Practising human rights due diligence in the palm oil industry

The United Nations Guiding Principles on Business and Ruman Rights (UNGPs) defines HRDD as a process of identifying, preventing, mitigating, and accounting for any human rights violations.

Sime Darby plantation workers' houses
An aerial view of Sime Darby Plantation workers’ houses in Tennamaram estate in Selangor. Image: Sime Darby

Concerns over labour rights abuse in Malaysia’s palm oil sector has put the industry under scrutiny in recent years. In 2022, the Human Rights Commission of Malaysia (SUHAKAM) found that eight out of every 1,000 workers in the palm oil plantation sector in Malaysia were subjected to forced labour.

One important solution to this is the application of human rights due diligence (HRDD), which the United Nations Guiding Principles on Business and Human Rights (UNGPs) defines as a process of identifying, preventing, mitigating, and accounting for any human rights violations. It is used to assess labour practices within a company’s own operations and throughout their supply chain.

In the palm oil industry, HRDD is applicable to upstream companies such as palm oil producers and mills and also to mid and downstream companies such as traders, manufacturers and retailers.

At the launch of the People-Positive Palm (P3) First Learning Series Workshop in March 2023, Malaysia’s deputy prime minister Dato’ Sri Fadillah Yusof reminded companies in the palm oil sector that HRDD should not be seen as a burden, but as an advantage that helps businesses lead by example.

The HRDD process consists of four components:

  1. Identifying and assessing actual or potential human rights impacts: For example, conducting human rights risk assessments of own operations and third party suppliers.
  2. Acting upon findings and embedding human rights considerations into existing processes and departments: For example, developing an action plan which includes a clear timeline, and specific actions that will respond to the human rights impacts identified.
  3. Tracking the effectiveness of actions taken to understand if the human rights impacts are being addressed: For example, establishing grievance mechanisms or grievance tracking systems.
  4. Communicating to stakeholders on the actions taken to address the risks and human rights impacts, and the effectiveness of human rights actions: For example, reporting to rights-holders how impacts have been addressed i.e., through sustainability reports.

When combined, these components guide a company’s management in ensuring that they know and are able to show how the company is respecting human rights in practice.

To better understand how Malaysian palm oil players have implemented better human rights practices, we examine two companies in the sector: Sime Darby Plantation (SDP) and FGV Holdings.

Case study 1: Sime Darby Plantation (SDP)

SDP is the world’s largest producer of Certified Sustainable Palm Oil (CSPO) and one of the founding members of the Roundtable on Sustainable Palm Oil. It has a presence in over 90 countries.

Rashyid Redza Anwarudin, Sime Darby Plantation

Rashyid Redza Anwarudin, chief sustainability officer, Sime Darby Plantation Berhad (SDP).

Q&A with Rashyid Redza Anwarudin, chief sustainability officer

In this interview, SDP’s chief sustainability officer Rashyid Redza Anwarudin shares his views on key human rights issues and how the company addresses them.

Why are human rights such an important issue for the palm oil industry?

Historically, the palm oil industry has been one of the most scrutinised industries in the world when it comes to sustainability practices. In the past five years, there’s been a lot more emphasis on the human rights and labour side of things. In Malaysia, the palm oil industry is the second largest employer after the government, so we need to make sure that employment is conducted in a responsible manner, through the implementation of fair labour practices. We also work in some of the most remote locations in the world, so we must respect the communities and the locations we operate in.

What are some human rights issues that are of major concern to SDP and the palm oil industry?

One key issue is forced labour, because the industry employs many migrant workers. We’ve spent the last three years enhancing our practices [to combat forced labour] and we want to replicate our Malaysian practices across our operations in Indonesia, Papua New Guinea, and the Solomon Islands. Other issues are land rights and the health and safety of workers.

How does SDP address human rights issues?

We take a holistic approach towards HRDD. First, we have our human rights charter, which is a policy commitment from the very top. All our operations undergo internal audits and external audits. We have a dedicated team which conducts internal assessments based on the RSPO (the Roundtable on Sustainable Palm Oil) and MSPO (Malaysian Sustainable Palm Oil) schemes. We have also made available various grievances channels and social dialogue platforms for our workers, and ensure they are aware of these channels and are comfortable using them.

Sime Darby plantation workers' houses

An aeril view of Sime Darby Plantation workers’ houses in Tennamaram estate in Selangor. Image: Sime Darby

Sime Darby Plantation estate workers

Sime Darby Plantation Estate workers. Image: Sime Darby

How Sime Darby Plantation overturned the US ban

In December 2020, the US Customs and Border Protection (CBP) banned goods produced by SDP from entering the United States over suspected labour abuses. SDP was not informed of the specific issues or instances of labour abuses, said Rashyid. The ban was ended in 2023, and these three key steps taken by SDP were crucial in lifting the ban:

1. Enhancing worker voices
In order to provide more avenues for migrant workers to raise their issues, SDP established a third grievance channel at its headquarters, which is independent from operations and reports to the grievance committee, which in turn reports to the board sustainability committee. Grievances from all channels are then funneled to headquarters, which then decides which party should conduct the investigation. The new channel, which can be accessed via multiple platforms including WhatsApp, Facebook Messenger, and email, saw an immediate uptick in usage. This suggested that workers trusted it. “We saw a 60 per cent increase in the numbers of grievances that we received [after the channel was implemented],” said Rashyid. SDP also introduced “social dialogues”, whereby the management of each operating unit would meet with workers’ representatives every two weeks to discuss issues.

2. Enhancing worker experience
Despite having a zero-recruitment fee policy in place since 2015, SDP undertook an assessment and discovered that there were still instances of workers having to pay fees to come and work in Malaysia. To tackle this issue, SDP reimbursed all current and former workers who had to pay recruitment fees. The company also hired a consultant to design an enhanced recruitment process. Added measures included holding an open tender recruitment process and conducting on-site due diligence in Indonesia to ensure agents there comply with the new procedures. SDP also addressed complaints about poor housing conditions for migrant workers and launched a dedicated app for employees to raise issues on housing. A dedicated handyman was employed in selected areas to perform housing repairs.

3. Sustaining the change
To ensure that the above enhancements are maintained, SDP reexamined its governance and organisation structure. The company set up a social welfare services team, which is responsible for assessing and inspecting operating units to ensure compliance to the new policies and procedures. The company also recently introduced an environmental, social and governance (ESG) scorecard.

Case study 2: FGV Holdings

FGV Holdings Berhad is a Malaysian based global agri-business and food company, with operations in nine countries across Asia, North America, and Europe. In 2020, FGV was banned by the U.S. Customs and Border Protection (CBP) due to allegations of forced labour.

Nurul Hasanah Ahamed Hassain Malim, FGV Holdings

Nurul Hasanah Ahamed Hassain Malim, head of group sustainability, FGV Holdings.

Q&A with Nurul Hasanah Ahamed Hassain Malim, head, group sustainability division 

We spoke with the head of group sustainability at FGV Holdings, Nurul Hasanah Ahamed Hassain Malim, to find out how FGV is addressing its human rights concerns.

In 2020, FGV faced a ban by US CBP due to allegations of human rights abuses. What actions have FGV taken in response and what lessons did FGV take from this incident?

Although we were not shown proof of forced labour alleged in FGV’s operations, the US ban was enough to dent our reputation. We were told that in order to get the ban lifted, we would have to submit a third-party report to US CBP to show that any indicators of forced labour have been mitigated and eliminated through our action plans.

We are currently rolling out our action plan rigorously and plan to submit the final report as soon as possible. Included in our action plan is the reimbursement of recruitment fees, as some workers claim they had to pay a fee to enter Malaysia. We have completed the reimbursement of close to RM74 million total for our existing workers.

FGV has reinforced its due diligence on the appointment of recruitment agencies through a pre-sourcing mechanism to evaluate prospective recruitment agencies on their commitment to human rights and labour standards. This was followed by a due diligence exercise in the source countries where recruitment agencies were further evaluated on their operational processes and facilities.

Besides that, we conducted training for the recruitment agencies on responsible and ethical recruitment. Through this enhanced due diligence mechanism, in 2022, three recruitment agencies were suspended for failing to comply with FGV’s ethical recruitment requirements.

Additionally, in 2023 FGV engaged an external independent organisation to oversee its recruitment of migrant workers. Each of the recruitment agents retained by FGV shall be assessed by this organisation on responsible and ethical recruitment practices. Workers are also interviewed on their recruitment experiences.

Where gaps are found, recruitment agents are expected to implement a corrective action plan to address those gaps. FGV will only engage recruitment agencies which demonstrate commitment and efforts to continuously implement responsible and ethical practices.

In addition to that, we are working to further improve the living conditions of our workers such as their housing facilities and access to internet and will be expecting to spend over RM 600 million in the next three years.

We have also strengthened our grievance mechanism by revising policies and procedures to ensure greater effectiveness. We introduced a grievance channel through a mobile app directly accessible by workers. The app is able to receive complaints in multiple languages and methods including voice recordings.

What types of pressure does FGV face in ensuring human rights due diligence is conducted? Which key stakeholders are applying this pressure?

We are increasingly seeing pressure [to ensure human rights standards are maintained] from investors and banks. It has been quite glaring recently. Investors are asking us to prove our compliance to human rights standards and asking if we have done our due diligence. When I started working at FGV in 2019, this pressure mainly came from customers, and before that it was from non-governmental organisations.

Are there any structural or policy barriers FGV faces in ensuring human rights compliance?

One issue the government needs to clarify is about working hours. We have been facing pressure to comply with the international requirement of 60 maximum working hours inclusive of overtime, whereas the Malaysian law is different, whereby overtime can go up to 104 hours. We have informed our stakeholders, customers, and investors that where there are inconsistencies in standards, we will comply with the requirements of Malaysian standards.

Our stand is to align our standards with the Malaysian government and be involved in whatever consultation the government is doing with regards to improving the employment act or employment policies.

MSPO: Placing Greater Emphasis on Human Rights

The Malaysian Sustainable Palm Oil Production (MSPO) certification scheme, owned by the Malaysian Palm Oil Certification Council (MPOCC), is endorsed by the Malaysian government for oil palm management and supply chain certifications covering plantations, independent and organised smallholdings and palm oil processing facilities in Malaysia. In addition to addressing issues such as deforestation and biodiversity loss, MSPO also addresses social issues such as employment, work conditions, child and forced labour.

The revised MSPO standards (MS 2530:2022) was launched in March 2022. “We have incorporated a lot more human rights elements in the new standard as compared to the previous standard. This includes no discrimination of gender, race, and other relevant criteria,” said Tan Chee Yong, manager, technical outreach & extension service unit, strategic management department, MPOCC. MPOCC is currently in the process of completing the guideline document and the new standard is expected to be fully implemented by 2025.

“We have also incorporated the International Labour Organisation (ILO) Indicators of Forced Labour and the ILO Decent Work Agenda into our standards,” said Tan.

Besides ensuring that the MSPO is operating in a rigorous manner, MPOCC also helps to raise awareness on human rights issues amongst palm oil companies. “The palm oil industry in Malaysia is more than 100 years old, and we have a lot of small and medium industries who may not be up to date [on human rights issues],” said Tan. “We go to the ground and reach out to all segments of the palm oil industry and explain about regulations regarding workers and human rights.”

This article was first published on Bursa Sustain, Bursa Malaysia’s one-stop knowledge hub that promotes and supports development in sustainability, corporate governance and responsible investment among public-listed companies.

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