Terms of Reference - IFC Project #32208

Terms of Reference

CAO Compliance Investigation of IFC’s Investment in PT SMU/Wings Group (Wings-01), Indonesia

Terms of Reference

Compliance Environmental and Social Expert(s)

Wings Group’s PT SMU, Indonesia

IFC Project #32208

1. About CAO and the Compliance Function

The Office of the Compliance Advisor Ombudsman (CAO) is an independent recourse and

accountability mechanism for people and communities affected by projects financed by the

International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency

(MIGA). CAO works to address complaints fairly, objectively, and constructively while enhancing

the social and environmental outcomes of IFC and MIGA projects and fostering public

accountability and learning at these institutions.

CAO’s independence and impartiality are essential to fostering the trust and confidence of

stakeholders involved in complaint processes. CAO is independent of IFC and MIGA

management and reports directly to the IFC and MIGA Boards.

CAO carries out its work in accordance with the IFC/MIGA Independent Accountability

Mechanism (CAO) Policy (“the CAO Policy”). Its three functions are shown below. For more

information, visit: www.cao-ombudsman.org

Dispute Resolution Compliance Advisory

CAO helps resolve issues raised

about the environmental

and/or social impacts of

projects and/or sub-projects

through a neutral,

collaborative, problem-solving

approach and contributes to

improved outcomes on the

ground.

CAO carries out reviews of

IFC/MIGA compliance with the

E&S policies, assesses related

harm, and recommends remedial

actions to address non-

compliance and harm where

appropriate.

CAO provides advice to

IFC/MIGA and the Boards with

the purpose of improving

IFC’s/MIGA’s systemic

performance on

environmental and social

sustainability and reducing the

risk of harm.

CAO’s compliance function follows a three-step approach:

Terms of Reference – Expert Consultant(s)

CAO Compliance Investigation of IFC’s Investment in PT SMU/Wings Group (Wings-01), Indonesia

2. Scope of the Work

Between 1997 and 2008, IFC financed 14 investments in the Wings Group,

a vertically integrated

business group that manufactures and distributes consumer goods. The Group has its origins in

the soap and detergent business, which relies on palm oil derivatives, and produces palm oil and

other raw materials at its own plantations.

In 2011, Wings Group subsidiary PT Sayap Mas

Utama (PT SMU) was one of the two “laundry giants” in Indonesia with over 40-percent market

share.

In 2012, the Wings Group launched a US$176 million project to expand the products and capacity

of four companies,

including PT SMU. In April 2013, IFC received Board approval for an A loan

of US$44 million and a syndicated B loan of US$44 million to the four entities.

IFC’s rationale for

the investment included supporting a longstanding client in reaching low-income consumers.

IFC’s financing for the detergent company PT SMU consisted of an A loan of US$13.75 million

and a B loan of US$13.75 million. On December 16, 2019, PT SMU prepaid all outstanding IFC

loan balances, ending IFC’s exposure to the subsidiary company.

In November 2018, CAO received a complaint from the Indonesia NGO AMAN Kaltim.

Submitted

on behalf of Indigenous community members in Long Beluah and Long Lian, North Kalimantan,

the complaint cited environmental and social (E&S) impacts from oil palm plantations owned by

PT Gawi Makmur Kalimantan (PT Gawi), a Wings Group subsidiary. Specific allegations included

pollution of drinking water sources and associated health impacts, as well as the clearance of

Indigenous Peoples’ forest and seizure of their land without consultation or compensation, failure

to establish agreed smallholdings, and failure to provide agreed development benefit.

PT Gawi received IFC financing in 2001–2007 but was not financed by IFC at the time CAO

received the complaint. However, CAO accepted the complaint on the basis that IFC’s then client,

PT SMU, sourced refined palm oil derivatives (oleochemicals) from refineries that in turn sourced

some of their palm oil from PT Gawi mills and plantations.

In response to the complaint, CAO completed a compliance appraisal on March 28, 2023.

established in the Appraisal Report, CAO will conduct a compliance investigation of IFC’s

investment in PT SMU as it relates to the complaint.

The investigation will determine whether IFC complied with its E&S Policies relevant to the

IFC Disclosure website: https://disclosures.ifc.org/ Relevant IFC project numbers are: 7508, 8414, 10233, 11696,

23922, 24904, 25103, 25841, 26210, 27157, 17159, 27160, 27128, and 27129.

Sayap Mas Utama PT in Home Care (Indonesia), May 15, 2015. Euromonitor Local Company Profiles, Euromonitor

International. Also, Wings Group website: https://wingscorp.com/

Laundry Care in Indonesia, September 17, 2012. Euromonitor Sector Capsules, Euromonitor International.

Aside from PT SMU, IFC’s investment in the other three Wings subsidiaries were: PT Tirta Alam Segar and PT Murni

Alam Segar to expand their beverage product lines, and PT Harum Alam Segar to commission a greenfield coffee mix

production. IFC, Summary of Investment Information (SII) for IFC project no. 32208, 2012. Available at:

https://bit.ly/Wings01-SII.

IFC, SII, 2012.

See Appraisal Report, Annex 1 for a copy of the complaint.

CAO, Compliance Appraisal of Complaint Regarding IFC Investment in Wings Group’s PT Sayap Mas Utama,

Indonesia, and its Palm Oil Supply Chain, March 28, 2023. Available at:

https://www.cao-

ombudsman.org/cases/indonesia-wings-01long-beluah.

Terms of Reference – Expert Consultant(s)

CAO Compliance Investigation of IFC’s Investment in PT SMU/Wings Group (Wings-01), Indonesia

investment and whether there is harm

related to any IFC non-compliance. In determining whether

IFC has complied with its E&S Policies, CAO will include, where appropriate, an assessment of

whether IFC deviated in a material way from relevant directives and procedures.

Relevant to the issues raised in the complaint, the objective of the investigation is to determine:

1. Whether IFC has complied with its E&S Policies, including:

a. Whether IFC conducted pre-investment E&S due diligence and supervision of its

investment in PT SMU as required by the Sustainability Policy, and the adequacy

of such due diligence and supervision;

b. Adequacy of IFC’s review and supervision of PT SMU’s compliance with IFC’s

Performance Standards; and

2. Whether there is harm or potential harm related to any IFC non-compliance.

The investigation will consider whether IFC properly applied the following Sustainability

Framework requirements to the project:

• Whether IFC properly applied its Sustainability Policy requirement for pre-investment E&S

due diligence, including a review of reputational and third-party risks, a supply chain

assessment, and assessment of the client’s control and leverage over its supply chain

(Sustainability Policy, paras. 21 and 23; also ESRP (2009), para. 2.2.4).

• Whether IFC assured that Board approval of the project was informed by an assessment

of E&S risks and impacts in PT SMU’s supply chain, including relevant ESAP items or

E&S conditions of disbursement in accordance with para. 21 of the Sustainability Policy.

• Whether IFC verified the client’s review of third-party risks with a view to creating

outcomes consistent with Performance Standards PS3, PS4, PS5, PS6, and PS7 in

accordance with para. 23 of the Sustainability Policy.

• Whether IFC verified the proper application of PS1, para. 10, to the project in relation to

E&S risks and impacts from primary supply chains, including requiring the client to conduct

supply chain mapping and risk assessment.

• Whether IFC properly applied Sustainability Policy requirements to the project during

supervision in terms of reviewing project-related information that became known and, on

the basis of that information, providing advice to the client on managing the E&S issues,

per IFC ESRP (2013), para. 6.2.1.

• Whether IFC properly applied Sustainability Policy requirements for project supervision

during the life of the PT SMU investment, including prior to prepayment by its client, to

ensure that its investment is implemented in accordance with the Performance Standards

requirements. The Performance Standards require application of a mitigation hierarchy,

Harm, as defined by the CAO Policy (glossary), is “[a]ny material adverse environmental and social effect on people

or the environment resulting directly or indirectly from a Project or Sub-Project. Harm may be actual or reasonably likely

to occur in the future.”

Ibid., paras. 112–114.

Terms of Reference – Expert Consultant(s)

CAO Compliance Investigation of IFC’s Investment in PT SMU/Wings Group (Wings-01), Indonesia

requiring its client to assess and mitigate/compensate for any residual impacts, per

Sustainability Policy, paras. 6–7.

In relation to any IFC non-compliance with these E&S requirements, the investigation will consider

whether there is related harm or potential harm to the complainants.

The Terms of Reference for the investigation are attached to this memorandum.

The external expert will assist CAO with the scope of the compliance investigation.

Given the issues this investigation will consider, CAO expects to contract one or two external

experts depending on the needs identified and the candidates’ skill set.

Objective: CAO seeks expert input on IFC’s application of its Sustainability Framework, including

the Sustainability Policy and Performance Standards, to IFC’s investment in the Wings Group’s

PT SMU particularly as relates to the client’s supply chain.

The external expert(s) will be required to:

• Review project-related documentation;

• Prepare detailed investigation questions;

• Participate in meetings and interviews (either in person or by conference call) with IFC

project team members, complainants, IFC’s former client, and other relevant stakeholders;

• Participate in a field mission to the project area in Indonesia to meet with the complainants,

former client, and other stakeholders;

• Prepare a report on analysis and findings based on documentation review, interviews, and

field mission;

• Provide written input for the draft investigation report;

• Prepare a presentation on findings for CAO and IFC;

• Review and provide written comments on the draft and final reports; and

• Other tasks as agreed with the task team leader.

At the judgment of the task team leader, this work may involve travel to/within Indonesia to meet

with complainants, IFC’s former client, and other relevant stakeholders.

A field visit to the complainants’ communities and relevant Wings Group facilities is anticipated

during the compliance investigation, including Wings Group plantations if possible. Given that IFC

no longer has an ongoing financial relationship with the Wings Group, access to relevant facilities

may be limited.

CAO Task Team Leader is Reiko Ishihara-Brito (email: [email protected]g).

3. Preferred Qualifications and Experience

For this compliance investigation, CAO considers the following qualifications as necessary:

• Significant expertise in agricultural supply chain issues, preferably with familiarity with the

soap/detergent or similar industry;

• Significant expertise in conducting supply chain assessments in relation to E&S issues;

• Significant experience in and knowledge of the palm oil sector, preferably in Indonesia;

Terms of Reference – Expert Consultant(s)

CAO Compliance Investigation of IFC’s Investment in PT SMU/Wings Group (Wings-01), Indonesia

• Significant experience in assessment of adverse impacts, particularly in relation to water

pollution and associated health impacts, Indigenous Peoples’ land seizure and forest

clearance without consultation and compensation, failure to establish agreed

smallholdings, and failure to provide agreed development benefits (in the context of PS1,

PS3, PS4, PS5, PS6, and PS7 requirements);

• Knowledge of IFC’s E&S policies, standards, and procedures, particularly the 2012

Sustainability Policy and the 2012 Performance Standards;

• Experience and knowledge relevant to conducting compliance investigations;

• Demonstrated ability to analyze policies and practices and develop proposals for reform

in complex institutional contexts; and

• Fluency in English, familiarity with Bahasa desirable.

4. Timeline

Estimated level of effort is 30 days.

Timeline for this project is June 1, 2023 until 30, 2024.

5. Charge Code

The CAO charge code for this project is IFC-00604078-BB-C-INV.

Attached:

1. Terms of Reference for Compliance Investigation