Environmental Compliance Audit Report

Project Number: 54077-002 August 2020

PRC: Jointown COVID-19 Pharmaceutical Distribution Expansion Project Part 1

The environmental compliance audit report is a document of the borrower. The views expressed herein do not necessarily represent those of ADB's Board of Directors, Management, or staff, and may be preliminary in nature. Your attention is directed to the “Terms of Use” section of this website.

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

Environmental Due Diligence Jointown Pharmaceutical Distribution Project

July 2019

CONTENTS

I. INTRODUCTION 2 II. METHODOLOGY 2 III. REGULATORY AND COMPLIANCE FRAMEWORK 3 IV. DESCRIPTION OF THE SUBPROJECTS 7 V. RESULTS OF THE FULL REMOTE ENVIRONMENTAL IMPACT ANALYSIS ERROR! BOOKMARK NOT DEFINED. VI. CAPS, CONCLUSION AND RECOMMENDATIONS ERROR! BOOKMARK NOT DEFINED.

ANNEXTURES ANNEX 1 LIST OF PERSONS MET ERROR! BOOKMARK NOT DEFINED. ANNEX 2 IBAT SCREENING RESULTS ERROR! BOOKMARK NOT DEFINED. ANNEX 3 AWARE SCREENING RESULTS ERROR! BOOKMARK NOT DEFINED. ANNEX 4: SITE PHOTOS (EHS ASPECT) ERROR! BOOKMARK NOT DEFINED. ANNEX 5: LIST OF DOCUMENTS REVIEWED (EHS ASPECT) ERROR! BOOKMARK NOT DEFINED. ANNEX 6: DOMESTIC EIA APPROVALS FOR THE THREE SUBPROJECTS ERROR! BOOKMARK NOT DEFINED. ANNEX 7: PROPOSED EHS MATRIX OF JOINTOWN’S WAREHOUSE FACILITIES ERROR! BOOKMARK NOT DEFINED. ANNEX 8: PRELIMINARY ESTIMATES OF GHGS EMISSIONS FROM JOINTOWN’S WAREHOUSE FACILITIES ERROR! BOOKMARK NOT DEFINED. ANNEX 9: ADB PROHIBITED INVESTMENT ACTIVITIES LIST ERROR! BOOKMARK NOT DEFINED.

Remote Environmental Due Diligence of Three Pharmaceutical Distribution Facilities PRC: Jointown Pharmaceutical Distribution Project

I. Introduction

ADB will provide a loan of up to to EUR30,000,000 (or its equivalent in Chinese yuan) 1 in Jointown Pharmaceutical Group Co., Ltd, Ltd. (Jointown) to support the construction of two new pharmaceutical distribution facilities in City, Province and Tangshan City, Hebei Province, and the expansion of an existing pharmaceutical distribution facility in Nanjing City, Jiangsu Province2 in the People’s Republic of (PRC). The project is categorized as B for environment under ADB’s Safeguard Policy Statement (SPS, 2009).

II. Methodology

During the conduct of the environmental and social due diligence, the Haikou Jointown and Nanjing Jointown are already operating while the Tangshan Jointown is in advanced stages of construction. In compliance with the requirements of ADB’s SPS for existing facilities, the environment and social risks and impacts, compliance with applicable national and local laws and regulations, good international industry practice (GIIP), ABB’s SPS, and the commitment and capacity for environmental and social management of the three pharmaceutical distribution facilities that will be financed by the ADB loan have been reviewed through a full remote environmental due diligence and a partial remote social environmental due diligence. This proposed loan served as a test case for the full environmental due diligence and a partial remote social environmental due diligence methodology developed by the ADB safeguards team, and supported by ADB’s compliance division, due to COVID-19 restrictions on international and domestic travel and conduct of face-to-face meetings and consultation. The fully remote environmental due diligence consisted of desk research and reviews, field visits by the social safeguards team who confirmed onsite situations with guidance from the environment team, teleconferencing, on site consultations, and mobile videoconferencing for conducting site observation of environment, health and safety (EHS) issues in the three pharmaceutical distribution facilities for ADB loan financing.

III. Limitations

This report was prepared based on the fully remote environmental due diligence methodology agreed by ADB and Jointown. The results of the full remote environmental due diligence are based on conditions and the information provided at the time of remote site visits through videoconferencing and documents provided by Jointown for review. No on-site assessment was conducted by the environment team. A change in any of these conditions may alter the findings, observations and report content presented herein. A remote environmental due diligence, by nature, is limited in its ability to fully assess potential EHS liabilities or concerns associated with a property or operation. Further investigations would be required to identify the presence or absence of potential EHS liabilities but are beyond detection by performance of the scope of this

1 The potential loan is part of a $60 million financing package with Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG). IFC previously invested in the company and developed an E&S action plan for Jointown implementation as a result of its due diligence. Both DEG and ADB have no copies of the full E&S due diligence report and the ESMS adopted by Jointown. 2 The term of pharmaceutical distribution is used interchangeably with pharmaceutical warehouses is this analysis. 2 project. Laws and regulations, if referenced in this report, are provided for information purposes only and should not be construed as legal opinion or recommendation.

IV. Regulatory and Compliance Framework

A. ADB Safeguard Requirements

ADB’s SPS requires an environmental impact analysis, including on-site assessment3, for projects or subprojects involving facilities that already exist or are under construction to identify past or present concerns related to impacts on the environment, involuntary resettlement, and Indigenous Peoples. The analysis includes an evaluation of the subproject’s compliance with the following applicable environmental and social requirements:

• Safeguards Requirement 1 (SR1) on Environment. SR1 ensures the environmental soundness and sustainability of subprojects and supports the integration of environmental considerations into the subproject decision-making process. Environmental safeguards are triggered if a subproject is likely to have potential environmental risks and impacts during the design, construction, and operation.

• Safeguards Requirement 2 (SR2) on Involuntary Resettlement. SR2 requires avoidance or minimization of involuntary resettlement by exploring subproject design alternatives; to enhance, or at least restore, the livelihoods of all displaced person(s) in real terms relative to pre-project levels; and to improve the standards of living of the displaced poor and other vulnerable groups. The involuntary resettlement safeguards cover physical displacement (relocation loss of residential land or loss of shelter) and economic displacement (loss of land assets, access to assets, income sources, or means of livelihoods) because of involuntary restrictions on land use or on access to legally designated parks and protected areas. It covers them whether such losses and involuntary restrictions are full or partial, permanent or temporary.

• Safeguards Requirement 3 (SR3) on Indigenous Peoples. SR3 requires the design and implementation of subprojects in a way that fosters full respect for indigenous peoples’ identity, dignity, human rights, livelihood systems, and cultural uniqueness as defined by the indigenous peoples themselves so that they: (i) receive culturally appropriate social and economic benefits, (ii) do not suffer adverse impacts because of subprojects, and (iii) can participate actively in subprojects that affect them. SR3 is triggered if a subproject directly or indirectly affects the dignity, human rights, livelihood systems or culture of indigenous peoples or affects the territories or natural or cultural resources that indigenous peoples own, use, occupy, or claim as an ancestral domain or asset.

ADB’s Policy on Gender and Development (GAD) (1998)4. ADB’s policy on GAD included mainstreaming as a key strategy in promoting gender equity. With respect to subprojects, the GAD policy requires: • Gender analysis: to assess systematically the impact of a subproject on men and women, and on the economic and social relationship between them • Gender planning: to formulate specific strategies that aim to bring about equal opportunities for men and women

3 See discussion on methodology. 4 https://www.adb.org/documents/policy-gender-and-development 3

• Mainstreaming: to consider gender issues in all aspects of corporate’s operations, accompanied by efforts to encourage women’s participation in the decision-making process in development activities

ADB’s Social Protection Strategy (2001)5. ADB’s Social Protection Strategy (2001) requires the company, its contractors and subcontractors to comply with applicable labor laws in relation to the subproject and take measures to comply with the core labor standards. Core labor standards include a set of four internationally recognized basic rights and principles at work: (i) freedom of association and the effective recognition of the right to collective bargaining; (ii) elimination of all forms of forced or compulsory labor; (iii) effective abolition of child labor; and (iv) elimination of discrimination in respect of employment and occupation. 6

ADB’s Access to Information Policy (2019)7. The objective of the Access to Information Policy is to promote stakeholder trust in ADB and to increase the development impact of ADB activities. It requires transparency, accountability, and participation by stakeholders in ADB-supported development activities in Asia and the Pacific. The policy is led by overarching principal of clear, timely, and appropriate disclosure. The policy recognizes the rights of people to seek, receive, and impart information about ADB operations. It supports information and ideas sharing and enables participatory development or two-way communications with affected people and other stakeholders. The policy is based on a presumption in favor of disclosure unless there is a compelling reason for nondisclosure. It commits ADB to disclose subproject-related information proactively on its website, in a timely manner, and provides mechanisms to handle responses and complaints. .

B. PRC Regulatory Framework

According to PRC’s regulations on environment, domestic environmental impact assessment is required at pharmaceutical warehouses project preparation stage which often requires environmental impact table(for warehousing, logistics and distribution of toxic, harmful and hazardous goods) or environmental impact registry form (for other warehousing facilities)8 , ‘Three Simultaneities’9 at project construction stage, and domestic EIA/fire check and acceptance at project completion stage in compliance with the national laws and regulations such as Water Pollution Prevention and Control Law, Air Pollution Prevention and Control Law, Noise Pollution Prevention and Control Law, Solid Waste Pollution Prevention and Control Law, Regulations on Construction and Production Safety Management; Law on the Prevention and Control of Occupational Diseases, and Pharmaceutical Management Law, Regulations on Medical Waste Management for disposals of hazardous or expired medicine disposal; Road Transportation Regulations, Road Transportation Practitioners Management Regulations, Road Traffic Safety Law and Law of Fire Prevention for logistics/warehouses, etc. Warehouse facilities should comply

5 https://www.adb.org/documents/social-protection-strategy 6 A separate social compliance audit was prepared. 7 https://www.adb.org/documents/access-information-policy 8 The updated EIA categorization system (draft for comments stage from end May 2020) for such pharmaceutical warehousing facilities: environmental impact table (for warehousing, logistics and distribution of toxic, harmful and hazardous goods); and nil (for other warehousing). 9 The “three simultaneities” or “three synchronizations” system requires that the design, construction, and operation of a new industrial enterprise (or the expansion or renovation of an existing enterprise) be synchronized with the design, construction, and operation of suitable pollution control facilities. 4 with applicable national/regional fire safety standards. Besides, information disclosure and public consultation is necessary through the whole project cycle10.

In PRC, construction projects are generally categorized into three groups based on the level of sensitivity of a project: (1) For a construction project that may have a potential significant environmental impact, an EIA report is required, which shall comprehensively and thoroughly assess the pollution arising from the construction project and its impact on the environment; (2) For a construction project that may have a light impact on the environment, an EIA reporting table is required, which analyzes or addresses specific aspects of the pollution arising from the construction project and its impact on the environment; (3) If the impact of a construction project on the environment is so minor that it is unnecessary to carry out an EIA, the project owner only needs to complete an EIA registration form. The EIA registration form applies to the filing system. The content of an EIA report needs to include the following (while EIA reporting table or EIT is simpler): (1) A description of the proposed project; (2) The present environmental condition; (3) Predictions and analysis of the environmental impact; (4) Economic and technical analysis of mitigation measures; (5) Cost-benefit analysis (CBA) of the environmental impact; (6) Proposals for monitoring the project; (7) Conclusions of the EIA; (8) The contents and format of the EIT and EIRF should follow the instructions (including templates) issued by the MEP. .

The Annex 7 includes the Template New GSP ('Good Supply Practice of Pharmaceutical Products') Risk Assessment Matrix (issued by the government, implemented by Jointown) that is very comprehensive with 306 indicators covering all main EHS concerns and also propose an EHS matrix of Jointown’s warehouse facilities.

C. Good International Industry Practices

During The 137th World Health Organization (WHO) Executive Board (EB) meeting, the Report of the 49th meeting of the WHO Expert Committee on Specifications for Pharmaceutical Preparations was presented. With this report, a set of new guidance were adopted and recommended for use, in addition to certain monographs and general texts for inclusion in The International Pharmacopoeia. The report is now available in the WHO Technical Report Series as No. 992.

For those working in the area of Good Distribution Practice (GDP) the following paper might be interesting: Technical supplements to Model guidance for the storage and transport of time and temperature-sensitive pharmaceutical products.

10 Medicines are produced so the manufacturing enterprise is the first main body of medicine quality according to PRC’s laws. GSP certification was sectoral mandatory requirements (see Annex 7 for reference). Due to issues with the pharmaceutical industry involving different companies, the government became stricter in enforcing the original GSP standards, for instance sudden random medicine testing, special reporting systems for special medicines which can monitor warehouse temperature and humidity and the status of purchase, sales and inventory. In addition, one of key industrial standards is GB/T 34399-2017 Temperature control facilities of pharmaceutical products cold chain logistics Specification for performance qualification. This ensures proper permanent temperature control, each warehouse has emergency backup of diesel power generators, which are tested once a week, and the diesel reserve is not less than 1 m3. 5

This series of technical supplements intends to give further guidance and more details to the recommendations given in the Model guidance for the storage and transport of time- and temperature-sensitive pharmaceutical products (WHO Technical Report Series, No. 961, 2011, Annex 9).This document focuses on principal requirements for the safe storage and distribution of time- and temperature sensitive pharmaceutical products (TTSPPs). T he additional material provided in these supplements links back to a specific clause or clauses in the parent document mentioned above. All of the 16 single documents contain a reference section with hyperlinks to relevant supporting materials. This gives a great overview on what is the current state of the scientific and technical knowledge in this area.

WHO Technical Report Series, No. 961, 2011, Annex 9 Model guidance for the storage and transport of time- and temperature-sensitive pharmaceutical products and its 16 Technical Supplements11

Supplement 1: Selecting sites for storage facilities Supplement 2: Design and procurement of storage facilities Supplement 3: Estimating the capacity of storage facilities Supplement 4: Building safety and fire protection Supplement 5: Maintenance of storage facilities Supplement 6: Temperature and humidity monitoring systems for fixed storage areas Supplement 7: Qualification of temperature-controlled storage areas Supplement 8: Temperature mapping of storage areas Supplement 9: Maintenance of refrigeration equipment Supplement 10: Checking the accuracy of temperature control and monitoring devices Supplement 11: Qualification of refrigerated road vehicles Supplement 12: Temperature-controlled transport operations by road and by air Supplement 13: Qualification of shipping containers Supplement 14: Transport route profiling qualification Supplement 15: Temperature and humidity monitoring systems for transport operations Supplement 16: Environmental management of refrigeration equipment

The aforementioned GSP is almost equivalent with the GIIP. GSP certification is a compulsory certification implemented by the government. It plays a vital role in improving and ensuring the management level and pharmaceutical quality of drug distributors, but many companies relax their requirements after certification, resulting in insufficient implementation and supervision.

In addition, the Ministry of Environmental Protection issued the implementation plan of the PRC HFCS-containing substance production industry phase-out plan in 2013, requiring that all HFCS including R22 Freon will be phased out in PRC by 2030 in response to requirements of The Montreal Protocol on Substances that Deplete the Ozone Layer .

11 https://www.gmp-compliance.org/gmp-news/who-publishes-interesting-new-guidance-for-the- storage-and-transport-of-pharmaceutical-products

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V. Description of the Subprojects

The subprojects consist of warehousing facilities for medicines, cold storage, automated pallets, medical equipment, etc.),

Topic #1: Hainan Phase 1 #2: Nanjing (Jiangsu) #3: Tangshan Size and Warehousing facilities to Warehousing facilities to Warehousing facilities to components of the serve operation in whole serve operation in Nanjing serve operation in subproject. Hainan province(totaled City and its Tangshan City and its 35,674 m2 for 150,000 adjacency(56,530 m2 for adjacency(65,096 m2 for standard boxes, located in 200,000 standard boxes, 200,000 standard boxes, a wholly new land parcel) located within the existing located in a wholly new including sorting center (5 plant premise) including land parcel) including stories, 21,241 m2), testing underground garage, 8 sorting center, stereoscopic center, auxiliary room (3 floors’ sorting workshop warehouse, R & D center, stories, 3,825 m2) and inspection building; boiler house and supporting guard room basically supported by 32 general building; supported by 10- completed, stereoscopic trucks and 7 12 general trucks and 3-4 warehouse, administration refrigerator trucks refrigerator trucks building with 11 stories at 9,318 m2; supported by 8 general trucks and 2 refrigerator trucks

There is no There is no There is no harmful/toxic/dangerous harmful/toxic/dangerous harmful/toxic/dangerous pharmaceutical or pharmaceutical or pharmaceutical or equipment or equipment or equipment or manufacturing activities. manufacturing activities. manufacturing activities.

Note: existing warehousing 43,398 m2 (200,000 standard boxes) 40 daily operational 30 daily operational 40 daily operational workers will be involved in workers are involved. workers are involved. addition to around 80 Workers’ accommodation Existing workers’ construction workers for (only for daytime short rest) accommodation (only for EPC. is included. daytime short rest)will be used. Jointown workers’ accommodation during operation is only for daytime short rest.

Currently, while construction is ongoing, the EPC has its own workers’ camp, for approximately 80 workers, within the construction site which

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Topic #1: Hainan Phase 1 #2: Nanjing (Jiangsu) #3: Tangshan includes sleeping quarters, kitchen and dining facilities, entertainment facilities (such as mini basketball court/library) and toilet and bath.

Sub project Intersection of Mei'an 3rd Yinhua Street No.476, Xingwang Street No.2, Location and Street and Andu 1st Road, Jiangning Development Economic Development conditions of the Mei'an Science and Zone, Nanjing City, Jiangsu Zone, Fengnan , subproject area Technology New Town, Province Tangshan City, Hebei Xiuying District, Haikou Province City, Hainan Province

The the Mei'an Science and The Jiangning The Tangshan Economic Technology New Town Development Zone(built Development Zone (planned area at 50km2) area at 38 km2) was (planned area at 101.3 km2) was established in 2012 founded in 1992, Nanjing was established in April focusing key areas such as Jiangning Development 1992 with the approval of healthcare, artificial Zone is a national-level the Hebei Provincial intelligence, light and low- economic and technological People's Government. On carbon manufacturing, development zone, November 29, 2010, it was marine industry, new- introducing more than upgraded to a national generation information 4,000 projects introduced high-tech industrial technology industry, new from 46 countries and development zone with the materials, new equipment regions, including 55 listed approval of the State and other high-tech companies and 61 world Council. There are 778 industries and financial top 500 companies, forming existing enterprises, and six services, as the main park three major groups characteristic industries of Haikou National Hi-tech including green smart cars. including welding, robots, Zone (established in The "3+3+3+1" modern auto parts, new materials 1991)). industrial system of a and new building materials, number of technological intelligent instruments and future industries such as meters, and biomedicine pillar industries, three have been initially formed. strategic emerging industries such as high-end equipment, three modern service industries such as software information services, artificial intelligence and future networks. The economic zone The economic zone The economic zone management provides management provides management provides basic infrastructure and basic infrastructure and basic infrastructure and utility services such as utility services such as utility services such as domestic waste and waste domestic waste and waste domestic waste and waste water collection, water water collection, water water collection, water supply and other municipal

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Topic #1: Hainan Phase 1 #2: Nanjing (Jiangsu) #3: Tangshan supply and other municipal supply and other municipal services used by facilities. services used by facilities. services used by facilities. The economic zone The economic zone The economic zone management is also management is also management is also responsible for supervision responsible for supervision responsible for supervision of EHS management of the of EHS management of the of EHS management of the facilities. facilities. facilities. No main environmental Main environmental Main environmental sensitive feature is found. sensitive features: sensitive features: A village (70-80 HHs) at a In southeast, at distance direct distance 322m from 150~300m, some (southeast) ; densely populated urban A village (60-70 HHs) at a area with a metro station, direct distance 261m college, hospital and some (north). shops/restaurants12 No protected area or PCR No protected area or PCR No protected area or PCR is affected. is affected. (see Annex 2 is affected. (see Annex 2 IBAT IBAT screening results for (see Annex 2 IBAT screening results for reference) screening results for reference) reference)

Project Progress. 2016.10 (construction 2017.12 (construction 2019.4(construction Facilities under started)-2020.4 started)- started)- construction (new (construction completed 2020.4(construction 2020.12(construction warehouse or and trial operation started) completed and trial completed and trial expansion of operation started) operation to be started) existing warehouse) and construction

12 The three subprojects do not involve any harmful/toxic/dangerous pharmaceutical or equipment or manufacturing activities. Here following is the buffer distance requirements for hazardous goods warehouse facilities (note that the following are not applicable to these three subprojects; otherwise, buffer distance requirements will be considered at project design and completion acceptance. In case of non-compliance, rejection or revision of project design will be necessary before proceeding). The classification standards for hazardous goods warehouses are distinguished according to the "Code for Fire Protection of Architectural Design". Class A warehouse standard: 1. Liquid with a flash point of less than 28°C, a gas with a lower explosion limit of less than 10%, a substance that can decompose by itself or oxidize in the air at room temperature and can cause rapid spontaneous combustion or explosion, and is exposed to water or water in the air at room temperature The action of steam can produce combustible gas and cause burning or explosion. 2. Inflammable inorganic substances such as acid, heat, impact, friction, catalysis, and organic matter or sulfur, are strong oxidants that can easily cause combustion or explosion, and can cause combustion or explosion when subjected to impact, friction, or contact with oxidants and organic substances. The production of the substance with the operating temperature greater than or equal to the spontaneous ignition point of the substance itself in closed equipment. Standards for Class B warehouses: liquids with a flash point greater than or equal to 28°C but less than 60°C; gases with a lower explosion limit of greater than or equal to 10%; oxidants that are not in Class A; chemically flammable hazardous solids that are not in Class A; combustion-supporting gas; energy Dust, fibers, liquid mist droplets with a flash point greater than or equal to 60°C that form an explosive mixture with air. The buffer distance between large and medium type A warehouses and large type B warehouses should be greater than 150 meters from residential areas and public facilities, more than 100 meters from enterprises and railway trunk lines, and more than 50 meters from highways. 20～40 meters, the distance between the small rooms is 10～40 meters. 9

Topic #1: Hainan Phase 1 #2: Nanjing (Jiangsu) #3: Tangshan progress at the time of due diligence (timeline of construction and expected operation schedule).

Figure 1. Jointown’s Pharmaceutical Distribution Facilities

Tangshan Jointown Tangshan City

Nanjing Jointown Nanjing City

Jointown HQ in Wuhan Hainan Jointown City, Hubei Province Haikou City

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Figure 2: Hainan Jointown

Figure 3. Nanjing Jointown

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