If provided by the financial institution, the Early Warning System Team writes a short summary describing the purported development objective of the project and project components. Review the complete project documentation for a detailed description.
PROJECT DESCRIPTION
This project is proposed under the Global Trade Supplier Finance program ("GTSF" or the "Program") approved by the IFC Board in September 2010. (Original Project Link #28723).Desarrolladora Homex ("Homex" or "the Company"), one of the two largest homebuilders in Mexico with a network of approximately 5,000 suppliers. Homex is a vertically-integrated home development company that engages in the development, construction, and sale of entry-level, middle-income, and tourism housing in Mexico, as well as entry-level housing in Brazil.The Project will establish a Supplier Finance ("SF") program and make financing available to selected suppliers of Homex, through the discounting of receivables of the suppliers payable by Homex. The SF program will have an IFC-funded, uncommitted credit line up to US$75mn. The program will be implemented through PrimeRevenue, a Supply Chain Finance platform, and its local re-seller, E-Factor Network ("EFN"), and it is expected to reach 200 Suppliers the large majority of which will be SMEs.
OVERVIEW OF IFC'S SCOPE OF REVIEW
In supplier financing programs of this nature, IFC assesses environmental and social (E&S) risk at supplier level by assessing the Buyers' systems for management of E&S performance of their Suppliers.IFC due diligence involved: (i) a review of publicly available information describing Homex's approach to suppliers, which included Homex's sustainability report, ethics code, website, and public information on Corporate Social Responsibility initiatives with suppliers in which the Company has had a significant participation; (ii) a review of internal documents provided by the Company including the procedure for selection of suppliers, contracts with sub-contractors, and assessment questionnaires for the certification of materials and suppliers; (iii) telephone interviews with Homex's team in charge of procurement, research and development and sustainability initiatives; (iv) a review of public information concerning labor, environmental and social conditions in Mexico and in the sectors where the potential suppliers of Homex operate (such as construction materials and construction companies that provide mainly labor services).
IDENTIFIED APPLICABLE PERFORMANCE STANDARDS**
While all Performance Standards are applicable to this investment, IFC's environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards.PS 1 - Assessment and Management of Environmental and Social Risks and ImpactsIf IFC's investment proceeds, IFC will periodically review the the project's ongoing compliance with the Performance Standards
In this Project, potential adverse E&S impacts may arise at the level of the Suppliers. While all IFC Performance Standards are applicable to this investment, IFC's due diligence has focused on Homex's systems for management of E&S performance of their Suppliers; therefore the investment will have impacts which must be managed in a manner consistent with the Performance Standard 1.
ENVIRONMENTAL AND SOCIAL CATEGORIZATION AND RATIONALE
Suppliers under this transaction provide a variety of services and goods to Homex including construction materials such as tiles, plumbing, lighting and water fixtures, concrete, windows, appliances, etc and specialized construction labor force (e.g. electrician services, finishing services, etc). Most of the suppliers are small Mexican enterprises.The potential risks, where encountered, are both manageable and site specific. This is therefore considered to be an E&S Category B project.
**Information on IFC's Policy and Performance Standards on Environmental and Social Sustainability can be found at
www.ifc.org/sustainability
ENVIRONMENTAL AND SOCIAL MITIGATION MEASURES
IFC's appraisal considered the environmental and social management planning process and documentation for the project and gaps, if any, between these and IFC's requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable period of time, are summarized in the paragraphs that follow and (if applicable) in an agreed Environmental and Social Action Plan (ESAP). Through the implementation of these measures, the project is expected to be designed and operated in accordance with Performance Standards objectives.The most common E&S risks associated with these suppliers include labor management and working conditions, in particular occupational health and safety
PS 1: ASSESSMENT AND MANAGEMENT OF ENVIRONMENTAL AND SOCIAL RISKS AND IMPACTS
Homex has in place a policy for the selection and assessment of suppliers, which is well documented through internal procedures. One of the core documents of the company is its ethics code which provides guidance on the policies regarding different stakeholders, including the suppliers. The company has an internal process for the selection of suppliers. Materials and the suppliers undergo an accreditation process and the sub-contractors are pre-selected and included in a database.Homex considers the selection of the materials a fundamental part of the projects' development, and has a well defined mechanism to select and authorize the use of approved materials. The specification of the concrete, lighting fixtures, water fixtures, appliances and other goods is subject to review and approval by the company. Homex defines the quality and environmental specifications and performance goals to be met by the products. In addition, Homex through the assessment of suppliers considers the environmental aspects of the company producing the goods; for example, Homex considers the existence of management systems, efficient use of resources and management of waste in its Suppliers. Homex has in place guidelines to assess sustainability and environmental performance of the suppliers, which is initiated through a questionnaire. At present the assessment is used as a tool to encourage the suppliers to incorporate environmental and sustainable practices in the operations. Requirements regarding quality are stricter and it is expected that the supplier achieved at least 85% of positive responses to be selected as a Homex supplier. As part of the engagement with IFC, Homex will enhance the E&S screening of the suppliers to incorporate criteria aligned with IFC's performance standards. The company has positive relations with the suppliers and performs visits and reviews, such information will be documented and E&S criteria considered in future visits to the suppliers.Homex requires sub-contractors to follow the local law (Ley Federal del Trabajo) in relation to labor and working conditions. Homex has a department in charge of bidding processes and contracts, this unit screens potential suppliers and preselect those that qualify as acceptable suppliers, based on quality, capacity and alignment with Homex policies. In the pre-selection process the company confirms that the company is legally registered in Mexico and that the company is affiliated to the workers compensation systems (covering occupational safety aspects). The contractual agreements have explicit requirements to contribute with the legal fees to the Mexican social security system (Instituto Mexicano del Seguro Social) and other institutions (e.g. Fondo Nacional para la Vivienda) as defined by national law. These controls ensure that all workers are registered in the social security system, therefore that the sub-contractors' employees are in compliance with minimum age of employment, have formal contracts and are paid according to Mexican law. Homex will review the contracts to ensure that clauses are aligned with IFC's performance standards 2 requirements, including provisions for worker's organizations.Specific requirements designed to protect the health and promote safety of contract and sub-contract workers employed on housing construction are included in the contractual arrangements Homex has with its contractors. A detailed set of safety rules are integral part of the contracts and are enforced on site through the project manager.Homex track greenhouse gas (GHG) emissions from its housing projects, considering the materials used and therefore selecting suppliers that provide materials that facilitate a reduction on the GHG emissions. A monitoring system is in place to estimate GHG emissions.Homex has actively participated in initiatives to support sustainability and overall corporate social responsibility among its suppliers. Homex participated in a project led by Universidad Anahuac and supported by the Inter-American Development Bank, to help SMEs in their respective supply chains to implement corporate social responsibility (CSR) measures, thereby increasing small business competitiveness and sustainability. In addition Homex is active member of "AccionaRSE" an association of companies aiming to promote corporate social responsibility among small companies in Sinaloa. The small companies being environmental and socially responsible have greater chances to become suppliers of key companies in the region, including Homex.Homex releases annually a sustainability report and has adhered to the UN Global Compact initiative to implement principles related to human rights, labor, environment and anti-corruption practices in its operations. Homex has been recognized as a socially responsible Company by the Centro Mexicano para la Filantropia (CEMEFI). In addition the company is aligned with the proposed policies of PROFEPA (Procuraduria Federal de Proteccion al Ambiente) and its interest to promote environmental performance in small enterprises to enhance competitiveness.Homex has agreed to expand its existing assessment of suppliers in order to monitor additional labor and social criteria aligned with the Performance Standards and to screen for activities defined in IFC's Exclusion List. Additional elements to be considered might include possible E&S related court cases or fines imposed on suppliers, suppliers' management of community relations including E&S complaints; and possible history of significant adverse E&S events such as fires, explosions, fatalities, large scale spills, etc. In addition the company will consider a specific approach to sub-contractors or suppliers of services to confirm full compliance with the requirements of IFC's Performance Standard 2 "Labor and working conditions."Homex will document the "sustainability" score achieved by the suppliers and this score will be calibrated to distinguish those suppliers in material compliance with Performance Standards from those that are not. Only suppliers in material compliance with Performance Standards will be part of the IFC's finance program.Homex will update the internal procedure for the selection of suppliers to document the sustainability and environmental assessment and to establish the periodicity to update the information of the suppliers and undertake follow up measures when suppliers are not in compliance. Homex will update the clauses in the sub-contractors agreements to reflect compliance with IFC's Performance Standards. As needed, corrective action or actions plans to improve supplier E&S performance will be agreed between Homex and the supplier. It is expected that through implementation of these action plans supplier will improve E&S performance, to an extent that will be reflected in the score, such that the supplier will be able to access the finance program.Following the implementation of the Suppliers rating procedure, Homex will review the effectiveness of the program and will enhance it as appropriate in coordination with IFC.
