Top Glove ousted from three ESG-related indexes in latest review

Top Glove's shares are dual-listed in Singapore and Malaysia.
Top Glove's shares are dual-listed in Singapore and Malaysia.PHOTO: AFP

SINGAPORE (THE BUSINESS TIMES) - Top Glove Corporation has been removed from three indexes based on environmental, social and governance (ESG) factors - namely the FTSE4Good Bursa Malaysia Index, Asean 5 and Emerging Markets Index - following the FTSE4Good Index Semi Annual Review.

In a media release on Monday (June 14), Bursa Malaysia announced a total of four deletions from the FTSE4Good Bursa Malaysia Index. The three other companies that were removed from the index were George Kent Malaysia, IOI Properties, as well as a stapled security comprising KLCC Property and KLCC real estate investment trusts.

There were also six new additions to the index, namely DKSH Holdings Malaysia, Heineken Malaysia, Mah Sing Group, MNRB Holdings, Pos Malaysia and Unisem Malaysia.

All constituent changes will take effect at the start of business on June 21, said Bursa Malaysia.

With the latest additions and deletions, the FTSE4Good Bursa Malaysia Index now has a total of 76 constituents.

The FTSE4Good Bursa Malaysia Index, which was launched in December 2014 with a total of 24 constituent companies, analyses companies' ESG compliance across 14 themes including climate change, anti-corruption, corporate governance and labour standards. The index uses more than 300 quantitative and qualitative indicators, and is reviewed semi-annually in June and December.

In a note on Monday, UOB Kay Hian analysts said that Top Glove's removal from the ESG indexes could be in tandem with the detention and withhold release orders (WRO) that have been issued by the United States Customs and Border Protection (CBP).

However, the analysts noted that both FGV Holdings and Sime Darby Plantations are still in the FTSE4Good Index despite having been on the receiving end of US CBP detention orders.

The CBP had issued a WRO against Top Glove in July last year based on "reasonable but not conclusive information" that multiple forced labour indicators exist in Top Glove's production process.

Top Glove was again rapped by the CBP on March 29 after it discovered forced labour practices in the company's production of disposable gloves. Under the CBP's direction, disposable gloves manufactured in Malaysia by Top Glove arriving at all ports of entry in the US were seized.

On the issue of forced labour, the analysts said that migrant worker and labour rights activist Andy Hall has been a trigger factor that has sparked growing concerns of alleged forced labour among Malaysian manufacturers and companies.

"His research and influence appear to be spreading, having submitted an increasing number of petitions to the US CBP alleging forced labour in the operations of several local manufacturers and plantation companies," said the analysts.

Companies that Mr Hall has filed petitions against include plantation names such as FGV Holdings and Sime Darby Plantations, as well as Top Glove and other glove manufacturers such as Hartalega and Supermax.

In response to a request for comment, Mr Hall told The Business Times that Top Glove has become an "industry leader in ESG issues" in the current year.

Mr Hall added that his petition for Top Glove to be removed from the index was also submitted about a year ago, and "much has changed since then".

"Investors and classification schemes are too slow to adjust to the changing situation on the ground, and hence are out of date," he said.

"Top Glove's recent removal from the FTSE4Good Index, when companies with poor ESG records in gloves, electronics and palm oil still remain included, only exemplifies the irrelevance of this kind of ESG index for investors in reflecting in a timely manner the reality on the ground."

Top Glove's shares are dual-listed in Singapore and Malaysia. The group also has plans to list in Hong Kong, and has reiterated its commitment to the listing despite recent reports about a potential delay.

Top Glove shares ended Tuesday 1.9 per cent, or three cents down, at $1.55 on the Singapore bourse, and 0.6 per cent, or three sen lower, at RM4.74 on the Malaysian bourse.