This is particularly significant in Malaysia, a member of the International Labour Organization (ILO), where companies are obligated to uphold the core labour standards set by ILO, demonstrating their commitment towards global labour rights.

To align itself with international labour standards and practices, Malaysia has enacted various pieces of employment-related legislation. This article explores the relevant employment law provisions which can enhance companies’ ESG performance.

How is Employment Law related to ESG?

Employment Law is strongly connected to ESG, especially in the areas of “Social” and “Governance”.

In the Social dimension, these themes are relevant to ESG:

1. Fair treatment and Equal Opportunity

• Employees should be treated fairly and equally without favouritism

2. Workplace Health and Safety

• Employees should be provided a safe and healthy environment to work in, free from hazards

3. Work-life Balance

• Employees should be offered flexibility in terms of working hours where possible

4. Diversity and Inclusion

• Employees should not be discriminated for their appearance, race or religion

5. Working Conditions

• Employees should be working in safe and healthy working conditions without disregard towards employees with disabilities

Whereas in the Governance dimension, these themes are relevant:

1. Legal Compliance

• Create company policies to address whistleblowing, conflict of interests, anti-discrimination and anti-harassment

2. Transparency and Reporting

• Ensure company policies adhere to international labour standards (the ILO conventions and United Nations Guiding Principles on Business and Human Rights)

3. Stakeholder Engagement

• Working with trade unions and worker representatives

While not exhaustive, these themes are important considerations for ESG since employees are the driving force behind a company’s success.

By prioritising employee well-being and rights, companies can not only meet their ESG standards but also enhance the productivity of their employees.

Conversely, neglecting these principles can result in bad and unethical labour practices being exposed on social media, leading to possible boycott and long-lasting reputational damage to companies.

Employment Legislations Relevant to ESG Compliance

1. Employment Act 1955 for Peninsular Malaysia (East Malaysia: Sabah Labour Ordinance and Sarawak Labour Ordinance)

• Employees are guaranteed basic rights (sick leave, annual leave, maternity and paternity leave, overtime pay)
• Some provisions are not applicable for employees whose monthly wages exceeds RM4,000.00
• These provisions will prevail over any unfavourable provision in employment contracts which makes an employee worse off

2. Employees’ Social Security Act 1969

• Ensures all eligible employees are insured
• Provides benefits for injured and disabled employees or their dependants after suffering an employment injury

3. Workmen’s Compensation Act 1952

• Applies to foreign employees defined as “workman” earning not more than RM500 per month and all manual workers irrespective of their wage
• Provides benefits for injured and disabled foreign employees or their dependants after suffering an employment injury

4. Employment Insurance System Act 2017

• Provides benefits for eligible employees who have lost their jobs for up to 6 months

5. Occupational Safety and Health Act 1994

• Employers with 5 employees or more are obligated to appoint an Occupational Safety and Health Coordinator
• Employers with 40 employees or more must establish a Safety and Health Committee

6. National Wages Consultative Council Act 2011

• pursuant to Section 23, the Malaysian Government is obligated to review minimum wage every 2 years and produce a Minimum Wages Order

7. Employees’ Minimum Standards of Housing, Accommodations and Amenities Act 1990

• Employers required to create a safe, clean and comfortable environment when providing housing, accommodation and facilities for their employees

8. The Children and Young Persons Employment Act 1966

• Provides protection for children (under the age of 14 years) and young persons aged 14 to 16 years old) in terms of the type of work they can do, their hours and conditions of work

9. Anti-Sexual Harassment Act 2022

• Created the Tribunal for Anti-Sexual Harassment to hear complaints of sexual harassments (faster and cheaper alternative for complainants to seek redress compared to courts)

Conclusion

While companies often prioritise high-profile ESG issues that attract significant public and investor attention, such as carbon emissions, water stress and toxic emissions they may inadvertently overlook fundamental employment law provisions.

This oversight can lead to legal, financial, and reputational risks, undermining their long-term ESG performance.

On the contrary, companies that abide by the abovementioned laws can demonstrate their commitment to protecting and upholding workers’ rights, which not only helps attract new talent but ensures the continued satisfaction and loyalty of current employees.

Should you require further advise on this, please do not hesitate to contact us.

PS: This article is written with the assistance of our pupil-in-chambers, Amelia Lo. We will be writing more on ESG in due course, stay tuned!