KUALA LUMPUR: The modification of forced labour finding by the United States (US) Customs and Border Protection (CBP) is credit positive for Sime Darby Plantation Bhd (SDP) as its serves as acknowledgment from an independent third party that the company's products under scrutiny were no longer being produced with forced labour, said Moody's Investors Service.

In a note today, it said this also removes the risk of further sanctions as a result of forced labour finding by the US CBP in January 2022, which could have led to a weakening in SDP's credit quality if left unchecked.

On Feb 3, the US CBP had permitted the importation of palm oil from SDP into the country with immediate effect as it has modified its forced labour finding against SDP.

"The finding will help to lower social environmental, social, and governance (ESG) risks by improving SDP's relationships with stakeholders, which otherwise might have considered restricting their ties with the company if the allegations of forced labour were not addressed and resolved," it said.

Furthermore, the rating agency said these restrictions could have included customers placing limitations on purchasing SDP's products or lenders pulling funding because of sustainability policies that prevent lending to companies with alleged violations of international labour standards.

"The US CBP determination came on the back of SDP proactively engaging with its stakeholders and enhancing its labour practices, particularly over the past two years," it said.

Moody's also said that SDP's enhanced sustainability practices also extend to environmental considerations, including the release in December 2022 of a detailed framework to achieve net zero emissions across its entire value chain by 2050.

"Such efforts, along with the company's conservative financial policies, ensure ESG considerations only have a moderately negative credit impact (CIS-3) on SDP, despite highly negative credit exposure to the environmental (E-4 Issuer Profile Scores - IPS) and social (S-4 IPS) risks associated with palm oil production," it added.

 - BERNAMA