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CASE STUDY Environmental, Social & Governance (ESG) Mired by allegations of forced labour and shoddy work conditions, Malaysia's Top Glove faces mounting pressure to address shortcomings on environmental, social and governance (ECG) issues. The largest maker of rubber gloves worldwide benefited from a surge in demand sparked by the coronavirus. For the six months through February, net profit soared 22 times on the year to 5.22 billion ringgit ($1.27 billion) while sales rose 315% to 10.12 billion ringgit. But as vaccinations reduce infections in some countries, the company is grappling with the challenge of satisfying stakeholders in a post-pandemic world. Top Glove declared 2021 as the "year of ESG" in its earnings release for the March-May quarter. It set a series of detailed goals, from reducing water consumption by 12% by fiscal 2024 to capping independent directors at a nine-year tenure and linking executive compensation to ESG deliverables. Improving labour conditions featured prominently in Top Glove's plans. The company said it will invest 201 million ringgit to build housing for 14,200 migrant workers, to create channels for whistleblowing in workers' native languages and ensure greater transparency in the recruitment process. "We aspire to be the glove manufacturer of choice for customers, driven by the integration of sustainability into every aspect of our business," a Top Glove executive said. Companies worldwide increasingly see ESG factors as a priority, and many have embraced detailed targets to improve on these issues. But Top Glove's plans are driven largely by global criticism over alleged labour abuses. U.S. Customs and Border Protection issued a detention order blocking certain imports from Top Glove in July, citing the suspected use of forced labor - a concern where nongovernmental organizations had also raised in the past. The company at the time said most of its labor issues had been resolved, and predicted the U.S. order would last for about two weeks. But Top Glove made headlines again in November 2020, this time after its Malaysian factories became a hotbed for the coronavirus. Over 5,000 employees, or one-quarter of its workforce, had tested positive. Still, Top Glove's woes have worsened. In March 2020, Customs and Border Protection expanded its detention order to all gloves produced by the company in Malaysia. These setbacks have dealt a blow to earnings. Top Glove's sales in North America, its biggest market, fell 68% by volume on the year in the March-May period. On Monday, Bursa Malaysia said it will remove Top Glove and three other companies from an ESGfocused stock index. The change likely will deter investments from institutional players who track this index. It remains unclear how quickly Top Glove can meet its new ESG goals."We used to live 28 people to a room," one Nepalese worker at Top Glove's Klang plant, near Kuala Lumpur, told Nikkei. "Now, after the various investigations, 22 people share one dorm room. It is still very crowded. "Working conditions on the production line are very humid and very uncomfortable," he said, especially during long shifts. Adrian Pereira, executive director at the human rights-focused non-profit North-South Initiative, said Top Glove has yet to address many questions regarding its ESG initiative. "Are all the migrant workers now directly hired by Top Glove?" Pereira said. "With all those profits, are migrant workers being given a decent wage or still the minimum wage as set by Malaysia? Where is the migrant workers union? What happens to the migrant workers once global demand drops due to vaccinations or automation?" Rubber gloves are a key export for Malaysia. Top Glove's domestic rivals also have faced pressure over ESG shortfalls, like the fees charged to migrant workers by their recruiters. Hartalega Holdings this month said it reimbursed workers 41 million ringgit for recruitment fees, while Kossan Rubber Industries paid 54 million ringgit. "The governance of migrant workers in Malaysia is absolutely terrible," said Andy Hall, an expert on migrant worker rights. "It's some of the worst that I've ever seen in the world." (Source: TAKASHI NAKANO, NikkeiASIA staff writer June 18, 2021) Question Outline and interpret the key components of a typical ESG program, and apply them to the issues allegedly faced by Top Glove among the business community and stakeholders. (2000 words) (Total: 100 marks) Question No. Assessment Criteria Weightage Marks Allotted by Lecturer Outline the key components of ESG (3 points x 20 marks: 60 marks)