To build a responsible supply chain, VSI developed a Supplier Ethical & Environment Code of Conduct as a framework. In reducing carbon emission, we gather that the group has set aside RM50m to ramp up on its solar panel installation across its factories in 3-5 years’ time. We view the group qualification in RBA and F4GBM Index reflects its constant pursuit towards sound corporate governance and good sustainable practices. PwC has concluded the independent labour review in Jun 2022 with the finding that there were no systemic forced labour practices within the group identified. PwC has identified gaps and areas of improvement, where remedial actions have been taken by the group with some having been resolved and others are in the midst of being remedied. Maintain BUY with unchanged TP of RM1.14, pegged to 16x of FY23 EPS.

We organised an ESG focus meeting with VSI to find out more on their initiatives in this area. Below are the key takeaways:

Focusing on three core pillars. VSI focuses on three main pillars in their ESG initiatives namely; (i) building a responsible supply chain; (ii) reducing carbon emissions; and (iii) investing in capability, training and resources.

Building a responsible supply chain. Towards the goal to increase supply chain transparency and provide assurance of sustainability compliance throughout the value chain, the group conducted a self-assessment questionnaire (SAQ) and collaborated with business partners in accelerating environmental and social improvements. VSI developed a Supplier Ethical & Environment Code of Conduct (COC) which requires suppliers to acknowledge the COC and agree to comply with the code. Additionally, a social, environmental and business ethics performance assessment was initiated among critical suppliers to measure supplier’s performance, understand their risks and identify opportunities for continual improvements of its supply chain.

Reducing carbon emissions. Most of VSI’s critical processes are certified with ISO 14001:2015 Environment Management System and is in the midst of getting all processes to be accredited by end-2022. Aside from adherence with the relevant legislation and regulations, the group regularly examines the management and analysis of resources consumption and formulates and implements annual energy saving measures. We understand that the group is currently engaging a consultant to assess its climate change risks and to develop climate and energy strategies with short and long-term goals. In order to accelerate the goal of energy saving and emission reduction measures, the plants will be ramped up with renewable energy sources by installing solar panels at selected sites. At this juncture, only one factory has been proposed for solar panel installation and which is targeted to be completed by end of FY23. Once this is completed, the group will continue to adopt the same measure for the rest of the factories. Management has set aside RM50m in this renewable energy investment. We understand that the span of the work is expected to be completed in 3-5 years’ time.

Source: Hong Leong Investment Bank Research - 19 Sept 2022