US withhold release order credit negative to Sime Darby Plant
KUCHING: Moody’s Investors Service ( Moody’s) believes the US Customs withhold release order detaining palm oil products from Sime Darby Plantation Bhd (Sime Darby Plant) and its subsidiaries, joint ventures and affiliated entities in Malaysia is credit negative.
The US Customs’ order which was issued on December 30, 2020 and premised on forced labor allegations, is credit negative as it increases Sime Darby Plant’s social risks concerning its palm oil operations. This situation could damage its relationship with customers and other stakeholders.
Large losses in earnings, if any, as a result of these allegations will weaken SDP’s credit profile, it added.
“While Sime Darby Plant has stated that it has not yet received details of the allegations, we expect the company to engage with the US Customs and its various stakeholders to resolve the allegations and take any corrective actions required to protect workers’ rights,” it said in a note.
Strong labor policies and processes are essential for palm oil companies such as Sime Darby Plant to maintain credit profiles, particularly because of increasing scrutiny from stakeholders, including customers and investors, regarding environmental, social and governance ( ESG) issues associated with palm oil production.
In order to strengthen its sustainability policies and mitigate these risks, Sime Darby Plant subscribes to a number of initiatives including a policy of no deforestation, no peatland development and no labor exploitation through its Responsible Agriculture Charter and Human Rights Charter.
In recent months, Sime Darby Plant has also appointed an independent international nongovernment organization specializing in migrant worker rights to improve recruitment processes, along with PricewaterhouseCoopers to improve communication channels to address concerns around its Malaysian operations.
Anti human trafficking group Liberty Shared, recently acknowledged Sime Darby Plant’s appointment of PricewaterhouseCoopers as a positive step toward improving labor practices.
Liberty Shared had initially filed a petition with the US Customs, which eventually resulted in the detention order.
“Sime Darby Plant’s annual direct exports to the US are around US$ 5 million ( less than one per cent of revenue), which means the direct financial impact resulting from the US Customs’ order is limited,” Moody’s added.
“However, the financial impact could rise substantially if other countries or companies institute restrictions on purchasing palm oil from Sime Darby Plant.”
Following the US Customs’ order, Liberty Shared filed
complaints with Securities Commission Malaysia and the UK Home Office. Sime Darby Plant has not yet received details of these complaints.
Meanwhile, the Roundtable on Sustainable Palm Oil ( RSPO) had announced an investigation into US Customs’ allegations against the plantations firm.
In its announcement, the RSPO also stated that an initial review of audit findings last year did not generate any red flags for Sime Darby Plant and that no nonconformance had been identified on any of Sime
Darby Plant’s RSPO- certified plantations.
RSPO is an association of palm oil industry stakeholders, including environmental and social nongovernment organizations, that promotes the growth and use of sustainable oil palm products.
“While immediate risks to Sime Darby Plant’s credit profile as yet are not quantifiable, we will continue to monitor developments around these allegations and the impact upon its credit profile,” Moody’s said.