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Global investors are facing an unprecedented situation with Uighur forced labor present in hundreds of factories throughout China in numerous sectors.
Chinese state power has conscripted over 1 million civilians into a workforce that is now challenging ESG investors’ notions of acceptable working conditions. Of the over 80 global brands whose factories have been identified using forced labor Uighur workers, most of the firms have strict Codes of Conduct. Yet, somehow, their suppliers managed to introduce forced labor into their facilities.
The discovery of slave labor in the Better Cotton initiative was the tip of the iceberg in terms of willful blindness and lack of credible oversight which characterizes most monitoring efforts in China in general.
The presence of any Chinese state authority in a multi-stakeholder initiative should be a cause for contract cancellation. Yet Better Cotton continued for years in Xinjiang while an ethnic crackdown – that some legal experts have termed ‘genocide’ – on the Uighur minority grew, complete with well documented research proving the government is also running a forced organ harvesting program, investing millions in airports, crematoriums, and highway “organ fast lanes”.
The years of arguing that welcoming China into the global fold would serve economic interests and push China to reform are over. The reality is something much different. Western governments and firms have been wholly lacking in creating a new narrative, and in the vacuum China has written their own.
This approach runs counter to most ESG principles, yet investors have in general avoided challenging global brands aggressively on their China supply chain violations.
For example, doing business in a country that jails workers who advocate for Freedom of Association goes against most firms’ published Codes of Conduct. It has made virtually no difference in global firms' China strategies.
Refusing liberalization pressure, China instead has created a totalitarian digital surveillance regime that threatens journalists and has effectively cancelled civil society in the past 6 years.
China’s vision of engagement with the West has often meant turning a blind eye to inconvenient truths. As a result, these pragmatic approaches translated into reluctance to sanction Chinese officials complicit in repressive policies in Xinjiang and Tibet over the past two decades. China rewarded a blind-eye pragmatic approach with its trading partners until now, as the Uighur situation has become too urgent for the West to ignore.
New legislation proposed by Canada, the UK, Australia and the USA includes requiring modern slavery disclosure by companies as well as the possible prohibition on importation of goods produced using Uighur forced labour as well as penalties.
With the exit of major audit companies that are refusing to monitor for Uighur workers in factories, global brands in China face a new dilemma. They have no credible sources of information to rely upon for compliance with the new rules. Factory management can’t be relied upon to disclose they are using forced labour. In fact they almost never admit to it, even when challenged directly.
There’s a role here for investors: to pressure companies in their portfolios that have significant China presence, urging them to exit from factories that cannot guarantee compliance and get them to work with others in their industry to demand compliance from their suppliers.
A strong message of penalties and threat of exit has the potential to be more effective than individual companies sending written surveys requesting information, which is what they are presently doing. It’s a continuation of the 'veil of ignorance' that has characterized Chinese investments for too long.
This is an opportune time for investors to clarify whether they need to be funding China's dictatorship. If one wishes to avoid complicity in slavery and gross human rights abuses, a continued presence in China seems incompatible with even the most lenient ESG standards.
Heather White is a China expert and Producer/Co-Director of COMPLICIT, an award-winning documentary about hazardous work conditions and safety in the Chinese tech industry.
She was Founder and former Executive Director at Verité, the global supply chain monitor.