SGS RSPO RSPO PRINCIPLES & CRITERIA CERTIFICATION REPORT. Public Summary Information

Transcription

1 SGS RSPO (Principles & Criteria) Doc. Number: GP 7002A Doc. Version date: 01 September 2012 Page: 1 of 77 RSPO PRINCIPLES & CRITERIA CERTIFICATION REPORT Public Summary Information Report Nr: MY02999 IOI Leepang Production Unit Main Assessment Report Client: IOI Corporation Berhad RSPO membership #: (O) Web Page: Address: Total Plantation Area Company Contact Person: Head office: Level 8, Two IOI Square IOI Resort, Putrajaya Malaysia. 14,541 hectares Mr. Too Heng Liew Head of Sustainability Tel: Fax Mill: Leepang Palm Oil Mill: Morisem Palm Oil Mill Sdn. Bhd., Leepang Palm Oil Mill, Locked Bag No.15, Lahad Datu, Sabah. hltoo@ioigroup.com Evaluation dates: Main Assessment 31 st July and 1 st 2 nd August 2012 Surveillance 1 Surveillance 2 Surveillance 3 Surveillance 4

2 GP 7003A Page 2 of 77 TABLE OF CONTENTS List of Abbreviation INTRODUCTION CERTIFICATION BODY SCOPE OF verification for certification Background of Company, Certification Unit, Supply base Mill and Supply Base Location and hectareage statement Rainfall Description of supply base Planting Profile Organisational information/contact person DAYS STAKEHOLDER NOTIFICATION TIME BOUND PLAN PREPARATION FOR THE EVALUATION Schedule Team THE EVALUATION Opening meeting Document review Sampling and Evaluation Approach Field Assessment Summing up and closing meeting EVALUATION RESULTS SUPPLY CHAIN EVALUATION DECISION ACKNOWLEDGEMENT OF INTERNAL RESPONSIBILITY AND FORMAL SIGN-OFF OF ASSESSMENT FINDINGS APPENDIX A: CORRECTIVE ACTION REQUEST & OBSERVATION APPENDIX C: TIMEBOUND PLAN APPENDIX D: LIST OF STAKEHOLDERS CONTACTED LIST OF TABLES Table 1: Mill Capacity and sources of FFB... 7 Table 2: Summary of Oil Palm Plantations in the Leepang Production Unit... 9 Table 3: Annual rainfall data ( in mm ) for individual Estate ( 2008/ /2012)... 9 Table 4: FFB Production Record ( 2009/ /12 ) Table 5: CPO Production Record ( 2009/ /12 ) Table 6: PK Production Record ( 2009/ /12 ) Table 7 : Auditors Profile Table 8: Audit Plan... 12

3 GP 7003A Page 3 of 77 LIST OF FIGURES Figure 1: Map of Sabah, Malaysia and location of the Leepang Production Unit... 8 LIST OF ABBREVIATION Short Form BOD CAR CHRA COD CPO DID DOE DOSH EFB EIA EMS EQA ERT ESA FD FFA FFB FR GHG Ha HCV HDPE IPM ISO IUCN JCC JKKP JUPEM K kw M Mg Mm MSDS Mt MYNI Meanings Biological Oxygen Demand Corrective Action Request Chemical Health Risk Assessment Chemical Oxygen Demand Crude Palm Oil Department of Drainage and Irrigation, Malaysia Department of Environment, Malaysia Department of Occupational Safety and Health Empty Fruit Bunch Environment Impact Assessment Environmental Management System Environmental Quality Act Endangered, Rare and Threatened species Environmentally Sensitive Area Final discharge Free Fatty Acids Fresh Fruit Bunches Forest Reserve Green House Gas Hectare High Conservation Value High Density Polyethylene Integrated Pest Management International Organisation for Standardisation International Union for Conservation of Nature and Natural Resources Joint Consultative Committee Jabatan Keselamatan dan Kesihatan Perkerja ( Department of Worker s Safety and Health) Jabatan Ukur dan Pemetaan Malaysia (Department of Survey and Mapping Malaysia) Potassium Kilowatt Meter Magnesium Millimeter Matrail Safety Data Sheet Metric ton Malaysia National Interpretation

4 GP 7003A Page 4 of 77 N NGO OA OER OSH P P & C PK POM POME PPE PT SOP Sdn Bhd SEIA Sg SGS SOP SPC USECHH WHO yr Nitrogen Non Governmental Organisation Orang Asli (Indigenous People) Oil Extraction Rate Occupational Safety & Health Phosphate Principles and Criteria Palm Kernel Palm Oil Mill Palm Oil Mill Effluent Personal Protective Equipment Pejabat Tanah (Coding for Pahang Land Office) Standard Operating Procedures Sendirian Berhad (Private Limited) Social and Environment Impact Assessment Sungai Societe Generale de Surveillance Standard Operating Procedures Senior Plantation Controller Use and Standards of Exposure of Chemicals Hazardous to Health World Health Organisation Year

5 GP 7003A Page 5 of INTRODUCTION IOI Corporation Berhad is the existing member of the Roundtable on Sustainable Palm Oil (RSPO) and is committed to the sustainable practices of oil palm cultivation. The Group has also committed to the certification system of RSPO and as a part of the commitment; the Group invited SGS (Malaysia) Sdn Bhd (SGS) to certify IOI Leepang Production Unit and its Fresh Fruit Bunch (FFB) supplying bases located in Lahad Datu, Sabah, Malaysia. The auditing process is conducted according to the requirements of the QUALIPALM Programme, a SGS verification programme, for compliance to RSPO principles and criteria interpreted nationally in Malaysia [Malaysian National Interpretation Working Group (MY-NIWG)] dated November CERTIFICATION BODY SGS Group is the world s largest auditing, inspection, testing and verification organisation founded in SGS Group is able to provide its international clientele with a comprehensive range of services in more than 145 countries from a unique international global network of more than 1180 offices, 321 laboratories and 50,000 full time staff. SGS has no manufacturing, trading or financial interests which could compromise its independence and biasness in the audit process. It guarantees independence, its reputation for professionalism, integrity and impartiality. QUALIPALM programme of SGS Group s Oil Palm certification programme has been accredited by RSPO to provide certification services both against the RSPO P&C and the RSPO supply chain. To date, SGS has conducted various RSPO related audits in Malaysia, Indonesia, Colombia and Thailand and has issued RSPO certificates to numerous companies. 2. SCOPE OF VERIFICATION FOR CERTIFICATION An assessment of IOI Corporation Berhad Leepang Production Unit (Leepang) was conducted by SGS Malaysia from 31st July until 2nd August The primary objective of the exercise was to evaluate existing documentation and field practices in sustainable oil palm management of the plantation unit against the Roundtable on Sustainable Palm Oil Principles & Criteria Malaysian National Interpretation Working Group 2010 (RSPO P&C MY-NIWG). 2.1 Background of Company, Certification Unit, Supply base Leepang Palm Oil Mill is one of the 12 palm oil mills owned by IOI Corporation Berhad. IOI Corporation Bhd is a Malaysian public-listed company with business under three key segments as in the diagram below.

6 GP 7003A Page 6 of 77 Under the Plantation segment, the Group has 82 estates, unchanged from the previous financial year and the total oil palm planted area as at the end of the financial year 2011/2012 under review stood at 157,752 hectares, an increase of 707 hectares from the previous financial year. Approximately 65% of the Group s oil palm plantation holdings are in East Malaysia, 29% in Peninsular Malaysia and the remaining 6% in Indonesia. The Group s plantation produce are principally processed by its 12 palm oil mills with an annual milling capacity of approximately 4,000,000 tonnes of fresh fruit bunches ( FFB ). The Group s plantation business over the years has been able to sustain as one of the most cost efficient producers in the industry due to management s emphasis on continuous improvement in efficiency and productivity of its operations. Achievements in productivity are the result of years of concerted effort and commitment to good plantation management practices. As a founding member of the RSPO, IOI Group has played an active role in promoting sustainable practices since its inception in It also advocates sustainable agricultural practices in its estates to bring growth and use of certified sustainable palm oil to the world market. All of IOI Group s mills and estates in Peninsular Malaysia have successfully attained the RSPO Certification. In Sabah, four of IOI Group s mills and their supply bases have been certified. IOI Group successfully attained two more Roundtable on Sustainable Palm Oil (RSPO) Certification for its Plantation Management Unit Syarimo Grouping and Ladang Sabah Grouping on 20 March 2013 and 3 April 2013 respectively. To date, 83% of its palm oil mills and 74% of its plantations estates have been RSPO-certified. In addition, the entire IOI Group s operating units and supply chain units have successfully obtained the RSPO Supply Chain Certification. Leepang Palm Oil Mill is located in the Sukau-Kinabatangan region of the district Lahad Datu in the State of Sabah, Malaysia. It is accessible by road using the Jalan Jeroco.an alternative route is through the Jalan Sukau. However, one has to cross over the second longest river in Malaysia by barge to reach the location. Through a series of land acquisition during the mid -1990s and early 2000s IOI Group expanded in the Sukau-Kinabatangan region resulting in the estates of Leepang, Morisem and Permodalan. Leepang 1 was bought from a private company, B A Plantations Sdn. Bhd. Leepang 5 was also bought from a private company, Pine Capital Sdn. Bhd. Morisem 5 was bought from yet another private company, Meriteam Sdn. Bhd. They were already planted with oil palm when acquired. Permodalan Estates were formerly cocoa plantations owned by the state government through KPD (Koperasi Pembangunan Desa). They were bought over by IOI and converted to oil palm. Leepang Group consists of the following : Leepang Palm Oil Mill 2) Leepang 1 Estate 3) Leepang 5 Estate 4) Morisem 5 Estate 5) Permodalan 1 Estate 6) Permodalan 2 Estate 7) Permodalan 3 Estate 8) Permodalan 4 Estate Morisem Group consists of the following: 1) Morisem Palm Oil Mill 2) Morisem 1 Estate 3) Morisem 2 Estate 4) Morisem 3 Estate 5) Morisem 4 Estate 6) Leepang 2 Estate 7) Leepang 3 Estate 8) Leepang 4 Estate 9) Asas (Tas) & Halusah Estates

7 GP 7003A Page 7 of 77 All Morisem estates used to send FFB to Morisem Palm Oil Mill whilst all Leepang estates used to send FFB to Leepang Palm Oil Mil ( LPOM ) l. The Leepang Palm Oil Mill was commissioned in Oct 1997.This arrangement was changed when the new Morisem mill was commissioned on the 16th of July The new mill is in Leepang 2 whilst the old mill was in Morisem 3. The new location made it more convenient (nearer) for LP 2, 3 & 4 to send their crop to the new mill whilst Morisem 5 was further from it but nearer LPOM hence the re-grouping of the supplying estates. 2.2 Mill and Supply Base The Leepang Palm Oil Mill (Leepang POM) has a processing capacity of 40 tonne per hour with an annual CPO output (FY 2010/2011) of approximately 62,000 metric tonnes. The mill receives fresh fruit bunches from its supplying estates located within Lahad Datu District namely Morisem 5, Leepang 1, Leepang 5, Permodalan 1, Permodalan 2, Permodalan 3 and Permodalan 4. A summary of the sources is presented in Table 1 below: Table 1: Mill Capacity and sources of FFB MILL: LEEPANG PALM OIL MILL Mill location & Capacity Leepang Palm Oil Mill, Locked Bag No.15, Lahad Datu, Sabah. (Postal) GPS: X : Y: N E Capacity : 40 TPH Source FFB from Supply Base Estates FFB from other IOI supply Base Other non-ioi supplier Total processed FFB input (mt) 2011/2012 CPO output (mt) 2011/2012 PK output (mt) 2011/ , , , , , , OER : % KER: 5.196% No. Estate Area Total Planted (Mature) Planted (Immature) 1. Morisem 5 1,889 1, Leepang 1 2,349 2, Leepang 5 1,690 1, Permodalan 1 2,254 2, Permodalan 2 1,937 1, Permodalan 3 2,560 2, Permodalan 4 1,862 1,754 0 TOTAL 14,541 13,273 0

8 GP 7003A Page 8 of Location and hectareage statement As mentioned above, Leepang Production Unit comprises of seven directly managed estates namely Morisem 5, Leepang 1, Leepang 5, Permodalan 1, Permodalan 2, Permodalan 3, Permodalan 4 and a 40 tonne mill designated as Leepang POM. The estates supplying the mill are spread out within the vicinity of the POM in the Lahad Datu District, Sabah, Malaysia. The location map of the estates is presented in the following map below and the attached map file. Figure 1: Map of Sabah, Malaysia and location of the Leepang Production Unit

9 GP 7003A Page 9 of 77 For the maps of the individual estate, please refer to the attached file for the individual maps The hectarage statement for all estates is presented in Table 1 above. The total planted area for the seven directly managed estates is 13,273 ha. The individual estate summary is presented in Table 2. Table 2: Summary of Oil Palm Plantations in the Leepang Production Unit Names of Estate Morisem 5 Leepang Permodalan Grand Total Year of planting 1992 & & & & & & & 1997 Mature 1,548 2,177 1,461 2,125 1,780 2,428 1,754 13,273 Immature Total Production Area (ha) ,273 Conservation Area HCV Area Others : Roads, Housing Area, Office, Mill, etc TOTAL PLANTATION AREA (ha) ,889 2,349 1,690 2,254 1,937 2,560 1,862 14,541 14, Rainfall The mean rainfall information for the individual estates in the Unit for June 2008 to July 2012 is presented in Table 3. Rainfall data for the latest financial period of 2011/2012 shows that the area receives rainfall ranging from 2,353 mm to 3,780mm. From the 4 years of data, the lowest annual rainfall received was in 2009/2010 when Leepang 1 and Permodalan 2 received an annual rainfall of 1,906mm and 1,789 mm respectively. From the data, it also shows that in 2010/2011, the estates received the highest rainfall. Table 3: Annual rainfall data ( in mm ) for individual Estate ( 2008/ /2012) Name of Estate Morisem 5 Leepang Permodalan / / / /

10 GP 7003A Page 10 of Description of supply base The Leepang POM receives FFB from the above-mentioned estates. Occasionally it will processed FFB form IOI sister estates within the location. Currently, the POM does not source its FFB from other out growers and smallholders. Based on records, for financial year 2011/2012, the FFB production recorded is 256, mt compare to the previous financial year, 2010/2011 where the production unit recorded at 320, mt of FFB production. See Table 4 below for FFB production for all estates. Total Crude Palm Oil (CPO) and Palm Kernal (PK) production are shown in Table 5 and 6 respectively. Estate Table 4: FFB Production Record ( 2009/ /12 ) FFB production (Metric Tonne) 2009/ / /2012 Morisem 5 29, ,227 27, Leepang 1 55, , , Leepang 5 26, , , Permodalan 1 48, , , Permodalan 2 42, , Permodalan 3 42, , , Permodalan 4 48, , , TOTAL 293, , , Table 5: CPO Production Record ( 2009/ /12 ) Estate Financial Year 2009/ / /2012 Leepang 1 12, , , Leepang 5 5, , , Morisem 5 6, , , Permodalan 1 10, , , Permodalan 2 9, , , Permodalan 3 9, , , Permodalan 4 10, , , Total 63, , , Estate Table 6: PK Production Record ( 2009/ /12 ) Financial Year 2009/ / /2012 Leepang 1 2, , , Leepang 5 1, , , Morisem 5 1, , , Permodalan 1 2, , , Permodalan 2 1, , , Permodalan 3 1, , , Permodalan 4 2, , ,757.15

11 GP 7003A Page 11 of 77 Total 13, , , Planting Profile The planted oil palm profile can be found in Table 2 above. All the plantings has been classified as matured as the last planting was done in 2003 in Leepang 5. Out of a total area of 14,541 ha the planted area is 13,273 ha. 2.7 Organisational information/contact person Name Designation Mr Too Heng Liew Head of Sustainability Level 8, Two IOI Square IOI Resort, Putrajaya Malaysia. Contacts Tel: Fax: hltoo@ioigroup.com DAYS STAKEHOLDER NOTIFICATION The 30 days stakeholder notification was published in the RSPO website on 2nd June Until the end of audit and at the time of writing this report there were no feedbacks received from the stakeholders consulted. 4. TIME BOUND PLAN IOI as one of the main player in the oil palm industry in Malaysia has made commitment to bring all of its holding to RSPO certification latest by The certification schedule for IOI s plantation management unit is provided in Appendix C. The plan developed by IOI is very challenging but the company has made good progress where at least one certification unit has been certified and several more are at various stages of certification process. 5. PREPARATION FOR THE EVALUATION 5.1 Schedule 5.2 Team The evaluation was preceded by a discussion on the logistic planning with IOI s personnel. This is important to ensure that sufficient time is allocated to allow coordination among team members. The team that conducted the Main Assessment are presented in Table below. The qualification and experience of the auditors are also briefly described Table 7 : Auditors Profile Evaluation Team Lead Auditor The Auditors Abdul Haye S , a degree holder in B.Sc. is a forester by profession and has 15 years experience in forest harvesting and plywood industry. As a trained assessor, he has been involved in forest management, palm

12 GP 7003A Page 12 of 77 Auditor Auditor oil and chain of custody certification for the last 4 years. Trained by RSPO for auditing against RSPO P&C and involved in a number of plantation assessments and inspection of palm oil mill. James S H Ong, a B.Agric Sc. holder and agronomist in SGS (M) Sdn Bhd. He has many years experience in agriculture sector in Malaysia having worked in estates as well in the agrochemical and fertiliser industry. He is well versed with agrochemical and fertiliser applications. Has undergone ISO and RSPO Lead Auditor training and involved in a number audits on oil palm plantations. Mohd Faisal Jaafar, is a degree holder in forestry from Universiti Putra Malaysia. Faisal has a 7 years experience in operating Malaysian Timber Certification Scheme with specialization in forest management certification and forest plantation management certification. Has undergone the necessary an RSPO Endorsed Lead Auditor Course and ISO 9000 Lead Auditor course and has gathered substantial auditing experience pertaining to forest certification as well as RSPO certification. 6. THE EVALUATION 6.1 Opening meeting An opening meeting was held at Leepang POM on 31 st July The scope of the evaluation was explained and schedules and estates to be visited were determined. Attendance record for all persons that attended this meeting is kept. 6.2 Document review A review of the main plantation management documentation was conducted to evaluate the adequacy of coverage of the QUALIPALM Programme requirements. This involved examination of policies, management plans, systems, procedures, instructions and controls. 6.3 Sampling and Evaluation Approach Schedule for field visits were determined during the opening meeting after the briefing given by the IOI s management. Focus of the visit was to understand and analyse the implementation of management practices and procedures within RSPO MY-NIWG requirements. 6.4 Field Assessment The aim of the field assessments was to determine how closely the activities in the field complied with documented management systems and QUALIPALM Programme requirements. Interviews with the staffs, operators and contractors were conducted to determine their understanding in the implementation of policies, procedures and practices that are relevant to the RSPO MY-NIWG requirements. Carefully selected sample of sites were visited to evaluate whether practices met the required performance levels. As part of the effort to cover more areas, the verification team was divided and each member worked independently. The areas visited on a daily basis were tabulated in the schedule given below: Date 31 July 2012 (Tuesday) 9.00 am Table 8: Audit Plan Details of the Audit Introduction to the audit by SGS Briefing by the Leepang Estates and Mill on the operations and activities Formulation of audit schedule Field Morisem 5 Estate: Spraying Manuring

13 GP 7003A Page 13 of 77 Harvesting Storage Line Site 2.00 pm Documentation Review Interview stakeholders Union Leaders, Gender Committee, workers, 1 August2012 (Wednesday) 9.00 am crèche care taker Field Leepang 5 Estate & Permodalan 3 Estate Spraying Manuring HCV Area Riparian & Buffer zone Boundary Stone Landfill Harvesting Line site Storage Clinic Crèche 2.00 pm Documentation Review Interview with local communities. Interview with Gender Committee, Union, Medical Assistant / Officer 2 August 2012 (Thursday) Field Visit to Estate Auditing any outstanding issues or section that has yet to be covered 9.00 am Leepang Palm Oil Mill Mill records on production RE usage, water usage Site & facilities visit Supply Chain audit SOP Record Keeping Training 2.00 pm Preparation of Audit Findings 3.00 pm Closing Meeting 6.5 Summing up and closing meeting At the conclusion of the field evaluation, preliminary findings were presented to the company management at closing meeting held on 2 nd August Observations made highlighted compliance, partial compliance or non-conformance to the RSPO requirements. 7. EVALUATION RESULTS Criterion 1.1 Results of the evaluation are tabulated below. The findings made under each criterion are discussed where non compliances raised are raised against individual indicator of the MY-NIWG The detailed findings that described the compliance and non-compliances (raised as NC) under each criterion are as follows: Oil palm growers and millers provide adequate information to other stakeholders on environmental, social and legal issues relevant to RSPO Criteria, in appropriate language & forms to allow for effective participation in decision making Records of requests and responses must be maintained.

14 GP 7003A Page 14 of 77 MA Findings: Records of requests and responses are maintained. Documented procedures exist for stakeholder information request at the corporate and estate levels. Records of requests and responses were viewed at the estate level. Website provides adequate information on their plantation undertakings, corporate social responsibilities and commitments to sustainability. Information can be viewed at the following site, Criterion Stakeholder lists for all individual estates and mill is available on site. There is a mechanism to ensure that documents are publicly available, as stipulated in the individual estate management plans. The mechanism for information request available at two different levels namely estate and corporate level. The mechanism for information request is clearly outlined in the estates Social Management Plan. In practice, stakeholder requests are made either by checking the IOI website or writing a letter to the estate or making a call to the estate office. A flowchart designates how IOI will address the issue by meeting with the Social Liaison Officer or Estate Manager. The appropriate personnel will handle the complaint or request and the stakeholder informed of the outcome within 5 working days. Management documents are publicly available, except where this is prevented by commercial confidentiality or where disclosure of information would result in negative environmental or social outcomes Land titles / user rights (C 2.2) Safety and health plan (C 4.7) Plans and impact assessments relating to environmental and social impacts (C 5.1, 6.1, 7.1, 7.3) Pollution prevention plan (C 5.6) Details of complaints and grievances (C 6.3) Negotiation procedures (C 6.4) Continuous improvement plan (C 8.1) Evidence of the above documents that is made publicly available. IOI Leepang has developed the following documents that are made available to the auditors during the visit: i. Safety and health plan; ii. Environmental and social impact assessments and related management plans; iii. Pollution prevention plans; iv. Procedures for complaint and grievance were verified. The details and records are lacking; v. Negotiation procedure; and vi. Continuous improvement plan All relevant legal documents covering land titles and licenses have been displayed for viewing. Safety and health plan as well as environmental and social impact assessment are also available. In addition, there is adequate documentation of complaints and grievances available in each estates including those that have been resolved at the mill.

15 GP 7003A Page 15 of 77 The negotiation procedures are clearly presented in the individual management plans. The above documents are also found to be uploaded into the website to be made publicly available. Principle 2: COMPLIANCE WITH APPLICABLE LAWS AND REGULATION Criterion 2.1 There is compliance with all applicable local, national and ratified international laws and regulations Evidence of compliance with legal requirements. Evidence of compliance with legal requirements. Land titles for the visited estates are available as follows: Land Title No. PL dated 23 August 1980 Morisem 5 Estate/Mill CL dated 30 July 2001 Permodalan 3 CL Leepang Palm Oil Mill As reflected in the land titles, all of the said land is deemed to be planted with agricultural crop of economic values in particular oil palm. Estate boundaries have been systematically marked in areas adjacent to other forms of land use (sensitive areas). IOI Leepang is committed to leaving a stream buffer strips at time of replanting. All of the identified buffer strips are adequately indicated in maps A documented system, which includes written information on legal requirements. Adequate documented and practical system, which includes written information on legal requirements. Evidence of compliance with legal requirements licenses displayed at company offices. All Standard Operating Procedures are cross reference to legal requirements to ensure compliance. The list of relevant national laws has been reviewed and available in the mill and estate. The hard copies of all relevant legal documents such as laws, licences and permits are viewed at the mills and estates office. Nevertheless, at Leepang, the list of applicable laws, regulations, permits and licenses is not practical to be monitored due to lack of expiry date and lack of person in-charge at the estates and mill level. The company is in compliance to this requirement: Observation A mechanism for ensuring that they are implemented. Evidence of a mechanism for ensuring that they are implemented. IOI Corporation Bhd as a Group has established a mechanism for ensuring that all relevant laws listed are adequately implemented. As stated in the procedures, all relevant laws are implemented throughout the organization with each of the department has its

16 GP 7003A Page 16 of 77 respective personnel to monitor the implementation of the relevant laws A system for tracking any changes in the law. Availability of system for tracking any changes in the law. The mechanism of tracking the changes of laws is contained in the IOI File No. 5. As stated in the document, the sustainability team has been appointed as the responsible personnel to monitor any changes of laws. They are also assigned to carry the following task: Inform the mill and estates on any changes and updates of the laws listed; To evaluate the effect of change of laws against the oil palm and mill practices; and To assess current practices and suggest any changes to be submitted to Senior Management i.e. Group Plantation Director and Assistant General Manager. Criterion 2.2 The right to use the land can be demonstrated, and is not legitimately contested by local communities with demonstrable rights Evidence of legal ownership of the land including history of land tenure. Legal ownership of the land including history of land tenure is available. The IOI Leepang provided the evidences of ownership of land by providing the evidence of land titles for both POM and the supplying estates. In addition, IOI Leepang also has provided the auditor with approval (No ) for occupying and operating at the prescribed premise in accordance to the Section 18(1) of the EQA, Growers must show that they comply with the terms of the land title. [This indicator is to be read with Guidance 2]. The term of condition provided evidence that the company does comply with the terms of the land title. Land titles for the visited estates are available as follows: Land Title No. PL dated 23 August 1980 Morisem 5 Estate/Mill CL dated 30 July 2001 Permodalan 3 CL Leepang Palm Oil Mill As reflected in the land titles, all of the said land is deemed to be planted with agricultural crop of economic values in particular oil palm Evidence that boundary stones along the perimeter adjacent to state land and

17 GP 7003A Page 17 of 77 other reserves are being located and visibly maintained. Inadequate evidence that boundary stones along the perimeter adjacent to state land and other reserves are being located and visibly maintained. Estate boundaries have been systematically marked in areas adjacent to other forms of land use (sensitive areas). IOI Leepang has a special mapping team with accurate GPS equipment for boundary verification. All visited estates have their boundary marked with boundary markers. However, the auditor note that one area bordering with Sg. Simpang Forest Reserve is not adequately marked with boundary markers. The company is in compliance to this requirement: N ( CAR 01) Where there are, or have been, disputes, proof of resolution or progress towards resolution by conflict resolution processes acceptable to all parties are implemented. CF 2.3.3, and The unit does not have any land disputes recorded. The unit does not have any land disputes recorded. But a system to resolve land disputes is documented in Grievance Procedure for Land Owner Issues which is detailed in the social management plan for estates and mill. Criterion 2.3 Use of the land for oil palm does not diminish the legal rights, or customary rights, of other users, without their free, prior and informed consent Where lands are encumbered by customary rights, participatory mapping should be conducted to construct maps that show the extent of these rights. There are no claims on legal or customary rights exist for the estate. Currently, there are no claims on legal or customary rights exist for the estate. Customary use of land for community purposes have been identified either on maps (places of worship, burial grounds, and archaeological site) and maintained Map of appropriate scale showing extent of claims under dispute. Refer to Indicator Customary use of land for community purposes have been identified either on maps (places of worship and burial grounds) and maintained Copies of negotiated agreements detailing process of consent. (C2.2, 7.5 and 7.6). Refer to Indicator Currently, there are no claims on legal or customary rights exist for the estate.

18 GP 7003A Page 18 of 77 Principle 3: COMMITMENT TO LONG-TERM ECONOMIC AND FINANCIAL VIABILITY Criterion 3.1 There is an implemented management plan that aims to achieve long-term economic and financial viability Annual budget with a minimum 2 years of projection. Annual budget with a minimum 2 years of projection. Annual budget for both estates and mill is available covering both operation and management of the estates and mill. In addition, the Budgets included allocations for social & environmental/biodiversity conservation programme Annual replanting programme projected for a minimum of 5 years with yearly review. MA Findings: Annual replanting programme projected for a minimum of 5 years with yearly review. Ten year replanting programme for each estate are available. Plantation management plan is also established that take into consideration the availability of resources and crop production environmental and social scenario as well as monitoring programme for each of the estates within the production unit. In addition the maps for each estate are also available within the plan that indicates the boundary of the estates as well as the blocks or the compartment. The rivers and streams within the estates were marked together with the access road. The annual plan is only in the form of annual budget determined by the Headquarters for each estate. The budget include allocation for the operation, estimate on expenses for harvesting, social programmes as well as possible environmental safeguards. Principle 4: USE OF APPROPRIATE BEST PRACTICES BY GROWERS AND MILLERS: Criterion 4.1 Operating procedures are appropriately documented and consistently implemented and monitored Documented Standard Operating Procedures (SOP) for estates and mills. Availability of documented Standard Operating Procedures (SOP) for estates and mills. Procedures are observed to be well documented at group level and then translated into StOPs for individual estates where needed. Procedures exist for most operations both in the estates and mills in the form of written documents. The StOPs is observed to be reflecting best industry practices as detailed in IOI s agricultural policy document. StOPs for crop production and field maintenance are consistently implemented in all the estates evaluated. Where field management is concerned, the operating procedures have become standard practice understood by all field management staff. Procedures for the

19 GP 7003A Page 19 of 77 whole crop management cycle are provided to all management staff and training provided to ensure standard and consistent implementation. Input from the research division for continuous StOP review and improvement demonstrates the implementation of an adaptive management approach Records of monitoring and the actions taken are maintained and kept for a minimum of 12 months. MA Findings: Records of monitoring and the actions taken are maintained and kept for a minimum of 12 months. A comprehensive monitoring framework is in place, especially for field operations is in place. The general estate/mill management hierarch ensures that relevant procedures both in the estates and in mill are implemented. The management structure of all the estates and mills ensures that procedures are effectively implemented and monitored. General monitoring is in the form of task supervision and satisfactory task completion reports to senior management in individual estates and mills. A series of daily task completion forms serving as monitoring documents exist for all important field and mill operations. These serve as records of implementation and monitoring. Procedures for environmental monitoring exist and the same level of management control is placed on these procedures. Criterion 4.2 Practices maintain soil fertility at, or where possible improve soil fertility to a level that ensures optimal and sustained yield Monitoring of fertilizer inputs through annual fertilizer recommendations. Evidence of monitoring of fertilizer inputs through annual fertilizer recommendations. Verification during a visit to the sampled estates evidenced that there has been a high standard of soil fertility maintenance implementation that meets normal industry practice of ensuring optimal nutrition for planting material according to soil type and climate. The fertilizer inputs based on recommendation made by the Agronomy Manager of IOI are recorded and monitored. Several sampled fertilizer application are recorded as evidence: Estates Morisem 5 Permodalan 3 Leepang 5 Recommendation Amended fertilizer application for applying recommended by the Agronomy Manager dated 28 June 2012 Fertilizer recommendation for applying Eppawela Rock Phosphate (ERP) in Block 93A. Recommendation by the Agronomy Manager dated 28 June 2012 Fertilizer recommendation for applying Murate of Potash (MOP) in Block 06A. Recommendation by the Agronomy Manager dated August 2012 Fertilizer recommendation for applying NK fertilizer in Block 96D. Recommendation by the Agronomy Manager dated 15 May Evidence of periodic tissue and soil sampling to monitor changes in nutrient

20 GP 7003A Page 20 of 77 status. MA Findings: Inadequate of periodic tissue and soil sampling to monitor changes in nutrient status. A programme is in place that takes annual nutrient samples from both leaf tissue and soil. These are used to assess the nutrient state of the palms and their soils and used to guide subsequent fertiliser needs. In practice, check on nutrient status in the field is undertaken by foliar (frond) sampling supported by soil nutrient status analysis. This is done at the very least annually to establish nutrient uptake by the palms and also to determine the annual fertilizer application recommendations. The monitoring results are presented in the form of a fertilizer recommendation report for each estate. IOI s agronomic unit under the research division systematically undertakes monitoring and recommends changes to improve soil fertility to ensure optimal and sustained yield. Despites that the soil sampling analysis has been conducted throughout all visiting estates, the auditing team note that the similar analysis is not conducted in the Morisem 5 estate. The company is in compliance to this requirement: N ( CAR 02) Monitor the area on which EFB, POME and zero-burn replanting is applied. Monitoring the area on which EFB, POME and zero-burn replanting is applied, is not implemented. No evidence of monitoring of application of EFB on the field to maintain soil fertility at, or where possible improve soil fertility to, ensure optimal and sustain yield. The company is in compliance to this requirement: N ( CAR 03) Criterion Practices minimise and control erosion and degradation of soils Documented evidence of practices minimizing soil erosion and degradation (including maps). MA Findings: Availability of documented evidence of practices minimizing soil erosion and degradation (including maps). Management document to minimize soil erosion and degradation for Leepang production unit is captured two documents as follows: Group Standard Operating Procedures (StOP); and Good Agricultural Practices. In addition, the production unit also has a Slope Map indicating the following areas: 0-25 degrees; degrees; and degrees. Based on records, a total of 227 ha of area of < 25 degree in slope has been identified and marked on map as well as on the ground. Such areas are excluded from plantation and be conserved as a protection area. The slope areas as indicated above also are captured within the Environmental Impact

21 GP 7003A Page 21 of 77 Assessment (EIA), management action plans, High Conservation Value (HCV) Management Plans and Continuous Improvement Plans Avoid or minimize bare or exposed soil within estates. Evidence bare or exposed soil in one area within estates. Observation in Morisem 5 Estate evidenced that the soil erosion on the 227ha of unplanted hilly area is causing siltation on the main drains within the peat areas between Leepang 3 and Morisem 5. The company is in compliance to this requirement: Observation Presence of road maintenance programme. Road maintenance programme is available. The documents required for road maintenance are available. Each estate has a programme, budget and timetable for implementation of work. Verification during field visit evidenced that roads are observed in good condition and effective for crop evacuation. Surface run offs from the road are observed to be diverted back to fields so that the soil are retained Subsidence of peat soils should be minimised through an effective and documented water management programme. MA Findings: Lack of documented water management programme is available to minimise peat soils subsidence. There is evidence of peat soil within the estate (Morisem 5 Estate) in the Fertilizer Recommendation Reports for January 2012 to December 2012 from the Agronomist of IOI. However, there is no soil map available to locate the peat area in the estate. In addition there is also no water management table to monitor the peat subsidence rate. (refer to CAR 13) to this requirement: N(Refer to CAR 13 ) Best management practices should be in place for other fragile and problem soils (e.g. sandy, low organic matter and acid sulphate soils). MA Findings: Best management practice is not in place for fragile and problem soils. Although there is a comprehensive soil map available at the production unit. The auditing team note that there is no soil map available to locate peat area within the estate and hence rendered such area not to be managed under the best management practices. (refer to CAR 13) The company is in compliance to this requirement: N(Refer to CAR 13 )

22 GP 7003A Page 22 of 77 Criterion Practices maintain the quality and availability of surface and ground water Protection of water courses and wetlands, including maintaining and restoring appropriate riparian buffer zones at or before replanting along all natural waterways within the estate. Improper demonstration of the protection of water courses and wetlands, including maintaining and restoring appropriate riparian buffer zones at or before replanting along all natural waterways within the estate. Based on the topography maps verified during the main assessment, all natural streams identified are marked with red colour painted on the palms. Identification and demarcation of such area and be classified as riparian buffer zones are conducted in accordance to the Sabah s Water Resources Enactment (1998) using the guidelines provided by the Department of Drainage and Irrigation (DID) of Sabah. As required within the enactment as well as DID s guidelines, the markings of riparian buffer zones are conducted as follows: River width Width of Riparian Buffer Zones (m) > <3 5 Although Leepang production unit has established and demarcated the buffer zones along the rivers as per required in the standard, the auditing note that several seasonal stream areas within Morisem 5 and Leepang 3 Estates has been marked as riparian buffer zones that may inflict problem relating to the management of such area in the future due to the seasonal flowing nature of the stream. To cater this problem, the training and understanding is required to the plantation staff to ensure identification, demarcation and enhancement is implemented. The company is in compliance to this requirement: Observation No construction of bunds/weirs/dams across the main rivers or waterways passing through an estate. MA Findings: No evidence on construction of bunds/weirs/dams across the main rivers or waterways passing through an estate. Field visit during the main assessment evident that no construction of bunds, weirs and dams were observed in the estates. All provisions stipulated in the Department of Irrigation and Drainage (DID) is fulfilled Outgoing water into main natural waterways should be monitored at a frequency that reflects the estates and mills current activities which may have negative impacts (Cross reference to 5.1 and 8.1). Outgoing water into main natural waterways is monitored at a frequency that reflects the estates and mills current activities which may have negative impacts. In practice, monitoring of water quality is conducted through the following activities:

23 GP 7003A Page 23 of 77 Implementing Water quality index (WQI). The sampling is conducted at least once every six months. Amongst elements captured within the analysis water trending as well as water quality index using parameters guided by the DID guidelines. Two WQI has been observed and verified as follows: o WQI sampling done 18/7/2012 at 3 sampling along the tributaries Natural Stream within Morisem 5 estate. The analysis is done at the IOI research Centre, Sabah; and o WQI sampling done 22/7/2012 at 3 sampling along the tributaries Natural Stream within Permodalan 3 estate. The analysis is also done at the IOI research Centre, Sabah Drinking water is tested every 6 months. The testing result is sent to external lab. Based on records, the latest sampling result has been conducted on 27 th July Monitoring rainfall data for proper water management. Monitoring rainfall data for proper water management is evident. Rainfall is being monitored and records are kept. Meters to monitor water abstraction and supply to the mill have been installed and water usage is being monitored Monitoring of water usage in mills (tonnage water use/tonne FFB processed). MA Findings: Monitoring of water usage in mills (tonnage water use/tonne FFB processed). Is conducted. Flow meters with certificate for calibration have been applied for water usage monitoring in the mill for in-coming raw water and after-treatment. Evidence for monitoring water utilisation is found to be adequate. Water usage for every tonne FFB processed is also monitored on a monthly basis Water drainage into protected areas is avoided wherever possible. Appropriate mitigating measures will be implemented following consultation with relevant stakeholders. Water drainage into protected areas is adequately avoided. Documents concerning a Water Management Plan viewed. Drainage to protected area avoided as far as the management of Leepang production unit as concerned. Based on the observation made during the field visit, there is no drainage into the protected area observed. As reflected in the Water Management Plan, appropriate mitigating measures shall be employed and implemented following consultation with relevant stakeholders. All concerns raised shall be recorded in the external complaints record books Evidence of water management plans.

24 GP 7003A Page 24 of 77 MA Findings: Availability of water management plans. Water management Plan for Leepang Group covering period from July 2012 July 2017 has been established and made available to the auditing team during the main assessment. This document covers the following elements: Conserving sources for abstraction; Managing riparian areas; Contamination by estate and mill activities; Monitoring ground and surface water quality, and Consumption of water. Criterion 4.5 Pests, diseases, weeds and invasive introduced species are effectively managed using appropriate Integrated Pest Management (IPM) techniques Documented IPM system. Documented IPM system is available. The approach to IPM is well integrated within the StOP document of Leepang production unit. This covers weeding, diseases and pests management. An adaptive management approach is taken. Biological control methods are employed, with routine field monitoring where a census is taken of indicator species. When tolerance thresholds are breached, a chemical response is initiated. Census records viewed Monitoring extent of IPM implementation for major pests. Monitoring extent of IPM implementation for major pests is conducted. In all the estates evaluated, elements of IPM have been observed. Pest and weed infestation is recorded as minimal in these estates. The application of biological control is conducted and the use of Barn Owls for rat control is evident. In addition, the usage of beneficial predator and parasitoid host plants e.g. Tunera subulata, Cassia cobanensis, Antigonon leptopus, is also observed to be implemented within the estates visited. The implementation of the IPM is intensively monitored by IOI Leepang and a phased approach has been taken for such activities. Interviews with the Estate management staff evident that they are aware of the toxicity indices for all pesticides used in the estate and appropriate briefing and training regard this is given. Example of monitoring of IPM implementation are as follows: Monitoring of rat damage is done from the crop sent to the mill that is recorded in the document FFB Delivery and Assessment Report. Level of FFB damage is also captured within the document. Summary of such records are done in a report known as Off Quality Ranking where rat damage is recorded Recording areas where pesticides have been used.

25 GP 7003A Page 25 of 77 MA Findings: Evidence of recording areas where pesticides have been used. StOP is available for the control of all major pests and has been consistently implemented. Records of application were viewed and field visits maid confirming application was made according to current schedules. Records of chemical usage are available for both mature and immature palms in the form of measurement units such as litres or kilograms. Records of pesticides program planned for each block and areas treated are also available Monitoring of pesticide usage units per hectare or per ton crop e.g. total quantity of active ingredient (a.i.) used/ tonne of oil. Criterion 4.6 MA Findings: Evidence of monitoring of pesticide usage units per hectare or per ton crop e.g. total quantity of active ingredient (a.i.) used/ tonne of oil. Monitoring of pesticides usage for units per hectare or per ton crop is recorded in the Summary of Pesticides Usage per Hectare per Ton FFB Production. Data is recorded based on the type of pesticides used and recorded on a monthly basis. Observed during the audit the records for year 2007 to 2012 are available. Agrochemicals are used in a way that does not endanger health or the environment. There is no prophylactic use of pesticides, except in specific situations identified in national Best Practice guidelines. Where agrochemicals are used that are categorised as World Health Organisation Type 1A or 1B, or are listed by the Stockholm or Rotterdam Conventions, growers are actively seeking to identify alternatives, and this is documented Written justification in Standard Operating Procedures (SOP) of all agrochemicals use. MA Findings: Written justification in Standard Operating Procedures (SOP) of all agrochemicals use is available. The written justification of all pesticides covering both weedicide and rodenticide used within the IOI Leepang operations are captured within the StOPs document Pesticides selected for use are those officially registered under the Pesticides Act 1974 (Act 149) and the relevant provision (Section 53A); and in accordance with USECHH Regulations (2000). Pesticides use are those that officially registered under the Pesticides Act, 1974 (Act 149) and the relevant provision (Section 53A); and in accordance with USECHH Regulations (2000). All agrochemicals used are on the official registered as required by the Malaysian pesticides act 149 (1974). The IOI plantation group has reduced the number of chemical in its estates. Glyphosate is the main systemic herbicide used for general field spraying. Paraquat is no longer used within the IOI Leepang operations area following the memo from the top management ceasing the usage of such chemicals in IOI plantations. Records indicate that spraying rounds are being reduced in mature areas indicating positive

26 GP 7003A Page 26 of 77 action by the estates evaluated Pesticides shall be stored in accordance to the Occupational Safety and Health Act 1994 (Act 514) and Regulations and Orders and Pesticides Act 1974 (Act 149) and Regulations. Pesticides used in estates are not disposed of in accordance with the requirements of the standard. StOPs for the use of Pesticides clearly emphasizing procedure in storing the pesticides used in the estate. Pesticides used in the estates observed to be stored appropriately in a closed room with proper ventilation chamber and adequate label and at the designated area. Observed also the hazardous mark paste on the wall depicting the toxicity of the pesticides to the human health. The StOPs for the use of Pesticides emphasize on the use of triple rinse and piercing method to dispose of the used chemical containers. All estates visited are found to be adequately implementing the triple rinse and piercing method. However, the auditing team observed that triple rinsing method inconsistently implemented in Morisem 5 estate. The company is in compliance to this requirement: N ( CAR 04) All information regarding the chemicals and its usage, hazards, trade and generic names must be available in language understood by workers or explained carefully to them by a plantation management official at operating unit level. Information regarding the chemicals and its usage, hazards, trade and generic names was not adequately made available in language understood by workers or explained carefully to them by a plantation management official at operating unit level. Chemical storage is observed to be satisfactorily stored according to the Malaysian Occupational Safety and Health and pesticide regulatory requirements. Material Safety Data Sheets (MSDS) are available for chemicals stored and the relevant personnel well versed in the information in these sheets. Nevertheless, the auditing team noted that MSDS for herbicide Starane has the wrong active ingredient as observed in Morisem 5 estate. In addition, MSDS for Rattus and Matikus are not available at the Leepang 5 estate store. The company is in compliance to this requirement: N ( CAR 05) Annual medical surveillance as per CHRA for plantation pesticide operators. Annual medical surveillance as per CHRA for plantation pesticide operators is available. Annual medical surveillances are found to be conducted for all visiting estates. All surveillance is conducted by the Department of Occupational Safety and Health (DOSH) registered doctor No work with pesticides for confirmed pregnant and breast-feeding women. No work with pesticides for confirmed pregnant and breast-feeding women.

27 GP 7003A Page 27 of 77 Based on the employment record, the auditing team observed that there are several women employed either for handling the pesticides in the store room or practicing pesticides spraying in the field. Nevertheless, their monthly medical surveillances confirmed that none of them are pregnant or breast-feeding women Documentary evidence that use of chemicals categorised as World Health Organisation Type 1A or 1B, or listed by the Stockholm or Rotterdam Conventions and paraquat, is reduced and/or eliminated. Adoption of suitable economic alternative to paraquat as suggested by the EB pending outcome of the RSPO study on IWM. Documentary evidence that use of chemicals categorised as World Health Organisation Type 1A or 1B, or listed by the Stockholm or Rotterdam Conventions and paraquat, is reduced and/or eliminated is available. All estates visited has implementing zero paraquat policy and no longer using paraquat in their spraying activity following the memo from the top management ceasing the usage of such chemicals in IOI plantations. All chemicals that have been used are registered chemicals and approved by the relevant local authority Documented justification of any aerial application of agrochemicals. No aerial spraying unless approved by relevant authorities. MA Findings: No evidence of aerial spraying. No aerial spraying application observed in the operation area for all estates visited Evidence of chemical residues in CPO testing, as requested and conducted by the buyers. MA Findings: No evidence of chemicals residues in CPO testing, as requested and conducted by the buyers. No buyers have requested for testing hence there is no evidence Records of pesticide use (including active ingredients used, area treated, amount applied per ha and number of applications) are maintained for either a minimum of 5 years or starting November Records of pesticide use (including active ingredients used, area treated, amount applied per ha and number of applications) are maintained. Monitoring of pesticides usage for units per hectare or per ton crop is recorded in the Summary of Pesticides Usage per Hectare per Ton FFB Production. Data is recorded based on the type of pesticides used and recorded on a monthly basis. Observed during the audit the records for year 2007 to 2012 are available.

28 GP 7003A Page 28 of 77 Criterion 4.7 An occupational health and safety plan is documented, effectively communicated and implemented Evidence of documented Occupational Safety Health (OSH) plan which is in compliance with OSH Act 1994 and Factory and Machinery Act 1967(Act 139). Inadequate implementation of the Occupational Safety and Health (OSH) Plan in compliance with the OSH Act 1994 and Factories and Machinery Act 1967 (Act 139). Safety and Health Plan for 2012 is available covering the following activities: OSHA and regulations Emergency Response Plan Inspection Performance and Monitoring Vehicle Maintenance Annual Training Programme In compliance with Occupational Safety and Health Act, 1994, a Safety and Health Committee has been established both at the individual estates and palm oil mill level. All Safety and Health Committee are chaired by the estate and the mill manager. The appointment letter for all members of Safety and Health Committee Meeting is also available covering both workers and employers representatives. Based on records, the Safety and Health Committee Meeting has been conducted at a quarterly basis as required by the Occupational Safety and Health Act, Records of meeting encompassing the dates of the Meeting and the Minutes of the Meeting held are maintained. As of 2012, the following evidence captured for the visited estate and mill: Leepang 5 Meeting held twice i.e. on 29 February and 25 May; and Palm Oil Mill - Meeting held thrice i.e. on 18 January, 13 April and 13 July Furthermore, Safety and Health Office together with one assistant are appointed at the regional level i.e. at Sabah State. Nevertheless, to further synchronize the implementation of safety and health aspects of the Leepang Production Unit, IOI Leepang has appointed the Safety and Health Coordinator at estates and palm oil mill level that are appointed among the assistant managers. Training are found to be given by the Safety and Health Officer to the Safety and Health Coordinators during the Meeting with the Secretary of the Safety and Health Committee on 13 Jan The record of such training in the form of Minutes of the Meeting is kept and made available to the auditor during the Main Assessment. First Aid Kit and Fire Extinguisher equipment is available at the easily access location with clear and adequate sign in place as well as being carried together with mandore to the field. Inspection to the first aid item within the first aid kit evidenced that the item is adequate and in good, clean condition with sufficient emergency contact number to be contacted should there is emergency case occur. However, verification at one of first aid kit in Leepang 5 Estate found that there is no emergency telephone number available in the kit. In addition, the auditing team note that no first aid kit available with mandore at Block 93A in Morisem 5 Estate during interview. In addition, the Hazard Identification, Risk Assessment and Risk Control (HIRARC) as well as Chemical Health Risk Assessment (CHRA) are conducted covering all operations and elements found within the production unit. Both assessments are found to be reviewed annually. However, inspection at the HIRARC evidenced that there is inadequate

29 GP 7003A Page 29 of 77 preventive and protective measures (mitigation) for high risk activities to ensure reducing Lost Time Accident (LTA) rate. In addition, the CHRA found not to include apron as one of the element to be assessed for works handling with chemicals in particular pesticides. The auditing team also verified and inspects the Emergency Response Procedure established within the production unit. Nevertheless the auditing team note that the Emergency Response Procedure is not updated as there are several information that is deemed obsolete yet still included in the procedure. The company is in compliance to this requirement: N ( CAR 06) Records should be kept of all accidents and periodically reviewed at quarterly intervals. MA Findings: Records of all accidents are kept and periodically reviewed at quarterly intervals. Records of accidents are kept within the Accident Investigation Report. All accident occurs and reported is discussed and reviewed during the Occupational Safety and Health Meeting. Any outcome towards the mitigation and preventive measures to avoid the same incidence and accident occur is kept in the minutes of the meeting. The auditing team also note that there is evidence on the use of JKKP 8 that is reviewed and submitted to DOSH on a yearly basis. Latest submission of the form is on 26 January As for the mill, JKKP 8 also is used and latest submission was on 16 Jan Workers should be covered by accident insurance. Workers are adequately covered with accident insurance. All workers are adequately covered with insurance. For local workers, they are covered under Social Security Organization (SOCSO) and Employees Provident Fund (EPF) while for foreign they are covered under group insurance. There is also evidence of sampled insurance policy for foreign workers available that are as follows: Estate/Mill Policy No. Permodalan 3 FW covering Oct 2011 to Sept 2012 D09WFWC KL Oct 2011 to Sept 2012 Leepang POM FW covering Oct 2011 to Sept 2012 D09WFWC KL Oct 2011 to Sept 2012 Criterion All staff, workers, smallholders and contractors are appropriately trained A training programme (appropriate to the scale of the organization) that includes regular assessment of training needs and documentation, including records of training for employees are kept. Insufficient training conducted covering safety and health as well as chemical handling.

30 GP 7003A Page 30 of 77 Training plan is available in the Occupational safety and Health (OSH) Plan. Training records kept for 2012 that are shown to the auditors for the visited estates and palm oil mill are as follows: Training Details Trainer Date No. Of Participants Handling hazardous chemicals Chemical Safety Data Sheet Spraying Fertilizer application Health Training (Introduction and Control of Penyakit Berjangkit) Notification of Accidents, Dangerous Occurrence, Occupational Poisoning and Occupational Diseases (NADOPOD) Sexual Harassment Training Material Safety Data Sheet and and Chemical Safety Data Sheet PPE OSH Officer 17 July OSH Officer 17 Jul Assistant manager Assistant manager Safety Officer from Health Office in Kinabatangan 6 Jul workers 7 jul workers 24 Feb (including participants from other estates) OSH officer 11 Jan Estate Manager 27 July Asistant Estate Manager Safety officer and Manager 23 July 12 5 July 40 First Aid Kit Estate Dresser 28 June 40 mandore is also attend the training Safe working conditions and continuous maintenance procedure for operating machine Role of OSH Committee First Aid Kit Training Safe Operating Procedure for Loading Ramp Mill and Training Supervisor 20 July 13 OSH Officer 13 July 13 Medical Assistant from Leepang 1 Cadet Engineer and Supervisor 11 July May 5

31 GP 7003A Page 31 of 77 Station Although IOI Leepang has conducted numerous trainings relating to estate and mill management, interview during the field audit with several mandores evidenced that a few mandores are found to be not attending the first aid kit handling training. Interview also conducted with Estate Hospital Assistants and found that the Estate Hospital Assistant are not train on the chemical use and related laws as per required by the RSPO requirements. The company is in compliance to this requirement: N ( CAR 07) Principle 5 : ENVIRONMENTAL RESPONSIBILITY AND CONSERVATION OF NATURAL RESOURCES AND BIODIVERSITY Criterion Aspects of plantation and mill management, including replanting, that have environmental 5.1 impacts are identified, and plans to mitigate the negative impacts and promote the positive ones are made, implemented and monitored, to demonstrate continuous improvement Documented aspects and impacts risk assessment that is periodically reviewed and updated. MA Findings: Inadequate documented aspects and impacts risk assessment that is periodically reviewed and updated. The Environmental Impact Assessment and Management Action Plans for each estate is available covering period of June 2012 until May The document dated 20 th June 2012 provides a list of aspects and impacts, given as a list of contents, for which a response is planned. In addition, the identification of aspect and impacts is evident within the document and there are adequate guidelines described within the document for reviewing the gaps identified. However, the auditing team note that the document does not includes stakeholder consultation as part of their assessment process. The company is in compliance to this requirement: N ( CAR 08) Environmental improvement plan to mitigate the negative impacts and promote the positive ones, is developed, implemented and monitored. Criterion 5.2 MA Findings: Evidence of environmental improvement plan to mitigate the negative impacts and promote the positive ones, is developed, implemented and monitored. Environmental Impact Assessment (EIA) is available covering period of June 2012 until May The document dated 20 th June 2012 is subjected to annual review for continuous improvement. The status of rare, threatened or endangered species (ERTs) and highly conservation value habitats, if any, that exist in the plantation or that could be affected by plantation or mill management, shall be identified and their conservation taken into account in management plans and operations Identification and assessment of HCV habitats and protected areas within land holdings; and attempt assessments of HCV habitats and protected areas surrounding landholdings. MA Findings: Inadequate identification and assessment of HCV habitats and protected areas within land holdings; and attempt assessments of HCV habitats and protected areas surrounding landholdings.

32 GP 7003A Page 32 of 77 HCV assessment on the plantation has been conducted where report for each estate is available. However, the identification and assessment of HCV habitats and protected areas within and surrounding landholding did not include potential ERTs. The company is in compliance to this requirement: N ( CAR 09) Management plan for HCV habitats (including ERTs) and their conservation. Management plan for HCV habitats (including ERTs) and their conservation inadequately implemented. Management plan for identified HCV habitat has been viewed and evidence shown that there has been consultation with stakeholders. Management plan for identified HCV habitat has been developed that includes specific and time bound planning actions supported by budget allocation. However, based on the records of stakeholder consultation conducted, the auditor note that local communities in particular orang sungai and experts are not consulted during identification and assessment of HCVs. The company is in compliance to this requirement: N ( CAR 10) Evidence of a commitment to discourage any illegal or inappropriate hunting, fishing or collecting activities, and developing responsible measures to resolve human-wildlife conflicts. Lack of commitment to discourage any illegal or inappropriate hunting, fishing or collecting activities, and developing responsible measures to resolve human-wildlife conflicts. No proper signage allocated for all identified HCVs within the HCV assessment document. The company is in compliance to this requirement: N ( CAR 11) Criterion 5.3 Waste is reduced, recycled, re-used and disposed of in an environmentally and socially responsible manner Documented identification of all waste products and sources of pollution. Evidence of documented identification of all waste products and sources of pollution. The pollution prevention plan is available within the EIA document. The plan contains the identification of the pollutions, the environmental impact of the pollution, the improvement (action) plan, documents that need to be reviewed and management review comments. As of the date of the audit, the following pollution source has been identified as follows: Empty Fruit Bunch (EFB) (mill waste product) Boiler ash (mill waste product after burning fibre and shell and Disposal of spent oil / lubricants and empty chemical containers Diesel/fossil fuel used Office/domestic waste Pesticides derived from pesticides store and pesticides pre-mixing area Scrap metal and used tyre

33 GP 7003A Page 33 of Having identified wastes and pollutants, an operational plan should be developed and implemented, to avoid or reduce pollution. MA Findings: Inadequate implementation of operational plan to avoid or reduce pollution. Operational plan have been developed but not implemented adequately to avoid or reduce pollutions, for example; operational plan for domestic waste is not properly implemented to reduced, recycled, re-used and disposed off in an environmentally and socially responsible manner. Scheduled waste, recyclable material and chemical containers found in the landfills in all visited estates. The company is in compliance to this requirement: N ( CAR 12) Evidence that crop residues / biomass are recycled (Cross ref. C4.2). Adequate evidence that crop residues / biomass are recycled. Standard Operating Procedures (StOP) for Empty Fruit Bunch (EFB) application is available dated Sept The StOP specify procedures for applying the EFB as follows: Assistant manager to brief the EFB team daily on the methods, rate of application and safety issues prior to manuring. For immature palm (1-2 years) field apply single layer of 2 concentric rings. The distance of about cm from palm bole should not be applied with EFB. The initial fertilizer application should be in this particular area without EFB. In young mature palm (3-6 years) field area apply EFB about kg per palm. Apply single layer of EFB on either sides of the palm without canopy drip and each side will receive kg of EFB. The EFB application should not hinder the plantations operations like harvesting and crop evaluation. In mature palm (>7 years) apply single layer of EFB at the rate of 1 tonne of EFB for every 4 palms along he inter row near to frond stacks. All supplementary fertilisers are applied in accordance to StOP for Fertilizer application for Immature and Mature Palms, Index No There is evidence of EFB application captured in EFB application/efb Mulching record that is recorded on a monthly basis covering the following details: Items recorded date; Time; Ticket no from mill; Field no; and Quantity of EFB (in metric tonne) applied.

34 GP 7003A Page 34 of 77 Field evidence shows that the crop residues were returned to field. E.g. pruned fronds are piled well in inter-rows and subsequently returned to soil. Biomass like EFB, shell and fibre are used as renewal energy for the refinery and oil mills. Palm Oil Mill Effluent (POME) is processed at the mill and treated before being transferred to land application. Prior to the application, the POME is sampled, tasted and recorded on a monthly basis. The test is conducted according to the parameter such as ph, Total Suspended Soils (TSS), Ammonium Nitrogen (AN), Total Nitrogen (TN), BOD, Oil and Grease, COD, Total Solids (TS) and Water Temperature. Latest report for June 2012 is available and found that all parameter level for final discharge are complied with the standard limits stipulated under the Environmental Quality (Prescribed Premises) (Palm Oil Mill) Regulations, Criterion Efficiency of energy use and use of renewable energy is maximized Monitoring of renewable energy use per tonne of CPO or palm product in the mill. Renewable energy use per tonne of CPO or palm product in the mill is monitored. Leepang Palm Oil Mill has recorded the actual weight of FFB and fibers used for boiler. Trend of the renewable fuel input against the energy produced for every metric tonne FFB processed recorded on a monthly basis is available. Based on records average energy derived from fibre and shell produced for every metric tonne FFB processed is 29.51Kwh/mt Monitoring of direct fossil fuel use per tonne of CPO or kw per tonne palm product in the mill (or FFB where the grower has no mill). MA Findings: Evidence of monitoring of direct fossil fuel use per tonne of CPO or kw per tonne palm product in the mill. Records of usage of fossil fuel are available and compared to the volume of the FFB processed. For the financial year , the average consumption for every metric tonne FFB processed is 1.82lit/mt FFB while for financial , total consumption is 2.11 lit/mt FFB. Criterion 5.5 Use of fire for waste disposal and for preparing land for replanting is avoided except in specific situations, as identified in the ASEAN Guidance or other regional best practice No evidence of open burning. Where controlled burning occurs, it is as prescribed by the Environmental Quality (Declared Activities) (Open Burning) Order No evidence of open burning. Observation during the field visit showed no evidence of open burning on site Previous crop should be felled/mowed down, chipped/shredded, windrowed or pulverized/ ploughed and mulched.

35 GP 7003A Page 35 of 77 MA Findings: Previous crops are felled/mowed down, chipped/shredded and windrowed. Refer indicator In general, all felled trunks are chipped and windrowed and placed along rows No evidence of burning waste (including domestic waste). There is no evidence of burning of domestic waste at the line site Visit to estates line site confirmed no evidence of burning of domestic waste. Criterion 5.6 Plans to reduce pollution and emissions, including greenhouse gases, are developed, implemented and monitored Documented plans to mitigate all polluting activities (Cross ref to C5.1). Inadequate implementation of documented plans to mitigate all polluting activities. The pollution prevention plan is available within the EIA document. The plan contains the identification of the pollutions, the environmental impact of the pollution, the improvement (action) plan, documents that need to be reviewed and management review comments. Implementation wise, the auditing team note that that wastewater analysis done (weekly) and submitted on a monthly basis. These include stack sampling (2 x per year) as well as ambient air monitoring (4 x per year). There is also evidence of legal compliance for FD: BOD < 5,000ppm. It is evidenced that for 2010 and 2011 the BOD recorded was < 150ppm. Nevertheless, the auditor note that there is evidence of excessive EFB mulching applied at palm near to the road side in Permodalan 3 Estate resulting in possible significant GHG (methane) releases. The company is in compliance to this requirement: Observation Plans are reviewed annually. Evidence of plans are reviewed annually The above mentioned EIA document is subjected to be reviewed annually and is due for review in June This will be verified during the next surveillance audit Monitor and reduce peat subsidence rate through water table management. (Within ranges specified in C 4.3). MA Findings: Lack of monitoring and reducing peat subsidence rate through water table management. There is evidence of peat soil within the estate (Morisem 5 Estate) in the Fertilizer

36 GP 7003A Page 36 of 77 Recommendation Reports for January 2012 to December 2012 from the Agronomist of IOI. However, there is no soil map available to locate the peat area in the estate. In addition there is also no water management table to monitor the peat subsidence rate. ( CAR 13) The company is in compliance to this requirement: N ( CAR 13) PRINCIPLE 6: RESPONSIBLE CONSIDERATION OF EMPLOYEES AND OF INDIVIDUALS AND COMMUNITIES BY GROWERS AND MILLERS Criterion 6.1 Aspects of plantation and mill management, including replanting, that have social impacts are identified in a participatory way, and plans to mitigate the negative impacts and promote the positive ones are made, implemented and monitored, to demonstrate continuous improvement A documented social impact assessment including records of meetings. Evidence of documented social impact assessment including records of meetings. Social Impact Assessment (SIA) also is available covering the period of June 2012 till May 2017 and dated June 2012 that is done with the participation of identified stakeholders. Records of all meetings available. The SIA is viewed as an active impact assessment document where a reasonable amount of consideration has been given to mitigate social impacts for employees and communities affected by the plantations and mill. The SIA has a social action plan which seeks to resolve social issues adequately, in terms of clearly outlining the responsibilities for mitigation and monitoring. Maps delineating locations of stakeholders and social economic profiling is also provided. IOI Leepang is seen to engage with identified stakeholders in a participatory manner Evidence that the assessment has been done with the participation of affected parties. MA Findings: Inadequate evidence that the assessment has been done with the participation of affected parties. The Social Impact Assessment (SIA) for each of the estates is available and done with the participation of identified stakeholders. Records of all meetings available. However, the auditing team note that the demographic background for capturing data within the SIA do not consider other age groups such as children and old people. The company is in compliance to this requirement: N ( CAR 14) A timetable with responsibilities for mitigation and monitoring is reviewed and updated as necessary. MA Findings: Lack of a timetable with responsibilities for mitigation and monitoring is reviewed and updated as necessary. The Social Impact Assessment (SIA) for each of the estates is available and done with the participation of identified stakeholders. The SIA has a social action plan which seeks to resolve social issues adequately, in terms of clearly outlining the responsibilities for mitigation and monitoring. However, the auditing team note that the mitigation measures in the form of action plan is not reliable to ensure the implementation of the SIA.

37 GP 7003A Page 37 of 77 The company is in compliance to this requirement: N ( CAR 15) Criterion 6.2 There are open and transparent methods for communication and consultation between growers and/or millers, local communities and other affected or interested parties Documented consultation and communication procedures. Evidence of documented consultation and communication procedures. The consultation and communication procedure is integrated in Social Impact Assessment (SIA). The procedures describes the procedures and mechanism to be taken should any stakeholders being the external or internal wish to communicate with the company on any issues concerning their interest. Example of communications procedures viewed are as follows: i) Grievance reporting flowchart ii) Stakeholder request procedure (corporate and estate level) iii) Grievance procedure for land owner issues A nominated plantation management official at the operating unit responsible for these issues. MA Findings: A plantation management official at the operation unit is nominated to handle these issues. Social Liaison Officer is appointed at mill. Appointment letter is also available highlighting the role and responsibilities of the officer on matters relating to the social needs and well being of stakeholders as follows: Welfare and social needs of stakeholders (i.e. workers, suppliers, smallholders Kampong etc directly related to estate). Periodic visits to linesite and social amenities to ensure that buildings are in good order (through Hospital Assistant). Periodic visits to neighbouring stakeholders on a reactive manner to ensure that social issues are being taken care of (to have consultation to ensure that communication chain is available and maintained). Identification of social issues affecting stakeholders and neighbouring communities and to decide upon mitigation plans to solve social issues after consultation with the manager. Maintenance and monitoring of grievance issues and facilitate feedback mechanism to ensure that a line of communication is available. Monitoring of crèche and day-care centre to ensure that children are being well taken care of and adequately educated. To stakeholder s requests and ensure that requests are followed up with a response. Grievance issues (encompassing social, work, repairs, etc.) and ensuring that proper follow up is conducted (this is to be documented). Safety and health aspect of linesite / estate / workers etc. Other social issues arising / ad hoc social issues (this is situation dependent) Maintenance of a list of stakeholders, records of all communication and records of actions taken in response to input from stakeholders.

38 GP 7003A Page 38 of 77 MA Findings: List of stakeholders, records of all communication and records of action taken in response to input from stakeholders are available. A comprehensive list of stakeholders is available, listing all government agencies, nongovernmental organizations, village representatives and employees. Records of communication with stakeholders and actions taken are maintained and made available. Criterion 6.3 There is a mutually agreed and documented system for dealing with complaints and grievances, which is implemented and accepted by all parties Documentation of the process by which a dispute was resolved and the outcome. Availability of documentation of the process by which a dispute was resolved and the outcome. All records of complaints and grievances external and internal are kept within the Grievance/Request Record Book. As of the date of the Main Assessment, there are no complaints received from outsiders and workers. To address all the grievances and complaints raised by the relevant interested stakeholders, IOI Leepang has established the procedures to resolve the grievance raised in the form of flow chart that is formulated in both English and Malay language and is found to be posted on the company s notice board. In addition, the company also established the procedures to resolve the grievances involving land issues. Among others, the mechanism highlights the way of resolving the grievances through the following steps: Direct Negotiation; Arbitration if Direct Negotiation is not able to solve the grievance; Native Court if Arbitration is not able to solve the grievance; and Civil Court as the ultimate platform if Native Court is not able to solve the grievance. The company also establishes the procedures for dealing with sexual harassment involving its workers by internal or external peoples The system resolves disputes in an effective, timely and appropriate manner. The system resolves disputes in an effective, timely and appropriate manner. Grievance/Request Record Book are viewed and all request and grievances are recorded on a case by case basis stating the details of the complainant, the date as well as the action taken following the complaints raised. The auditing team observed that generally the follow-up action has been taken within 5 working days from the day the complaints received The system is open to any affected parties.

39 GP 7003A Page 39 of 77 Criterion 6.4 The system is open to any affected parties. The system for dealing with complaints and grievances is open to all affected parties and interviews with workers and stakeholders indicate that no discrimination has taken place. The system is open to any affected parties through: i. Employees Consultative Committee (ECC). ii. Gender representation (at least a designated gender representative). iii. Designated grievance book which is endorsed by the complainants when action has been taken to resolve a grievance. Any negotiations concerning compensation for loss of legal or customary rights are dealt with through a documented system that enables indigenous peoples, local communities and other stakeholders to express their views through their own representative institutions Establishment of a procedure for identifying legal and customary rights and a procedure for identifying people entitled to compensation. MA Findings: Procedures for identifying legal and customary rights and people entitled to compensation are established. As stated in Indicator 6.3.1, IOI Leepang has established the procedures to resolve the grievance raised in the form of flow chart that is formulated in both English and Malay language and is found to be posted on the company s notice board. In addition, the company also established the procedures to resolve the grievances involving land issues. Among others, the mechanism highlights the way of resolving the grievances through the following steps: Direct Negotiation; Arbitration if Direct Negotiation is not able to solve the grievance; Native Court if Arbitration is not able to solve the grievance; and Civil Court as the ultimate platform if Native Court is not able to solve the grievance A procedure for calculating and distributing fair compensation (monetary or otherwise) is established and implemented. This takes into account gender differences in the power to claim rights, ownership and access to land; and longestablished communities; differences in ethnic groups proof of legal versus communal ownership of land. A procedure for calculating and distributing fair compensation (monetary or otherwise) is established and implemented. IOI Leepang has a procedure in place for calculating and distributing fair compensation. That can be divided into two sections as follows: a. The procedures for compensation involving workers:- - In general, this procedures deal with the procedures for retrenchment benefits for workers that is formulated based in the national industrial standard, National Union of Plantation Workers (NUPW) and Leepang agreement. b. The procedures for compensation involving land owners:- - This procedures for dealing on any issues relating to land and native customary rights that is formulated step wise from the receipt of the grievance from the land

40 GP 7003A Page 40 of 77 owner The process and outcome of any compensation claims is documented and made publicly available. MA Findings: There is no incidence of compensation claims occur. No incidences of compensation of claims occur. Criterion 6.5 Pay and conditions for employees and for employees of contractors always meet at least legal or industry minimum standards and are sufficient to provide decent living wages Documentation of pay and conditions. Documentation of pay and conditions is available. The documentation of pay and conditions is verified and found to be adequate. The documentation covers the following: a) salary in the form of pay slips and payment records for contract workers and company workers detailing the basic pay, deductions, overtime, bonuses, allowance etc; b) documentation of legalisation of migrant workers; and c) employment agreement is drawn up for foreign workers at all estates and the mill, outlining their pay and conditions Labour laws, union agreements or direct contracts of employment detailing payments and conditions of employment (e.g. working hours, deductions, overtime, sickness, holiday entitlement, maternity leave, reasons for dismissal, period of notice, etc) are available in the language understood by the workers or explained carefully to them by a plantation management official in the operating unit. Labour laws, union agreements or direct contracts of employment detailing payments and conditions of employment are available in the language understood by the workers but not explained carefully to them by a plantation management official in the operating unit. Employment contract for foreign workers available. There are terms of reference for signed contracts between employers and employees stipulating the position, working hours, type of work, location of work, workers responsibility, wages, allowances, holidays, rest days, annual leave, fringe benefits, levy deductions (for foreign workers), dismissal, etc. The appointment letter of staff contain the following elements: Job description Work location Salary Increment and bonus Duration of employment Public holidays (12 days per annum, including four (4) compulsory holidays, i.e. Labour Day, Agong s Birthday, National Day and State Governor s Birthday.

41 GP 7003A Page 41 of 77 Annual leave Medical benefit, i.e. free medical attention. Group insurance coverage Employees Provident Fund (EPF) Notice of Termination Transfers Other employment Confidentiality The offer letter (Surat Tawaran Kerja) for migrant workers contains the following: Job description Contract duration and hours Work location Employee responsibility Wage calculation (80% basic piece rate and 20% statutory benefits, i.e. public holiday, sick leave, sick pay, overtime, annual leave and rest days). Overtime Leave: public holidays, sick leave, hospitalisation, annual leave and rest days. All of the leave days are included in the salary and will be paid accordingly. Facilities: housing, transportation, medical treatment at estate clinic, insurance, Deduction of levy to the Malaysian Government Legal working age: years Termination of work permit Nevertheless, the auditing team note that There is no signature on behalf of the management unit found in the contracts agreement between the management and the workers at Permodalan 3 Estate. The company is in compliance to this requirement: N ( CAR 16) Growers and millers provide adequate housing, water supplies, medical, educational and welfare amenities in accordance with Workers Minimum Standard of Housing and Amenities Act 1990 (Act 446) or above, where no such public facilities are available or accessible (not applicable to smallholders). Criterion 6.6 Adequate housing, water supplies, medical, educational and welfare amenities provided to workers. Workers have access to clean water, segregated sanitary and bathing facilities and electricity. All employees are given adequate housing, medical, educational and welfare amenities and waste disposal facilities in accordance with Workers Minimum Standard of Housing and Amenities Act. Disposal of domestic solid wastes at the line site is conducted at least twice a week. The employer respects the right of all personnel to form and join trade unions of their choice and to bargain collectively. Where the right to freedom of association and collective bargaining are restricted under law, the employer facilitates parallel means of independent and free association and bargaining for all such personnel Documented minutes of meetings with main trade unions or workers representatives. MA Findings: Workers are not well represented in the meeting with main trade unions. Employees Consultative Committee (ECC) at POM has been established. Chaired by the

42 GP 7003A Page 42 of 77 manager of the mill and Social Liasion Officer has taken responsibility as the Secretary. Also there is a representative from workers that is nominated among the workers and submitted to the management. Also there is a representative representing the management of the company. All in all, the representative of the workers can be divided into Store/Press Station/Ramp, Mandore, Electrical/Workshop, Engine & Oil Room and Driver. An appointment letter for each of the representative is available highlighting the role and responsibilities as a member of the committee as follows: Attending the meeting at the allocated and designated time and venue; To represent the workers for securing the welfare and their needs; Assist to identify all problems and issues and to develop the mechanism to establish the communication chain between employee and employer; Assist in monitoring and maintaining the complaints record; and Assist in monitoring the line sites, crèche to ensure those areas is in good living condition both safety and health. There is only one meeting held so far since the establishment of the ECC. The meeting was held on 13 July 2012 attended by 20 members and chaired by the manager. Matters discussed cleanliness of the living quarters and complaints received with regard to the infrastructure at the line site. Although the ECC has been established, the auditing team note that the workers are not well represented as the appointment of workers representatives is not done in democratic manner among the workers rather than being appointed by the company s top management. The company is in compliance to this requirement: N ( CAR 17) A published statement in local languages recognizing freedom of association. Criterion 6.7 A published statement in local languages recognizing freedom of association is available. A valid freedom of association policy is available in all local languages including Tagalog and Indonesian language. The policy is found to be posted on the company s notice and information wall. Children are not employed or exploited. Work by children is acceptable on family farms, under adult supervision, and when not interfering with education programmes. Children are not exposed to hazardous working conditions Documented evidence that minimum age requirement is met. Inadequate documented evidence that minimum age requirement is met. Policy statement for no child labour dated 5 th November 2009 endorsed by the Group is available. The policy indicates that IOI Corporation adopted a policy of only workers above 18 years old is employed by the company. Employment records evidenced that employment age requirement is met. Ground observation during surveillance visit also does not show evidence to suggest employment of underage workers. Nevertheless, verification at several personal records of each employees sampled during the audit evidenced that the records are not supported with the proof of date of birth to

43 GP 7003A Page 43 of 77 ensure the minimum age requirement is met. The company is in compliance to this requirement: N ( CAR 18) Criterion 6.8 Any form of discrimination based on race, caste, national origin, religion, disability, gender, sexual orientation, union membership, political affiliation, or age, is prohibited A publicly available equal opportunities policy. A publicly available equal opportunities policy is available. There is a publicly available equal opportunities policy which states that the company is an equal opportunity employer, whereby the company does not practice discrimination based on race, caste, national, origin, disability, gender, sexual orientation, union membership, political affiliation, or age Evidence that employees and groups including migrant workers have not been discriminated against. MA Findings: Evidence that employees and groups including migrant workers have not been discriminated against. There is no evidence of discrimination when a cross section of employees was interviewed. A functioning grievance mechanism is in place. The ECC also looks into allegation of discrimination if reported. Criterion 6.9 A policy to prevent sexual harassment and all other forms of violence against women and to protect their reproductive rights is developed and applied A policy on sexual harassment and violence and records of implementation. A policy on sexual harassment and violence and records of implementation is available. A policy on sexual harassment exists. The policy was also written in the Malay language and displayed on the notice boards. No evidence or practices that contradict this policy were observed. Discussion with female staff shows that the company provide fair and just treatment to women A specific grievance mechanism is established. A specific grievance mechanism is established. A mechanism for recording harassment is also available. No evidence or practices that contradict this policy were observed. Discussion with the workers shows that the company provide fair and just treatment to women. Grievance mechanism for sexual harassment is in place. A documented sexual harassment grievance mechanism exists. A Gender Representative appointed for each estate and mill, whose duties include

44 GP 7003A Page 44 of 77 attending to grievances pertaining to gender issues, especially sexual harassment. The Gender Representative is also in-charge of communicating the Policy on the Prevention and Eradication of Sexual Harassment in the Workplace to the workers and staff. Criterion 6.10 Growers and mills deal fairly and transparently with smallholders and other local businesses Pricing mechanisms for FFB and inputs/services shall be documented. Leepang oil mill is not sourcing FFB from outside suppliers including smallholders. All contractual agreements are legal and appear to be fair and transparent. Interviews with suppliers and contractors at the estates reveal that all payments are made in a timely manner. Not applicable as Leepang oil mill is not sourcing FFB from outside suppliers including smallholders. All contractual agreements are legal and appear to be fair and transparent. Interviews with suppliers and contractors at the estates reveal that all payments are made in a timely manner Current and past prices paid for FFB shall be publicly available. Leepang oil mill is not sourcing FFB from outside suppliers including smallholders. All contractual agreements are legal and appear to be fair and transparent. Interviews with suppliers and contractors at the estates reveal that all payments are made in a timely manner. Not applicable as Leepang oil mill is not sourcing FFB from outside suppliers including smallholders. All contractual agreements are legal and appear to be fair and transparent. Interviews with suppliers and contractors at the estates reveal that all payments are made in a timely manner Evidence that all parties understand the contractual agreements they enter into, and that contracts are fair, legal and transparent. MA Findings: Leepang oil mill is not sourcing FFB from outside suppliers including smallholders. All contractual agreements are legal and appear to be fair and transparent. Interviews with suppliers and contractors at the estates reveal that all payments are made in a timely manner. Not applicable as Leepang oil mill is not sourcing FFB from outside suppliers including smallholders. All contractual agreements are legal and appear to be fair and transparent. Interviews with suppliers and contractors at the estates reveal that all payments are made in a timely manner Agreed payments shall be made in a timely manner.

45 GP 7003A Page 45 of 77 MA Findings: Leepang oil mill is not sourcing FFB from outside suppliers including smallholders. All contractual agreements are legal and appear to be fair and transparent. Interviews with suppliers and contractors at the estates reveal that all payments are made in a timely manner. Not applicable as Leepang oil mill is not sourcing FFB from outside suppliers including smallholders. All contractual agreements are legal and appear to be fair and transparent. Interviews with suppliers and contractors at the estates reveal that all payments are made in a timely manner. Criterion Growers and millers contribute to local sustainable development wherever appropriate Demonstrable contributions to local development that are based on the results of consultation with local communities. Evidence of demonstrable contributions to local development that are based on the results of consultation with local communities. The social impact assessment has included local communities and neighbouring stakeholders. A plan of action has been drawn out to contribute to local activities. The unit as a whole has donated money for local school activities. The individual estates and the mill have a very basic form of corporate social responsibility (CSR), which usually involves stakeholders, especially the local communities approaching them for donations on various occasions such as deaths, religious celebrations, for the upkeep and maintenance of schools, family day, sports day etc. Contribution to local community is an active exercise for IOI Leepang and records of contribution eg road upgrading, Transport for water supply during drought, school sport activities, security issues concerning workers etc are available at each estate. P7: RESPONSIBLE DEVELOPMENT OF NEW PLANTINGS This whole Principle is not applicable to this assessment as there are no new plantings. The company is only involved in re-planting programme after felling of old palms and there is no plan for expansion. P8: COMMITMENT TO CONTINOUS IMPROVEMENT IN KEY AREAS OF ACTIVITY Criterion 8.1 Growers and millers regularly monitor and review their activities and develop and implement action plans that allow demonstrable continuous improvement in key operations Minimise use of certain pesticides (C4.6). Evidence of commitment to minimise use of certain pesticides. IOI Leepang is taking effort to make continuous improvement in key areas of activity. There is evidence that effort has been made to minimise use of agrochemicals due to the introduction of biological control Environmental impacts (C5.1).

46 GP 7003A Page 46 of 77 MA Findings: Evidence of commitment to mitigate environmental impacts. A mechanism is in place for environmental management that indicates the specific section of documented environmental impacts for all aspects identified Maximizing recycling and minimizing waste or by-products generation. Commitment to Maximizing recycling and minimizing waste or by-products generation. There is documented programme in place that promotes maximising recycling and minimising waste or by-products generation in both estates and mill. The identification of waste and by-products generation is adequate Pollution prevention plans (C5.6). Pollution prevention plans. The pollution prevention plan is available within the EIA document. The plan contains the identification of the pollutions, the environmental impact of the pollution, the improvement (action) plan, documents that need to be reviewed and management review comments. Implementation wise, the auditing team note that that wastewater analysis done (weekly) and submitted on a monthly basis. These include stack sampling (2 x per year) as well as ambient air monitoring (4 x per year). There is also evidence of legal compliance for FD: BOD < 5,000ppm. It is evidenced that for 2010 and 2011 the BOD recorded was < 150ppm. However, items that could potentially cause pollution but which have been omitted from the list have not been planned for In time it is expected that the more obvious omissions will be identified, but unless gap identification is undertaken as a systematic review exercise, resultant damage to biological targets in downstream waterways as well as human targets in the estates and local communities could go un-noticed. The company is in compliance to this requirement: Refer observation Social impacts (C6.1). Commitment towards social impacts. The SIA for the mill as well as the four estates are available outlining the methodology approach of the document. All records of meetings, consultation takes place during the SIA is incorporated in the document. List of the stakeholders consulted are also available. There is evidence of action plan incorporated in the SIA. The action plan describes the plan for mitigate the impacts identified in the SIA as well as plan to monitor the impact A mechanism to capture the performance and expenditure in social and

47 GP 7003A Page 47 of 77 environmental aspects. A mechanism to capture the performance and expenditure in social and environmental aspects are available. General budget for Corporate Social Responsibility Programme (CSR) and Environmental Control Budget are available. 8. SUPPLY CHAIN Fresh Fruit Bunches (FFB) produced by the supply base estates are transported to and processed at the Leepang Palm Oil Mill which is located in the Sukau-Kinabatangan region, Lahad Datu, Sabah, Malaysia. The mill with a capacity of 40 metric tonne FFB per hour received and processed raw materials (FFB) from the supplying estates as described in this report. Although they receive also from their sister estates, eventually, plans have been made to stop receiving from IOI sister estates once Leepang Palm Oil Mill is certified. They will only receive FFB from certified IOI estates. Their scope will be: Purchase of FFB for the production and sales of CPO and Palm Kernel using the Segregation supply chain module D option Palm Oil Product Categories Approximate Annual Purchases ( 2011/2012) Purchased Fresh Fruit Bunch FFB from Supply Base Estates 255, FFB from other IOI supply Base Other non-ioi supplier 0 Total processed 256, CPO from Supply Base Estates 54, Crude Palm Oil CPO from other IOI supply Base Other non-ioi supplier 0 Total produced 54, Production Palm Kernel PK from Supply Base Estates 13, PK from other IOI supply Base 8.18 Other non-ioi supplier 0 Total produced 13, Module D CPO Mills: Segregation. Module D D.1: Documented Procedures

48 GP 7003A Page 48 of 77 D.1.1 The facility shall have written procedures and/or work instructions to ensure the implementation of all the elements specified in these requirements. This shall include at minimum the following: a) Complete and up to date procedures covering the implementation of all the elements in these requirements b) The name of the person having overall responsibility for and authority over the implementation of these requirements and compliance with all applicable requirements. This person shall be able to demonstrate awareness of the facilities procedures for the implementation of this standard. MAJOR Findings In compliance: Yes: No: x Objective evidence: D.1.2 No evidence of appointment of a person having overall responsibility for and authority over the implementation of SC requirements. No duties and responsibility has been established related to the implementation of RSPO SC system The facility shall have documented procedures for receiving and processing certified and non-certified FFBs. Findings In compliance: Yes: x No: Objective evidence: The facility will only receive form their own supply base. D.2: Purchasing and goods in D.2.1 The facility shall verify and document the volumes of certified and noncertified FFBs received. Findings In compliance: Yes: x No: Objective evidence: D.2.2 The facility will only receive form their own supply base. The facility shall inform the CB immediately if there is a projected overproduction. Findings In compliance: Yes: x No: Objective evidence: D.3: Record keeping D.3.1 The facility shall inform the CB immediately if there is a projected overproduction The facility shall maintain accurate, complete, up-to-date and accessible records and reports covering all aspects of these requirements. Findings In compliance: Yes: x No: Objective evidence: MAJOR MAJOR MAJOR MAJOR The facility maintains accurate, complete, up-to-date and accessible records and reports of its reception of raw material, processing as well as the despatch. D.3.2 Retention times for all records and reports shall be at least five (5) years. MAJOR Findings In compliance: Yes: No: x Objective evidence: The SC procedure did not state the list of records and report that need to be kept for 5 years. D.3.3 The facility shall record and balance all receipts of RSPO certified FFB and deliveries of RSPO certified CPO, PKO and palm kernel meal on a threemonthly basis. Findings In compliance: Yes: x No: Objective evidence: MAJOR A template was shown to show that the facility maintain accurate, complete, up-to-date and accessible records and reports of its reception of raw material, processing as well

49 GP 7003A Page 49 of 77 D.3.4 as the despatch on a three-monthly basis. The following trade names should be used and specified in relevant documents, e.g. purchase and sales contracts, e.g. *product name*/sg or Segregated. The supply chain model used should be clearly indicated. Findings In compliance: Yes: No: x Objective evidence: MAJOR The delivery procedure did not describe list of information required to be stated in the RSPO products delivery documents as required by the standard D.4: Sales and goods out D.4.1 The facility shall ensure that all sales invoices issued for RSPO certified products delivered include the following information: The name and address of the buyer; The date on which the invoice was issued; A description of the product, including the applicable supply chain model (Segregated) The quantity of the products delivered; Reference to related transport documentation Findings In compliance: Yes: No: x Objective evidence: MAJOR The delivery procedure did not describe list of information required to be stated in the RSPO products delivery documents as required by the standard. D.5: Processing D.5.1 The facility shall assure and verify through clear procedures and record keeping that the RSPO certified palm oil is kept segregated from noncertified material including during transport and storage and be able to demonstrate that is has taken all reasonable measures to ensure that contamination is avoided. The objective is for 100 % segregated material to be reached. The systems should guarantee the minimum standard of 95 % segregated physical material; up to 5 % contamination is allowed. MAJOR Findings In compliance: Yes: No: x Objective evidence: There is no procedures to ensure that the RSPO certified palm oil will be kept segregated from non certified material including during transport, storage and processing to ensure that contamination is avoided. D.5.2 The facility shall provide documented proof that the RSPO certified palm oil can be traced back to only certified segregated material. MAJOR Findings In compliance: Yes: x No: Objective evidence: D.5.3 The facility only purchase form their own supply base In cases where a mill outsources activities to an independent palm kernel crush, the crush still falls under the responsibility of the mill and does not need to be separately certified. The mill has to ensure that: The crush operator conforms to these requirements for segregation The crush is covered through a signed and enforceable agreement MAJOR

50 GP 7003A Page 50 of 77 Findings In compliance: Yes: x No: Objective evidence: No outsourcing done D.6: Training D.6.1 The facility shall provide the training for all staff as required to implement the requirements of the Supply Chain Certification Systems. MAJOR Findings In compliance: Yes: No: x Objective evidence: No training was provided to the related staff with regards to SC requirements D.7: Claims D.7.1 The facility shall only make claims regarding the use of or support of RSPO certified palm oil that are in compliance with the RSPO Rules for Communication and Claims. MAJOR Findings In compliance: Yes: X No: Objective evidence: No claims will be done by the facility. Claims will be done by the IOI Marketing Division 9. EVALUATION DECISION A revision was made after a review by RSPO and as the result, the Main Assessment resulted in the issuance of 09 CARs, 09 CARs and 4 Observations for the P&C. Following the RSPO review, IOI Leepang Production Unit comply with the recommendation by RSPO and submitted their Corrective Actions ( pictorial and documented ). After reviewing the submitted evidences by Leepang Production Unit, who is committed to close the CARs, SGS ( Malaysia ) Sdn Bhd is in the opinion that the evidences are sufficient to close the 09 CARs raised after the review. For the RSPO Supply Chain, the assessment has resulted in the issuance of 5 CARs. As per the Supply Chain requirement, the certification unit has submitted their Corrective Actions within the stipulated time frame. After reviewing, SGS is in the opinion, the evidences are sufficient to close the 5 Cars raised during the supply chain audit. Please refer to the Appendix A and B for the details of the findings and relevant correction actions has taken. With no CAR pending, the IOI Corporation Berhad s management of Leepang Production Unit consist of Leepang POM and its supply base estates in Lahad Datu, Sabah, Malaysia, is now recommended for the certification against the RSPO P&C MYNI requirements. The issues highlighted as CARs must be adequately addressed and the adequacy of the actions taken need to be verified during the first surveillance visit to be conducted within 12 months from the date of the approved assessment. 10. ACKNOWLEDGEMENT OF INTERNAL RESPONSIBILITY AND FORMAL SIGN-OFF OF ASSESSMENT FINDINGS

51 GP 7003A Page 51 of 77 It is acknowledged that the assessments cited in this report have been carried out as stipulated and we confirm the acceptance of the assessment report contents including assessment findings. Sign on behalf of: IOI Corporation Bhd Mr. Too Heng Liew Head of Sustainability (Malaysia/Indonesia) Dated : 25/4/13 APPENDIX A: CORRECTIVE ACTION REQUEST & OBSERVATION CAR # MYNI Indicator Date Recorded> Non-Conformance: 03/08/12 Due Date> CAR Detail Next Surveillance Date Closed> Inadequate evidence that boundary stones along the perimeter adjacent to state land and other reserves are being located and visibly maintained. Objective Evidence: Estate boundaries have been systematically marked in areas adjacent to other forms of land use (sensitive areas). IOI Leepang has a special mapping team with accurate GPS equipment for boundary verification. All visited estates have their boundary marked with boundary markers. However, the auditors note that one area bordering with Sg. Simpang Forest Reserve is not adequately marked with boundary markers. Close-out evidence: Date Recorded> Non-Conformance: 03/08/12 Due Date> Next Surveillance Date Closed> Inadequate of periodic tissue and soil sampling to monitor changes in nutrient status. Objective Evidence: