Malaysia’s glovemakers fuse ESG and tech in compliance push

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Hello reader,

Glovemaking isn’t an industry I’m familiar with. I did vaguely know that Malaysia has a number of listed glove manufacturers and that their share prices soared during the pandemic but have since come back to earth. That was about the extent of my knowledge.

Oh, I also met a senior executive from one of these companies who told me that his company also manufactured condoms – but that’s a story for another day.

I was surprised to learn that Malaysia dominates the global glovemaking industry with a dominating market share. I suppose this shouldn’t have come as a surprise – the rubber industry in Malaysia began in the 19th century and was the backbone on which many “old money” fortunes were built.

But wait, where’s the tech angle here?

As my colleague, Xavier, highlights, rising stakeholder concerns over environmental, social, and governance (ESG) compliance has driven these companies to use tech to address issues, especially around energy usage.

One company leading the charge is Mölnlycke, a Swedish company with operations in Malaysia. Xavier details how the firm’s investments in building management systems and a digitalized waste-water treatment plant are helping the company reduce its carbon footprint.

But much remains to be done. Mölnlycke is a minnow in Malaysia, with only four factories in the country, compared to the total of over 70 factories owned by the top four Malaysian glove makers: Top Glove Corporation (TOPGLOV, KLSE), Kossan Rubber Industries (KOSSAN, KLSE), Hartalega Holdings (HARTA, KLSE), and Supermax Corporation (SUPERMX, KLSE).

While these companies are making strides to improve their ESG credentials, they are still being criticized for not doing enough (on allegations of forced labor, for example). Fixing these problems is imperative since the valuations of these companies now reflect whether they are meeting ESG benchmarks.

The oil and gas industry has also faced similar challenges: Some claim that the valuations of companies in the industry have to account for the possibility of these companies carrying stranded assets on their books in the future if the world is to meet its carbon commitments.

The government also has a big role to play in Malaysia, encouraging the development of renewable energy sources, such as solar and biomass, which will help companies in energy-intensive industries like glovemaking reduce their energy use.

I’m a lot more hard-edged than others – I’m skeptical of a lot of the ESG fluff that is out there these days. Companies will take action when there is an economic incentive – Xavier makes a good case that this is indeed the case in this premium story.

— Simon

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