Pension funds and institutional investors’ talk about responsible investing is not being backed up when it comes to China, an international NGO says
A new report has raised concerns about the Super Fund’s investments in Chinese companies blacklisted for their role in human rights abuses, saying pension funds should not place profit maximisation above all else.
The report, by British NGO Hong Kong Watch, has highlighted large and growing investment into China by pension funds at a time when the country’s treatment of Uyghur Muslims, Hong Kongers and others is under the spotlight.
As of August 2020, the Super Fund had a total of $13.7 million invested in 14 Chinese companies subject to American sanctions for complicity in gross human rights violations or links to the People’s Liberation Army, the report said.
The largest single investment was $7.2m in China Mobile, which American investors are prohibited from investing in due to its ties to the Chinese “military-industrial complex”, followed by Semiconductor Manufacturing International Corp at $2.3m.
It had just over $200,000 invested in iFLYTEK, a Chinese artificial intelligence heavyweight whose technology has been used by police in the country’s Xinjiang province.
The report said Western pension funds, sovereign wealth funds and other institutional investors were putting more money into China than ever before, with the Financial Times reporting in July that global holdings of Chinese stocks and bonds had surged about 40 percent to over $800 billion.
“Deference to fiduciary duty, the view that profit maximisation is what matters above all else, and is in fact the moral course of action, has ensured that little attention has been given as to how to shape investment decisions to avoid complicity in human rights violations.”
It was difficult to square increasing commitments to responsible investing with “huge inflows into an authoritarian state like China”, with money going into Chinese firms with troubling human rights records.
Alibaba, Tencent questioned
Beyond explicitly blacklisted firms, technology giant Alibaba (in which the Super Fund has $93m invested) had produced facial recognition software which specifically targeted Uyghurs, while Tencent (which owns Wechat, and in which the Super Fund has $88m) had been accused by Human Rights Watch of censoring and putting its users under surveillance on behalf of the Chinese state.
Hong Kong Watch said governments should enact legislation to ensure there were consistent standards for environmental, social, and governance (ESG) investing around the world, and designate which Chinese firms were “complicit in crimes against humanity” and apply financial sanctions.
Hong Kong Watch senior policy advisor Sam Goodman told Newsroom the organisation’s research had been driven by the gap between political rhetoric decrying China’s human rights abuses on the one hand, and the Western pension funds still investing in Chinese companies connected to those abuses on the other.
“Ultimately some New Zealanders may not have a problem investing their pensions in a Chinese state bank but others will – the key here is that the Superannuation Fund is upfront with them about where their pension is going and gives them the choice to opt out.”
Goodman said the Government should consider creating an entity list which identified “problematic” Chinese firms in terms of human rights, and advising companies not to invest in them.
Providing different tiers of risk would allow officials to distinguish between Chinese companies subject to American sanctions for their role in the persecution of Uyghurs, and the country’s larger firms like Alibaba and Tencent who were not sanctioned but had “problematic records”.
“New Zealanders who care about human rights, dignity, and are alarmed at the treatment of the Uyghurs should be concerned that some of their pension money is going to companies directly involved in human rights violations who are closely linked to the Chinese state.”
“If we exited every company facing conduct concerns, all we’d achieve is to sell our stock to someone who cares less about these issues and is more willing to turn a blind eye.”
A spokesman for the Guardians of NZ Superannuation told Newsroom the fund currently held investments in only four of the 14 blacklisted companies: AVIC Xi’an Aircraft Industry Group Co Ltd, China Aerospace Times Electronics Co Ltd, China Avionics Systems Co Ltd, and Zhejiang Dahua Technology Co Ltd.
A number of the companies in question had been removed from American index funds it used, following the announcement of US sanctions.
However, its investment in iFLYTEK had in fact increased since the period covered in the Hong Kong Watch report, to just under $400,000.
The spokesman said the Guardians had a “long-standing commitment to responsible investment”. However, as its diversified portfolio was made up of thousands of companies from countries around the world, issues would sometimes arise regarding the conduct of some firms and its preference was to encourage improvement through direct engagement instead of direct exclusion.
“If we exited every company facing conduct concerns, all we’d achieve is to sell our stock to someone who cares less about these issues and is more willing to turn a blind eye.”
After becoming aware of supply chain issues related to the treatment of minority groups in Xinjiang, the Guardians had started working on the matter with companies who sourced goods from the region through an external provider.
It had also joined a collaborative initiative made up of 50 global investors representing more than US$4.5 trillion in assets to address the risks raised by facial recognition systems.
Company lists produced by organisations or other states, like the US Commerce Department, were used to inform areas of research as well as engagement and exclusion activities for investors.
When considering a specific company or holding, the Guardians focused on the proximity and importance of the company’s actions to any illegal or unethical activity, with direct breaches more clearly addressed than those by customers or suppliers.
National MP Simon O’Connor, a New Zealand co-chair of the Inter-Parliamentary Alliance on China, told Newsroom it was unacceptable for the Super Fund to hold investments in the blacklisted companies, given its focus on ethical investing.
While at one level it was good if funds could facilitate ethics conversations through their investments, “it’s also about bringing about change” and the most effective way to do that was through divestment, O’Connor said. The Super Fund had already shown it was able to act over human rights issues when it chose to do so, he said, pointing to its divestment from Israeli banks funding illegal settlements in the West Bank.
