KUALA LUMPUR – Moody’s Investors Service said the United States Customs and Border Protection withhold release order (WRO) against palm oil giant Sime Darby Plantation Bhd’s (SDP) products, which is premised on forced labour allegations, is credit negative.
The rating agency said this situation could damage SDP’s relationship with customers and other stakeholders, while large losses in earnings, if any, could weaken its credit profile.
The WRO was issued by the US Customs last week based on information that it said “reasonably indicates” the presence of all 11 of the International Labour Organisation’s forced labour indicators in SDP's production process.
The order constitutes detaining any palm oil and products manufactured by SDP and its subsidiaries or affiliates.
“While SDP has stated that it has not yet received details of the allegations, we expect SDP to engage with US Customs and its various stakeholders to resolve the allegations and take corrective actions required to protect workers’ rights,” Moody’s said in a statement today.
It said strong labour policies and processes, such as maintaining credit profiles, are essential for palm oil companies.
“(This is) particularly because of increasing scrutiny from stakeholders, including customers and investors, regarding environmental, social and governance issues associated with palm oil production,” it added.
In order to strengthen its sustainability policies and mitigate these risks, SDP has said it subscribes to a number of initiatives, including a policy of no deforestation, no peat-land development and no labour exploitation through its Responsible Agriculture Charter and Human Rights Charter.
Moody’s noted that SDP has also appointed an independent international non-governmental organisation specialising in migrant worker rights to improve recruitment processes, along with audit firm PriceWaterhouseCoopers to improve communication channels to address concerns around its Malaysian operations.
“While immediate risks to SDP’s credit profile as yet are not quantifiable, we will continue to monitor developments around these allegations and the impact upon SDP’s credit profile,” it said. – Bernama, January 7, 2021
