Sime Darby Plantation (SDP) announced yesterday that it has made several changes and improvements to its governance structures, policies and procedures to ensure that the group’s operations are free of the scourge of forced labour. We laud the move as it should help shape up its environmental, social and governance rating. Meanwhile, its 4QFY21 results are expected to be released on 18 Feb and we do not rule the possibility of earnings surprise given the stronger-than-expected CPO price performance. Maintain Neutral with an unchanged TP of RM4.12.

• Reimbursing RM82m recruitment fees to foreign workers. The group is planning to reimburse 15,078 current foreign workers with an aggregate sum of RM38.6m. Additionally, it is also setting aside a sinking fund amounting to RM43.4m to reimburse 19,565 former foreign workers. All reimbursements will be paid in a single lump sum payment to foreign workers who come from Indonesia, India, Bangladesh, Nepal, Myanmar, Cambodia, Sri Lanka and Pakistan. A Sinking Fund Governance Committee has been established to oversee the reimbursement process to former foreign workers who had worked for SDP since 1 Nov 2018. Independent auditors have been appointed to verify the lists of foreign workers and payment amount. No changes were made to our core earnings forecasts given that it is a one-off expense.

• Conducting regular due diligence on recruitment agents. The group will ensure the selected recruitment agents through the transparent open tender process will undergo mentoring and training to address any gaps in their understanding of its requirements. It will also monitor their performance to ensure contractual accountability for compliance with ethical and transparent recruitment standards as well as its own policies and standards.

• Introducing its own ESG scorecard. The board has approved an ESG scorecard that carries as much weight as the operational scorecard. It is designed to ensure that clear indicators are put in place, monitored and applied across its Malaysian upstream organizational structure. A new Social Welfare & Services department has been established for overseeing the implementation of policies and procedures related to the well-being and safety of workers, ensuring that day-to-day operations comply with internationally recognised best practices. It has appointed 40 full-time Site Safety & Sustainability Officers for all strategic operating units.

• Rolling-out two-way communication platform. In every estate and mill, foreign workers from each nationality can nominate a representative for on site dialogue with management representatives on a fortnightly basis. Once an issue has been raised, it is logged and monitored by an automated tracking tool and is then checked by an independent team to ensure that it is addressed and closed off.

Source: PublicInvest Research - 16 Feb 2022