Mercator BH d.o.o.

Project Description

MIGA provided reinsurance to the guarantee holder: Slovenska Izvozna in Razvojna Banka, d.d. (SID), for a set of contracts covering the operations of Mercator in Serbia, Croatia, and Bosnia-Herzegovina. The reinsured contracts cover equity from the Mercator parent company in Slovenia as well as bank loans. Mercator is a Slovenian retail chain based in Ljubljana that was founded in 1949 as ‘Ljubljana Groceries’ becoming Mercator four years later. Originally operating only in Slovenia until the 1990s, Mercator opened retail stores in Croatia and Bosnia and Herzegovina in 2000, Serbia in 2002, and Montenegro in 2007. At the end of 2009, Mercator opened stores in Albania and Bulgaria, later exiting these markets by 2013 due to poor business conditions. Mercator was acquired by Agrokor d.d. (Croatia) with a 53.1% stake in June 2014 followed by an additional 27.6% in September, 2014. Agrokor is the largest retail company in Croatia. Originally founded in 1976 as a company producing flowers and flower seedlings, it greatly expanded operations in the following decades through acquisitions in Croatia and Southeast Europe. Agrokor's core businesses are the production and distribution of food and drinks and retail.

Mercator group remains as a separate corporate group headquartered in Slovenia. The company continues to operate in Slovenia, Serbia, and Montenegro where it remains the retailer with the highest market share. In Croatia and Bosnia and Herzegovina Mercator retail units have been leased out to Agrokor and in these two markets the stores will operate under the Agrokor/Konzum retail brand. Mercator will continue to be present as a real estate management company leasing out its property to Agrokor.

Environmental and Social Categorization 

The project is categorized as B under MIGA’s Policy on Environmental and Social Sustainability (2013), because the potential social and environmental impacts are limited, few in number, site-specific, largely reversible and readily addressed through mitigation measures. The project is expected to contribute positively to trade among Balkan countries by carrying goods from the region in each retail location, thereby supporting suppliers and providing employment and retail training opportunities.

Given the nature of Mercator’s retail and supermarket food businesses the key E&S risks include: overall environmental and social risk assessment and management; employee health and safety; food safety; life and fire safety of premises; resource use and management; waste management. MIGA conducted an E&S site monitoring mission to Mercator premises in Croatia (April 2014) Slovenia (July 2012) and Bosnia and Herzegovina July 2012 and again in April 2014) and did not identify any E&S issues at these site visits. Information on how these E&S issues are, or will be, addressed by the Project to comply with MIGA’s Performance Standards and WBG EHS Guidelines is contained in the following sections.

While all Performance Standards (PS) are applicable to this investment project, based on our current information the project will have impacts that must be managed in a manner consistent with the following Performance Standards:

• PS1: Assessment and Management of Environmental and Social Risks and Impacts
• PS2: Labor and Working Conditions
• PS3: Resource Efficiency and Pollution Prevention
• PS4: Community Health, Safety and Security

The following standards have not been triggered:

• PS5: Land Acquisition and Involuntary Resettlement (the Project involves no physical or economic displacement);
• PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resource (there are no known impacts on conservation or biodiversity);
• PS7: Indigenous Peoples (there are no known indigenous peoples within the project areas);
• PS8: Cultural Heritage (the Project is not located in areas of known historical or cultural significance, and involves no construction activities).

In addition, the following World Bank Group Environmental, Health and Safety (EHS) Guidelines are applicable to this project:

• General EHS Guidelines

The review of this project consisted of appraising the technical, environmental, health, safety and social information and annual monitoring reports submitted by the project enterprise, review of company’s environmental systems and a field visit to Mercator facilities in Bosnia and Herzegovina, and Croatia conducted by MIGA’s Consultant Environmental Specialist in April 2014. MIGA also conducted visits to Mercator premises in Slovenia and Bosnia and Herzegovina in July 2012. Mercator’s Annual Report 2013 contains a detailed overview of the company’s environmental, social health and safety practices and resource conservation programs. MIGA has reviewed the following documents:

• Mercator Environment Policy
• Mercator Annual Report/Sustainability Report, 2013
• Agrokor Sustainability Report 2012 /2013
• MIGA: Back to Office Reports, 2012 and 2014
• IEG: Project Evaluation Report, Mercator, Serbia

PS1: Assessment and Management of Environmental and Social Risks and Impacts

Environmental and Social Assessment: Both Mercator and Agrokor have comprehensive environmental policies and conduct assessment of E&S risks in accordance with their policies. Environmental due diligence is conducted on prospective sites (leasing or purchasing), with store designs generally standardized, though according to Mercator, adaptations are made to account for differences in legislative requirements. Environmental risk assessment is conducted yearly and includes: potential for improvements, environmental emergencies, environmental fines and negative publicity.

Management Program and Monitoring: Mercator’s sustainability reports indicate that the company places social and environmental issues at the core of its business activities and has committed to sustainable development. Mercator actively engages in environmental and social management, energy management in construction and operations, and waste management. Mercator has a comprehensive set of operational Environmental, Health and Safety (EHS) policies and procedures in place under its integrated management system. The MIGA visits to Mercator premises in Croatia, Slovenia and Bosnia and Herzegovina demonstrated that the company does implement an effective E&S management system that meets MIGA's E&S requirements in this respect. The company performs routine monitoring and keeps accurate records that are submitted to the authorities. Each individual premises is subject to independent EHS audit.

Agrokor/Konzum has hired Mercator’s employees and also operates a comprehensive set of environmental and social policies similar to Mercator. Agrokor’s environmental and social management system is certified to ISO14001. Konzum Bosnia & Herzegovina is certified to ISO14001:2004 and Konzum Croatia has HACCP; ISO 14001:2004; OHSAS 18001:2007; ISO 22000:2005, and ISO/TEC 27001:2005. Mercator has corporate level certifications to ISO 9001 and ISO14001 and Mercator Serbia has adopted HACCP Food Safety Management in its supermarkets.

Organizational Capacity and Competency: Mercator has an EHS team at its HQ with environment and safety managers appointed at each site. All staff members receive routine training on EHS matters, fire drills and emergency response. Mercator has established an e-classroom on the company’s intranet, allowing the employees a user-friendly approach to receiving training and education materials.

Reporting: Both Mercator and Agrokor produce company sustainability reports. Mercator’s report is contained as a large section within the corporate annual report. Agrokor publishes a separate sustainability report produced to Global Reporting Initiative (GRI) guidelines. Both companies monitor and report on greenhouse gas emissions. For 2013, Mercator reported carbon dioxide emissions of 267,709 tCO2e (6% lower than in 2011), principally through the implementation of energy efficiency measures In addition to annual sustainability reports, Mercator will also be required to submit an annual monitoring report to MIGA summarizing the monitoring and environmental audit data at each of the individual premises.

PS2: Labor and Working Conditions

Mercator has an extensive HR policy with an associated set of procedures and is considered to be a top employer in its

countries of operation. Workers in need of financial help can receive funds from the Humanitarian Foundation Mercator. Benefits are considered significant compared with country norms. There is a voluntary pension scheme; access to vacation units; sports societies; maternity leave and targeted health promotion. There is also an employee council and two trade unions. Mercator operates an employee grievance mechanism and there is an appeal process. The company is an equal opportunity employer that hires extensively from the local communities. Approximately 75% of staff and more than 50% of managers are female. Operating under a more competitive business environment and with the closure of business in Albania and Bulgaria, overhead staff numbers have been reduced from 3,000 to 2,400. Each of the retrenched workers are given a 6 month notice period and allowed to stay at home to seek new employment. They are also offered alternative employment within the company and there is a formal appeal process. As of December 2013 Mercator Group had 22,922 employees, of which the controlling company Poslovni sistem Mercator, d.d., employed 10,161 workers being 44.3 percent of the Group’s total. In 2013, Mercator launched it’s the whistle-blowing project Povejmo (‘Say it out Loud’).

Worker Health and Safety: Absenteeism due to sickness or minor injury has been reduced consistently over the past few years and the injury rate has declined with no serious injuries reported. During the MIGA monitoring visits staff were observed wearing appropriate personal protective equipment. All staff receives occupational health and safety (OHS) training. Drivers of fork lift trucks and loaders are trained and licensed to operate the vehicles. OHS management is part of the company’s integrated management system.

PS3: Resource Efficiency and Pollution Prevention

Resource Conservation and Energy Efficiency: Mercator has developed a Code of Responsible Energy and Environment Management, is a signatory to the European Retail Environmental Sustainability Code, and is involved with the EU project, Promoting Sustainable Plastics in Central Europe (PLASTiCE) that promotes the use of environmentally friendly sustainable plastic materials. Power consumption for the group in 2013 was 408.19 GWh (6% less than in 2011). Specific power consumption is monitored and was reported at 237.97 kWh/m2. Mercator has an active energy efficiency program and in 2012 and 2013, installed modern refrigeration equipment and energy efficiency measures that resulted in reduced power consumption by more than 1%. Mercator's efficient use of energy is an integral part of the company’s corporate social responsibility initiative. In addition to energy management, this involves environmental and process components. Mercator premises are constructed utilizing energy-efficiency designs. Since 2013, there is automated refrigeration control at all major stores that will result in an overall 5% reduction in power consumption and with improved temperature conditions in the refrigerated display cases. Fluorescent lighting has been replaced with LED units. The company also plans the use of alternative energy sources of energy and has installed bio-gassifiers at some locations to convert organic wastes into energy. Since 2013, 12 combined heat and power (CHP) units have been installed.

Emergency Response: External life and fire safety audits are performed annually with fire drills performed quarterly.
Wastes and hazardous materials: Wastes are segregated and the company operates a comprehensive recycling scheme to recover and recycle packaging materials. Residual waste is removed by licensed contractors. Mercator has replaced refrigerants with: R-410a, R-407c, R-134a, R-404a, R-507, S-22m, R-417a and ammonia in the distribution centers. Licensed pest control contractors are used in each premises.

PS4: Community Health, Safety and Security

Premises are designed to modern standards and are periodically inspected for life and fire safety, and are licensed by the local fire authorities. Security personnel are unarmed. No cases have been registered in relation to conflicts between security personnel and the local community.

Mercator operates a Contact Center through which all customer complaints are collected and through which their resolution is coordinated and feedback provided. Complaints are assessed to develop proposals for improvements and these have been implemented.

Mercator policy is to only acquire land for store development which is unoccupied and ready for development. Mercator will not acquire land cleared in anticipation of any sale or where any resettlement is involved. All land is assessed for possible contamination, and is subject to preparation of an Environmental Impact Assessment where required by the planning authorities.

Extensive stakeholder and community engagement activities are described in detail in the Annual report. Mercator farmer's markets also include over 100 small growers and farmers' cooperatives. Mercator is also active in social programs by supporting humanitarian and education projects, and cultural and sports events.

There are no attachments to this ESRS.