Major shareholder in China detention camp surveillance supplier gets A+ from PRI (Amended)

Portfolio company is key supplier of facial recognition technology in volatile Xinjiang region

(Amends to update Schroders’ holding.)

An investor with a $313.5m stake in a supplier of surveillance systems to Chinese state-run detention camps where an estimated million Uighur minority Muslims are imprisoned – has received an A+ from the Principles for Responsible Investment for its overarching approach to ESG strategy and governance.

Growth-focused asset manager and PRI signatory Comgest has built its stake across 11 funds in the Shenzhen-listed Hangzhou Hik-vision since 2016, more than tripling its initial holdings.

“As a result of this engagement process, we have strong expectations that the company will improve.”

RI first reported the Paris-headquartered asset manager’s investment in Hik-vision in last year’s award-winning report on investor links to the Uighur camps, described by some as concentration camps. The article quotes a Comgest portfolio manager assuring investors that Hik-vision was in the business of “law and order, not oppression”, and that “cultural differences” required sensitivity.

A month or so prior to that, US lawmakers had singled out Hik-vision for sanctions under the Magnitsky Act. In a letter addressed to the Trump administration, Hik-vision and Dahua Technology, a rival CCTV maker, were said to have “assisted officials in the mass detentions and surveillance of ethnic minorities”.

In return, they “profited greatly from the surge in security spending, reportedly winning upwards of $1.2bn in government contracts for large-scale surveillance projects”.

Comgest is one of the handful of foreign active investors that has remained invested in Hik-vision after a recent exodus over concerns relating to the firm’s complicity in human rights violations and an unrelated US government ban.

Emerging markets specialist Aberdeen Standard Investment (ASI) has at least $277m invested in the firm through 12 funds – including its Emerging Markets Infrastructure Equity Ethics which is marketed as having “an ethical overlay”.

Other notable investors include the Nasdaq-listed T. Rowe Price ($209m), UK institutional manager Schroders (£16.16m) and Dutch ESG specialist Actiam ($86k), all of which are PRI signatories. In 2019, Schroders and Actiam were both rated A+ on their overall ESG approach.Commenting on the story, a spokesperson from ASI – which received an A+ for its ESG strategy and governance in 2018 – said to RI: “We are longstanding investors in Hik-vision and are very much aware of the issues raised. We have discussed the reports concerned with the company and have stressed the importance of this issue to both investors and to the wider public – along with the necessity for the company to improve disclosure around their activities.

“We have been encouraged by our discussion with the company, but this remains an urgent area of focus.”

Similarly, a statement from Comgest said: “We are aware of Hik-vision’s historic contracts in Xinjiang and have been deeply engaged in dialogue with the company and its board on this particular issue since late 2018. Our research has been working to identify the scale and scope of China’s surveillance projects and to engage with Hik-vision on these issues, both specific to Xinjiang and more generally. As a result of this engagement process, we have strong expectations that the company will improve.

“We have therefore set certain boundaries and expectations around their specific business in the province and are actively monitoring and engaging with the board to ensure that these are met. If they don’t meet these expectations then divestment is a likely outcome.”

Hik-vision, valued at CNY310.8bn ($43bn), is reportedly 42% owned by Chinese state investors and its two key founders and may have limited ability to opt out of a key domestic priority for the Communist Party. Since the US ban came into force in August last year, Reuters reports that Hik-vision has been named in more than CNY110m ($15.4m) worth of contracts with Chinese police, military and courts in Xinjiang.

PRI CEO Fiona Reynolds told RI: “The reporting framework does not look at a signatory’s individual activities for every asset they hold. This is one of the reasons why we have undertaken a review of the reporting framework and intend to both streamline the framework and make it harder to score top marks.

“We strongly believe that all PRI signatories must incorporate human rights into their responsible Investment activities – human rights is not an optional extra. While many investors do this, there are many that don’t, and the PRI is in the process of building a new normative approach to human rights.”

The ownership data cited in this report was sourced through Morningstar’s Direct platform.