Swiss bank UBS is the latest financial firm to come under fire for ties to controversial surveillance firm Hikvision, which is accused of playing a key role in the detention of the Uighur Muslim population in Western China.
NGO Society for Threatened People (STP) has filed a complaint to the OECD’s human rights grievance system, saying: “Although the devastating human rights situation has been known for years and Hikvision has been blacklisted by the US Government since Autumn 2019, research shows that UBS still maintains financial ties with the technology company”.
The case, which will be reviewed by the OECD Swiss National Contact Point, housed at the Swiss Secretariat of Economic Affairs, is unusual in focusing on a financial firm’s asset management business, and highlighting the holdings of its passive products.
RI understands that UBS has exposure to Hikvision on behalf of clients, and through a number of passive products.
RI last year highlighted the issue of indexed funds holding controversial Chinese companies like Hikvision, after index giant MSCI became embroiled in a war of words with US Senator Marco Rubio on the matter.
New York-listed MSCI has justified including Chinese companies with serious breaches of human rights in its emerging markets market-cap weighted index, saying that it remains lawful to do so.
Hikvision was allegedly included on a Pentagon list of firms helping the Chinese military, according to the FT. Observers say the list will increase pressure on US investors to divest from companies that Washington says threaten national security.
According to documents seen by RI, many well-known financial firms have passive exposure to Hikvision. The firm is deemed a ‘moderate’ risk in MSCI’s ESG rankings, meaning even some sustainability-focused funds hold it, despite the human rights concerns. In its most recent annual report, the Northern Trust Emerging Markets Quality Low Carbon Fund confirmed it is one such fund.
In its complaint, STP acknowledges that UBS holds a relatively small number of shares in the name of beneficiary owners, but highlights that Hikvision ranked it among its ten largest shareholders for the period 2016-2019, and it increased its positions in February 2020.
“It is also the only foreign bank to have [been] continuously listed in the annual reports during this period. UBS is one of the largest foreign banks in China and [is] highly reputed internationally. Its involvement and public naming have provided Hikvision with legitimacy, credibility and a positive climate for other investors and stakeholders,” says STP.
STP met with UBS earlier this year on the issue, but campaign manager Angela Mattli said it was not presented with any convincing evidence that UBS had performed adequate human rights due diligence in the Hikvision case.
“For this reason, STP is of the opinion that UBS has neither complied with the OECD Guidelines for Multinational Enterprises, nor with its own Code of Conduct,” says Mattli. This Code requires “monitoring, managing and reducing any negative impact we might have on the environment and on human rights. It means managing social and environmental risks that our clients’ and our own assets are exposed to…”
According to an investigation by the International Consortium of Investigative Journalists, published in autumn 2019, more than a million Uighurs have been detained in camps, while the rest of the population is tightly controlled. Despite international criticism and US sanctions, Hikvision has not distanced itself from the highly controversial operations in the territory of Xinjiang. According to media reports, in 2019, the company advertised a camera that recognises the ethnicity of individuals with an accuracy of 90%, namechecking Uighurs in the product description.
In related news, new data suggests that the supply chains of tens of international brands, including Adidas, Nike, BMW, Apple, Samsung and Sony, may have exposure to slave Uighur labour. The Australian Strategic Policy Institute, a think tank part-funded by the Australian Government, has reported that more than 80,000 Uyghurs have been transferred out of camps in Xinjiang and forced to work in factories across China “under a revived, exploitative government-led labour transfer scheme”.
STP, which has advisory status at the UN Economic and Social Council, says it wants its OECD complaint to prompt UBS to withdraw from all financial transactions, products and services related to Hikvision. It also wants UBS to adapt its internal policies to ensure that its equities business, investment products and passive investments are covered by the bank’s human rights due diligence processes in the future.
The case could set precedents for human rights in passive investments and asset management. To date, the human rights grievance mechanism has focused on asset owners’ direct shareholdings, or banks’ mainstream lending. Situations where investments are made on behalf of clients are yet to be assessed.
In response to a request for comment, UBS sent RI the following statement: “Private and institutional investors can invest in a wide range of companies traded on stock markets. Often these companies are part of different indices and therefore also contained in different products. This explains why financial institutions such as UBS disclose positions in a variety of companies that hold them on behalf of clients worldwide. UBS is actively working with other financial institutions to improve the integration of environmental and human rights issues into financial products. This cooperation is in line with UBS's commitment to uphold and promote human rights throughout its business.”