Asian business must adapt as West increases focus on human rights abuses

Firms doing business with the West, particularly Malaysian and Chinese firms, face growing scrutiny of business practices within their supply chain
As expectations rise, firms must be proactive in establishing credibility and trust with legislators, regulators and opinion-makers in key markets

Nick Wood

Published: 10:00pm, 9 Dec 2021

Why you can trust SCMP

As the world marks Human Rights Day on December 10, never before has this key principle been more relevant or more of a threat to businesses in the Asia-Pacific.

Rising scrutiny and expectations of companies’ environmental, social and corporate governance (ESG) performance is attracting growing attention, triggering customer and government action that affects a firm’s bottom line. With the region at the centre of the global supply chain, it is vulnerable to human rights abuses, particularly deep in the network where factory owners and their customers can be unaware of abuses.

There are an estimated 48 million international migrant labourers in the Asia-Pacific. Many work in Southeast Asia, Australia and New Zealand, with millions more workers migrating within their home countries – 286 million in China alone.

Companies are finding out that what worked in the past is no longer acceptable. Evidence comes from the United States, where Customs and Border Protection (CBP) has stepped up its import bans for forced labour, mostly from the Asia-Pacific.

In the first seven months of this year, the CBP detained 1,125 cargoes worth US$413 million for alleged forced labour violations, many involving labour-intensive industries and some of the world’s largest companies. This is a major step up from 314 detentions worth almost US$50 million in 2020 and just 12 in 2019.

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CBP has targeted mainly Chinese and Malaysian imports. Imports targeted from China include those in the manufacturing, agriculture and solar industries. Three of Malaysia’s largest and most successful international companies were issued withhold release orders for alleged forced labour violations, and another is being investigated.

One order was lifted after 14 months, while another is still in force more than a year later while the company goes through a major independent review of labour rights in all its operations. CBP actions in Malaysia followed reports by NGOs.

All CBP needs to detain merchandise is information that “reasonably indicates” it contains components that are the result of forced labour. To lift the order, the burden of proof is on the importer.

The bans are part of a broader trend across the world of rising expectations and activism, reflected in new laws and regulations being developed and approved by governments.

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The European Green Deal is also changing the business landscape for Asia-Pacific companies which are part of the supply chain feeding the European market. The EU Commission is advanced in introducing legislation for sustainable corporate governance, which will include mandatory requirements for human rights and environmental due diligence.

The legislation is expected to reflect existing established international and voluntary guidelines that lawmakers are convinced are no longer enough. European companies looking for partners and suppliers in the Asia-Pacific will be increasingly including human rights as well as environmental policies and practices in their selection process. Those who can differentiate themselves will have an advantage.

New US laws on forced labour have been set for trade between the US, Mexico, Canada and China, reflecting the growing political focus on human rights and the environment. In the wake of CBP interest in two Malaysian palm oil companies, the House of Representatives’ Ways and Means Committee urged “aggressive and effective enforcement”, asking if CBP had considered a blanket ban on all palm oil imports from Malaysia and Indonesia.

Many Asia-Pacific companies are not prepared, according to a recent independent human rights survey of the top 250 companies listed on the Singapore, Kuala Lumpur, Jakarta, Manila and Bangkok stock exchanges. It showed they disclosed on average less than 22 per cent of the human rights data recommended by the UN Guiding Principles on Business and Human Rights. Overall, only a quarter of the surveyed companies disclosed any information at all on monitoring or reporting of human rights.

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The changing business landscape is being recognised by CEOs and business leaders. In FTI Consulting’s 2021 Resilience Barometer, almost a third of the 2,800 large companies polled in Group of 20 countries expect to be investigated by regulatory or government agencies over ESG in the next year.

The challenge for companies involved in complex and often opaque supply chains is immense. It requires investment and care to understand international guidelines, monitor and assess growing societal concerns, understand the political, regulatory and legislative trends, look five years ahead or further and develop standards and practices that future-proof the company and support business growth.

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But that is not enough. Credibility and trust have never been more important with legislators, regulators and opinion-makers in key markets to ensure a broad, balanced and fact-based understanding of the company’s position, dilemmas and approach.

Proactive ESG strategies linked to a firm’s business strategy are essential to understand risks and build standards and effective processes into a company’s approach.

Four factors are important, starting with a clear ESG strategy that guides its operations and sets clear policies and standards.

Second, companies need an effective system at the heart of their strategy that identifies ESG trends affecting supply chains, assesses and maps risks and sets management plans to avoid potential business impacts.

Third, stakeholder engagement in key markets is necessary to build transparency and trust across regulators, governments, civil society and human rights NGOs.

Finally, harnessing the latest technology can help improve supply chain traceability.

These will help Asia-Pacific companies navigate the increasingly complex issues around supply chains and achieve business growth.

Nick Wood is a senior adviser at FTI Consulting. The views expressed in this article are solely those of the author

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