Grupo Monge

Environmental & Social Review Summary

This Environmental and Social Review Summary is prepared and distributed in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board of Director’s decision. Board dates are estimates only.
Any documentation which is attached to this Environmental and Social Review Summary has been prepared by the project sponsor and authorization has been given for public release. IFC has reviewed this documentation and considers that it is of adequate quality to be released to the public but does not endorse the content.

Project number	26968
Country	Central America Region
Sector	Wholesale and Retail Trade
Department	Global Manufacturing & Services
Company name	Grupo M Holding S.A.
Environmental category	B
Status	Pending Approval

Date ESRS disclosed	March 27, 2008

View Summary of Proposed Investment (SPI), click here

Overview

Category & Applicable Standards

Key Issues & Mitigation

Community Engagements

Client's Documentation

Overview of IFC's scope of review

IFC’s review included meetings with:

- the Grupo Monge corporate management team (including CEO, CFO, Human Resources Manager and Director of the Corporate Social Responsibility Program);
- the country-level management teams (General Managers, Human Resources Managers, Operations Managers and, where in place, Coordinators for Occupational Health and Safety) in Costa Rica, El Salvador, Honduras, and Nicaragua, and
- managers and staff of distribution centers and retail outlets.

Site visits to all distribution centers in Costa Rica, El Salvador, Honduras, and Nicaragua were conducted, as well as to selected stores in San José and Alajuela in Costa Rica, San Salvador in El Salvador, San Pedro Sula in Honduras, and Managua in Nicaragua. Documents on human resources management, occupational health and safety policy and procedures, emergency preparedness protocols, training programs and the corporate social responsibility program were reviewed.

Project description

Grupo Monge (or the company) is a leading family-owned, Central American retailer of consumer electronics, household appliances and home furniture. The company has 325 retail stores across five countries, offering products mainly to low and middle-low income consumers, and employing more than 5,500 permanent staff. Grupo Monge has a presence in Costa Rica (since 1969 with 180 stores), Nicaragua (since 2000 with 52 stores), Honduras (since 2004 with 36 stores), Guatemala (since 2006 with 10 stores) and El Salvador (since 2006 with 47 stores). Grupo Monge operates in three lines of business:

- the retail segment, which includes three different formats with separate brands catering to different target clients;
- the wholesale segment in Costa Rica; and
- the consumer finance segment, through which it provides consumer financing for store purchases.

Over the next three to four years, the company plans to:

- expand its retail network in Guatemala, Honduras and El Salvador; and
- refinance a major part of its short- and long-term debt.

The company expects to finance the project with a combination of shareholders’ equity, long-term debt and internal cash generation. Grupo Monge has requested IFC to provide loans of up to $50 million.

Key environmental and social issues and mitigation

Grupo Monge has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific agreed measures, comply with the environmental and social requirements - the host country laws and regulations and the IFC environment and social Performance Standards and Environmental, Health and Safety Guidelines. The information about how these potential impacts will be addressed by the company is described in the paragraphs that follow and summarized in the attached Environmental and Social Action Plan (ESAP).

1. PS1: Social and Environmental Assessment and Management Systems:

- Environmental and Social Assessment:

The formal requirements for Environment and Social (E&S) assessment in the five countries where Grupo Monge operates are different, although generally they have a limited impact on retailers. In addition, Grupo Monge leases (and plans to continue to lease) more than 95% of its stores and most distribution centers, with the exception of those in Costa Rica and El Salvador; therefore a formal environmental and social impact assessment process is not generally relevant for Grupo Monge’s new development.

The company has developed a procedure to screen stores’ locations, indicating that, to comply with national requirements, all proposed locations are visited and authorized by local Fire Departments and Ministry of Health, before store opening.

The location of new distribution centers is selected through a study that evaluates various potential sites on the basis of several criteria including availability of infrastructure and utility services, accessibility, availability of workforce, security, environmental quality of the surroundings, site physical features, etc. Such a study is currently underway in Honduras.

The company will develop more formal E&S screening for future sites, particularly in terms of land acquisition, and more formal E&S due diligence for leased stores and warehouses. This due diligence will aim at timely identification and review of the potential environmental, health and safety, and social risks and the creation of documentary evidence that such risks are either negligible or requiring a more thorough environmental, health, safety and social assessment.

Grupo Monge will insert a “chance finds” protocol into its future construction contracts such that any cultural property uncovered during construction will be protected.

- Management Systems and Organization:

Grupo Monge does not have a formal environmental and social management system, although some components of such a system are already available and in place at country level. Similar programs and procedures are being developed at corporate level, although they are in their initial stage of development. Specific components at corporate level which are already available include:

- a human resource management program;
- an occupational health and safety policy and a program for the preventive management of occupational health and safety risks; and
- a manual for emergency preparedness in the workplace.

At a corporate level Grupo Monge does not yet have specific departments to oversee environmental, social, health and safety (ESHS) issues. There is no environmental function in their organization, and occupational health and safety (OHS) is under the responsibility of the Human Resources departments. Personnel have been recently identified and appointed to cover OHS issues in Nicaragua, Honduras and El Salvador. The responsibility of implementing corrective measures, monitoring and reporting performance is not clearly assigned.

Grupo Monge will create an ESHS management function at corporate level to develop a complete ESHS management system that can be applied consistently in every country of operation. The ESHS management function will have initially responsibilities over occupational health and safety, life and fire safety, key environmental issues (i.e., waste management, refrigerant gases, timber supply chain of furniture suppliers), and contractor ESHS management, but it is likely that function responsibilities will expand as the ESHS management system will develop. ESHS coordinators, reporting to the corporate ESHS management function, will be required to be appointed in each country where the Company operates.

The existing management components do not have quantitative targets and performance indicators, especially in terms of potential environmental and social impacts. The company will quantify its operations' ongoing environmental impacts, identify and quantify reduction targets and develop monitoring and reporting systems to assess key performance indicators, and drive such reductions. Grupo Monge will formalize a monitoring and reporting system for occupational health and safety, consistently with the guidelines provided by the International Labour Organization (ILO).

- Training:

Grupo Monge has an established program to provide necessary training for all its direct employees on occupational health and safety aspects related to its operations. First aid training is also provided, although inconsistently throughout the operations.

The company will enhance its induction and training programs for occupational health and safety, add an environmental component to the training program and ensure that key contractors (especially transport services and furniture assembly contractors) are included in the training program. The company will record and report all training performed and trainees.

2. PS2: Labor and Working Conditions:

- Human Resources Policy and Management:

Although there is a newly established corporate human resources (HR) function, HR management is implemented at country level. Country HR departments have established terms of employment (wages, working hours, over-time, leave and holidays) and procedures for recruitment, promotion, disciplinary action and dismissal. New staff participate in an induction program and on-going training opportunities are provided.

Employees are provided with written contracts that specify the terms and conditions of employment, i.e., the position, the rights and responsibilities of the employee and employer, contract duration, probation periods, working hours, annual leave and salary. Retail staff work 6 days per week.

For retail staff (68% of staff), Grupo Monge guarantees minimum wages (as defined by law) although this is achieved through provision of a basic wage and commission on sales, the latter allowing individuals to achieve 2-5x the minimum wage. Non-wage benefits include uniforms, store discount, social security, and annual bonus. In Costa Rica and Nicaragua, Grupo Monge has also established a staff association that facilitates savings, access to loans, etc.

There are no official unions associated with Grupo Monge, although Grupo Monge would not discriminate against worker organizations formed to discuss workplace related issues.

- Grievance Mechanism:

HR is responsible for managing grievances. While no formal employees’ grievance mechanism exists, IFC’s review identified that staff knows that grievances may be submitted directly to store managers or to the country HR department who ensure appropriate follow-up. External worker protection mechanisms are ensured by the national labor laws. Grupo Monge will be required to develop a formal internal grievance management policy and relevant implementation procedures.

- Non-Discrimination and Equal Opportunity:

Grupo Monge recruitment policy and procedures indicate that it is an equal opportunity employer. Country HR departments have developed training programs to support professional development and opportunities for promotion exist.

- Occupational health and safety (OHS):

OHS risks are limited in number at Grupo Monge’ stores, but they are more significant in their distribution centers. Occupational accidents and relevant actions taken, including corrective actions, are recorded, but accident statistics are not kept. Most accidents recorded are relevant to falling objects and falls in the distribution centers. The use of personal protective equipment (PPE) is inconsistent at most locations, particularly at distribution centers, including the use of foot protection (e.g., safety shoes and boots) and hand protection (e.g., gloves). The use of head protection is enforced only in the distribution center in San Salvador. The use of lumbar supports is more widespread throughout the operations, including stores, where staff is involved in in-store warehouse operations.

Working environment temperatures in the distribution centers can reach high levels, because of the climatic conditions, and because the work places are not conditioned and ventilation is limited. Temperatures are not recorded by the company.

Grupo Monge will undertake OHS risk assessment at all distribution centers and furniture assembly sites throughout the five country operations, and should follow up with corrective action as shown necessary. In particular, the use of PPE will be assessed and consistently enforced, and guard rails will be installed at all stair cases and elevated floors, including at stores. The Company will review the adequacy of ventilation in all distribution centers and furniture assembly centers, and will develop corrective actions to ensure implementation of engineering controls and ventilation. Heat stress management procedures will be developed and implemented at all distribution centers, consistent with the recommendations of ACGIH or equivalent guidance from an international industrial hygiene organization, agreed with IFC.

- Life and fire safety:

Grupo Monge’s offices, distribution centers, service centers, furniture assembly facilities have fire extinguishers and fire alarms. Fire extinguishers are maintained by local contractors, and regularly inspected. Emergency exits are present, although often identified as one of the warehouse loading/unloading doors, which is kept open during work hours. The use of dedicated emergency exits with crash bars or other suitable unlatching mechanisms is not enforced. Exits are not always identified by sufficient marking and signing, with the exception of the distribution center in El Salvador, which has adequate area and emergency signage. Training is provided to the workers on how to reach emergency exits and how to use of fire extinguishers. A small team of first aid responders is present in the distribution center in Nicaragua. Emergency preparedness training, including response to natural disasters (e.g., earthquakes), is provided. Fire and emergency drills are generally conducted at least once a year, but insufficiently documented. Emergency response plans exist in the form of a company plan and emergency evacuation routes are regularly posted in the workplaces.

Grupo Monge’s existing offices, distribution centers, service centers, furniture assembly facilities, and a representative sample of stores in every country will be audited by a qualified fire protection engineer, who will confirm that the facilities meet national fire safety requirements and will establish the scope of work of a Corrective Action Plan and a time frame for implementing the changes. As a minimum, smoke detectors, dedicated fire exits and signage should complement the fire extinguishers and fire alarms already installed.

The company will adopt a program to extend first aid training to all their operations.

Life and fire safety at the company’ stores are discussed under PS4.

3. PS3: Pollution Prevention and Abatement:

Grupo Monge considers management of environmental aspects as part of the operations function. The potential direct environmental impacts are mainly associated with operation of the distribution centers and service centers, as well as to the transport of materials to and from their operation facilities and stores.

- Pollution prevention, resource conservation, energy efficiency:

The company’s offices, distribution centers, warehouses, service centers and stores are generally connected to the electrical grid and the municipal sewer or to a septic tank for sewage disposal. Potable water is supplied by public sources. Stand-by diesel generators are present in the main facilities, such as the new distribution center in Costa Rica. It is likely that the main emissions to atmosphere are associated to the use of the generators, but emissions are not quantified.

The use of air conditioning is limited to the company’s offices and newest stores located in city malls. However, Grupo Monge provides maintenance and repair services of refrigerators and air conditioning systems in their service centers, the most important ones being ServiMonge in Costa Rica and ServiPrado in El Salvador. The centers are well maintained facilities with adequate equipment.

HFC 134a refrigerant and HCFC 141 blowing agent are used in refrigeration appliances sold or maintained and repaired by Grupo Monge. The company will re-specify its appliances to eliminate HCFC 141 from its products ahead of the agreed Montreal Protocol phase-out date of 2030.

Grupo Monge will monitor and record the refrigerant use for maintenance of refrigerators and air conditioning systems. The company will also ensure that the refrigerant systems in their facilities do not use CFCs and do not leak.

- Solid and hazardous waste management:

Solid waste generated by Grupo Monge is essentially carton, plastic and paper from packages. Waste management is contracted to private companies or directly managed by the public utilities. Paper is collected and recycled by Grupo Monge in Nicaragua. Any other solid waste, e.g. organic waste generated at the facilities, is collected by the municipality. Disposal manifests are available at company’s premises.

Electrical and electronic waste is generated through returned equipment, which cannot be repaired, and from the repair and maintenance operations provided by the service companies. The company operates to maximize the reuse of spare parts and electrical and electronic components, in collaboration with their main suppliers.

The company will develop a formal waste register to ensure that solid waste and electrical and electronic waste generation is adequately and consistently recorded and monitored, and subsequently will develop of a more formal waste management system and plan, maximizing opportunities for recycling and fully tracking waste disposal in compliance with IFC requirements.

- Emergency preparedness and response:

An emergency preparedness plan exists at corporate level and instruction on emergency preparedness and response are given to each store manager. The emergency preparedness plan is adequate in scope, although more site-specific procedures for the distribution centers and offices can be developed. Emergency evacuation plans are available for the offices and the distribution centers. Drills are conducted, although they were inconsistently documented and defects were observed. Their regularity can be improved. The fire protection engineer will review these plans and recommend necessary revisions, if any, to these plans.

PS4 Community Health, Safety and Security:

- Safety and Security: Issues include fire safety and emergency preparedness and response, transport and security.

Life and fire safety:

Grupo Monge’s stores are equipped with fire extinguishers and personnel are trained to respond to an emergency (e.g., fire, earthquakes). Smoke detectors, fire hoses and sprinklers are infrequent, although present in some locations in the main city malls. Most commonly, stores are with only one exit door and several locations, particularly located in urban locations, are two-story or multistory stores, often with their warehouse located at the most elevated floor. The fire protection consultant will confirm that the existing stores meet national fire safety requirements, conducting an audit of a representative number of stores throughout the five countries, and will establish the scope of work of a Corrective Action Plan and a time frame for implementing the changes. Where new stores are to be constructed or are established through leasing of the entire building, their design, construction and operation will be in full compliance with the local building codes, local fire department regulations, local legal/insurance requirements, and in accordance with an internationally accepted life and fire safety (L&FS) standard, such as the NFPA Life Safety Code or another standard as recommended by the fire protection engineer and agreed with IFC. New stores established in an existing building, but which do not occupy the entire building, will undergo a life and fire safety review by a suitably qualified professional. The findings and recommendations of the review will be used as the basis to establish the scope of work of a Corrective Action Plan and a time frame for implementing the changes.

- Transport:

All country operations sub-contract transport operations to support distribution of goods from distribution centers to retail outlets located throughout the country. Sub-contracts are let to large numbers of small transport providers who operate between 1-5 trucks. No corporate or country level policy regarding condition and maintenance of vehicles, code of conduct for drivers and assistants, and security are available.

- Security:

Security guards are used in all stores in all country operations. Security services are subcontracted and managed by established security service providers that have formal procedures and codes of conduct that dictate the conduct to be maintained in all situations, also with respect to the use of force or firearms.

The company will develop a formal contractor management system to ensure that acceptable environmental, health, safety conditions and employment terms and conditions are provided to the employees of their contractors. This will include, as a minimum,

- the furniture assembly contractors, if any, with specific focus on occupational health and safety,
- the transport contractors, with specific focus on truck fleet maintenance and driving behavior and training, and
- the security providers, with specific focus on security guard training and implementation of the code of conduct.

PS5 Land Acquisition and Involuntary Resettlement:

Grupo Monge leases more than 95% of its retail outlets. In a number of countries it has recently completed or, is in the process of, designing and constructing new distribution centers. In these cases Grupo Monge identifies suitable locations with appropriate zoning and engages in a willing buyer-willing seller transaction.

PS6 Biodiversity and Sustainable Natural Resource Management:

Furniture represents a significant portion of sales and revenue for all country operations. Furniture is procured from both national and international producers. As described below, in Costa Rica Grupo Monge has started investigating the source of timber used by these producers and is considering various options (i.e., species selection, certification) to ensure that timber is derived from sustainable operations. However these activities are yet to be implemented in other country operations and a definitive corporate position is yet to be defined. Grupo Monge will develop a formal Corporate approach to species selection and use of timber from sustainable operations.

Client's community engagement

Grupo Monge has a newly established Corporate Social Responsibility (CSR) Program supported through the Monge Foundation which in turn would be funded by Grupo Monge commercial operations. Program activities include education (scholarships), environment (support of environmental non-government organizations, group recycling program for cardboard, plastics and electronic waste) and social support (donations). Environmental activities include consideration of supply chain issues associated with furniture production and procurement. Program roll-out is centred in Costa Rica and Nicaragua, although various activities (especially social support) are also implemented in the other countries of operation. CSR activities are well publicized in local media.

Local access of project documentation

This Environmental and Social Review Summary, and the associated Environmental Action Plan may be viewed at main offices and main stores, which are located at:

Costa Rica
Main office: 200 mts sur de la antigua Aduana las Cañas, Cacique de Alajuela. Alajuela

Stores:

#2 Importadora Monge -75 O de Palí TUASA, Alajuela
#51 Importadora Monge -Costado N Iglesia de Guadalupe, San Jose
#50 Importadora Monge - Centro Comercial Multiplaza, San Jose
#58 Importadora Monge - 100 N Autoservicio Jicaral
#165 Play- Rotonda Garantías Sociales, Zapote

Nicaragua
Main office: Parque industrial Portezuelo de Fetesa 1.C.Arriba, 1C.Sur. Managua

Stores:

#1 El Gallo Mas Gallo - De la Esso Cuidad Jardin 3 calle abajo, Cuidad Jardín
#2 El Gallo Mas Gallo – De la Iglesia Santa Ana 1 ½ calle arriba, Chinandega.
#5 El Gallo Mas Gallo – Frente a la Estación de Policia, Masaya
#9 El Gallo Mas Gallo – Frente Supermercado La Unión, León
#47 El Machetazo - Costado norte del parque, Matagalpa

Honduras
Main office: Boulevard Del Norte, frente al Hospital del Valle, Contiguo a Estación Texaco El Palenque, San Pedro Sula, Cortés.

Stores:

#2 El Gallo Mas Gallo – 3ra Avenida, Calle 4 y 5 SO, Barrio El Centro, San Pedro Sula.
#3 El Gallo Mas Gallo – Avenida, calle 1 y 2, Barrio El Centro. Choloma.
#5 El Gallo Mas Gallo – Frente a la Plaza Francisco Morazán, Barrio El Centro, Tegucigalpa
#7 El Gallo Mas Gallo – 1 y 2 Ave. Edificio Plaza del Sol, San Pedro Sula.
#9 El Gallo Mas Gallo – 2 y 3 Avenida, Segunda calle, Frente a la catedral. Departamento de Cortes, San Pedro Sula

El Salvador
Main office: Calle El Boquerón # 5, Urb. Santa Elena, Antiguo Cuscatlán, La Libertad. San Salvador

Stores:

#23 Prado – Octava Etapa Metrocentro, San Salvador
#34 Prado - Calle Rubén Darío, San Salvador
#48 Prado - Plaza Mundo, Soyapango
#11 Prado- Metrocentro 4ta etapa, San Salvador
#12 Prado - Santa Tecla, La Libertad.

Guatemala
Main office: 14 calle B, 12-39 (Okland) Zona 10

Stores:
#1 Gallo mas Gallo - 1ra. Calle 5-47 Zona 9. Cuidad Guatemala
#2 Gallo mas Gallo - 2a Ave 3-48 Zona 7 Col Landívar
#3 Gallo mas Gallo - 4a. Ave. 7-28 Zona Escuintla

Contacts within Grupo Monge are:

Jorge Chacón, CFO, (506) 2437- 4112

Company webpage: The document will be published at Grupo Monge intranet

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