• Recent disclosures have come to light involving Kuala Lumpur Kepong Bhd (KLK), alleging unethical recruitment practices conducted by its sub-agents in relation to Nepalese foreign workers for its subsidiary.

• While it is premature to assess KLK's potential financial repercussions until the company issues further statements post-investigation, it's worth noting that KLK attained a score of 74.8% in SPOTT's November 2023 assessment.

• Exploitation of foreign workers by recruitment agents is an unethical practice that not only violates ethical standards but also jeopardizes companies involved by undermining labour market integrity.

KLK's Pledge to Ethical Labor Practices Amid Investigation

In respond to the claim, KLK had expressed their serious concern regarding the allegations and promptly initiating an investigation. They emphasised their commitment to upholding the rights of foreign workers through a strict no recruitment fee policy, which has been implemented since 2018 and reinforced it in 2022. KLK stated that they have covered all employer-related statutory fees, including transportation, visas, and medical checks, and also reimbursed all recruitment fees to their foreign workers. They underscored their dedication to ethical recruitment practices and assured a stringent review process for recruitment partners to ensure compliance with their policies, both locally and abroad.

SPOTT Assessment Reflects Commitment to Fair Labor Practices

According to our plantation analyst, it is currently too early to determine any potential financial consequences for KLK. Nonetheless, we await additional statements from KLK after the investigation into these allegations concludes. Currently, we have a HOLD call for KLK with an unchanged TP of RM24.05. Meanwhile, according to SPOTT's November 2023 assessment, KLK scored 74.8%, with breakdown of 69.8% for Environment, 79.7% for Social and 72.5% for Governance. Upon checking on the assessment, KLK fully commits to Free and Fair Labour Principles in its own reporting and score a full point for "Commitment to Fundamental ILO Conventions or Free and Fair Labour Principles". Note that Zoological Society of London (ZSL)’s SPOTT assesses 100 palm oil producers, processors, and traders on their public disclosure regarding their organisation, policies and practices related to environmental, social and governance (ESG) issues.

Call for Action on Foreign Worker Exploitation

In our Sustainability Report on "Urgent Reforms for Equality in Malaysia's Labor Landscape," issued on 4th March 2024, we shed light on a pressing issue regarding the alleged exploitation of foreign workers by recruitment agents. These workers, lured by promises of employment, were subjected to exorbitant recruitment fees, only to find themselves without the promised jobs. This troubling trend underscores a critical challenge in our journey towards sustainable business practices. The exploitation of foreign workers not only violates ethical standards but also poses significant risks to companies involved. Exploiting the demand for foreign labor, unethical recruitment agents erode the integrity of labor markets, paving the way for exploitation and abuse. Notably, in numerous migration corridors worldwide, migrant workers routinely bear the burden of recruitment fees, often plunging them into debt bondage and increasing the risk of forced labor. Addressing this issue is paramount to ensuring ethical recruitment practices globally.

Our Thoughts

Plantation companies grappling with labour issues are likely to experience a swift reaction from the stock market, often characterized by a knee-jerk response. Additionally, the construction and manufacturing sectors also share similar issues related to abuses committed by recruitment agencies. However, many of these companies are quick to address these concerns, recognizing the growing significance of ESG (Environmental, Social, and Governance) and ethical business conduct in investor decision-making. This proactive approach stems from their awareness that investors increasingly prioritize companies with robust ESG practices and ethical business standards. We believe, a prompt action to rectify labour issues not only mitigates shortterm market volatility but also enhances long-term investor confidence and sustains shareholder value.

Nevertheless, in light of the challenges confronted by KLK stemming from the actions of sub-agents under SOS Manpower Service, whereby the agent is entrusted with the recruitment of Nepalese foreign workers for KLK's subsidiary, KL-Kepong Rubber Products Sdn Bhd, have underscored the immediate necessity for managing recruitment practices. Based on our research findings, employers place their trust in recruitment agencies, often paying substantial sums, up to RM16,000 to RM18,000, to legally bring in foreign domestic workers. However, this is where the concern begins, as the hefty expenditure goes towards intermediaries, in both the sending and receiving countries, disadvantaging both employers and workers at the end of the day. Moving forward, it is crucial to introduce measures which should involve collective parties, including the authorities, in combatting this unethical conduct. Such actions are vital to preventing the recurrence of similar issues and fostering fair and transparent recruitment practices. In reflect of the ESG commitment demonstrated by KLK, we have a “Good” ESG Rating for the company with score of 3.64.

Source: BIMB Securities Research - 29 Apr 2024