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SINGAPORE – Muddled by allegations of forced labor and poor working conditions, Malaysian group Top Glove faces increasing pressure to address gaps in the environment, society and governance.
The world’s largest rubber glove maker has benefited from a surge in demand triggered by the coronavirus. For the six months to February, net profit climbed 22 times over the year to 5.22 billion ringgits ($ 1.27 billion) while sales increased 315% to 10.12 billion of ringgits. But as vaccinations reduce infections in some countries, the company grapples with the challenge of keeping stakeholders happy in a post-pandemic world.
Top Glove declared 2021 as “the year of ESG” in its March-May quarterly results release. It set a series of detailed targets, ranging from reducing water consumption by 12% by fiscal year 2024 to capping independent directors for a nine-year term and establishing a link between executive compensation and ESG deliverables.
Improving working conditions featured prominently in Top Glove’s plans. The company said it would invest 201 million ringgit to build housing for 14,200 migrant workers, create whistleblower channels in workers’ native languages and ensure greater transparency in the recruitment process.
“We aspire to be the glove manufacturer of choice for customers driven by integrating sustainability into all aspects of our business,” said a Top Glove executive.
Companies around the world increasingly see ESG factors as a priority, and many have adopted detailed goals to improve these issues. But Top Glove’s plans are largely motivated by global criticism of alleged labor abuses.
U.S. Customs and Border Protection issued a detention order blocking some Top Glove imports in July, citing the alleged use of forced labor – a concern that non-governmental organizations had also raised in the past.
The company said at the time that most of its labor issues had been resolved and predicted the US order would last around two weeks.
But Top Glove made headlines again in November, this time after its Malaysian factories became a hotbed for the coronavirus. More than 5,000 employees, or a quarter of its workforce, have tested positive.
Investors urged the company to make improvements. BlackRock said its board “has failed in a key aspect of its oversight responsibility as it has failed to identify and define policies to manage risks, including the health and safety of workers living. in his dormitories “. The US asset manager voted against the reappointment of six independent Top Glove directors at a general meeting of shareholders in January.
Workers line up to leave Top Glove’s Klang factory after a shift. More than 5,000 company employees tested positive for COVID-19 late last year. © Reuters
Still, Top Glove’s woes got worse. In March, Customs and Border Protection extended their detention order to all gloves produced by the company in Malaysia.
These setbacks took a toll on profits. Top Glove’s sales in North America, its largest market, fell 68% in volume over the year over the March-May period.
On Monday, Bursa Malaysia announced it would remove Top Glove and three other companies from an ESG-focused stock index. The change is likely to discourage investment from institutional players who track this index.
It is not yet clear how quickly Top Glove can achieve its new ESG goals.
“We used to live 28 people in one room,” a Nepalese worker at the Top Glove factory in Klang, near Kuala Lumpur, told Nikkei. “Now, after the various surveys, 22 people share a dormitory. There are always a lot of people.”
“The working conditions on the production line are very humid and very uncomfortable,” he said, especially during long shifts.
Adrian Pereira, executive director of the North-South nonprofit human rights initiative, said Top Glove has yet to answer many questions regarding its ESG initiative.
“Are all migrant workers now directly employed by Top Glove? Pereira said. “With all these benefits, do migrant workers receive a living wage or still the minimum wage set by Malaysia? Where is the migrant workers union? What happens to migrant workers once global demand drops because of vaccinations or automation? “
Top Glove chairman Lim Wee Chai believes the latest setbacks will have a limited impact on the company’s plans, such as its now delayed secondary listing in Hong Kong.
“Registration in Hong Kong is for the long term, but the [U.S. customs] the delay is only temporary, ”he said.
Lim founded the company in 1991 and made it the world’s largest manufacturer of rubber gloves in one generation. But it must now tackle governance reforms if the company intends to put its labor problems aside for good.
Rubber gloves are a key export for Malaysia. Top Glove’s domestic rivals have also come under pressure due to ESG shortcomings, such as fees charged to migrant workers by their recruiters. Hartalega Holdings said this month that it reimbursed workers 41 million ringgit for recruitment fees, while Kossan Rubber Industries paid 54 million ringgit.
“The governance of migrant workers in Malaysia is absolutely terrible,” said Andy Hall, an expert on migrant workers’ rights. “It is one of the worst I have ever seen in the world.”
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