Schroders, Abrdn axe blacklisted Chinese surveillance stocks, Fidelity stays in

UK-based asset managers Schroders and Abrdn have ditched large stakes in controversial Chinese surveillance firms Hikvision and Dahua Technology, which are accused of playing a key role in the detention and abuse of Muslim minorities.

The two security companies have been blacklisted by the US government since 2019 for allegedly supporting a state-backed “campaign of repression, mass arbitrary detention, and high-technology surveillance”. The two companies are said to have provided cameras and software for Xinjiang “re-education camps” in Western China, where around one million Uighurs are allegedly being held.

Responsible Investor revealed in 2019 that the then Aberdeen Standard Investments and Schroders had stakes worth hundreds and tens of millions of pounds respectively in Hikvision.

Both managers have now confirmed to RI that they are no longer invested in either Hikvision or Dahua Technology, although Schroders said it maintained “very minimal exposure” to Dahua (valued at less than 0.5 percent of market cap).

UN slavery report

The statements come weeks after the UN’s special rapporteur on slavery confirmed evidence of forced labour in Xinjiang across sectors such as agriculture and manufacturing. The report found that minorities were subject to “surveillance, physical and sexual violence, and other inhuman or degrading treatment” that could amount to “enslavement as a crime against humanity”.

More broadly, investors may be at risk of exposure via some of the world’s largest companies, which have been accused of benefiting from the use of Uighur workers through potentially abusive labour programmes. The Australian Strategic Policy Institute, for example, identified 83 major brands which may be implicated.

UKSIF CEO James Alexander said the UN report was an “extraordinary submission” and called for more comprehensive assessments by investors on human rights risks.

“Our view is that we’d like to see all investors regularly review their due diligence policies, particularly with regards to investee company supply chains located in regions of geo-political risk,” said Alexander.

Asset managers divest

Commenting on the decision to axe the Chinese surveillance giants, a Schroders spokesperson said that the firm had developed internal ESG analysis and engagement to better manage human rights risks.

“We work to ensure analysts are equipped to identify potentially exposed companies, particularly in light of human rights legislation such as the US Uyghur Forced Labor Prevention Act, recognising that determining companies with (especially indirect) exposure is not straightforward,” they said.

“Human rights is a complex and multi-dimensional issue and requires a considered and thorough approach. We have been and will continue to monitor and engage companies exposed to human rights concerns to improve their supply-chain mapping, traceability, audits, supplier engagement practices and documentation.”

An Abrdn spokesperson said: “Xinjiang is integral to the supply chains of many companies, and has been a focus of our engagement with companies for some time now. We have made clear – and continue to make clear – to companies our zero tolerance for forced labour in supply chains.

“If our engagement outcome is unsatisfactory, we will not buy the company. If it relates to an existing holding we would not hesitate to sell the company.”

Fidelity backs engagement

Despite the moves, Morningstar data shows that around 40 funds managed or co-managed by UK fund manager Fidelity International are currently invested in Dahua Technology. The manager had previously built up a sizeable stake in Hikvision, but appears to have sold out of the stock.

A Fidelity spokesperson praised the firm’s Chinese portfolio companies as being “very receptive to our active engagement” in a statement to RI, and said the firm has managed to “shift” corporate policies through its stewardship activities.

They added that the asset manager “has had a long-standing and substantial presence in mainland China” and would keep promoting sustainable finance in the region.

“Where companies fail to improve against agreed goals or develop a pattern of deteriorating sustainability outcomes, we will review and potentially divest our holding.”