozone-depleting substances controlled by the Montreal Protocol.

c) Report to IIC that none of IIC proceeds are used in loans to sub-projects that use any ozone-depleting substances controlled by the Montreal Protocol.