Shaped By High Standards Of Governance ANNUAL INTEGRATED REPORT 2022 167 Statement on Risk Management and Internal Control CLIMATE Description In recent years, the country has experienced an increase in the frequency and severity of extreme weather events, particularly floods and droughts. These adverse weather conditions have a significant impact on the crop-ripening process as well as harvesting ability and ultimately, FFB yield. Prolonged droughts can affect oil palm inflorescence and lead to bunch failure in the short to medium term. Similarly, floods can limit access to estates and result in the loss of FFB that may be submerged in flood waters, ultimately leading to low crop recovery. Key Mitigations To mitigate the impact of adverse weather and extreme climate conditions on FFB yield, FGV implements good agricultural practices such as moisture conservation and mulching, especially for immature palms. In selected flood-prone estates, bunds are constructed, drainage systems are enhanced and flexible harvesting arrangements are implemented as part of mitigation and response efforts. In addition to these measures, FGV has made a commitment to becoming a net zero emissions business by 2050. As the first plantation company in Malaysia to formalise this commitment, FGV has signed the United Nations-backed Science-Based Target initiative (SBTi) Business Ambition for 1.5°C pledge throughout its value chain. SUSTAINABILITY Description The palm oil industry remains under close scrutiny for its sustainability practices, including concerns related to labour rights, deforestation and climate impact. The allegations of forced labour incidents in FGV’s palm oil plantations have had a negative impact on the Company’s reputation and business operations. This is evident from the continued suspension of Roundtable on Sustainable Palm Oil (RSPO) certification and action taken by the US CBP. Key Mitigations To mitigate these challenges, FGV has developed remedial plans to address human and labour rights concerns. In addition to the measures already in place, FGV has taken steps to improve living and working conditions, strengthen recruitment action plans and enhance product traceability. FGV has partnered with the Fair Labor Association (FLA), an international association working to promote and protect workers’ human rights and improve working conditions. Additionally, FGV has engaged an independent assessor to assess its human and labour rights practices, facilitate the development of remedial plans and verify implementation of remedial plans to address the gaps identified by the US CBP. Description FGV’s estate operations require significant manual labour and are dependent on migrant workers. However, the prolonged labour shortages since the outbreak of the COVID-19 pandemic in 2020 have resulted in lower FFB yields, sales and profitability. Although the pandemic has eased in many parts of the world, with countries beginning to open their borders and ease economic and social restrictions in the first half of the year, FGV continues to experience a gradual recovery from labour shortages that have negatively impacted estate productivity. LABOUR Key Mitigations FGV has taken several steps to address these challenges. These include increasing mechanisation to reduce reliance on manual labour and implementing more structured block crop recovery work arrangements for more efficient harvesting. Additionally, FGV has prioritised the creation of a conducive working environment, implementing corporate social responsibility programmes, establishing a one-stop centre for new hires and setting up grievance channels and management for migrant workers. Labour Shortages Allegations of Forced Labour Extreme Weather
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