MISC Integrated Annual Report 2020

COMPLIANCE GOVERNANCE STRUCTURE MISC’s Compliance, Legal, Corporate Secretarial and Compliance (LCSC) department provides oversight, coordination, consultation and validation of MISC’s state of compliance. The Compliance function assists the Board of MISC (Board), the Board Audit and Risk Committee (BARC) and Management in coordinating compliance risk management activities (i.e. programmes or activities to identify, mitigate, and educate employees about the compliance risk and compliance obligations). The following outlines the main roles and responsibilities in the compliance function: In 2020, our efforts were focused on fortifying our governance culture. We enhanced our people’s capability and competency in terms of ethics and integrity through a variety of initiatives that sought to create a mature and robust compliance and ethics culture. With 2020 marking the final year of MISC’s Compliance and Ethics Programme 2016–2020, we conducted a Compliance and Ethics benchmarking exercise to review and assess our outcomes. We also conducted a Compliance Culture Survey to validate the results of the benchmarking exercise. I am happy to report that we have exceeded the 2020 targets we had set ourselves under the Compliance and Ethics Programme which was to achieve the robust maturity level by 2020. As denoted by the robust maturity level, ethics and integrity have now become a part of all MISC’s business conducts and transactions. Another achievement on our governance front is obtaining the rating of 5/5 for the governance element in the FTSE4Good Index for the second consecutive year. Bearing in mind our future focus on expanding our presence into new jurisdictions worldwide, the OPERATING RESPONSIBLY VICE PRESIDENT’S REMARKS AUSMAL KARDIN Vice President, Legal, Corporate Secretarial and Compliance strengthening of our ethics and integrity culture places us on firm foundations to continue with our global journey of growth in an ethical, transparent and accountable manner. We were well prepared for the new section 17A of the Malaysian Anti- Corruption Commission (MACC) Act which came into effect on June 2020. Section 17A stipulates corporate liability for a commercial organisation in the event its employees or associates commit corrupt acts or practices for the benefit of the organisation. We conducted a number of anti-bribery and corruption (ABC) training programmes for our employees as well as members of the Board of Directors (Board) to enhance Group-wide awareness, as well as to propagate a strong tone from the top. We have embedded the principle of due diligence to ensure a viable potential defence to section 17A through a series of assessments, guidelines and processes implemented in alignment with MACC’s Guidelines on Adequate Procedure “T.R.U.S.T” principles, as well as foreign legislation such as the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. This included the ISO 37001:2016 Anti-Bribery Management System (ABMS) certification, which is now held by MISC Bhd., Malaysia Marine and Heavy Engineering Holdings Berhad (MHB) and AET Tanker Holdings Sdn. Bhd. (AET). Following MISC’s adoption of our Human Rights Commitment and Modern Slavery Policy and Statement in 2019, in 2020 we made further inroads in this area. We have implemented Group-wide policies that address international laws such as the UK Modern Slavery Act 2015 in addition to ensuring compliance with relevant Malaysian laws. Additionally, in 2020 we updated our Modern Slavery Statement, and have committed to continuously update this statement on an annual basis in line with any legislative changes within both international and local jurisdictions. Having conducted a Materiality Assessment to identify MISC’s businesses that may be exposed to human rights issues and risks, we have now decided to conduct continuous Social Risk Assessments (SRA) to ensure that an adequate mitigation plan is in place to reduce and address human rights risks. 2020 has been a seminal year for MISC Group, as we addressed crucial global socio-economic and environmental issues, as well as current and emerging risks that our business faces. Having identified the key issues which are most important to our long-term business sustainability, we then incorporated our mitigating actions and forward- thinking solutions into our 2021–2025 Sustainability Strategic Priorities plan (Sustainability Strategy) which has been endorsed by the Board in November 2020. Our future focused Sustainability Strategy represents the Group’s commitment to entrench our strategic priorities in the environmental, social and governance (ESG) spheres within all aspects of our business. The Strategy is a clear demonstration of our organisational ethos on Operating Responsibly, bearing in mind our role as a leading company in the global maritime industry. It addresses the rising importance of ESG factors in the maritime sector, as stakeholders increase their expectations for greater transparency of a business’ non-financial performance. We believe that the outcomes of our strategic approach will further augment our business resiliency and preparedness in a rapidly shifting post-pandemic world. MISC’s Sustainability Strategy will be a needle mover for the Group, marking a huge shift in our approach towards embedding ESG principles within our businesses. It aims to effect a proactive, rather than a reactive approach Group- wide, where the focus is not on merely ensuring regulatory compliance, but taking it further to create meaningful sustainable value for our entire ecosystem of stakeholders through an ethical, accountable and transparent business culture. To enable this proactive approach and internalise the shift, each business unit will now be expected to take ownership and spearhead their respective sustainability programmes, with the Corporate Sustainability team maintaining its oversight role. Governance and ethics will be part of the overall sustainability programme, as part of our move towards internalising ESG. The Board approved the setting-up of a Board Governance and Risk Committee (BGRC) effective 1 January 2021 to oversee the progress of MISC’s sustainability agenda. Moving into 2021, our focus is on effecting the internalisation of the execution of our Sustainability Strategy. For the next five years, our compliance activities will focus on implementing Monitoring and Assurance Programmes as a critical component of our governance and ethics business pillar. Our emphasis is on the development and utilisation of robust and systemised monitoring and assurance platforms. Among other initiatives, we will implement a compliance scorecard that will capture compliance levels from both the Management’s and employees’ perspectives. We plan to roll out more employee awareness and engagement programmes throughout the Group. Through these programmes, we will be able to disseminate pertinent information and build up our people’s knowledge with regards to our expectations of their conduct in their daily business and work functions. We realise that it will take time for our people’s mindset to shift from a reactive stance towards compliance and ethics, to the proactive one we aspire to. Nevertheless, we are deeply committed to effecting this change, and to raise the bar on MISC’s culture of ethics and integrity even further in the years to come. MISC COMPLIANCE AND ETHICS PROGRAMME 2020 The programme was developed and approved in June 2016 (also formed part of the Sustainability Strategy 2020 under the Governance and Business Ethics Pillar) The programme is a five-year strategic plan consisting of a set of action plans and deliverables to ultimately create a mature compliance and ethics culture within MISC. The aim is to achieve level 4 or ‘robust’ maturity level by year 2020, where ethics & integrity become a part of all business conducts and transactions. MISC has exceeded in meeting the FY2020 target of level 4 maturity level with all 14 benchmarking categories (100%) meeting and exceeding level 4. COMPLIANCE AND ETHICS CULTURE SURVEY The main aim of the survey was to gauge effectiveness of the Compliance and Ethics programme/initiatives as perceived by targeted employees. It also assessed the employees’ depth of understanding and assimilation of the MISC’s Code of Conduct and Business Ethics (CoBE) since its adoption and roll-out in August 2012. In 2020, employees with employment period of more than six months across MISC Group participated in the survey. A total of 2,185 employees out of targeted 3,106 employees (70%) from MISC Group of Companies participated in the survey this year. • To implement a Compliance Management Framework to ensure that compliance risks are identified and adequately mitigated against. • To continuously embed a culture of strong corporate governance and business ethics and conduct within the organisation. Compliance Champions are appointed within the respective business units, service units and subsidiaries to ensure compliance initiatives are implemented and embedded in the respective operations. Compliance, LCSC Management • To ensure that the Compliance Management Framework is effective and fully implemented and to foster strong governance and business ethics culture. • BARC to ensure that Management have a clear and adequate strategy to cultivate and promote a compliance culture within MISC’s business activities and obtain assurance from Management that compliance processes are embedded within the day-to-day business activities. • BARC also to ensure that compliance risks are identified and adequately mitigated. Board Audit and Risk Committee (BARC) Ausmal Kardin Vice President, Legal, Corporate Secretarial and Compliance ///// Sustainability / Financial Review / Business Review / Leadership / Governance /// MISC Berhad / Integrated Annual Report 2020 7 230 MISC Berhad / Integrated Annual Report 2020 7 231 /// Governance / Leadership / Business Review / Financial Review / Sustainability ///// Section Section