Guidance for investors to exercise leverage against Xinjiang
Anna Triponel
August 3, 2020
The Investor Alliance for Human Rights has developed Human Rights Risks in Xinjiang Uyghur Autonomous Region: Practical Guidance for Investors to help investors respond to the complex challenge of tracing and addressing human rights abuses within global supply chains committed against the Uyghur minority in Xinjiang. The Investor Alliance is a non-profit platform promoting the investor responsibility to respect human rights and bringing together over 170 institutional investors with a total of over US$5 trillion in assets under management across 19 countries. The goal of the guidance is to identify salient human rights risks for investors exposed to the Uyghur region through their portfolios and “provide[] practical guidance to investors on how to engage with its portfolio companies, as well as other stakeholders, to identify, prevent and mitigate those risks, as they may arise at different stages of the business process or the product lifecycle.” (For a background on the situation in Xinjiang, see last week’s update.)
Investor responsibility to respect human rights
The report elaborates on investors’ responsibility to respect human rights and what steps they should take when investing in high-risk sectors or regions:
“In high-risk environments, investors must undertake enhanced human rights due diligence in line with the UN Guiding Principles. By screening holdings and monitoring them on an ongoing basis, investors may be among the first to be aware of human rights concerns. Investors are well positioned to engage with portfolio companies to help them understand and mitigate risks and to inform peers and clients. They can use their collective influence to facilitate coordinated action and to place pressure on governments to respond to human rights threats.”
The Investor Alliance outlines guidance for investors in three main areas:
1. Conducting human rights due diligence
In light of the many practical challenges preventing companies from conducting on-the-ground assessments of labour conditions in Xinjiang, “companies and investors must undertake a process of enhanced human rights due diligence to assess and address the risks of actual and potential negative human rights impacts in such a high-risk environment.”
Where investors are unable to “eliminate the possibility that their business activities and relationships cause, contribute, or are directly linked to forced labor or other egregious human rights abuses, and they are unable to cease, prevent, or mitigate these harms” they should rely on the UN Guiding Principles to determine next steps, including:
Exercising leverage with investees or governments to end the use of forced labour; and
Divesting from particular companies and/or choosing not to invest in particular regions.
2. Assessing exposure to salient human rights risks and engaging with portfolio companies
Before making any investment, asset managers should conduct human rights due diligence “on each potential investee company to identify whether they are connected with adverse human rights impacts on ethnic minority populations in the Uyghur Region and other parts of China.”
In particular, investors should look for evidence that companies are equipped to “manag[e] human rights risks in conflict-affected and high-risk operating environments like the Uyghur Region, including a human rights policy commitment, enhanced human rights due diligence and disclosure processes, and a grievance mechanism.”
Investors should also conduct human rights due diligence and other monitoring throughout the life of the investment: “Asset owners and managers should regularly review their portfolios to identify whether they hold companies across the different sectors connected with adverse human rights impacts on Turkic and Muslim-majority peoples in the Uyghur Region and China.”
The guide provides a list of guiding questions for corporate engagement with companies on the topic, as well as issue-specific questions on forced labor, and on privacy, freedom of expression and/or movement.
The report reminds investors about the Fair Labor Association’s position that if companies are unable to determine whether coerced labor is present, “companies should presume that raw materials, semi-finished, or finished goods from Xinjiang are likely to be produced with forced labor.”
3. Applying leverage through collective action with other investors
The challenge of addressing forced labour in the supply chain is compounded by the scale of the problem in Xinjiang, the opacity and complexity of garment supply chains, and the Chinese government’s ability to restrict labour investigations and to resist pressure by individual companies and investors. The report states that “collaborative action targeting actors beyond suppliers or local business is likely the most effective way to achieve more impactful outcomes.”
According to the report, “[i]nvestors, companies, civil society organizations, and other stakeholders must maximize collective leverage to influence governments, international institutions, suppliers and sub-suppliers, and global multi-stakeholder initiatives to take action and prevent these harms.”
The report provides concrete guidance on how investors can meet the following actions – focused on engagement with civil society, industry, governments and international organisations:
Consult, support, and collaborate with civil society organisations representing affected individuals and communities.
Support campaigns, pledges, and calls to action.
Collaborate with multi-stakeholder initiatives (MSIs) to pressure companies to take actions.
Collaborate with MSIs in sharing data and developing methodologies and standards to assess risk through human rights due diligence.
Collaborate with industry associations in outreach to governments
Participate in joint investor statements to companies to take action to address human rights crises.
Petition government agencies to sanction companies and officials participating in human rights abuses.
Support legislation that seeks to address the human rights situation in the Uyghur Region.
Engage with government officials and business associations to raise human rights issues ahead of bilateral and multilateral dialogues with China.
Participate in joint investor letters calling on governments to take action to address human rights crises.
Engage with the UN, including the UN Business and Human Rights Working Group and other Special Procedures, on businesses’ need to respect human rights.
Support international organizations’ available mechanisms to address human rights violations.
Use public and private means to encourage governments’ efforts at the UN Human Rights Council to call for independent, unfettered access by UN experts.
Use the margins of international fora (e.g. Forum on Business
and Human Rights, OECD Global Forum on Responsible Business Conduct) to host multi- stakeholder discussions on the issue.
The report concludes with a list of the salient human rights issues in the Uyghur region, and a compilation of resources for investors and companies to learn more, including lists of retailers and suppliers linked to factories in Xinjiang.
“Given this system of intimidation and terror... [t]he complete secrecy surrounding the camps, and the horrific means of total control hanging over those who are not in the camps, means that the free flow of information has been cut off to an extent rarely seen in modern times. Simply put, it is impossible to conduct normal due diligence to determine whether a particular facility is producing goods with forced labor.”
“Business leaders and investors need to ask this question honestly: what is their place in history if they continue to profit by cooperating with a government carrying out a campaign of genocidal repression? They can’t say they didn’t know.”
