Views: Businesses Cannot Run Away From Human Rights Regulatory Standards

• Published date: 10 March 2023
• Subject Matter: Government, Public Sector, Human Rights
• Law Firm: AmerBON
• Author: Mr Edmund Bon

In the first part of my commentary last month, I highlighted two factors that bind ESG (environmental, social, and governance) and human rights concepts. This month, I will elaborate on why Malaysian businesses will lose out if they do not embrace the ESG-business and human rights (BHR) standards that are being driven by countries that we export to.

Slowly but surely, increased regulatory standards for due diligence, transparency in supply chains and ESG-BHR reporting will hit the operations of Malaysian companies doing business overseas. There has been a raft of foreign laws, treaties, and mechanisms driving the ESG-BHR agenda already.

It is public knowledge that several Malaysian companies have suffered from import bans, and whether rightly or wrongly, Malaysia's reputation has been bruised and battered. Our record on the issue of forced labour is quite appalling in the eyes of the global community. The bans have also disrupted the operations of our companies and supply chains. The cost of the damage for non-compliance has likely far outweighed the costs of compliance, had we imposed a higher standard for our industries.

Even as a legally binding BHR treaty is being negotiated at the United Nations, western countries are moving ahead with their own sustainability requirements on imported goods. For example, the Corporate Sustainability Reporting Directive (CSRD) of the European Union (EU) introduced mandatory reporting on how businesses (including those from outside the EU) deal with climate change and human rights issues.

Furthermore, in December 2022, the EU's Corporate Sustainability Due Diligence Directive (CSDDD) moved to the next phase of becoming law. It would require company directors to account for human rights and environmental impacts of their businesses, failing which penalties can be imposed. The CSDDD will impact remuneration policies and business operations, such as requiring due diligence to be carried out by companies doing business with the EU.

The CSRD and CSDDD may potentially apply directly to Malaysian companies generating certain amounts of revenue in the EU...