Office of the Compliance Advisor Ombudsman (CAO) for the International Finance Corporation (IFC) recently investigated into IFC’s Environmental and Social (E&S) Performance of the Amalgamated Plantations Private Limited (APPL), India (referred to as “the client”), which happens to be the second largest producer and supplier of tea in India. Excerpts from the report the CAO submitted to IFC, a member of the World Bank Group
India is the second largest producer of tea in the world. The tea sector is India’s largest private employer with production concentrated primarily in the northeastern states of Assam and West Bengal and to a lesser extent in the southern states of Tamil Nadu and Kerala. Most of the tea workers in northeastern India are descendants of tribal communities from other Indian states who were brought to the tea estates as bonded or forced labor during India’s colonial period.
They have retained a distinct sociocultural identity, including languages and customs which are different from those of the local populations in Assam and West Bengal. Jobs on the tea plantations are traditionally passed from one generation to the next. Having limited access to education or economic opportunity outside the tea plantations, tea workers are highly dependent on their employers. IFC’s client employs over 30,000 permanent workers across its 21 tea estates in Assam and 4 tea estates in West Bengal.
Under Indian law, the client is required to provide permanent workers and their dependents with accommodation, potable water, sanitation facilities, medical care and basic education. Counting employees and their dependents, the client is responsible for providing these services to over 155,000 people. As acknowledged by IFC, poverty across Assam and other tea plantation areas is deeply entrenched.
This was particularly the case in the early 2000s when the tea industry was facing a challenging business environment due to low productivity and high fixed costs. As a result, during this time, approximately 120 tea estates closed and over 60,000 jobs were lost in the Indian tea industry. It was in this context in 2006 that IFC chose to partner with APPL to support a sustainable business model.
IFC’s investment involved the demerging of the tea production business from Tata Global Beverages (TGB) into a new company, APPL, in which workers would be offered the opportunity to acquire equity through an employee share purchase plan (ESPP, or “share program”). IFC committed to acquire an equity stake in APPL and to act as an honest neutral broker to support a fair transaction for workers and TGB. IFC expected the development impact from the project to include increased sustainability of the client’s tea operations, preservation of over 30,000 jobs and leadership in initiating change in the industry.
In 2011, the International Union of Food Workers (IUF) made a complaint to IFC outlining concerns from unions representing workers on an APPL tea estate. The complaint related to an incident (“Incident One”) which took place in August 2009, when a pregnant tea worker at the client’s Nowera Nuddy estate in West Bengal collapsed, allegedly after making a request for maternity leave. This incident led to a labor dispute which resulted in two lockouts lasting a total of three months.
In a separate public report, IUF detailed another incident (“Incident Two”) which occurred in May 2010 at the client’s Powai estate in Assam. In this case, a worker collapsed and died, allegedly due to exposure to pesticides. The event led to protests and a clash with police which resulted in two protesters being killed and 16 others injured.
Subsequently, in 2012 the CAO Vice President triggered a compliance appraisal in relation to IFC’s investment in APPL. A compliance appraisal report was released in January 2013, which concluded that IFC’s investment in APPL warranted a compliance investigation. In February 2013, CAO received a complaint from three nongovernmental organizations (NGOs) on behalf of workers on three of APPL’s plantations in Assam: Hattigor, Majuli and Nahorani.
The complaint raised concerns about living and working conditions on the client’s tea estates, specifically citing long working hours, inadequate compensation, restrictions on freedom of association, poor hygiene and health concerns, poor living conditions, and inadequate protection for workers using pesticides.
IFC’s investment in APPL was a challenging one, but one with potential for significant development impact. The potential for development impact emerged from partnering with a client whose business directly supported the livelihoods of over 155,000 people, comprising of 30,000 low-income workers and their families, in poor, remote, and in some instances, conflict-prone areas of India. This same context, however, gave rise to a series of E&S challenges.
Given the vulnerable status of workers and the client’s responsibility for a range of their basic needs, CAO finds that IFC’s pre-investment E&S review was not “appropriate to the nature and scale of the project” or “commensurate with the level of social and environmental risks and impacts,” as required by the Sustainability Policy (2006, para.13).
Specific weaknesses of IFC’s pre-investment E&S review identified by CAO include: (a) an absence of analysis of contextual risks, including longstanding conflict and security-related risks associated with the tea industry in the region; (b) a lack of objective assessment of living and working conditions on the tea plantations; (c) inadequate verification of E&S information provided by the client; and (d) an absence of verified consultation with workers or their representatives in relation to E&S issues.
Weaknesses in IFC’s E&S supervision were particularly acute during the period from disbursement in 2009 until after receipt of the CAO complaint in 2013. During this period, two serious incidents occurred at the client’s sites. IFC did not assure itself that the client conducted an adequate root cause analysis in relation to each incident. Meeting this requirement was important to ensure that the client developed a good understanding of why the incidents happened and how to prevent future similar events.
Supervision improved in 2013 after IFC developed a gap analysis of its client’s E&S management program (ESMP). While noting progress in relation to some of the issues raised by the complainants, IFC’s most recent supervision documentation indicates that the client still lacks a systematic, company-wide approach to tracking compliance gaps and monitoring the status of requirements to address audit findings.
Concerns regarding living conditions and compliance with the national legal requirements on the provision of housing, sanitation and basic services on the client’s tea plantations were a core aspect of the complaint. While IFC’s pre-investment due diligence documentation noted that the client provided housing and other services to workers, there is no evidence that IFC considered the client’s compliance with national legal requirements. A review of baseline data on the quality or standard of facilities provided is similarly absent.
The complainants raise a range of concerns regarding the client’s compensation practices. These include allegations that wages are below the minimum wage and that workers are impoverished and malnourished because the wages are so low. IFC affirms that jobs are “the principal way out of poverty”. A job contributes to development by boosting living standards, raising productivity and fostering social cohesion. At the same time, IFC recognizes that “jobs that do not meet environmental and social standards might have a lower development or transformational impact or even a negative impact.”
While defining and creating good jobs is usually reflected by wage employment metrics, IFC recognizes that other factors such as occupational health and safety (OHS) policies, worker–management relations, opportunities for career advancement and flexibility regarding doctors and sick leave should also be considered. Accordingly, IFC defines a good job as “a job that guarantees workers’ fundamental rights while paying them a decent and fair wage.”
While CAO finds that IFC took appropriate action in commissioning external legal advice in response to allegations that the client compensates workers at a level below the minimum wage, concerns remain. CAO notes that the findings in relation to the prevalence of malnutrition among workers in reports commissioned by TGB and the client in 2014 raise concerns regarding the general wellbeing of the client’s workforce. In this context, CAO finds that IFC has not assured itself that the wages paid by the client are consistent with IFC’s commitment to support jobs which offer a “way out of poverty” or “protect and promote the health” of workers.
Child labor is known to be prevalent in India’s agricultural sector, including on tea plantations. In relation to the client, the allegation is not that the client is directly employing children in breach of IFC requirements, but rather that the client benefits from the work of children who assist adult family members to meet production targets. This phenomenon is documented independently of the complainants.
IFC’s pre-investment due diligence for the project did not address the issue of child labor other than to note that the client was in the process of obtaining certification which had, among its objectives, verification that child labor is not used. CAO finds that IFC’s pre-investment review of the risk of child labor on its client’s plantations was inadequate. IFC’s approach to this issue has been to rely on external certifications achieved by the client, which include restrictions on the use of child labor. However, CAO finds no evidence that IFC has conducted a review of either the requirements of these standards compared with IFC’s requirements, or the robustness of their certification processes.
The use of pesticides is a hazardous activity which requires appropriate management systems, training and the use of Personal Protective Equipment (PPE) by workers. During its pre-investment E&S review, IFC did not adequately consider the client’s reported use of World Health Organization (WHO) Class II pesticides, which have restricted usage under IFC requirements. IFC’s review considered only whether the client provided workers with PPE, and not whether it had in place a system to ensure that PPE was properly used. A review of the client’s approach to pesticide handling, use and storage was absent. Shortcomings in IFC’s approach to the application of its requirements regarding pesticide use have persisted into supervision.
IFC did not document a review of a condition of disbursement requirement that the client provide IFC with revised procedures and training material for the handling, storing and application of chemicals until 18 months post-disbursement. Further, though the client consistently reported the use of extremely hazardous (WHO Class 1a), highly hazardous (WHO Class 1b) and moderately hazardous (WHO Class II) pesticides, IFC did not document a concern in relation to the client’s use of pesticides until December 2013.
While recent IFC supervision has noted improvements in the client’s use of pesticides and provision of PPE, as of February 2016 IFC’s view was that the client had not met requirements to have an OHS Management Program that is: (a) appropriate for the risks posed by its operations; and (b) adequately protective of its workforce.
Further, CAO notes that the client’s reported use of moderately hazardous pesticides remains high. In this context, CAO finds that IFC has not adequately supervised risks related to pesticide use by the client. Further, IFC did not provide timely guidance to the client on how to address compliance issues related to pesticide use. It is of significant concern that, to date, IFC does not have assurance that specific noncompliance issues related to the client’s use of pesticides have been addressed.
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