Short Position - Governance, foreign labour, new variant

ESG issues are at the forefront today. Companies that remain lackadaisical in fully embracing ESG standards risk losing investors interest.

Enhancing governance

THIS week, the Securities Commission (SC) released its Corporate Governance Strategic Priorities for the period of 2021 to 2023. The aim is to promote environmental, social and governance (ESG) fitness at the board levels of listed companies in Malaysia.

The initiative is timely and is an extension of the regulator’s early governance-related guidelines for corporate Malaysia.

ESG issues are at the forefront today. Companies that remain lackadaisical in fully embracing ESG standards risk losing investors interest. Not only that. Partners, suppliers and customers are all increasingly requiring every firm in the supply chain to have those standards.

In short, there is no way out. The SC’s new guidelines, among others, including onboarding programmes for directors on sustainability, investor education on corporate governance and sustainability, and expansion of collaboration with universities to deepen conversations with youth on current corporate governance and sustainability issues.

The SC also says that it will implement measures to improve board diversity, including accelerating the participation of women on companies’ boards and senior management. It also points out that based on its monitoring of listed companies in their adoption of the Malaysian Code of Corporate Governance issued in 2017, that the majority of firms have undertaken most of the best practises detailed in the guidelines.

While that seems positive, more work needs to be done with regard to ESG.

One crucial area where things seem to be falling short relates to labour issues.

A number of number of Malaysian listed companies have been called out for their questionable labour practices.Palm oil fruits being wahedPalm oil fruits being wahed

Millions of ringgit have been wiped out of their market capitalisation as a result of this. There is also the risk of losing major customers. These companies need more guidance on how to follow the rules in the treatment of their workforce.

Then there are the planters. As our cover story this week highlights, these planters may be enjoying record profits but their valuations remain depressed, largely to investors’ disinterest in them due to concerns of land usage and deforestation. How are they going to fix things, ESG-wise?

A bigger problem

THE issue of foreign labour rights is something Malaysia has ignored for far too long and is now only starting to tackle as the domino effect moves from one industry to another.

From the rubber glove makers to the plantation companies, it is now the turn of manufacturing firms that have fallen under the microscope of foreign jurisdictions over how foreign labour is treated. And it is costing those companies dearly.

ATA IMS Bhd is the latest company to have been found to have allegedly mistreated their foreign workers. This resulted in home appliances giant Dyson terminating its contract with ATA IMS.

Dyson logoDyson logo

It is a debilitating loss as Dyson accounts for 80% of its revenue. The financial impact of improper labour management, meant to save money in terms of operating costs, has been a costly affair for companies that have been fingered by foreign jurisdictions.

With the large manufacturing sector being in the crosshairs for poor labour practices, it is no longer an issue with just a handful of companies given how this has spread across multiple industries in Malaysia.

The entire issue of proper worker treatment is not new. Malaysians have for a long time known how shoddily a lot of foreign labour is treated.

The housing of such workers has been below acceptance and now there is the enforcement of the Workers’ Minimum Standards of Housing and Amenities Act 1990 (Act 446) that is meant to address that.The crux of the matter now for many companies is that not many are aware of the growing ESG focus in foreign markets. What is going to be the cost of addressing this social deficiency in Malaysia?

It is going to be steep given the sheer millions of foreign workers being employed. Then there is the other issue of foreign companies that are based in Malaysia being big employers of foreign labour. Even their practices are not going unnoticed as it is reported that Goodyear Malaysia has been investigated by the US Customs and Border Protection over its labour practices.

Such a report shows that it will increasingly become a major issue for Malaysia and will it affect the inflow of foreign investments if we cannot fix this essential labour rights issues.

A big Nu-Nu?

THERE we have it again. News of a new variant that is spreading faster than the incredibly potent Delta variant has walloped financial markets throughout the world.

Just about every major financial market and commodity linked to the damaging impact Covid-19 has caused took a hit. But should the world react this way after nearly two years of dealing and understanding how this virus works?

For one, we are no longer in the early days of the big unknown. We know what Covid-19 is and there are a number of vaccines now that have been administered in a sweeping ways through the world.

For Malaysia, the high vaccination rates have been met with still stubbornly headline numbers of daily infections. But what is more important is just what are the admissions for categories four and five in our hospitals, and what has been the trend of deaths in the country.

Although hospitalisations are rising, the rollout of booster shots should offer greater protection to the populace in time to come. With the number of deaths trending downwards, it is hope that will continue.

But for the markets, there is always the issue of knee-jerk reactions and what we are seeing is just that. Some will say its a reason to take some profit off frothy valuations and there is an valid argument for that. But it is too early to think that growth will be derailed.

The recovery stocks should continue to benefit from the uptick in the return to normalcy even though some money have been taken off the table for now.

If indeed the Nu variant is as scary as can be, then it will slow down economic growth. And then the scourge of hyperinflation will whittle away as growth eases. That is unfortunately not how one hopes inflation will be dealt with.

It is, however, too early to know. But what we do know is that the world is much better today in dealing with the virus. Bans on destinations, now seeing signs of infections, are immediate and it is hoped that the ongoing vaccines will work and that the standard operating procedures that many of us are already used to will be adhered to stringently as we deal with a new variant that is of concern given its spread.

Only time will tell what will become of this new threat.

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