Funds criticised for investing in companies providing surveillance tools to China

Several asset managers have been criticised for investing in companies that have provided surveillance tools to China, exposing pension savers and other investors to investments that “contribute” to “violations of human rights”.

As reported in The Times, funds offered by Aberdeen Standard Investments, Fidelity and Schroders have stakes of around £800m in companies that have supplied surveillance technology to China, such as CCTV and facial-recognition technology used to track citizens from the Muslim Uighur minority in Xinjiang province.

Two of the main companies are Hikvision and Dahua, with the first having supplied cameras to at least two of the “re-education camps” where around a million Uighurs are detained, The Times reported.

Analysis by Morningstar seen by The Times, found that hundreds of funds available to British investors held shares worth US$941m in Hikvision and US$55m in Dahua. Aberdeen held US$104m in Hikvision shares and Schroders held US$23.6m. Fidelity held US$19.3m in Hikvision and US$25.8m in Dahua. Other British household names had smaller holdings.

The United States and the United Nations have expressed concern about the oppressive regime in Xinjiang.

Labour MP Helen Goodman told the paper that Hikvision and Dahua have “contributed to some of the most egregious violations of human rights taking place in the world today”.

“While Hikvision has certainly taken steps to strengthen internal human rights compliance procedures, these steps do not go far enough,” she added.

As a result, ShareAction chief executive Catherine Howarth has called for more active managers to be “much stricter with their human rights due diligence” following the revelations.

"All asset managers should have a strict responsible investment policy which applies to all its funds. The significant holdings in Dahua and Hikvision in these funds leads us to question whether these investors’ policies are really being put into practice. While we’re glad to see that seven funds have pulled out of the companies, it’s a shame that it takes bad press for investors to take action.

"To avoid this happening again, asset managers and index providers offering any products, not just those supposedly based on ESG principles, must be much stricter with their human rights due diligence. Companies must comply with international human rights codes, not just those set domestically. There is far too much at stake if they get this wrong.

“We doubt whether asset owners – the ultimate investors in these companies – want to be financially implicated in the oppression of minority groups. They must ask their asset managers to sell out of the companies if they hold them in an active fund, or have the inclusion criteria tightened if they track them passively. Investors must not be blinded by the dollar signs, and consider the ultimate impact their investment has on vulnerable groups.”

In response, Aberdeen Standard Investments said: “We are investors in Hikvision and we 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 for us with the company.”

A Schroders spokesperson said: “Schroders is committed to engaging on ESG risks that could prove material for our clients. Our stewardship activities form a core component of our responsibilities as an active manager and our ongoing robust engagement with companies has enabled us to exert pressure and help enforce long-term sustainable change by improving companies’ behaviours and governance.

“Schroders has been incorporating ESG considerations into its fundamental research and stock selection process for 20 years, having published our first corporate governance policy in 1998, followed by our responsible investment policy in 2001."

Fidelity declined to comment when approached by Pensions Age.

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