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 Haikou City, Hainan 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 China (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