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Green Economy Blog
Red Flags on Social Risk
02.12.2009 17:55 von
Manuela Fröhlich
Dear Reader,

as Asian multinationals rise up the global league tables, business risks linked to human rights, labour standards and other social factors can no longer be neglected, as they will increasingly lead to operational bungles and brand damage, just as they have in the case of their better-known western peers.

As highlighted in F&C's Q3:07 reo report, Asian energy companies have come to dominate the oil export market in Sudan, and begun to suffer the operational risks that have long plagued their Western peers, as exemplified by the kidnapping and murder in late 2008 of three Chinese oil workers from CNPC. In June 2009, F&C and fellow investors met in instabul with both CNPC and India's ONGC, who also has a large Sudanese operation, to discuss practical responses to managing the human rights and security risks in conflict-affected countries. We also continued our ongoing engagement discussions on the subject with Malaysia's Petronas under the auspices of the UN PRI Sudan Engagement Working Group. Through these dialogues, F&C is encouraging these companies to take steps to pro-actively manage human rights-related risks and to develop effective working relationships with local communities.

Meanwhile, we travelled to Kuala Lumpur to meet with palm oil producer Sime Darby to encourage the company to undertake a full human rights impact assessment of its Liberian operations, where post-conflict land mines are creating significant operational challenges. We likewise met with tyre-maker Bridgestone following allegations of using child labour in its rubber plantations. We encouraged both companies to evaluate how their business can positively contribute to economic development while avoiding exacerbating ongoing human rights abuses.

Back in their home markets, many Asian companies still have yet to address ongoing concerns related to labour standards in their factories and supply chains. The global recession initially led to significant pressure to reduce inventories and cut costs - now the recent resurgence may drive factories to raise production levels while still operating on a lean cost base, raising the risk of excess overtime and potential corner-cutting. Indeed, recent press reports reveal allegations of labour abuses at Foxconn International, supplier of Apple's blockbuster iPhone, after an employee committed suicide. F&C contacted the company for clarification following the incident, and has asked management of both Foxconn and parent company Hon Hai Precision Industries to report on their management systems and performance track record in implementing their industry code for factory labour standards. As highlighted in its January 2009 report Factory Labour Standards in Emerging Markets, company progress in managing labour standards diverges widely, with Asian companies largely lagging their Western peers in reporting on workplace management systems and monitoring compliance with industry standards. In follow-up to our report, and in light of NGO allegations of poor practices, we wrote to Hong Kong-based footwear manufacturer Yue Yuen to ask it to bring its policies regarding labour standards and human rights into line with international standards and to report on progress in implementing these policies. We await a reply.

Manuela Fröhlich
Keywords: F&C, Corporate Governance, Nachhaltige Investments, Responsible Engagement Overlay, REO, Foreign & Colonial Investment Trust, F&C Social Responsbile Investments
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