Lojas III

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	26329
Country	Brazil
Sector	Wholesale and Retail Trade
Department	Global Manufacturing & Services
Company name	Lojas Americanas S.A.
Environmental category	B
Status	Dropped

Date ESRS disclosed	June 17, 2009

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

The environmental and social review consisted of appraising social, environmental, health and safety and social/community information submitted by Lojas Americanas S.A. (“LASA” or the “Company”). The appraisal included an interview with the corporate HR and training manager, his reportee who has responsibility for physical safety including fire safety, a visit to the Nova Iguaçu Distribution Center (DC) and a visit to a selection of stores. The site visits covered storage provision within the DC, Life and Fire Safety issues and environment related areas and systems, including effluent treatment stations and solid waste treatment in the DC, and life and fire safety in the stores.

Project description

Lojas Americanas S.A. (“LASA” or the “Company”) is traditional retailing company in Brazil. Founded in 1929, the Company has a network of 469 physical stores, 3 distribution centers and is the leading multi-channel retailer (including brick-and-mortar stores, internet-based sales, TV sales, catalogue sales, telephone sales, kiosks and financial products retailing) in the country. LASA employs over 12,500 people in 23 Brazilian states, selling over 60,000 products which are purchased from over 4,000 suppliers.

The Company is undertaking a corporate expenditure and debt refinancing plan totaling $530 million during FY09-FY12 (the “Project”). Of this, around $180 million (34%) is capital expenditure planned to establish around 165 new stores across the country, and to upgrade several existing stores. Around 40 of these new stores will be established in the North and Northeast Brazil regions. Debt refinancing of about $350 million is needed to replace short and medium term loans assumed to finance its operations as well as its acquisitions in the recent past.

Key environmental and social issues and mitigation

LASA has a new store expansion team which has the responsibility for prospecting new store sites. This team undertakes basic assessment and legal due diligence related to the new store site. Environmental assessment is undertaken to meet the requirements of Brazilian authorities. This entails formal assessment for greenfield developments while in brownfield developments assessment essentially comprises local municipality and fire department permitting.

Sustainability
In order to enhance sustainability, LASA defined global targets for 2008 energy use and water consumption, waste generation and office supply use. In 2008 the Company has also intensified its efforts to spread out its recycling policy to some of its retail shops and all distribution centers.

LASA first implemented a recycling policy in 2003. In 2007 the Company launched the “Companhia Verde” or “Green Company” program, focusing the sustainable consumption of natural resources and environmental awareness within the corporation. The “Companhia Verde” committee is composed of LASA’main executives in the areas of Human Resources, Investors Relations, Finance, Sales, Engineering, IT, Logistics, Retail Stores and Distribution Centers) and has five focus areas: water consumption, energy optimization, paper/office supplies use reduction, solid waste mitigation and education/communication. The action plans for each area are discussed in the “Companhia Verde” committee and than implemented directed by a team leader for each respective area, with implementation supported through an environmental management system (the “SGA” from the Portuguese – Sistema de Gerenciamento Ambiental).

Sustainability Training Program
Training on environmental, safety and social issues is managed by the HR department. In order to build awareness of the environmental management effort and the Green Company policy, a training module dedicated to environmental education was created, supported by an induction DVD for new staff members, covering issues related to the "Green Company" initiative highlighting each staff member’s (associate’s) role in preserving the environment. The 5S Program (Discard - Ordering - Cleaning - Health - Self-discipline) is also adopted, as are the 4R program guidelines of the Program (Reduce - Reuse - Recycle - Recover).

The Company training sessions are in the CDA or Centro de Desenvolvimento Americanas (Americanas Development Center) located in Rio de Janeiro, which is equipped with the necessary infrastructure to promote long distance trainings such as video/teleconferences, Internet access and e-learning tools. There is also a newspaper circulated internally in the Company (Isto é Lasa) also used to inform all employees about LASA’s activities and programs.

The Company has formal fire and safety procedures and will incorporate them in the ESMS and in the training programs to reach a larger number of employees. The Emergency plans are based on preventive Planning, appropriate protective facilities and Staff training.

LASA will strengthen its social and environmental management through assigning a professional who would be leading the Environmental and Social concerns in the Company at corporate level.

PS2: Labor and Working Conditions
LASA has a workforce of over 12,500 employees supplemented by outsourced contract employees, hired for tasks not related to LASA’s core business such as safety, cleaning and maintenance. The Company does have a Human Resources (HR) policy and manages labor issues through a HR department, based in Rio de Janeiro. The Company’s HR practices are compliant with Brazilian law and with IFC’s Performance Standard 2 requirements.

Terms of the working relationship are communicated to workers in writing during the induction period, and contain all Company rules, which are described in the Company's social management system. LASA does have trades unions; however, negotiation with the syndicates and unions is not centralized in the HQ undertaken regionally throughout Brazil. Paid overtime is worked and is restructured to no more than 2 hours daily, as legally required.

While there is no equal opportunity policy, LASA follows Brazilian law and is an equal opportunity employer. Recruitment to LASA follows a formal admission process, and is based upon the candidate’s suitability for the vacancy as initially indicated by a CV, Portuguese language fluency, mathematics and general knowledge, group dynamics, interviews with HR, references and a medical examination. Career progression is based upon ability, and LASA has a policy to promote from the shop floor to store manager level. Similar model is also applied to headquarters staff.

LASA has an internal employee grievance procedure, which outside the formal management channels makes use of a telephone hotline to receive employee complaints or suggestions.

Occupational Health and Safety
LASA has department dedicated exclusively to Occupational Health and Safety related issues, which covers the entire country. Engineers and safety technicians make review visits which include risk identification, development of corrective action and reporting upon their completion. The Company is compliant with the Brazilian laws which require a PPRA (environmental risk prevention plan) and a PCMSO (Occupational Safety control plan).

The Company has an Internal Commission on Prevention of Accidents, CIPA (Comissão Interna de Pervenção de Acidentes), which operates accident prevention workshops. The main OHS risk, apart from fire safety discussed below is safe driving of fork lift trucks in warehouses, which is addressed through driver licensing and ongoing training. There has been an ergonomics-driven review of checkout cashiers’ work stations, which as a result were revised but not yet fully implemented.

IFC’s review identified some opportunities to enhance safety housekeeping at the distribution center, in particular fencing the waste water treatment facility.

LASA provides medical assistance for all its employees in Brazil, and periodical tests employees working in specific problematic tasks. Once a year LASA promotes the SIPAT , a one week workshop on accident prevention and workers’ health such as quality of life, smoking problems, alcohol addiction and stress management.

Life and Fire Safety
Life and fire safety in stores is discussed under PS4 Community Health, Safety and Security.

The site visit to the Nova Iguaçu distribution Center indicated some housekeeping issues with hydrants and some escape routes were locked. The fire safety inspection team discussed below will correct these issues and put systems in place to prevent repetition.

Supply chain auditing and indicators
The bulk of LASA’s suppliers are Brazilian companies who are well known to LASA’s procurement team. LASA has developed supplier key indicators which are used to assess the supplier performance. LASA also sources from Asia, but in doing so purchases from distributors rather than directly from manufacturing companies. LASA believes there are no instances of child or forced labor in its Brazilian supply chain, because it knows its suppliers well. It cannot be quite as confident about overseas suppliers. LASA will institute formal procedures to screen for child labor and forced labor in the supply chain and will address it in a manner consistent with Performance Standard 2 should it be encountered. LASA is still to implement E&S indicators to assess its supply chain.

PS3: Pollution Prevention and Abatement

LASA’s liquid effluents are managed according to the conditions of each site. The distribution centers have domestic effluent treatment stations managed by outsourced companies. Stores located in shopping centers use the centers’ effluent treatment stations. The stores located in other sites, mostly located in business streets, discharge their effluents in the local sewage network. In all cases the final destination of the treated effluent is the local sewage network. There is no monitoring of the liquid effluents; quality of effluents arising from distribution centers will be monitored, and treatment enhanced if necessary to meet Brazilian or IFC requirements.

Within the context of its Green Company initiative, LASA has developed programs for the management of energy, water and paper use, and to separate wastes to facilitate recycling. Each of these four initiatives has a champion on the Green Committee, and has been studied, actions developed and monitoring systems put in place to confirm progress.

There is a strong recycling policy in place to deal with solid waste management, focused on cardboard (1,969 tonnes/year), paper (5,000 tonnes/year), plastic (1,680 tonnes /year) and metals (168 tonnes/year) which are delivered to outsourced recyclers. LASA generates an overall of 26,800 used light bulbs per year. These will in future be treated as hazardous waste and disposed according to the applicable requirement of Local Authorities.

LASA also generates three types of lead/acid batteries originating from uninterruptible power supplies, (9,520 per year), automotive (380 per year) and lighting (2,300per year) applications. These are properly disposed by certified companies. Another hazardous waste generate is lubricant oil (8,490 liters per year), which are properly stored and sent to recycling facilities.

PS4: Community Health, Safety and Security

Life and Fire Safety in Stores
LASA has policies relating to fire prevention, emergency training, planning, emergency response and other store-level procedures, and has trained fire fighters in each store. LASA has a dedicated Fire Safety team composed of 10 engineers and technicians based in Rio. The team travels around Brazil to evaluate compliance of the estate (stores and distribution centers) with the local Brazilian law and LASA’s procedures. The Company is audited periodically by local authorities as well as in the occasion of expansions and opening of new stores. The Life and Fire Safety procedure is part of LASA’s recently-launched SGA.

For new buildings, and existing buildings scheduled for renovation, LASA will, in addition to ensuring compliance with Brazilian requirements, design buildings to meet an international fire safety code, and will present designs showing this to be the case.

Distribution Centers
The distribution center at Nova Iguaçu following construction in the early 2000s was quickly surrounded and is abutted by an informal land development. LASA will develop a Community Health and Security plan which will define the Company’s interaction and communication with the community in the event of an emergency event, such as fire, at the distribution center which could affect the community.

PS5: Land Acquisition and Involuntary Resettlement

Physical and Economic Displacement
LASA has a dedicated business area, the expansion department, to take care of the opening of new stores, an average of 40 per year. For every new store, a complete check of the site situation is made, including the developer’s behavior. The site assessment is made with the support of the LASA’s legal department. LASA will not become involved in new store development unless the land upon which the project is developed is acquired without causing involuntary physical or economic displacement of people. As of today, all of the existing stores as well as the 3 distribution centers are leased.

IFC PROJECTS

RECENTLY DISCLOSED