Tag: Xinjiang

The Necessity to Perform Investor Human Rights Due Diligence

The Necessity to Perform Investor Human Rights Due Diligence

Chris Cox

In this difficult time, we continue to follow the crisis in Ukraine from afar. The war itself and its humanitarian and economic fallout pose some tough questions. Good stewardship may come down to posing and answering difficult questions.

For at least two decades, we ignored Russia’s globalized corruption and localized aggression. Ignored may be too soft– some even welcomed it. On March 4, 2018, Putin’s agents poisoned former Russian spy Sergei Skripal, then residing in the United Kingdom. Investors and global companies were willing to look the other way. Again, investors and global companies willfully ignored the attempted assassination of opposition leader Alexei Navalny in August of 2020. In fact, Germany, China, and the US topped the list of major investors in the Russian economy that year. On-going investments allowed Putin to entrench power, and, now, he is an unopposed dictator and global security threat.

The commencement of the Russian war in Ukraine has led to a corporate withdrawal from Russia that happened faster than anyone could have imagined. In less than four weeks, from American Express to YouTube, 380 global companies announced some kind of withdrawal from Russia, based on data compiled by the Yale School of Management. At the same time, Yale tracks 39 companies that will remain in Russia or have refused to disclose plans regarding their operations. [The Yale list does not include Koch Industries or its subsidiaries that, according to Judd Legum, also are continuing their operations in Russia.]

The motivations for abandoning business in Russia could be described in a handful of categories. Some companies have left on principle. Some have left as a consequence of sanctions. Others may have left for fear of boycotts and backlash. Still others didn’t want to be labeled as being on “the wrong side of history.” Some have only halted operations for now.

There was, obviously, another, earlier course of action: those who, based on human rights due diligence, found that investment in Russia was a risk that they would not undertake. Due to internal assessments of human rights and political governance risks, informed by the UN Guiding Principles on Business and Human Rights (UNGPs), those asset owners already had limited exposure to Russia. Since there has been an international armed conflict, internal armed conflict, and military occupation in Ukraine since 2014, enhanced human rights due diligence was required under the UNGPs. Change can be planned and gradual, or attempted in the heat of a crisis, but most would recommend the planned and gradual route.

Investors, like all business actors, are expected to respect human rights as outlined by UNGPs. Investor responsibility is increasingly embedded into legal frameworks (e.g. EU rules requiring investors to disclose steps taken to address the adverse impact of their investment decisions on people and the planet). ICCR’s Investor Alliance for Human Rights has developed a toolkit to help asset owners and managers address risks to people posed by their investments.

We should review the whole of our investments and use the IAHR toolkit and other resources to do so. Asset owners that expand investments in Saudi Arabia are willfully ignoring flashing warning lights about human rights risks. If Jamal Khashoggi’s brutal murder in 2018 did not persuade an asset owner or an asset manager, this weekend’s mass execution of 81 prisoners is not likely to be a deterrent either. Or consider Myanmar. Since the February 1, 2021 coup, gas revenues are the largest funding source for the Burmese armed forces. Foreign gas companies work hand-in-hand with Myanma Oil and Gas Enterprise (MOGE), which is under control of the Myanmar military. The same can be said for investments in the Xinjiang Uygur Autonomous Region (XUAR) of China and a host of other countries.

While the U.S. and international community have reacted with great speed and resolve to punish Russia’s most recent invasion of Ukraine, it is troubling that we have yet to levy a similar sanctions regime on the Chinese government for its genocide in Xinjiang.

The examples of Ukraine, Saudi Arabia, Myanmar, and XUAR China highlight the increasing severity and number of conflict-affected and high-risk areas across the globe. It is up to investors and companies to respond to these systemic risks with systemic solutions, putting conflict-sensitive policies and practices into place.

Our colleagues at Heartland Initiative developed the “Rights Respecting Investment in CAHRA methodology” as one resource to assist investors.

Rich Stazinski, executive director at Heartland put it this way: “Companies and investors have had nearly a decade since the Russian invasion of Crimea to grapple with the ongoing consequences of conflict and risk in Ukraine. While abiding by evolving rounds of economic sanctions and export controls is necessary to make companies and investors legally compliant, it is far from sufficient to fulfill their responsibilities under the UN Guiding Principles. In order to do so, they must adopt robust policy and practices that address the heightened risks of doing business in conflict-affected and high-risk areas, from Ukraine to Myanmar to Xinjiang.”

Asset owners need to ask difficult or controversial questions. The very issues facing our portfolios and, indeed, our planet are too important not to.

Webinar: Human Rights Due Diligence

Webinar: Human Rights Due Diligence

Chris Cox
On Friday, April 17th, SGI’s quarterly webinar addressed due diligence in human rights required of companies. The traditional audit and codes of conduct, while necessary, are no longer sufficient. We were fortunate that ICCR’s Anita Dorett, Camille Le Pors, the lead for the Corporate Human Rights Benchmark, and Patricia Jurewicz of the Responsible Sourcing Network, joined us for this webinar. Again, we are very grateful for the presence of Anita, Camille, and Patricia  in this webinar, for their commitment to this work, and their generosity in sharing their wisdom and experience with us. As always, we welcome your feedback via a confidential evaluation found here. Slides are available here.
Raise the Alarm for Xinjiang

Raise the Alarm for Xinjiang

Chris Cox

Over the last few years, casual readers of newspapers likely had vague awareness that China had imprisoned more than a million ethnic Uighur Muslims and other minorities in camps in the country’s far-west Xinjiang province. While the Chinese government claims that the prisoners are volunteers who receive job training, human rights organizations allege that the ethnic minorities endure mass incarceration in “re-education camps” designed to indoctrinate those ethnic minorities.

In the last six months, a barrage of new events and evidence clarified the situation with striking details. In June, the Worker Rights Consortium (WRC) published a detailed, 34-page report on a factory owned by the Hetian Taida Apparel Company that supplied university logo clothing to Badger Sportswear. The WRC found:

. . . the investigation Badger commissioned of Hetian Taida, in response to allegations of forced labor, was fatally compromised by the company’s rush to exonerate itself and its supplier; the company announced findings, supposedly based on worker interviews, before [emphasis added] interviewing any workers. [p. 2]

The U.S. State Department placed China on Tier Three (the lowest category) in its annual Trafficking in Persons Report, dedicating considerable attention to Xinjiang. In early October, Time magazine reported that the U.S. Blocks Imports From 5 Countries Over Allegations of Forced Labor, when U.S. Customs and Border Protection (CBP) intervened on a Costco shipment from Hetian Taida. Days later, the WRC issued an Update on Forced Labor and Hetian Taida Apparel. Badger Sportswear only cut ties after CBP intervened on the shipment for Costco.  The American Apparel and Footwear Association, a trade group for brands and retailers, issued a disappointing and underwhelming statement in response to this report that they were “deeply concerned” and called on the Chinese government to act. Also, Georgetown University’s Center for Strategic and International Studies issued a critical report entitled Connecting the Dots in Xinjiang: Forced Labor, Forced Assimilation, and Western Supply Chains offering specific guidance for companies and investors. A rare event these days, a bipartisan letter came from members of both the U.S. House and Senate calling on the CBP to investigate and block goods coming from the Xinjiang province.  

Last week, classified documents from the Chinese government were leaked by the International Consortium of Investigative Journalists, providing policies and procedures inside the re-education camps.   The camps reportedly have watch towers, double-locked doors, and video surveillance “to prevent escapes.” The Chinese government apparently uses the camps to train its artificial intelligence programs for use in mass surveillance. The documents demonstrate that forced labor is an integral part of the Chinese government’s strategy for ideological conversion through industrialization. This is the largest incarceration of people based on an ethnic or religious identity since 1945.

A Toxic Combination for Apparel Companies and Consumers

China is the source of about 40% of all clothing sold in the U.S. The Xinjiang province grows 80% of China’s cotton, and, increasingly, the cotton is ginned there. Companies are erecting new factories in Xinjiang for additional steps in the garment-making process. Further, fabric from China is exported to Bangladesh, Cambodia, and Vietnam—all significant sources of apparel sold in the U.S

Corporations have a responsibility to respect human rights within company-owned operations and through business relationships. This obligation is delineated in the United Nations Guiding Principles on Business and Human Rights and the OECD Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector. Every brand and retailer that sources from China is exposed to the risks for forced labor in their supply chains: the harvesting and ginning of cotton, the spinning of the yarn, and the business relationships with corporations collaborating with the Chinese government to build and staff these new factories. The issue is not “simply” a violation of a retailer’s code of conduct or a reputational risk; companies risk a violation of U.S. law concerning importation of garments made with forced labor.

As public scrutiny of these issues increases, it will become increasingly clear that companies’ due diligence mechanisms (audits and codes of conduct) are insufficient. We at SGI would argue that, even in the best of circumstances, audits and codes of conduct, while necessary, are insufficient to protect human rights. In the circumstance of the Xinjiang province, such efforts are rendered ineffective.

We urge companies to take this risk seriously. It is not enough to lay low and wait; companies must engage proactively. We also urge the U.S. government to take meaningful action against the Chinese government in this matter. Even our faith communities have a responsibility to act. Events in support of “religious freedom” ring hollow if it does not also include action to respect the religious freedom of ethnic minorities in Xinjiang. Finally, as consumers, we are called to solidarity with those who endure forced labor. NPR’s Scott Simon put it well: “What does it have to do with us? Look down at our shoes, our phones and our toys.”

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