This article first appeared in The Edge Malaysia Weekly on October 17, 2022 - October 23, 2022

Small and medium enterprises (SMEs) are the backbone of the supply chains of large corporations. But with significant changes to sustainability disclosure requirements on the horizon, SMEs are at risk of losing out if they don’t change their business approach with respect to the environment and labour.

The willingness and capability of SMEs to adopt sustainable practices, especially in observing better labour standards, are often impeded by human resource constraints, skill deficits and knowledge limitations, says lawyer Edmund Bon Tai Soon, head of chambers (civil) at AmerBON Advocates.

Given that SMEs are responsible for nearly half of employment (47.8%) and contributed substantially to the country’s gross domestic product (37.4%) in 2021, the consequences of SMEs only aiming to meet minimum labour treatment benchmarks rather than best practices have far-reaching outcomes in a globalised world, he warns.

“In the last 10 years, we started seeing conversations around upholding human rights in the context of companies or non-state actors. Human rights were always about getting governments to comply with the law and protecting individuals but now, the focus is shifting because companies have more muscle and wield so much power, even more than some of the smaller states.

“You start to see that these companies in their operations impact vulnerable communities, and the impact is [far-reaching] not just in their own home country but also overseas. Civil, political, economic and socio-cultural rights that need to be respected by governments should also be respected by corporations, not as and when they see fit,” says Bon.

Malaysia’s glove manufacturers Top Glove Corp Bhd, Hartalega Holdings Bhd and Supermax Corp Bhd, palm oil producers Sime Darby Plantation Bhd and FGV Holdings Bhd, and electronic manufacturing firm ATA IMS Bhd — which supplied parts to high-tech home appliance maker Dyson Ltd — are among the few that have come under global scrutiny over alleged mistreatment of their migrant workforce.

While the companies have committed to conducting their due diligence on the issues — ranging from high recruitment fees that resulted in debt bondage, excessive overtime, abusive working and living conditions to the retention of identity documents — they have suffered a severe blow to their reputations, says Bon.

In another five to 10 years, such issues will no longer be limited to export-dominated corporations but also trickle down to their supply chain — which is mostly made up of SMEs — as foreign watchdogs double down efforts on supply chain traceability, he says.

This will make it harder to escape scrutiny as Malaysia’s economy is heavily reliant on the migrant workforce and international trade is a key contributor to the country’s economic growth and development.

Although documents like the United Nations Guiding Principles on Business and Human Rights clearly outline the minimum human rights standards expected of companies, SMEs lack the resources, tools and capabilities to translate and operationalise the principles in their daily activities, says Bon.

“We thought about how to make it simpler. We set out to translate corporate responsibility into something more tangible. That’s how we came up with the tools in Business and Human Rights in Southeast Asia: A Practitioner’s GuideKit for SMEs on Human Rights Compliance regarding the Environment and Labour,” he says.

The book, jointly published by the Friedrich Naumann Foundation for Freedom Southeast and East Asia and AmerBON Advocates, was written by six human rights experts, including Bon.

The toolkit deals with issues ranging from due diligence and internal assessment to environmental risks and fair recruitment. There are templates for self-assessment, validation and scoring when hiring migrant labour through recruitment agencies. It also contains guides on how to handle workers’ grievances and steps to address issues and concerns raised by external parties.

“For example, for the Roundtable on Sustainable Palm Oil (RSPO) or Malaysian Palm Oil Certification Council to recognise that palm oil produced is from a sustainable source, the authorities need to trace right down to the workers who harvest the fresh fruit bunches that are employed by the planters,” he says.

“How do smallholders in Sabah ensure that the labourers they recruit are not trafficked? Or that they aren’t under forced labour or they’re not committing child labour? Quite a few smallholders still use children around the plantation. That’s one reason many planters find it challenging to get certification and therefore, are unable to supply their products as these are not sustainably produced.”

This is a significant problem as 40% of Malaysia’s palm oil output is produced by smallholders, Bon adds. “This makes them vulnerable as they don’t have the resources to make sure their palm oil is free from trafficking, forced labour and child labour.”

This is just the business aspect of human rights. Environmental issues come with other complications, says Bon.

“If there’s an environmental project or they are de-gazetting a forest, [there is a lot more attention] on environmental degradation. But what about the impact on the people living around and in the forests? The existence of indigenous peoples is threatened. What about the Orang Asli communities, who will have to forage for their food?”

The book is an attempt to fill the void in the SME space regarding business and human rights (BHR) compliance.

“It is only one of the many pathways to institutionalise human rights in business operations by making compliance a little less complex for smaller businesses,” says Bon.

These challenges are becoming even more complicated to navigate as reforms in the country’s labour laws and enforcement leave much to be desired. Bon, who has worked in the areas of BHR and ESG (environmental, social and governance) for decades, emphasises that forced labour is not just about putting people in shackles and chains.

“Malaysia has problems because we don’t really have a comprehensive definition of forced labour. As a lawyer, I believe there is not enough good lawmaking that will protect labourers and the environment,” he says.

“Forced labour is an offence under the Anti-Trafficking in Persons and Anti-Smuggling of Migrants Act 2007 (Atipsom) or it comes under a lesser offence under the Employment Act 1955. The [Atipsom] amendments that were recently put in place are not sufficient. The Act [Atipsom] states that it is only forced labour when the person [employed] isn’t allowed to leave the place of work.”

But forced labour is rarely just that, Bon adds.

“It is also about recruitment fees that lead to debt bondage, compulsory overtime [above the legal limits], retention of passport and physical abuse. In total, there are 11 indicators. These indicators have not been explicitly recognised in Malaysian law.”

Only by recognising these indicators as legal offences will company policies be more conclusively defined and law enforcement agencies be able to investigate offences when they occur.

In terms of the hiring of migrant workers, there is also some overlap in jurisdiction between the Ministry of Home Affairs and the Ministry of Human Resources (MoHR).

Bon continues: “The division of power such as permits, quota and enforcement of labour rights isn’t clear. A single and focused direction is needed and it cannot be achieved by having two ministries at the helm.”

The MoHR has come under fire recently for selecting only 25 companies for the recruitment of Bangladeshi workers.

“No one knows how these agencies were selected. Was there a due diligence assessment of their operations? We don’t know,” he says.

To provide some clarity on this issue, in Chapter 6 of the GuideKit, Dr Andika Ab Wahab — one of the authors and a research fellow at the Institute of Malaysian and International Studies (IKMAS) — condensed international standards into a simple tool for SMEs to assess the recruitment agencies they engage.

“At the moment, they [law enforcement officers] just deal with [these issues] in silos. If a company doesn’t pay a worker’s wage, they are told to go to the labour court. Forced labour is not seen as a combination of numerous and multi-faceted issues,” he says.

“Secondly, more [companies globally] are imposing mandatory due diligence. Companies listed on Bursa Malaysia should have a mechanism in place to make sure that their ESG policies with regard to their supply chains are clean and to ensure that what they do every day, operationally, is human rights-compliant. But we need more than just advocacy statements. Due diligence mechanisms must be implemented.”

Next is the requirement for transparency in the supply chain, Bon adds. “Some countries like Australia and the UK have anti-modern slavery registers where companies have to report on their work with their suppliers in ensuring that no forced labour is used. They have to ensure that their suppliers commit to ensuring their workers are not abused and train their suppliers while getting them to act consistently with human rights.”

At the end of each financial year, companies have to upload their reports to a public database and inform the government.

“If this is not done or the report isn’t good enough, action can be taken against the companies,” says Bon.

These are among the measures that are being discussed in the National Action Plan on Business and Human Rights (NAPBHR) that was established last year. 

The NAPBHR, which is to be ready by the end of 2023, is expected to set out the state’s duty to protect human rights, corporate responsibility to respect human rights and victims’ access to judicial and non-judicial remedies, said Datuk Seri Dr Wan Junaidi Tuanku Jaafar, the then-Minister in the Prime Minister’s Department (Parliament and Law). 

Bon, who represented Malaysia at the Asean Intergovernmental Commission on Human Rights (AICHR) from 2016 to 2018, proposed a strategic road map to develop the NAPBHR in 2019.

“We have to come up with a national baseline assessment of Malaysia’s business and human rights landscape by December. The government is then going to consider our recommendations to move ahead and draft a national action plan on BHR,” he shares.

“The national action plan should, for example, improve legislation, introduce new ones, have clear targets on just transitions for businesses and consolidate the regulatory framework for banks and financial institutions as they provide financing. Companies that want to borrow money for projects that involve impacting the environment or affecting our jungles, for example, should not be given credit loans or financing,” he says.

“It is everything the government and companies should do in a period of five years, including capacity building. Malaysia’s reputation as a country that tolerates trafficking or forced labour must end.”

Citing his experience in human rights work over the years, Bon says businesses still clam up when the term “human rights” is mentioned.

“My three years representing Malaysia on the AICHR allowed me to see from an insider’s perspective how and why states are still wary about BHR, and why non-state actors are resistant to greater regulatory compliance. Unfortunately, contrary to what we hear on the outside and in the press, most of them are pushing back against the BHR agenda and are arguing that voluntary measures and self-regulation are the way forward,” he contends in the book.

“While we take stock of the rather quick progress the BHR movement has made on companies, one should not lose sight of the underlying intention and ultimate goal of ‘sustainability’ measures. Clearly, they are not to enhance profit for businesses but to ensure that people and the planet are not harmed. Minimum human rights standards must be met,” stresses Bon in the conclusion of the GuideKit.

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