KPMG: Companies underestimate human rights risk at their peril

KUALA LUMPUR – Legal actions and sanctions against companies over human rights issues are increasing worldwide, and KPMG cautions Malaysian companies to wake up to this risk before it’s too late. A check of the Withhold Release Orders (WRO) list issued by the U.S. Customs and Border Protection (CBP) included four companies from Malaysia as of December 2020: Sime Darby Plantation Berhad, FGV Holdings Berhad, Top Glove Sdn Bhd and TG Medical Sdn Bhd.

The WRO effectively prevents imported goods from entering the United States if suspected to be produced by forced labor. Based on the updated active list, Malaysia currently has the second-highest number of companies in the WRO, second to China. On 12 January 2021, the UK and Canada became the latest jurisdictions to impose new policies on imports as measures to combat forced labor and human rights violations.

Unfortunately, many business leaders in Malaysia tend to underestimate human rights risks and the impact on their companies until the damage is done. Phang pointed to several widely reported human rights cases that emerged out of Malaysia recently, which were brought to light because of the COVID-19 contagion among migrant workers.

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.

Awareness of human rights across the organization and prioritizing them is only the beginning of the governance process. Following KPMG’s strategic 7-step approach to risk analysis, business leaders and boards should consider the following guidelines to enhance and prioritize their management of human rights risk.

Set the tone at the top by appointing a board member or board committee with responsibility for human rights.
Ensure boards and leaders are committed to respecting human rights and to challenging traditional assumptions about corporate responsibility.
Set up a cross-functional working group that includes the sales, procurement, operations, legal, ethics, safety and HR functions to implement a human rights policy.
Build human rights actions into annual business-unit plans and ensure that accountability sits with business unit leaders.
Integrate human rights risks into risk management across different business functions.
Monitor the effectiveness of systems to manage and respond to human rights risk and establish appropriate grievance and remediation processes.
Ensure a clear line of reporting to the board and leaders on human rights risks and impact so serious cases are escalated rapidly.