Could your pension fund fund human rights abuses in China?

At least three federal and six provincial pension funds in Canada are investing in Chinese companies complicit in human rights abuses in Xinjiang, according to a new report.

Pension funds in a number of Western countries have also invested in companies involved in a Chinese government labor transfer program accused of subjecting the country’s Uighur minority to forced labor or internment, according to the report by the UK-based human rights organization Hong Kong Watch, in collaboration with Professor Laura Murphy of Sheffield Hallam University.

« Lawmakers and government officials must urgently consider how it might be morally defensible for federal employees’ pensions to be passively invested in companies complicit in gross human rights abuses in the Uyghur region, » the report argues. , published on Monday.

The organization shared the report’s Canadian findings with the Star ahead of its release. But at least one major Canadian pension fund says it’s not actually invested in index fund companies.

Beijing has come under scrutiny in recent years for the treatment of its Uyghurs and other ethnic minorities, the majority of whom live in the western Xinjiang Uyghur Autonomous Region. Allegations of forced labor, physical and sexual abuse, and indoctrination have been raised repeatedly.

China has insisted that its camps be part of vocational training centers.

A United Nations report released this summer accused China of « serious human rights violations » in Xinjiang. In early 2021, the Parliament of Canada declared the treatment of minorities « genocide » in a motion in which some members of the government abstained from voting.

Monday’s report, titled “Passive Funding of Crimes Against Humanity: How Your Savings Can Fund Internment Camps and Forced Labor in China,” alleges that Canadian funds are exposed to varying degrees.

The report analyzes component stocks of three major global indices, which are investment funds comprised of a number of stocks managed by investment management firm Morgan Stanley. The authors researched companies’ exposure to state-sponsored labor transfers or internment and surveillance programs in the Xinjiang region.

Analysts say six of the 12 companies listed on Morgan Stanley’s China index have been involved in building internment camps and six have been involved in labor transfers.

Seven of 13 companies in the emerging markets index used labor from China’s state-sponsored labor transfer programs, including six involved in camp construction, the report said. .

Of four companies in the Global All Country Non-U.S. Index, two would have obtained labor through these labor transfer programs and two would have been involved in camp construction.

Morgan Stanley did not respond to an email to its media relations department seeking comment.

The report then breaks down the private and public funds invested in these indices in the US, UK and Canada.

Some of the companies mentioned in the report are on United States sanctions lists of companies allegedly involved in such oppression. Canada does not have such a list.

Murphy, who conducts research in the area of ​​trafficking and forced labor globally, said she hoped the information could empower individual investors.

« As international awareness of the Uyghur region has grown, I think many people view it as the worst human rights crisis of our lifetimes, » she told The Star. « A lot of people are already choosing to avoid investing in arms companies, or anything they have a social conscience about, and I imagine a growing number would oppose playing a role in funding of the Uyghur genocide. »

When it comes to index funds versus equity investments, people may pay less attention, but if they are concerned, they may ask fund managers for more information to find out if proper due diligence has been done. conducted, Murphy said, speaking generally.

The report says the Canada Pension Plan is exposed to seven companies accused of using forced labor and six complicit in building repressive infrastructure.

But the senior director general of public affairs for the Canada Pension Plan Investment Board, Michel Leduc, dismissed the allegations.

Leduc said the board has a rigorous process to vet the companies it invests in for human rights abuses and that the companies listed in the report were not part of the plan’s foreign holdings.

« We may use different programs to track an index, but we do so through a synthetic derivatives process, which means we are not actually invested in the companies that make up the index, » Leduc said. .

He said the report may not contain all the information he needs to understand the RPC’s position.

Sam Goodman, director of policy and advocacy at Hong Kong Watch, said in response that the report was based on the latest public data that the Canada Pension Plan Investment Board has listed on its site. website.

“This included data indicating that as of March 31, 2022, CPPIB had over C$6 billion exposed to MSCI China and over C$7 billion exposed to MSCI Emerging Markets,” Goodman said. “If the situation has changed and the Office has gotten rid of all exposure to MSCI China and MSCI Emerging Markets, we would like a clarification of their position and the publication of the complete list of new holdings on its website,” said he added.

The Royal Bank, Civil Service Superannuation Board (CSSB) and Public Sector Investment Board (PSIB) would also be exposed in the report specifically to labor transfers or infrastructure used. to oppress the Uyghurs.

The CSSB, a public pension fund in Manitoba, said it could not comment on the report until it had a chance to review it. The Star contacted the Royal Bank and the PSIB but received no response to the report.

Goodman said that in addition to ethical concerns, investing in such companies can potentially carry financial risks.

“A big risk is third-party sanctions (like adding a company to the US Entity List). I can imagine that if that happens, China can make it difficult for people to get money And with the ongoing regulatory crackdown on the tech industry in China, Beijing can easily wipe out entire sectors, causing ordinary people to lose a large chunk of their savings.

However, since the Canadian government does not sanction companies exposed to Xinjiang, this means that any changes a pension fund might choose to make would be voluntary and would likely take into account the various opinions of stakeholders.

« It’s not a black and white situation, » Chamorro, a partner at global risk consultancy Control Risks, told The Star Dane. « It’s almost impossible for someone sitting here in this part of the world to look at a company and understand their level of support for the Chinese military or the abuses in Xinjiang, if you don’t have good Chinese skills and in research. Institutions have an internal process, but most are geared towards compliance, not good ethical governance.

He said many companies in China, even private ones, do significant business with the Chinese state and military.

“Your job as a (fund manager) is to generate good returns for investors, so you want to pick high-growth companies. … In China, tech companies sell surveillance technology not only to the Chinese government but also globally in areas that some commercial investors would find uncomfortable.

“Is it defensible for the stakeholders? What was acceptable two years ago may not be acceptable today, so it’s a moving element,” Chamorro said.

Conservative MP Michael Chong, foreign affairs critic and deputy chair of a House of Commons committee on Canada-China relations, said the government should take the initiative to « close a loophole on these issues, and that it may not require the adoption of new legislation.

“Canada is already a party to international agreements, such as the 1948 Genocide Convention, which oblige Canada to prohibit the importation of goods made from forced or slave labor. But our enforcement has not extended to a ban on investment in the same companies complicit in gross human rights abuses like the genocide in Xinjiang.

“The government must close this loophole and make it clear that Canadian investors cannot invest directly or indirectly in companies complicit in genocide,” Chong said.

He said the special committee on Canada-China relations will hold two hearings on this issue in the coming weeks.

« Canadians rightly have certain expectations about how and where their pension contributions are invested, » said a spokesperson for the Office of the Deputy Prime Minister and Minister of Finance.

Chrystia Freeland’s office declined to provide further comment, saying, « As CPPIB is guided by an independent board of directors and operates independently of the federal government, you should contact CPPIB for further comment. »

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