This financial transaction consists of supporting the expansion of Popup Design, S. de R.L. de C.V. (“GAIA” or “the Company”) using a convertible debt instrument for a minimum of USD 10 million or up to USD 15 million with a term of up to 24 months or until automatic conversion (whichever comes first) in shares to be issued during the next investment round (the “C-Series Round”), (the “Convertible Debt”). Support for GAIA entails strengthening its expansion in order to leverage its large installed capacity and supply chain—which consists of Mexican micro, small, and medium-sized enterprises (“MSMEs”) that specialize in the manufacture of design furniture—combined with the marketing and distribution of such furniture through a digital platform (application or app) complemented by brick-and-mortar stores (the “Project”). More information regarding the Project can be accessed through the following electronic link: https://www.gaiadesign.com.mx
The Project is a Category B operation under the IDB Invest Environmental and Social Sustainability Policy, as its possible environmental and social (“E&S”) risks and impacts are, overall, limited, mostly reversible, and mitigable by measures that are readily available with current technologies and whose implementation is feasible within the context of the operation.
The potential E&S and occupational health and safety (“OHS”) risks and impacts identified for the project during construction or adaptation activities of new shops or showrooms or the expansion of its CEDIS (collectively, “Operation Centers”), relate to: (i) hazardous and non-hazardous solid waste generation; (ii) air emissions of both gaseous pollutants and dust; (iii) noise pollution; (iv) wastewater generation; (v) worker OHS concerns; and (vi) community health and safety concerns due to increased heavy traffic. During the operation and maintenance (“O&M”) phase of all the Project's operating centers, the risks and impacts tend to relate to: (i) worker OHS concerns, (ii) hazardous and non-hazardous solid waste generation; and (iii) the use of resources such as raw materials and local services, including energy, water, and the local sewerage system.
Natural hazards, such as earthquakes, fires, floods, and thunderstorms, may also pose risks for the Project’s operating centers, not only due to possible impacts on workers, but also due to possible damage to the physical infrastructure of the Project's facilities, which may result in commercial losses.
Due to its distinct characteristics, the Project has triggered the following Performance Standards (PS): (i) PS 1: Environmental and Social Assessment and Management System; (ii) PS2: Labor and Working Conditions; (iii) PS 3: Resource Efficiency and Pollution Prevention; (iv) PS4: Community Health, Safety and Security; and (v) PS 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources.
Its workforce has a total of 353 collaborators (as of 2019), 63% of whom are men and the remaining 37% women, including two in senior management, 15 in middle management, 13 in deputy management, and six in supervisory positions.
One hundred percent of GAIA's products are manufactured by third parties (outsourced), of which 80% are in Mexico. All local suppliers are micro, small and medium-sized enterprises (“MSMEs”).
4. Environmental Risks and Impacts and Proposed Mitigation and Compensation Measures
4.1 Assessment and Management of Environmental and Social Risks and Impacts
4.1.a E&S Assessment and Management System
To fulfill the provisions of PS 1, GAIA will prepare an Environmental and Social Management System (“ESMS”) specific to its operations, which will include: (i) an E&S and OHS policy; (ii) internal procedures for identifying, assessing and managing potential E&S and OHS risks and impacts associated with each project activity, both for own collaborators and for workers engaged by third parties (contractors and subcontractors); (iii) internal procedures to ensure compliance with the Environmental Management Plan (“EMP”); (iv) organizational capacity and competency, including the definition of roles and the allocation of responsibilities concerning the implementation of the ESMS; (v) emergency preparedness and response protocols; (vi) plans or methods for social stakeholder engagement; (vii) an external grievance and communications mechanism; (viii) protocols for information dissemination, decision-making, and community education; (ix) protocols for the evaluation and ongoing improvement of the ESMS, and (xi) frequent audits and inspections of the E&S and OHS requirements, in observance of Mexican regulatory standards.
GAIA has a CEDIS Security Policy. However, to fulfill the requirements of PS 1, the Company will prepare a comprehensive environmental, social, and OHS corporate policy that specifies the following: (i) the person within the organization who will ensure compliance with this comprehensive policy and will be responsible for its execution and for obtaining the necessary resources for its implementation; (ii) how this policy will be communicated across the organization at all levels; and (iii) a mechanism to measure and report ongoing improvements in the implementation of the policy.
4.1.c Identification of Risks and Impacts
To built the new project operating centers, GAIA will develop a procedure to identify, characterize and evaluate the E&S and OHS risks and impacts generated by the Company through its expansion activities and plans. To this end, it will develop an E&S and OHS risks and impacts matrix for each phase of the Projects, in order to facilitate the implementation of management, mitigation, or compensation measures for those risks or impacts considered significant. This matrix will be updated regularly in order to obtain, track, and control local (state and municipal) operating and functioning permits or licenses.
4.1.d Management Programs
GAIA will develop an Environmental Management Program (“EMP”) for the construction of the new Project operating centers, including measures on: (i) hazardous and non-hazardous solid waste management; (ii) dust and noise generation control; (iii) the safety of the communities surrounding the new operating centers; (iv) communication for inter-agency coordination; and (v) ensuring safe and hygienic sanitary conditions for workers. It will also include E&S and OHS training plans for construction workers and managers engaged by third parties (contractors and their subcontractors).
The Company will also prepare an O&M EMP for each Project operating center, which will include the following programs: (i) comprehensive solid and liquid waste management, with an emphasis on storage and disposal measures for waste that cannot be reduced, reused or recycled to protect the environment, including hazardous waste handling measures (oils, fats, paints, solvents, medicines or infectious biological substances, and disinfectants), and (ii) OHS management to ensure a safe and healthy working environment that considers the inherent risks of the sector and the specific hazards of the work areas, including physical, chemical, and biological hazards as well as hazards specific to women.
4.1.e Organizational Capacity and Competency
Given that GAIA currently lacks an exclusive E&S or OHS corporate organizational structure that would allow for monitoring E&S and OHS risks, impacts and regulations in Mexico, as well as the implementation of the ESMS, the Company will: (i) define policy for organizational capacity and competency in E&S and OHS matters; (ii) designate a single E&S and OHS unit within the organizational structure; (iii) define the functions of that unit, its responsibilities, and level of authority to implement the ESMS; and (iv) establish a mechanism to ensure adequate financial and human resources to implement the ESMS.
Similarly, GAIA will conduct a yearly introductory session to the E&S and OHS training program for all personnel responsible for managing the operation centers, which will cover the risks and impacts of these centers and the E&S and OHS regulations in Mexico that they must adhere to.
4.1.f Emergency Preparedness and Response
Although GAIA has adopted a number of emergency response initiatives, in order to fully comply with the requirements of PS 1 and Mexican regulatory safety principles, the Company will prepare a policy that will require each operating center to have a specific Emergency Response Plan ("ERP"). The ERP for the new operating centers of the expansion and the existing centers of the Project will focus exclusively on O&M. The policy shall include a set of specific pre-established procedures concerning coordination, warning, mobilization, and response to the occurrence or imminent occurrence of a particular event, such as (i) natural hazards (earthquakes or seismic events, hurricanes, tropical storms, floods, etc.); (ii) human conflict (vandalism, civil unrest or strikes, etc.); and (iii) technological hazards (fires, explosions, chemical or fuel spills, worker and supplier incidents or accidents, etc.).
The specific ERPs will focus on the following aspects: (i) emergency response procedures; (ii) qualified emergency response teams; (iii) emergency contacts, communication systems, and protocols; (iv) procedures for interaction with local and regional authorities on health and emergency resolution; (v) permanent emergency response facilities and equipment (e.g. first aid stations, fire hoses, fire extinguishers, sprinkler systems); (vi) protocols for fire trucks, ambulances, and other emergency services and vehicles; (vii) evacuation routes and meeting points; (viii) training exercises, (drills and exercises) involving GAIA personnel and other social stakeholders and affected parties.
Each ERP will contain an annual training program and a root cause analysis procedure for each serious accident or fatality, as well as a description of the corrective actions required to minimize the risk of reoccurrence. In this regard, the annual training programs will seek to strengthen the effective response to emergency situations and will include courses in (i) first aid; (ii) firefighting and prevention; and (iii) search and rescue, among others.
GAIA will prepare a specific crisis management policy to set governance standards that will ensure an appropriate response by the organization to events that endanger or affect its assets.
4.1.g Monitoring and Review
GAIA is responsible for ensuring the implementation of the follow-up, monitoring, and control plans contained in the environmental and operation permits of the Project's operating centers. To this end, it will prepare a compliance matrix for its operating centers that will contain a set of key performance indicators ("KPIs") to measure the effectiveness of the EMP, as well as the implementation status of all the Project's legal and contractual obligatins.
This matrix will contain the following information: (i) KPIs to measure the effectiveness of the EMP and compliance with Mexican contractual and legal obligations; (ii) the name of the competent authority responsible for granting authorizations or issuing permits; (iii) the date of issuance or entry into force of each permit or authorization; (iv) the term of each permit or authorization; (v) the name of the person responsible for monitoring or enforcing each permit; and (vi) the procedures for future compliance and reporting.
Through an internal audit or an external expert endorsed by the Ministry of Environment and Natural Resources - SEMARNAT (external audit), GAIA will also prepare a consolidated annual report on the compliance status with all Mexican E&S and OHS policies and measures applicable to all operating centers, including: (i) the progress and performance of ESMS actions with respect to the defined KPIs; and (ii) the compliance status with the IDB Invest Environmental and Social Sustainability Policy. Based on the results of these internal or external audits, GAIA will define specific measures to reduce impacts and improve efficiency and will document and report on its progress and new procedures, as well as on other certifications, as appropriate.
4.1.h Stakeholder Engagement
GAIA puts into practice corporate communication that allows open and ongoing dialog with its different stakeholders, featuring a Customer Service and Communications Department that comprises representatives from all Management areas. It uses the following communication tools: (i) authorized spokesperson; (ii) digital strategy through its website and social media such as Facebook, Twitter, and Instagram; (iii) printed publications; and (iv) participation in social and business events.
4.1.i External Communication and Grievance Mechanisms
4.1.i.i External Communications
GAIA will prepare a corporate communications policy that will ensure careful, responsible and efficient communications at all times for both internal and external audiences. This policy will determine the official external communication channels (reports, websites, press releases, social media, transparency mailboxes, contact centers, focus groups, social events, etc.) to communicate with the corresponding social stakeholders.
4.1.i.ii Grievance Mechanism for Affected Communities
GAIA has a customer grievance process (the grievance mechanism) that uses electronic means (email), a telephone number, or social media to receive, address, and resolve grievances about the quality or condition of its products (furniture) or about the quality of service provided. However, in order to satisfy the requirements of PS 1, GAIA will strengthen this process by documenting all external communications, including (i) how the grievance was received; (ii) who made it (client, community, social stakeholders); (iii) how it was classified, processed, assessed and resolved; (iv) how it was addressed and followed-up; (v) how it was closed; and (vi) how the ESMS was adapted or improved in terms of communication and information disclosure.
For the latter, GAIA will prepare and adopt an external grievance mechanism that focuses on communities and social stakeholders (local authorities, neighbors, or businesses located nearby), for all operating centers. This mechanism will detail how grievances are recorded, classified, investigated, assessed, and resolved, as well as the respective follow-up and closure process.
4.1.j Ongoing Reporting to Affected Communities
GAIA, through its Corporate Communications Policy, will report on the Company's performance to the communities and to those who request such information.
4.2 Labor and Working Conditions
4.2.a Working Conditions and Management of Worker Relationships
4.2.a.i Human Resources Policies and Procedures
GAIA has a "Gaian's Manual" or Employee Manual, as well as other regulations, procedures, and model contracts, which set out the rules and conditions of employment and establish the principles of inclusion, equality, and diversity.
However, to satisfy the requirements of PS 2, GAIA will develop a Code of Conduct (or Code of Ethics) whereby it will define the measures and rules to ensure coexistence among all its employees and between them and any person entering or leaving its operating centers, especially the CEDIS. This code will set out corrective or disciplinary measures or sanctions in the event of non-compliance, which could lead to the termination of the employment contract.
4.2.a.ii Working Conditions and Terms of Employment
GAIA complies with PS-2 and the Federal Labor Code (FLC) and its reforms, as well as with the Federal Occupational Health and Safety Regulations, through its Gaian’s Manual. In addition, the Company can use the models or procedures of the Human Resources Department that relate to the recruitment, selection, and hiring of human talent.
4.2.a.iii Workers' Organizations
GAIA is committed to the enforcement of local legislation, which recognizes the rights of workers to organize and join labor unions. It is equally committed to respecting and fulfilling all employer responsibilities derived from such legislation and from the international conventions and treaties to which Mexico is a signatory. In line with this, GAIA has Collective Work Agreements with the National Union of Workers and Employees of the Commerce, Services, Paper, Wood, Related and Similar Industries.
4.2.a.iv Non-discrimination and Equal Opportunity
The Gaian’s Manual, in addition to accepting and promoting diversity and inclusion, specifies zero tolerance for discrimination and harassment, as well as the Company's commitment to promoting an environment in which no applicant, employee, supplier, or service contractor is excluded or discriminated against from an external or internal selection process due to race, color, age, culture, nationality, physical appearance, physical or mental disability, creed, gender, sexual orientation, or political inclination or affiliation.
4.2.a.v Grievance Mechanism
GAIA has an internal grievance process (the grievance mechanism), through which the Human Resources Department, via e-mail and mailboxes placed in the CEDIS, receives and attends to workers' grievances with regard to bullying, workplace harassment, sexual harassment, contract insecurity, burnout, or any other practice considered to be contrary to GAIA's cultural policies.
In practice, however, this process is not fully operational. There are grievance forms and mailboxes, but there is a widespread lack of awareness of their existence, location, or function.
In this sense, GAIA will strengthen the implementation of the internal grievance mechanism by installing mailboxes at multiple strategic points (cafeterias, transport stops, health modules, etc.) to facilitate access and guarantee their anonymous use. It will also launch a global outreach and training campaign with employees and suppliers to promote the grievance process and ensure its implementation and effective operation.
4.2.b Protecting the Workforce
Mexico is a signatory to several international conventions and treaties of the International Labor Organization (“ILO”) related to the rights of workers. GAIA, in observance of all Mexican local labor law obligations, regulates labor relations through its Manual, regulations, and model contracts, stipulating the minimum rights and duties of employees and employers, promoting equality and equity in human, civil, political, economic, social, and cultural rights between men and women.
GAIA also compels its collaborators, contractors, workers engaged by third parties, and suppliers to follow all municipal, local, state, and federal regulations and civil, administrative, labor, constitutional, corporate, property, public, or private legislation.
4.2.c Occupational Health and Safety
Although GAIA has a safety policy and regulations (both specific to CEDIS), several plans and an occupational health and safety risk analysis that enable it to comply with FLC regulations, in order to stay in line with the provisions of PS 2, the Company will update the OHS management ("OHSM") programs for all of its operating centers, both existing and future, to include the following: (i) identification of potential OHS risks for workers according to the task they perform; (ii) a risk assessment, risk map, and intervention plan; (iii) details of the prevention and protection measures implemented; (iv) safety briefings for visitors and OHS training for employees; (v) specific training for emergency workers and brigades; (vi) mandatory OHS medical check-ups; (vii) procedures for creating statistics and reporting occupational accidents and diseases; (viii) procedures and a mechanism for notifying the most important social stakeholders (response agencies, local authorities, etc.) in the event of serious accidents, and (ix) a root cause analysis procedure to investigate the cause of incidents or accidents occurring at any of the sites and to ensure the implementation of corrective actions to prevent their reoccurrence.
As part of its ESMS, GAIA will prepare an accident tracking procedure to produce statistics related to (i) accident rates, which consider all incidents resulting in loss of work and (ii) the nature and seriousness of each accident or incident, determined by the number of days lost in relation to the number of accidents and days lost.
4.2.d Workers Engaged by Third Parties
GAIA has provided that its procedures extend equally to both its collaborators and to all workers engaged by third parties (defined as not employed or under contract by third parties). The retention of workers depends on their compliance with the provisions of their contracts and regulations.
4.2.e Supply Chain
GAIA requires its suppliers to comply with all applicable labor laws and policies, including those related to child and forced labor. However, in order to satisfy the requirements of PS 2, the Company will prepare a corporate supplier selection process that will initially focus on strategic suppliers (furniture and accessories suppliers, logistics service providers) and will include the following: (i) as part of the internal supplier certification process, a questionnaire to be answered by all current and future suppliers to determine whether they adhere to the provisions of PS 2, and (ii) a provision that blocks current or potential suppliers that fail to abide by Mexico's FLC or GAIA's policies or regulations (thereby preventing the Company from conducting business with them), which defines a grace period to remedy such non-compliance.
4.3 Resource Efficiency and Pollution Prevention
4.3.a Resource Efficiency
4.3.a.i Water Consumption
GAIA has supply contracts with the municipal public services in each locality for the supply of water for domestic use in shops or showrooms and the CEDIS. None of the operating centers is water intensive in terms of consumption, and GAIA has installed has sensors in the bathrooms to reduce the use of this resource to the minimum.
GAIA obtains electrical energy for each of its operating centers through the Federal Electricity Commission (CFE) network and distributes the loads according to the needs of each area. The majority of consumption is for offices; however, due to the nature of the company's business, electric forklifts are used in the CEDIS to move and stow goods.
None of the operating centers are high in energy consumption; however, to reduce the consumption of electricity, GAIA has implemented the use of skylights on the roof of CEDIS and windows in its stores and showrooms to let in natural light.
4.3.b Pollution Prevention
To control domestic liquid effluents, all of GAIA's operating centers are connected to the respective location's municipal sewer system.
As for solid waste, GAIA currently classifies and temporarily stores the solid waste produced, mainly by the CEDIS. An authorized external supplier is responsible for the removal and transport of all waste produced by the Company to the appropriate sites (authorized recycling administrators or disposal sites). GAIA does not transport its non-hazardous (domestic) solid waste off-site, nor does it plan to do so in the future.
In order to fully comply with the provisions of PS 3 and improve its environmental performance, GAIA will establish and implement a corporate solid waste management program that (i) promotes an initiative and an education campaign on reduction, reuse, and recycling for all staff and guests, and (ii) classifies and records its solid waste into three categories: 1) organic waste (food waste from the dining area or cafeterias); 2) recyclable waste (cardboard, paper, plastics, wood, metals, etc.), which will continue to be transported by an authorized external supplier for final disposal; and 3) non-recyclable or domestic or common waste (items that do not fall into the above categories).
4.3.b.ii Hazardous Materials Management
GAIA does not produce large quantities of hazardous materials. However, during each operating center’s furniture repair or maintenance work, depending on the activities performed, the volume could be considerable. For this reason, GAIA will implement a corporate working manual on hazardous waste management in order to identify, control, minimize, give value, and comprehensively manage hazardous waste or waste that requires special handling, mainly generated at the CEDIS, and to promote a waste management culture. This manual will provide instructions to determine the measures required for internal collection and transport to a temporary storage area of each type of hazardous or infectious biological waste (in the case of injured persons or medical emergencies), as well as the use of an authorized external provider for final management and disposal.
GAIA will also prepare and adopt a standard for the safe storage of hazardous materials that, consistent with Mexico's official safety regulations, standards, and procedures, will contain a compliance checklist for each hazardous and/or special handling substance according to its characteristics.
4.4 Community Health, Safety and Security
GAIA's new operating centers will be designed and built by competent, experienced, and reputable contractors who follow international industry best practices. These contractors are expected to adhere to all national and international safety and construction guidelines, standards, and codes.
4.4.a.i Fire Protection Systems
In accordance with international best practices for fire safety, the design of the life and fire safety (L&FS) systems or facilities of all Project operating centers, in addition to complying with national standards for fire prevention and safety in the workplace and accessibility for people with disabilities, shall satisfy the international standards of the National Fire Protection Association ("NFPA") and the Americans with Disabilities Act (ADA) of 2010 on Design for Accessibility (international standards that make it possible to access a physical environment while respecting the conditions inherent to the Project).
To this end, GAIA will hire qualified professionals in the field of L&FS acceptable to IDB Invest to certify that the design of the fire safety system of the new operating centers complies with the following: (i) the L&FS requirements of the IFC General Environmental, Health, and Safety Guidelines; and (ii) the international L&FS Code and national laws and regulations. A professional qualified in L&FS and acceptable to IDB invest will certify that the existing and new operating centers have been built as per L&FS-approved designs and that all L&FS equipment was installed according to the design and was tested in accordance with international requirements.
4.4.b Security Personnel
Depending on the security conditions and violence reports of local authorities, GAIA will decide for each operating center whether to hire security personnel to protect its assets. When the above is required, the Company will provide a copy of the contract entered into by it and the corresponding security company or companies, in order to verify, among other aspects, that it includes clauses that allow GAIA to (i) conduct reasonable investigations to ensure that security personnel do not have a criminal record and have not been involved in cases of abuse; (ii) verify details of necessary training on the use of force; (iii) verify restrictions or the procedures used in relation to firearms; and (iv) identify the details of environmental and social awareness training, including the subject of human rights.
4.5 Land Acquisition and Involuntary Resettlement
The project involves no land acquisition, so no involuntary resettlement or economic displacement is expected.
4.6 Biodiversity Conservation and Sustainable Management of Living Natural Resources
The Project will be developed in existing sites or sites already intervened and within urban areas, where there is no sensitive vegetation or habitats, or of ecological or biological interest.
4.6.a Supply Chain
The supply of products and raw materials and the provision of services for all GAIA operations is supported by a robust supply chain of both national and foreign suppliers. In this regard, GAIA has developed a Supplier Manual that defines internal procedures for registration or discharge processes, contact areas, purchase orders, appointment handling, labeling, product receipt, quality standards and packaging, returns, billing and payments, and after-sales service. In addition, the Company has implemented a preliminary sustainability initiative in which it lists the most reputable and/or certified raw materials or packaging suppliers and describes those whose materials made from renewable sources and who include resource use optimization processes, e.g. for water and energy.
However, in order to fully satisfy PS 6 and to contribute to ensuring environmental management and social responsibility throughout its supply chain, GAIA will progressively develop a General Policy on Sustainable Purchasing following its preliminary initiative, in which suppliers will be classified by financial parameters, product or service quality, reliability, delivery logistics and quality of the service offered, and social responsibility. This Policy will require each supplier to sign a Statement in which they certify compliance with the labor legislation in force, especially on the prohibition of child labor, and applicable environmental legislation in order to minimize environmental impacts through appropriate waste management and the rational consumption of natural resources in their processes.
In support of its suppliers, GAIA will conduct face-to-face or virtual training sessions for businesses through digital platforms and, when appropriate, in conjunction with other public institutions. These tasks are intended to improve their business capacity and knowledge of financing schemes, promote the country's economic growth, mainly through support for national MSMEs and, to a greater extent, encourage the participation of women entrepreneurs as product suppliers and service providers.
4.7 Indigenous Peoples
The Project will be developed in existing, already intervened premises or sites, within major cities in Mexico (e.g. Mexico City, Guadalajara, Monterrey, Puebla, etc.), where no indigenous peoples have been observed.
4.8 Cultural Heritage
The Project will be developed in existing, already intervened premises or sites and does not envisage any type of earthmoving and/or earthworks, so no impact on cultural heritage is foreseen.
5. Local Access of Project Documentation
GAIA provides local access to Project documentation through its website https://www.gaiadesign.com.mx/manifesto
6. Environmental and Social Action Plan. (please see attached document).
For project inquiries, including questions on environmental and social issues related to IDB Invest operations, contact the client (see "Investment Summary" tab) or IDB Invest at the following e-mail address: email@example.com. As a last resort, affected communities may access the IDB Invest Independent Consultation and Investigation Mechanism by emailing firstname.lastname@example.org or MICI@iadb.org, or by calling the phone line +1(202) 623-3952.
 General Law on Civil Protection and Technical Standard on Civil Protection NTE-001-CGPC-2016
 Last reform published in the Official Gazette of the Federation (OGF) on November 30, 2012.
 Including Convention No. 87 concerning Freedom of Association and Protection of the Right to Organize and Convention No. 98 concerning the Right to Organize and Collective Bargaining of the International Labor Organization (ILO).
 Such as Convention No. 138 concerning Minimum Age for Admission to Employment, Convention No. 182 concerning the Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labor, and Convention No. 29 concerning Forced or Compulsory Labor.
 Federal Regulation on Occupational Health and Safety (OGF of November 13, 2014).
 Official Mexican Standard NOM-002-STPS-2010, Safety Conditions - Fire Prevention and Protection in the Workplace.
 General Law on the Inclusion of People with Disabilities (OGF, 12-07-2018) and the Manual of Technical Standards on Accessibility for Mexico City (2016)