The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) Appraisal Environmental and Social Review Summary Appraisal Stage (ESRS Appraisal Stage) Public Disclosure Date Prepared/Updated: 06/10/2021 | Report No: ESRSA01537 Jun 10, 2021 Page 1 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) BASIC INFORMATION A. Basic Project Data Country Region Project ID Parent Project ID (if any) Mexico LATIN AMERICA AND P175940 CARIBBEAN Project Name STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT Practice Area (Lead) Financing Instrument Estimated Appraisal Date Estimated Board Date Agriculture and Food Investment Project 6/16/2021 9/14/2021 Financing Borrower(s) Implementing Agency(ies) Nacional Financiera S.N.C., Fideicomisos Instituidos en I.B.D. (NAFIN) Relación con la Agricultura (FIRA) Public Disclosure Proposed Development Objective Contribute to expanding access to finance for economic and climate resilience of targeted beneficiaries. Financing (in USD Million) Amount Total Project Cost 575.00 B. Is the project being prepared in a Situation of Urgent Need of Assistance or Capacity Constraints, as per Bank IPF Policy, para. 12? No C. Summary Description of Proposed Project [including overview of Country, Sectoral & Institutional Contexts and Relationship to CPF] The country has been experiencing supply and demand shocks to the economy, generating negative impacts on firms, employment, and households. Limited access to finance is a bottleneck for growth and poverty-reduction in the country. This shortcoming is even more pronounced in the poorer states of the country (in the south and central areas), and the rural finance gap remains large, including the traditional shortcomings in access to commercial credit, especially by micro, small and medium enterprises (MSMEs). Jun 10, 2021 Page 2 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) Rural agri-food systems development could provide an opportunity for addressing jobs and economic growth. Agriculture employs a significant share of the population (nearly 13 percent of total employment is in primary agriculture) and has maintained growth rates comparable to other sectors in recent years. Integrating adequate financial products and services into agri-food systems can also help improve the socio-economic conditions of small/medium food producers. The proposed Project aims to promote financial inclusion and the development of sustainable and climate-resilient agri-food systems by supporting the National Trusts for Agricultural Development (FIRA, for its acronym in Spanish), the implementing entity, to: (a) expand access to finance for productive purposes through a credit line intermediated by FIRA to Participating Financial Intermediaries (PFIs) for on-lending to Agro-industrial Enterprises (AEs; named by FIRA as “Parafinancieras”); and (b) improve the quality and availability of information and financial instruments for PFIs, AEs, and agricultural producers through the development of a new digital Agri-Tech Platform. The main direct beneficiaries of the Project will be FIRA; the PFIs; the AEs; and the rural production units (RPUs) working under commercial agreements with the AEs. The Project will be demand-driven and operate at a national level; however, priority will be given to the southern, southeastern, and western regions of Mexico. The proposed Project is aligned with the World Bank Group’s Mexico Country Partnership Framework (CPF) for FY2020-2025, which in turn supports Mexico’s National Development Plan (2019-2024). Among the three focus areas of engagement of the CPF, the Project is strongly consistent with two focal areas, including the first area, related to Public Disclosure supporting inclusive growth and its objectives to (i) foster financial inclusion, and (ii) reduce structural impediments to productivity growth. The Project is also consistent with the third focus area of the CPF of promoting inclusive and sustainable development and its objective to provide more inclusive and sustainable infrastructure services. D. Environmental and Social Overview D.1. Detailed project location(s) and salient physical characteristics relevant to the E&S assessment [geographic, environmental, social] The proposed Strengthening Agriculture and Food Systems by Promoting Access to Finance Project (AGROINCLUYE, for its acronym in Spanish) is a financial intermediation project through which FIRA will expand its second-tier lending operations to serve Agro-Industrial Enterprises (AEs) through private local Participating Financial Intermediaries (PFIs), both Bank Financial Intermediaries (BFIs) and Non-BFIs. FIRA will assume the credit risk of the PFIs, while the latter will take on their books the credit risk of the AEs. The actual activities will be demand-driven and not known until implementation. This section describes the overall agriculture context in Mexico. The Project will be implemented with PFIs, EAs and RPUs involved in the agriculture, livestock, fishing, forestry and agribusiness sectors. The Project implementation will depend on the demand for the funded credit line and operate at a national level. However, priority will be given to the southern, southeastern, and western regions of Mexico, with a focus on 16 states (Puebla, Oaxaca, Chiapas, Michoacán, Guanajuato, Mexico, Veracruz, Guerrero, Hidalgo, Jun 10, 2021 Page 3 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) Campeche, Tlaxcala, Queretaro, Tabasco, Yucatan, Morelos and Quintana Roo), where FIRA has identified potential for further developing the intervention model with EAs. This geographical region also faces high vulnerability to climate change. Further, several value chains have been pre-identified, including inter-alia coffee, dairy, wheat, maize, honey, cocoa, and horticulture. Climate change poses a significant threat to the production of these staple grains and high-value crops in Mexico. Agriculture in Mexico represents a substantial use of natural resources in the hands of millions of RPUs. Agricultural land represents 57.2 percent of the total land area (close to 112 million hectares of arable land), where there are about 5.4 million production units of different sizes, technical and managerial capacities, with different levels of association and diverse levels of integration with markets. The Project will prioritize AEs that work with producers in the categories: (a) E1: Family-run RPU without market penetration (below poverty food lines, US$27,816, as defined by the Mexican Council for Evaluation, CONEVAL in Spanish), representing about 22.4 percent of the RPUs in the country; (b) E2: Family-run RPU with some market penetration (about US$1,300 of annual income), representing about 50.6 percent of the total RPUs; (c) E3: RPUs in transition (about US$5,630 of annual income), representing 8.3 percent of the total; and (d) E4: Fragile Agri-business (about US$11,600 of annual income), representing 9.9 percent of the total RPUs. The structure and performance of the agriculture sector presents important variations among regions and states. In the north, agriculture is industrialized, commercial and export oriented. Land ownership is concentrated, and productivity of the sector is higher than in the south, expanding to off-farm activities such as packaging and agri-food processing. RPUs, both in the North and in the South, are affected by limited access to credit caused by asymmetry of Public Disclosure information in the credit market, lack of financial infrastructure, lack of financial culture/education, and the characteristics of production units (limited collateral, low productivity, variable quality, etc.). By the same token, Mexico’s formal financial sector is small, rural credit is underdeveloped, and access to credit for medium and small- scale RPUs is limited. Around 78.5 percent of the RPUs in the country have limited access to credit and are forced to rely on nontraditional and informal financial services. Interest rates for RPUs tend to be higher than rates paid by bigger businesses (in 2018, interest to small businesses was 13 percent). There are pronounced disparities in the grain- and cold-storage infrastructure in the central/southern states, versus the states located in the north of the country (where most of the modern storage facilities are located). Southern states not only lack storage capacity but also do not enjoy other technical and commercial/marketing facilities and capabilities to meet current market demands. In particular, this inhibits the participation in markets and integration in downstream value-chain activities by small RPUs and family units. Among other impediments, the limited cold-storage infrastructure in the south- southeastern states of Mexico leads to losses along the value chain; nearly 50 percent of perishable food products from these areas are transported without any cold-storage. Salient social characteristics of the Project include a high prevalence of gender and ethnic marginalization and social and economic exclusion of youth and women. While women represent 43 percent of the rural work force in Mexico, their empowerment in the sector is limited by women’s land rights particularly under communal and collective structures. This in turn limits women’s rights of participating and voting in decision making spaces, for example at "Asambleas Ejidales", as well as access to credit and training. Women’s role has become more important in recent years in many parts of the country as men have migrated out of rural areas and women have been left behind taking on additional responsibility for farming. In 2018, 65 percent of women between 18 and 70 years-old had access to at least one formal financial product in comparison to 72 percent of men. The prevalence of poverty and the limited Jun 10, 2021 Page 4 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) access to services are consistently greater among Indigenous Peoples, Afro-descendants, and other vulnerable populations, and indigenous and Afro-Mexican women are worst off in many categories of social outcomes. In 2018, at least one in every two people in the states of Chiapas, Guerrero, Oaxaca, Veracruz, Puebla, and Tabasco were living in poverty; in these states, a significant proportion of the poor is represented by Indigenous Peoples, Afro descendant, and population living in rural areas. According to the National Institute of Statistics and Geography in Mexico (INEGI, in Spanish), 12 million people (10.6 percent of the Mexican population) live in indigenous households in 2015, and 2.04 million people self-identify as Afro Mexicans in 2020. In 2016, 77.6 percent of the indigenous- language-speaking population was in poverty with 34.8 percent in extreme poverty. Among the population that does not speak an indigenous language, the proportions were 41.0 and 5.8 percent, respectively. Afro-descendants face similar challenges to IPs in terms of access to services. For instance, in the municipalities with more than 10-percent Afro-descendant population, 3.6-percent more children and youth in the age group from 6 to 14 years cannot read and write compared to the national average. In the same municipalities, illiterate Afro- descendant adults are three- times higher than the national total. Given the type of Project investments at the beneficiary level, their salient environmental and social (E&S) characteristics can be determined once the actual intervention sites are known. An Exclusion List has been prepared and will be applied to avoid any investment located in sensitive areas or otherwise with potentially high or substantial E&S risks or impacts. D. 2. Borrower’s Institutional Capacity Public Disclosure The Trust Funds for Rural Development (FIRA) will be the Project's implementing agency. It is a key public second-tier development bank, with the mission to promote the consolidation of an inclusive, sustainable, and productive agri- food and rural sector. Established in 1954 by Mexico's federal government, FIRA offers credit and guarantees, training, technical assistance, and technology-transfer support to the agriculture, livestock, fishing, forestry, and agribusiness sectors in Mexico. It has an extensive network of 131 offices throughout Mexico, more than 40 percent of which are based in communities with fewer than 50,000 residents. FIRA's field offices and headquarters include a staff of more than 1,000 agricultural and finance specialists with a deep knowledge of Mexico's farming conditions and producer capabilities. FIRA’s financial portfolio balance in 2019 totaled 212.86 billion pesos (approximately US$11 billion), which represented an increase of 5.9 percent over the balance in 2018, as a consequence of a total channeled credit flow of 318.4 billion pesos (US$16.4 billion); 10.7 percent higher than that recorded in 2018. Around 83 percent of FIRA´s funds disbursed were channeled through Banking Financial Institutions (BFIs), and the remaining 17 percent was dispersed through Non-bank Financial Institutions (NBFIs). In 2019, those funds covered loans to 1,776,000 credit recipients, of which 78 percent were women and 99.8 percent were MSMEs. FIRA’s total portfolio of sustainable development projects at the end of 2019 totaled an estimated US$450 million, representing 4.2 percent of its total loan portfolio/financing balance. FIRA’s sustainable projects are considered as such for their contribution to sustainable development and climate action in the agricultural sector (including forestry and fisheries) and fall under four categories: environmentally sustainable agriculture, renewable energy, efficient water resources management, and energy efficiency projects. In 2020, FIRA increased its entire portfolio balance to around US$11.3 billion and estimates it will reach about US$12.2 billion for 2021. Jun 10, 2021 Page 5 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) Lending through PFIs is a key mechanism to promote significant expansion of credit to the rural economy. PFIs include a range of institution types and sizes working as intermediaries borrowing from FIRA to expand financial services across the country. Lending through PFIs, in addition to deepening rural financial systems, allows for the creation of economies of scale and helps to strengthen PFIs’ capacities. This approach allows leveraging the distribution networks already built by other financial-service providers, which contributes not only to broaden FIRA’s beneficiary’s coverage (PFIs are able to economically serve smaller borrowers in distant locations), but also to support the sustainable long- term development of the private-finance supply chain in the rural sector. In 2019, FIRA carried out credit operations with 23 out of the 51 commercial banks that constitute the Mexican financial system, which facilitated its presence in all 32 states and 2,130 municipalities, proving support to a total of 1,259,375 producers. In addition to lending through PFIs, FIRA’s financial expansion has been expanding through the use of a network of private AEs, to develop new instruments and schemes to allow FIRA to expand its support to the agricultural sector and achieve its main mission and objectives. These AEs are legal entities that have a consolidated position in a value chain and that, based on their management capacity and negotiating power, can carry out activities that complement the functions offered by FIs. These AEs receive financing from PFIs using FIRA’s credit lines (banking and non-banking institutions) to: (i) provide technical support and input-supply to agricultural producers (final beneficiaries); (ii) purchase and aggregate the production from individual producers or their organizations (in most cases with some processing and value added); and (iii) marketing a greater volume of agri-food (generally in higher value-added market segments). This has been a response by FIRA to address some of the constraints faced by smaller agricultural- production units, by contributing to facilitate dissemination of market information, to assure supply of improved inputs, ensure transfer of technology, reduce risks and ensure access to markets, and increase productivity and profits Public Disclosure for individual producers. Until June 2020, FIRA has operated through 312 AEs, through which it had dispersed US$550.15 million. These AEs have provided support to approximately 18 percent of the 410,562 traditional producers served by FIRA in 2020, disbursing around 5 percent of the total operated by FIRA in the year. These dispersing agents provided support to different types of RPUs, mainly micro-businesses (about 12 percent of FIRA's total credit through AEs); family businesses (about 32 percent); small businesses (about 30 percent); and medium businesses (about 26 percent). For the Project, the AE is central to its theory of change. Some AEs that presented their work to the World Bank and FIRA teams during Project preparation include, among others, Cañeros Organizados Cenecistas de Pánuco, A.C., Exportadora de Café California S.A. de C.V., Nich Ixim Consejo de Mujeres Chontales, A.C., Munsa Molinos, S.A. de C.V., Unión Agrícola Regional de Productores de Maíz Amarillo, así como Otros Granos y Semillas del Estado de Chihuahua (UNIPRO). On the one hand, AEs themselves access financial resources through PFIs using FIRA’s credit lines (banking and non-banking institutions); on the other hand, FIRA’s scheme with AEs provides technical- support and input-supply to agricultural producers (final beneficiaries), purchasing and aggregating the production from individual producers or their organizations (in most cases with some processing and value added) and marketing a greater volume of agri-food (generally in higher value-added market segments). FIRA has a long record of pioneering work in promoting environmentally friendly projects and climate-resilient technologies in different sectors, particularly in greening of rural development. Its Sustainability Strategy has three pillars: doing no harm, doing good, and involving key stakeholders. It has committed with the Sustainability Protocol of the Association of Mexican Banks (ABM), the 10 principles of the United Nations' Global Compact, and is a member of Mexico's Green Finance Advisory Board (CCFV for its acronym in Spanish). Further, FIRA has issued two green Jun 10, 2021 Page 6 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) bonds to benefit small rural projects and executes various internationally financed sustainability programs. In October 2020, FIRA issued its first gender bond worth close to US$150 million to provide exclusive financing to women who require working capital and resources for productive infrastructure. The gender bond proved successful, and the second gender bond worth more than US$170 million was issued in late April 2021. Both gender bonds are supported by the Interamerican Development Bank (IDB) and the Ministry of Finance and Public Credit (SHCP). The Mexican law doesn't require public or private banks or IFs to have an Environmental and Social Management System (ESMS), and despite a strong overall interest in greening financing and any types of productive activities, there is a deep-rooted concern that all E&S management would rather imply additional cost and administrative burden than real value added for involved actors. Starting with a pilot phase in 2017, FIRA has established and operates an Environmental and Social Risk Management System ("Sistema de Administración de Riesgos Ambientales y Sociales, SARAS") to evaluate and mitigate E&S risks of big-size investments starting around US$10 million in line with the Equator Principles. It is operated mainly by FIRA's environmental team to develop Environmental and Social Management Plans. The SARAS has familiarized FIRA and some of its PFIs to evaluate and mitigate E&S risks. However, gaps remain, particularly as the SARAS is only applied to big-size investments and thus involves PFIs and clients with the capacity of managing and operating significant size credits. Mid- and small-size credits are not subject to E&S risk management beyond compliance with applicable national law and regulations. The Project will introduce FIRA to the World Bank’s Environmental and Social Framework (ESF), and the World Bank team has worked closely with a wide range of FIRA staff to (i) assess its baseline capacity, (ii) discuss the ESF requirements particularly under the Environmental and Social Standard (ESS) 9 on Intermediary Financiers, and (iii) Public Disclosure develop the Project-required ESMS and supporting E&S management instruments. II. SUMMARY OF ENVIRONMENTAL AND SOCIAL (ES) RISKS AND IMPACTS A. Environmental and Social Risk Classification (ESRC) Moderate Environmental Risk Rating Moderate The environmental risk rating for the Project remains Moderate at the Appraisal Stage. The Project will focus on expanding access to finance and improve the economic and climate resilience of targeted beneficiaries in selected areas. The eligible subloans will include working capital, acquisition of productive assets, and/or investment subprojects, which are expected to lead to diverse E&S benefits. While working capital is expected to be the most demanded type of subloan, the Project will aim to support environmentally sustainable, climate-smart and inclusive practices in rural production, improve competitiveness of beneficiaries, and overall conditions in productive areas, i.e. increased resilience, investments in infrastructure that are up to date on construction codes and resilient to natural disasters, and investments to reduce greenhouse gas (GHG) emissions. The eligible construction activities could lead to minor soil or water pollution and/or issues related with waste management or occupational or community health and safety, the latter applying also to operation stage and pest management issues. Such impacts would be site-specific and manageable through proper screening and assessment of the eligible and approved investments. The implied environmental risks and potential negative impacts of the expected Project activities are not considered significant or irreversible and can be addressed with straight-forward mitigation measures and good practices. The Project’s ESMS will include an Exclusion List to screen out any activity with the potential to generate Jun 10, 2021 Page 7 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) substantial or high risks/impacts, including from the primary production chain, such as environmentally harmful land use changes like deforestation, significant adverse impacts on any type of natural habitats or cultural resources, and uncontrolled or increased use of agrochemicals, and other impacts and risks as outlined in paragraphs 11, 14 and 16 of ESS9, further described under the relevant ESS below. In addition to the above, the environmental risk rating for the Project reflects FIRA's strengths in having a high-capacity environmental team that has led pioneering work on sustainable rural credit lines in Mexico and at the regional level. FIRA's baseline ESMS only applies to investments above US$10 million, but FIRA will adopt an ESMS for the Project by its Effectiveness, including the Exclusion List to screen out all high and substantial risk subloans. The World Bank team has collaborated closely with FIRA's environmental team and leading officials from relevant areas to implement a work plan to support FIRA to develop the ESMS and supporting instruments required by the ESF. The World Bank and FIRA are in the process of agreeing upon a proportionate, risk based and efficient ESMS for the Project to secure avoidance of negative impacts and facilitate generation of E&S value added through capacity building at different levels of financial intermediation. FIRA’s existing green credit lines with international financing and the SARAS (ESMS) have provided lessons learned to develop streamlined procedures for risk management with minimum burden on Project execution and limitation of demand for the subloans. FIRA will carry the main responsibilities of the ESMS implementation through an ex post approach, while the PFIs will be introduced to the ESMS and offered relevant capacity building, and they will need to provide inputs for FIRA’s related monitoring and reporting. Social Risk Rating Moderate The social risk rating for the Project remains Moderate at the Appraisal Stage. Based on the analysis of the eligible activities, the Project is not likely to cause significant risks or negative impacts on human populations. By working through FIRA, PFIs, and AEs, the Project activities aim to expand the financial resources available to RPUs located in Public Disclosure rural areas particularly in the southern, southeastern and western parts of Mexico. In those areas, there is a high concentration of vulnerable groups, including indigenous peoples (IPs) and women, without regular access to the traditional banking system and facing structural barriers in terms of access to productive resources. RPUs may be comprised of small producers and vulnerable groups, mainly women, IPs and Afro-Mexicans, to whom the Project can provide access to resources for productive livelihood activities. Furthermore, in the current context, support for the agriculture, livestock, fishing, forestry and agribusiness sectors by expanding credit availability to RPUs, is critical to boost the economic activity and facilitate social inclusion of rural and semi-urban populations in Mexico. Overall social impacts of the Project are positive, and a few social risks were identified: (i) local labor practices that might not align with the objectives and criteria of ESS2 on Labor and Working Conditions at the community or producer level. This is mainly related to child labor at the family level in rural areas, where cultural practices involve participation of youth and children in family-based productive activities as a way to learn them and ensure generational change; (ii) specific populations such as women, IPs and Afro-Mexicans face additional barriers to access credit and productive resources to improve their benefits from productive activities. Such barriers are related to land tenure, particularly in case of women, ownership of assets that can serve as collateral, asymmetries of information between producers and financial institutions, among others. The Project will include specific measures to mitigate these risks and reduce identified gender gaps. Such measures are detailed below under the relevant ESSs. Further, the Project will include an Exclusion List of activities with high and substantial risks/impacts such as resettlement, adverse risks or impacts on IPs or significant risks or impacts on community health and safety, labor and working conditions, or cultural heritage. The Project, and particularly the Project’s ESMS, as explained under ESS9, will also facilitate capacity building on gender sensitivity and agricultural practices that address the needs of vulnerable populations. Lastly, project consultations will be carried out following all health and hygiene guidelines Jun 10, 2021 Page 8 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) provided by the Government of Mexico (GoM), respective state-level level health agencies and international good practice provided particularly by the World Health Organization (WHO), including relevant World Bank’s guidance as a Technical Note for “Public Consultations and Stakeholder Engagement in WB-supported operations when there are constraints on conducting public meetings”. B. Environment and Social Standards (ESSs) that Apply to the Activities Being Considered B.1. General Assessment ESS1 Assessment and Management of Environmental and Social Risks and Impacts Overview of the relevance of the Standard for the Project: ESS1 is relevant for the Project. FIRA will finance the provision of a line of credit to eligible private PFIs, which in turn will on-lend to eligible EAs. In doing so, populations in rural areas, vulnerable populations who comprise RPUs, and those who derive their livelihoods from agriculture/agroindustry activities can benefit from more possibilities to accessing subloans for working capital, productive assets, and sustainable investment subprojects. To access financing from FIRA, the EAs must commit with rational management of natural resources and preserving the environment. FIRA will operate an ESMS that will identify, categorize, address, monitor and report on E&S risks of the Project's portfolio of subloans. The Project's ESMS will cover five main aspects: (i) eligibility criteria for the PFIs, AEs, and Public Disclosure activities to be financed, including a robust Exclusion List to screen out any illegal or high or substantial risk activities that would involve e.g. resettlement, adverse risks or impacts on IPs or significant risks or impacts on biodiversity, environment, community health and safety, labor and working conditions, or cultural heritage; (ii) commitment clauses regarding compliance with the Mexican legislation regarding E&S matters; (iii) dissemination of good practices and provision of relevant training taking advantage of the possibilities for capacity building embedded in the Agri-Tech Platform and FIRA's five Technological Development Centers (CDTs); (iv) periodical supervision and monitoring of activities financed by AGROINCLUYE subloans; and (v) a robust GRM accessible to personal of FIRA, IFPs, AEs, RPUs, and other interested parties and stakeholders, including a separate GRM for labor-related aspects. The Agri-Tech Platform is also expected to allow stakeholders to provide feedback on the training they receive through it, so the platform can provide an additional channel of communication between FIRA and its clients on capacity building. The ESMS will be designed, consulted, approved and disclosed by FIRA in a manner satisfactory to the World Bank by the Project Effectiveness. The ESMS will be operationalized through the Project Operating Manual (POM). The ESMS will be maintained and implemented throughout Project implementation to meet the relevant ESF requirements. During preparation, the Bank team and FIRA looked at gender-based violence (GBV) issues related to Project activities. As FIRA works actively to prevent for example sexual harassment among its personal, the Project will build upon FIRA's experience in putting in place capacity related to mechanisms to channel and address Sexual Exploitation, Abuse and Harassment (SEA/H) related complaints. It is expected that FIRA can disseminate lessons learnt and good practices in selected fora with PFIs. The ESMS will also address risks related to child and forced labor. Jun 10, 2021 Page 9 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) While this risk is considered medium to low, given the potential medium-sized beneficiaries involved, risk of child labor will be addressed through the Exclusion List, specific processes included in Labor Management Procedures (LMP), mainly spot checks visits conducted by FIRA, and the commitment clauses applied at the level of PFIs and final beneficiaries regarding compliance with the Mexican labor legislation. The ESMS will also look at health and safety of communities where an investment subproject includes civil works. An Indigenous Peoples' and other Vulnerable Populations' Planning Framework (IPPF&VP) will include guidelines for the inclusion of IPs and Afro-Mexicans, particularly those that participate in the value chains that the Project will support. The Project will also include a Gender Analysis and Action Plan (in the Project Appraisal Document) with specific actions to reduce identified gender gaps in credit access for women in rural areas in Mexico, mainly focused on gender sensitization to producers and AEs, which main activities will be part of the Project's Stakeholder Engagement Plan (SEP). An advanced draft of the SEP will be disclosed prior to Project Appraisal. Final versions of the ESMS, SEP, including the list of activities excluded from financing from the Project, and IPPF&VP will be consulted with potential IFPs and beneficiary AEs, finalized and disclosed at FIRA's website and by the World Bank prior to Project effectiveness. Despite FIRA's extensive experience with the IFC performance standards, as this is the first ESF project for FIRA, the World Bank team provides FIRA close support to prepare the ESMS and the supporting instruments until Project Effectiveness and throughout implementation on an as needed basis. ESS10 Stakeholder Engagement and Information Disclosure Public Disclosure ESS10 is relevant for the Project. FIRA has developed an advanced draft of a Project-level Stakeholder Engagement Plan (SEP), including a description of FIRA's multiple channels that serve as a Grievance Redress Mechanism (GRM). The Project's GRM will build upon those, as well as existing GRMs of the IFPs. The draft SEP will be disclosed together with the draft Environmental and Social Commitment Plan (ESCP) prior to Appraisal, and consulted, completed and redisclosed along with all the E&S instruments by Project Effectiveness, and updated and redisclosed as needed during implementation. Feedback from the consultations will be integrated in the instruments as relevant. During March and April 2021, and as part of the World Bank's due diligence on E&S risk management for the Project, the World Bank team participated in discussions organized by FIRA with a range of AEs of different sizes and sectors, some of them named earlier in the present document. It became clear EAs have widely varying capacities and thus far experience in management of E&S risks. Based on the experience and consultation processes conducted in the case of similar projects e.g. in Ecuador (Promoting Access to Finance for Productive Purposes for MSMEs, P172899), FIRA is in the process of conducting informed consultations with relevant actors, including mainly a broad group of PFIs, both BFIs and NBFIs, and with AEs. FIRA will also try to identify AEs that support IPs and women producers. These consultations will include discussions on benefits of identifying, assessing, mitigating, monitoring, and reporting on E&S risks of eligible investment subprojects, disseminating good E&S practices when providing credits funded with Project resources, and overall on the functioning and elements that comprise the AGROINCLUYE ESMS. The initial discussions with a group of potential PFIs demonstrated important differences in their baseline capacity and prior experience with E&S risk management. In case of the bigger-sized BFIs, Banorte and Banco del Bajío, both signatories of the voluntary Sustainability Protocol of ABM, the former is the only commercial bank in Mexico with an ESMS in operation, and the Jun 10, 2021 Page 10 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) latter is in process of establishing one. Hence, FIRA will explore opportunities to engage with them as a "graduated" and "in process" champions to expand establishment of ESMSs among the BFIs and NBFIs that collaborate with FIRA. Given the current circumstances, the Project-related consultations, as well as Project implementation and management aspects will be adapted in line with relevant World Bank and GoM guidance as necessary at the moment of each action. Consultations during Project preparation, to be completed prior to Project Approval, are being conducted via digital formats, including video-conference sessions and electronic correspondence. Social media and other traditional communication channels can also be used to provide Project- related information. As the situation normalizes, FIRA will assess the level of risk and propose additional means of consultations such as limited gatherings or meetings with small focus groups. The Project will have a robust GRM accessible to all stakeholders. The GRM will leverage on FIRA's existing communication channels and GRM as well as PFI’s existing communication channels. In the case of FIRA, such channels include a dedicated phone line ("Centro de Atención FIRA"), FIRA’s website, email address, mailboxes in FIRA’s regional offices, institutionalized GRMs dedicated to Government employees, and annual satisfaction surveys that FIRA conducts. The annual satisfaction surveys will be modified and tailored to the needs of AGROINCLUYE. A description of the GRM is included in the SEP. As a matter of principle, the Project GRM will: (a) be available to beneficiaries and stakeholders respecting their sociocultural characteristics, accessibility and needs, particularly in areas with indigenous population; and (b) include known procedures for analyzing and resolving claims and responding to all feedback. The World Bank team is working with FIRA to include procedures to address anonymous complaints as it is not possible in FIRA’s existing GRM, nor it has been deemed necessary because of the nature of the Public Disclosure financial intermediation business, where complaints are usually associated with an identified client or IFP. B.2. Specific Risks and Impacts A brief description of the potential environmental and social risks and impacts relevant to the Project. ESS2 Labor and Working Conditions ESS2 is relevant for the Project because FIRA and the subloans to be financed will involve (i) direct workers (FIRA staff working on the Project); and (ii) consultants and other contracted workers employed by the eligible PFIs or by the final beneficiaries. Given working conditions in rural Mexico, community workers might be expected. However, this will only be confirmed once the credit line is implemented and subloans are used on productive activities. FIRA will conduct in-situ visits and spot checks to confirm the presence of community workers as well as any other ESS2 related issues in financed activities. FIRA's staff working on the Project, which will constitute the Project Coordination Team (PCT), will remain subject to the terms and conditions of their existing public sector employment agreements and arrangements, unless there is an effective legal transfer of their employment or engagement. ESS2 will apply to such GoM civil servants regarding provisions of paragraphs 17 to 20 (Protecting the Work Force) and paragraphs 24 to 30 (Occupational Health and Safety, OHS). ESS2 requirements will apply to all actors in the AGROINCLUYE credit line, and as such FIRA and PFIs will rely on compliance with the national law to ensure that the Project and its investments follow the relevant requirements set under ESS2 when hiring direct, contracted or community workers. Obligation to comply with relevant national legislation and measures to address potential gaps identified between ESS2 and Mexican labor legislation are reflected in related contractual clauses included in credit agreements between Jun 10, 2021 Page 11 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) FIRA and the PFIs and between the PFIs and the AEs. The number of contracted workers is unknown at this time as it will depend on the type of subloans demanded by eligible AEs. As part of the ESMS and its Management Programs, FIRA, through the Exclusion List, will screen out any subloans that would present high or substantial risks related to labor and working conditions. For all labor purposes during Project implementation, no forced labor will be used and the minimum age for hiring will be 15 years at the time of formalizing the contractual relationship, as per the national minimum standard and according to ESS2 conditions (e.g. that they not be engaged in hazardous duties). Minors between 15 and 18 years could work under certain conditions as per the Mexican Federal Law, considering the following specific conditions set out in paragraph 18 of ESS2: (i) a child will not be employed or engaged in connection with the project in a manner that is likely to be hazardous or interfere with the child’s education or be harmful to the child’s health or physical, mental, spiritual, moral or social development. Work considered hazardous for children is work that, by its nature or the circumstances in which it is carried out, is likely to jeopardize the health, safety, or morals of children (footnote 13 of ESS2 provides examples of hazardous work activities prohibited for children); and (ii) FIRA will conduct a targeted monitoring of health, working conditions, and other requirements of ESS2 that can be evidenced through spot checks to AEs as per FIRA’s regular monitoring and evaluation. FIRA is finalizing a LMP based on national law and the ESS2 requirement on establishing and running a standalone GRM for the Project's workers, including relevant requirements and guidelines for the different types of workers engaged in the Project to monitor compliance of requirements set under ESS2. The LMP will be part of the Project's ESMS and will include capacity and training activities on compliance with the national labor law for PFIs, AEs and, Public Disclosure through them, to producers. The Agri-Tech Platform will be used as a mechanism to make the related trainings available and accessible to AEs and producers. As most of the PFIs that are part of FIRA's portfolio are well- established institutions and have demonstrated a commitment towards inclusion of E&S aspects in their credit lines, they are expected to comply with the Mexican labor law and the LMP, but will also be further prompted by relevant commitment clauses and regular monitoring by FIRA. PFIs will provide reference to the Project's labor specific GRM, which will channel workers’ grievances and include measures to protect them against reprisal for its use. Some PFIs and AEs, particularly those of bigger size and capacity, have their own GRMs for workers that can be leveraged for AGROINCLUYE. Foreign or national labor influx-related impacts are not expected. A sample code of conduct relevant to PFIs' in-house working environment and contracted workers' relation with adjacent communities will also be included in the LMP to avoid conflicts, GBV and SEA/H, and ensure safety of community members, particularly of women and girls. Through the application of the ESMS and its LMP, labor management procedures will be in place for contracted workers to allow them to operate in accordance with the requirements of national law and consistent with ESS2. The LMP will include measures to avoid discrimination and grant equal opportunities and measures related to OHS. The Environmental and Health and Safety Guidelines of the World Bank Group and a World Bank’s ESF/Safeguards Interim Note “COVID-19 Considerations in Construction/Civil Works Project” will be used as good practice references for OHS aspects of the LMP for use of any civil works under investment subprojects. During implementation, the ESMS and its LMP and GRM will be revisited and updated as required and in case additional labor related risks or issues unfold. Jun 10, 2021 Page 12 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) ESS3 Resource Efficiency and Pollution Prevention and Management ESS3 is relevant for the Project as eligible productive assets and investment subprojects will relate with use of different types of resources such as water and energy and/or imply different risks of pollution. The Exclusion List will screen out subloans with potential significant risks or impacts on the environment. The ESMS will facilitate access to training on applicable good E&S practices, mitigation measures, and resource efficiency investments and considerations for productive activities and civil works. Particular attention will be paid to adequate disposal of any hazardous waste material such as agrochemicals and prevention of construction-related contamination of soil and water. The ESMS will incorporate, in addition to national laws and regulations, guidance from the World Bank Group’s General Environmental, Health and Safety (EHS) Guidelines and applicable industry EHS Guidelines on Agribusiness/Food Production and Chemicals on aspects like safe use, handling and final disposal of fertilizers and pesticides. The ESMS will facilitate access to training and materials on Integrated Pest Management (IPM). To estimate the impact of agricultural investment lending on GHG emissions and carbon sequestration, the World Bank has adopted the Ex-Ante Carbon-balance Tool (EX-ACT), which was developed by the Food and Agriculture Organization of the United Nations (FAO) in 2010. EX-ACT allows the assessment of a project’s net carbon-balance, defined as the net balance of CO2-equivalent GHG that were emitted or sequestered because of Project implementation compared to without a Project scenario. The EX-ACT analysis carried out for the Project considered the effect of improved agricultural practices on annual crops (maize and cotton) and on perennial systems (coffee Public Disclosure and sugarcane), on grassland-system improvement and livestock-system improvement (dairy), as well as on inputs management. A standard 20-year implementation was used. Over a 20-year period, the Project generates a net- carbon reduction of 3,264,943 tCO2-eq. The Project will provide a reduction of 163,247 tCO2-eq per year. A detailed GHG Accounting will be available in the Project Appraisal Document (PAD). Given the expected type and minor scale of different eligible investments, the Project is not expected to require a water balance survey. ESS4 Community Health and Safety ESS4 is relevant for the Project. Overall, the eligible investment subprojects are expected to decrease community exposure to E&S risks and impacts, as they will prioritize investment subprojects on climate resilient agriculture and agro-industry related activities to improve resilience to increasing climate variability and change. The Exclusion List will screen out subloans with high or substantial risks or impacts on community health and safety, e.g. new structural elements situated in high-risk locations, including those with risk of extreme weather or slow onset events; activities that may be subject to high risk or criminal/violent attacks in non-secure areas of the country; exposure of communities to water/vector-borne, water-based, water-related and communicable and noncommunicable diseases; potential community exposure to hazardous and particularly life threatening materials and substances that may be released; and activities related with potential for man-made hazards e.g. in the form of fire or explosions. Along the development of the Agri-Tech Platform under Component 2 of the Project, more analysis can be focused on the Jun 10, 2021 Page 13 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) location of investment subprojects in sites that present vulnerability to extreme weather and natural events, thus improving consideration of related community health and safety. The ESMS will facilitate access to training on standard measures to secure community health and safety in Project- financed activities and monitor their implementation. Due consideration will be given to promotion of and training on integrated pest and vector management to secure prevention of negative health impacts among producers, their families and the adjacent communities, as well as man-made hazards (e.g., emergencies from exposure to pesticides and agrochemicals, and accidents due to unsafe construction practices, use of equipment/heavy machinery or inadequate use of personal protective equipment, PPE). Agro-industry support may also imply issues of safe food and agricultural production, product handling, packaging, and storage. Potential need for security personnel in a specific location and the related ESF Good Practice Note “Assessing and Managing the Risks and Impacts of the Use of Security Personnel” will be referenced in the ESMS. Along with relevant World Bank and GoM guidance, the ESMS will also include guidance to reduce potential spread of infectious diseases. FIRA, through the ESMS, will ensure that PFIs and AEs have access to guidance material to prevent risks and impacts derived from potential civil works. The LMP will include a sample code of conduct for workers in terms of their relationship with adjacent communities to avoid violence, ensure safety of community members and particularly women and girls. ESS5 Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Public Disclosure ESS5 is not relevant at Appraisal Stage as the Project is not expected to cause physical displacement or any restrictions of access to land or to natural resources. The Project will not finance investment subprojects that require land acquisition or result in involuntary land taking and resettlement. Any infrastructure related investments will only be built on land within the beneficiaries’ property. To avoid potential conflicts related to land tenure, the Project will ensure that all beneficiaries demonstrate corresponding rights of use of their lands as per Mexican land laws in order to access Project benefits. The Exclusion List in the ESMS will ensure that any infrastructure or works will be screened for property titles, displacement of informal users, and that disputed lands are excluded. To avoid exclusion of small producers who do not have land titles, the Project will allow producers to demonstrate the right to use communal lands (“tierras ejidales”) through support expressed by their governing bodies (“Asambleas Ejidales”) and thus, providing proof of communal or individual ownership of land. This is a standard practice in other projects in the World Bank portfolio in Mexico. ESS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources ESS6 is relevant for the Project as it will relate to productive activities that include extraction of living natural resources from modified ecosystems and habitats and management of livestock, fisheries or forests. Further, it is likely that some Project activities take place in highly biodiverse parts of the country, yet the investments are expected to focus on areas adjacent to cultivated land and with varying capacities of value-chain integration. The ESMS will identify all protected natural areas (APN for the Spanish acronym) and other valuable biodiversity areas Jun 10, 2021 Page 14 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) and landscapes across the country to secure enough buffer between them and any mayor investment subprojects. Key actions for Project compliance with ESS6 will be incorporated in the ESMS as part of the screening process to exclude activities that may lead to loss, conversion or degradation of natural habitats. FIRA and the PFIs will commit that no Project action will be promoted in areas where they could directly or indirectly induce environmentally negative land use change and affect natural habitats. The ESMS will facilitate access to relevant training for example on conservation of native forests that co-exist with rural areas where agricultural production takes place. PFIs that finance investments in livestock sector will commit to promote access to training on sound management of animal health and related environmental good industry practices among relevant EAs, to promote their related work with RPUs. ESS7 Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities ESS7 is relevant for the Project as over 75 percent of Indigenous Peoples (IPs) in the overall Mexican population, as defined by ESS7, live in the Project’s prioritized intervention areas. Furthermore, IPs own a significant portion of agricultural land through "ejidos" that make up a portion of small agribusiness owners, and/or belong to farmers’ associations/cooperatives. The main IP-related challenge with the Project design is associated with the principle that all RPUs will be treated in equal terms to access subloans, while RPUs constituted by IPs might require additional support to be able to tap into Public Disclosure Project resources. To partially address such barriers, FIRA will make an effort to identify the PFIs and AEs (e.g. size, portfolio and clientele) that are currently serving vulnerable populations, including RPUs led and comprised by IPs. While demand will be the main factor to determine which AEs finally use the Project's credit line, the Indigenous Peoples' and other Vulnerable Populations' Planning Framework (IPPF&VP) is being prepared for the Project as a part of the ESMS. It will include specific guidelines to increase the participation and inclusion of IPs and other vulnerable groups as part of the beneficiary RPUs. A second potential risk is related to labor practices that may not align with the objectives and criteria of ESS2 on Labor and Working Conditions at the community level as explained under ESS2 and that can affect IPs and other vulnerable populations. Such risks will be managed through the LMP. Potential high and substantial risks and impacts for IPs will be ineligible for Project support, identified through the Exclusion List, to avoid significant adverse impacts on land and natural resources subject to traditional ownership or under customary use or occupation. The IPPF&VP will be included in the ESMS as a management program and will expand on the following elements: (i) brief on the applicable national laws and regulations, institutional framework and Project implementation arrangements; (ii) the main IPs present in the country with a focus on the areas to be prioritized in the southern, southeastern and western parts of Mexico; (iii) guidance on how to enhance the inclusion of IPs in Project activities through strengthening the disaggregation by ethnicity of the Agri-Tech Platform users, and based on that, better targeting their capacity needs and providing needs responsive training to PFIs, AEs and producers on agricultural practices relevant to the value chains where IPs participate, practices to improve the productivity and profitability of productive agricultural activities, and aspects related to engaging in a culturally appropriate and inclusive manner Jun 10, 2021 Page 15 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) with RPUs with IP members when needed; (iv) culturally appropriate communication to RPUs where IPs participate, so the latter can know about the availability of additional finance through PFIs and AEs in Project areas; and (v) ensure meaningful consultations. For the referred capacity building, and in addition to the Agri-Tech Platform, FIRA's CDTs will be key channels where the World Bank will support FIRA to provide relevant training. ESS8 Cultural Heritage ESS8 is relevant for the Project because there may be tangible and intangible cultural resources within areas of intervention of investment subprojects. Ancestral lands and ruins are spiritually meaningful sites for many indigenous communities, who sometimes reside in them or have collective attachment to them. Overall, no direct, indirect or cumulative impact on cultural heritage is expected, as Project activities that might imply material impacts or cause commercial use of tangible or intangible cultural heritage will be excluded through the eligibility screening to be included in the ESMS. The ESMS will facilitate access to information on the officially registered sites, structures, natural features or landscapes with archaeological, paleontological, historical or any other aspect of cultural significance across the country. The ESMS will provide standard clauses on procedures and protocols to be used in potential bidding documents and contracts for civil works to secure correct handling of any chance finds of archaeological and cultural resources during Project implementation. PFIs and FIRA will take the necessary actions to avoid or mitigate risks and impacts in case that any chance finds surface, including immediate communication to the National Institute of Public Disclosure Anthropology and History (INAH in Spanish). ESS9 Financial Intermediaries ESS9 is relevant for the Project as it uses financial intermediation, thus the design of its E&S management builds upon the requirements of ESS9. The principal instrument will be an Environmental and Social Management System (ESMS), which will include an IPPF&VP, LMP with a labor-specific GRM, and a SEP with a Project-level GRM as per the requirements of ESS10. FIRA will operate the ESMS that will identify, categorize, address, monitor and report on the E&S risks of the Project's portfolio of subloans. The Project will support FIRA in expanding second-tier lending operations to serve AEs through private local PFIs, both BFIs and NBFIs. FIRA will assume the credit risk of the PFIs, while the latter will take on their books the credit risk of the AEs. FIRA will monitor and manage the E&S risks and impacts of its second-tier investments financed by the eligible PFIs through the ESMS proportioned for the minor scale of potential impacts of the eligible subloans. The Project will allow FIRA to test the application of an ESMS that goes beyond its existing SARAS that only applies to credits of around US$10 million and above. The Project is expected to demonstrate the benefits of a systematic dissemination of E&S good practices and raise related motivation and commitment at different levels of financial intermediation based on an approach of continued improvement, to build upon a manifested commitment to sustainable financing by financial institutions that have signed a voluntary Sustainability Protocol of the Association of Mexican Banks (ABM). Capacity building will be facilitated and promoted building upon Jun 10, 2021 Page 16 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) the portfolio of trainings already provided by the CDTs and matching relevant training offer by different sources to the most typical investment concepts under the Project. Other potential areas for training include operating an ESMS, climate-smart productive activities, compliance with national labor laws and regulations, as well as good practices on social inclusion of IPs, women and Afro-Mexicans, and GBV and SEA/H, on which FIRA already has a solid system of in- house capacity building and reporting protocols. Capacity building efforts will be made accessible to AEs and RPUs as relevant for each value chain, productive activity, and the risk level of the financed activity. Training will be combined with dissemination of relevant experience, including success stories and lessons learnt. It is also expected the Agri- Tech Platform under Component 2 will allow gearing up use of relevant databases and dissemination and capacity building focused on prioritized value chains and geographical areas. The Project will provide a ring-fenced line of credit to FIRA, under which FIRA will assume the responsibility of managing E&S risks and impacts in compliance with the ESMS, while in a manner consistent with the requirements set forth under ESS9 as proportionate to the maximum moderate risk/impact level of eligible second-tier portfolio of investments. The subloans are expected to cover mostly working capital, while acquisition of productive assets and/or investment subprojects will be equally eligible. Specific activities to be supported will be demand-driven and thus only known during implementation. The ESMS will consists on the following five main aspects: (i) eligibility criteria for the PFIs, AEs, and activities to be financed, including a robust Exclusion List to screen out any illegal or high or substantial risk activities that would involve e.g. resettlement, adverse risks or impacts on IPs or significant risks or impacts on biodiversity, environment, community health and safety, labor and working conditions, or cultural heritage. Since FIRA will assume the main E&S Public Disclosure management responsibility of AGROINCLUYE, it will ex-post apply the Exclusion List to the bulk of subloans approved by PFIs to determine which of them will be financed under AGROINCLUYE; (ii) commitment clauses regarding compliance with the Mexican legislation regarding E&S matters. Such clauses are included in the credit agreements between FIRA and the PFIs and between the PFIs and the AEs. Any additional clause will be included to address identified gaps between the Mexican E&S related legislation and the ESSs; (iii) dissemination of good practices and provision of relevant training taking advantage of the possibilities for capacity building embedded in the Agri-Tech Platform and the CDTs; (iv) periodical supervision and monitoring of activities financed by AGROINCLUYE subloans; and (v) a robust GRM accessible to personal of FIRA, IFPs, AEs, RPUs, and other interested parties and stakeholders. FIRA will conduct in-situ supervision through spot checks to evaluate compliance with the Exclusion List, verify the level of risks of financed activities and, overall, enhance proper management of E&S risks at the subloan level. Supervision of financed activities will be supported by the PFIs and AEs, who will also make available to FIRA relevant information regarding E&S aspects of AGROINCLUYE subloans. The ESMS will screen out any subloans that could lead to high or substantial risks or impacts outlined in paragraphs 11, 14 and 16 of ESS9 on Financial Intermediaries. The ESMS requirements will consequently focus on compliance with national laws and regulations, including reference to guidance on international good practices and provision of related training. If any of the impacts set out in paragraphs 11, 14 and 16 is present, the subloan will either need to be excluded or adjusted to eliminate the higher-risk aspects. The ESMS will be disclosed as a separate document and operationalized through the POM. It will include: (i) an E&S policy; (ii) procedures to identify the E&S risk level of the subloans, assign eligible risk categories of low and moderate, screen out high and substantial risk subloans and activities included in the Exclusion List; (iii) training to address, and procedures to monitor, and report on the E&S risks and impacts of subloans through in-situ monitoring and supervision conducted by FIRA, as well as information provided by IFPs through regular meetings with FIRA and Jun 10, 2021 Page 17 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) annual reports; iv) organizational capacity and competence in FIRA for reporting on the ESMS as well as provision of training and capacity-building on ESMS procedures and performance; and (v) external communications and reporting mechanisms on E&S performance. C. Legal Operational Policies that Apply OP 7.50 Projects on International Waterways No The Project will not carry out any investment linked to international waterways as defined in OP 7.50. OP 7.60 Projects in Disputed Areas No The Project will not be implemented in areas known to involve disputed areas. B.3. Reliance on Borrower’s policy, legal and institutional framework, relevant to the Project risks and impacts Is this project being prepared for use of Borrower Framework? No Areas where “Use of Borrower Framework” is being considered: None. Public Disclosure IV. CONTACT POINTS World Bank Contact: Tomas Ricardo Rosada Villamar Title: Senior Agriculture Economist Telephone No: 5220+37023 Email: trosadavillamar@worldbank.org Contact: Ashwini Rekha Sebastian Title: Agriculture Economist Telephone No: 5220+85183 Email: asebastian1@worldbank.org Contact: Daniel Ortiz del Salto Title: Financial Sector Specialist Telephone No: 5220+85097 Email: dortizdelsalto@worldbank.org Borrower/Client/Recipient Borrower: Nacional Financiera S.N.C., I.B.D. (NAFIN) Implementing Agency(ies) Implementing Agency: Fideicomisos Instituidos en Relación con la Agricultura (FIRA) Jun 10, 2021 Page 18 of 19 The World Bank STRENGTHENING AGRICULTURE AND FOOD SYSTEMS BY PROMOTING ACCESS TO FINANCE PROJECT (P175940) V. FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects VI. APPROVAL Task Team Leader(s): Ashwini Rekha Sebastian, Tomas Ricardo Rosada Villamar, Daniel Ortiz del Salto Practice Manager (ENR/Social) Valerie Hickey Cleared on 10-Jun-2021 at 15:31:45 GMT-04:00 Public Disclosure Jun 10, 2021 Page 19 of 19