By AZALEA AZUAR / Pic AFP

MALAYSIA has the second-highest number of companies that are listed in the Withhold Release Orders (WRO) list by the US, second to China.

The four local companies to be listed under the WRO as of December 2020 are Sime Darby Plantation Bhd, FGV Holdings Bhd, Top Glove Sdn Bhd and TG Medical Sdn Bhd.

The WRO list is issued by the US Customs and Border Protection (CBP) which prevents imported goods from entering the US effectively, if they are suspected to be produced under forced labour.

The UK and Canada became the latest jurisdiction to impose new policies on imports as measures to combat forced labour and human rights violations on Jan 12 this year.

KPMG Malaysia has cautioned local companies to be aware of the legal actions and sanctions against companies over human rights issues which are increasing worldwide before it is too late.

“Human rights risk goes beyond working conditions for workers to also encompass aspects across the enterprise, including suppliers and partners in the value chain, acquired businesses or activities in new global markets and regions, project financing, loans, asset management services, and more,” the company said in a press release.

“Awareness of human rights across the organisation and prioritising them is only the beginning of the governance process.”

Hence, KPMG urges companies to follow their seven-step approach to risk analysis, business leaders and boards, which would enhance and prioritise their management of human rights risk.

The first step is by appointing a board member or board committee with responsibility for human rights.

Next, boards and leaders must ensure they are committed to respecting human rights and challenging traditional assumptions about corporate responsibility.

Thirdly, companies need to form a cross-functional working group that includes the sales, procurement, operations, legal, ethics, safety and human resource functions to implement a human rights policy.

Afterwards, human rights actions into annual business-unit plans need to be built to ensure accountability sits with business unit leaders.

Then, human rights risks need to be integrated into risk management across different business functions.

The sixth step is to monitor the effectiveness of systems to manage and respond to human rights risk and establish appropriate grievance and remediation processes.

Finally, a clear line of reporting to the board and leaders on human rights risks and impacts should be ensured so that serious cases escalate rapidly.

KPMG Malaysia’s governance and sustainability advisory unit ED Phang Oy Cheng said receiving a WRO or import sanction can be costly not least for the impact to the company’s future earnings for unprepared companies.

“Failure to identify and respond to human rights issues will lead to costly and disruptive legal actions, cause investor divestment, negative publicity, reputation damage and significant financial loss. The damages caused by poor human rights risk management have a perpetual effect that will take companies tremendous effort and resources to repair,” he said.

It is unfortunate that many Malaysian business leaders tend to underestimate the risks of human rights and its impacts on their companies until the damage is done.

Phang mentioned that the Top Glove case as an example of one of the companies, which caused a large Covid-19 cluster among foreign workers due to its housing facilities.

“These cases show that managing human rights is not only about doing the right thing, it is also about protecting the bottom line.

“Corporate Malaysia must acknowledge that every business, partnership or sourc- ing decision entails significant questions about potential human rights issues. This reality demands a shift in thinking, away from traditional risk-to-business concerns and towards non-financial risk-to-people concerns,” Phang said.

He also mentioned that the pandemic has amplified a global movement driven by investors and consumers for companies to put purpose over profit.

Phang also advised corporate Malaysia to explore new ways to identify, manage and report on potential issues that can negatively impact the company as expectations and requirements to improve human rights risk management grow.

“Examples have shown that business leaders underestimate this risk only at their peril,” he cautioned.