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Article

31 Aug 2021

Author:
Dezan Shira & Associates

Commentary: Thorough due diligence is important in ASEAN as stakeholders expect companies to maintain environmental, social, and governance standards in their operations

"Due Diligence in ASEAN", 31 August 2021

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Thorough due diligence is especially important in ASEAN, where foreign investors confront a host of unique challenges that may not exist in their home markets. [...]

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Stakeholders increasingly expect companies to maintain environmental, social, and governance (ESG) standards in their operations, partnerships, and supply chains, which necessitates them to undertake ESG due diligence.

In July 2021, for example, the EU released due diligence guidelines to encourage European companies to eliminate forced labor in their supply chains. In 2015, the UK passed the influential Modern Slavery Act, which aims to combat forced labor and human trafficking in the UK and abroad. Developments such as these show a trend towards legally obligating companies to be responsible for ESG violations in their global supply chains.

Companies operating in ASEAN face heightened ESG risks. The region has some of the highest levels of forced labor in the world, especially in industries relating to resources, agriculture, and fishing.

Data compiled by the rights organization Walk Free suggests that Southeast Asia has millions of victims of forced labor. Per capita, Cambodia, Myanmar, and Brunei have the highest rates of forced labor in Southeast Asia, while Indonesia, Myanmar, and Vietnam have the most violations in absolute terms.

In addition to forced labor, suppliers and contractors may engage in other labor violations, such as withholding wages and having unsafe working conditions. Other ESG risks include illegal pollution and waste disposal practices, discriminatory hiring processes, and corruption.

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Due diligence identifies risks and roots out bad actors, whether internal or external. Sustainably minimizing threats in the long run, however, requires the establishment of internal controls that bake secure practices into the company’s business processes.