In response to concerns about the lack of responsible due diligence in supply chains, global asset firms and the funds they manage have been associated with investments running up to $1.4 billion that allegedly went into companies involved in forced labor allegations over Xinjiang in China, research conducted by Ignites Asia states.
Investments Linked to Xinjiang Allegations
The analysis showed that ESG funds have substantial investments in 14 electric vehicle and solar companies that are accused of forced labor practices. Of the exposure, $1.1 billion is found in Contemporary Amperex Technology Co. Limited, which is one of the world’s leading EV battery producers. CATL has faced allegations of links to forced labor in its supply chains following the expansion of operations into Xinjiang in 2022.
Key Findings
Active ESG funds invested $789 million in CATL.
Passive ESG funds contributed $263 million to CATL holdings.
Major investors include BlackRock at $148 million, Nordea at $93 million, and Ninety One at $86 million.
Scrutiny and Denials
CATL has categorically denied all claims that it is connected to forced labor, terming them as “groundless and entirely false.” In a November 2024 public response to a U.S. Congressional inquiry, the company said it had sold its minority equity interest in Jiangxi Zhicun, a company linked to Xinjiang, in March 2023.
The U.S. House Select Committee on the Chinese Communist Party had previously released evidence establishing a connection between CATL and forced labor, reports from the Helena Kennedy Center for International Justice in the UK confirm.
Evidence that has been used to heighten global scrutiny of companies operating in Xinjiang.
Barriers to ESG investing
They, however argue that ESG funds must achieve balance on prioritizing the environment with respect to ethical consideration. Among these are supply chains in China and reliance on third parties for ESG data. In fact, some accuse asset managers of avoiding public criticisms owing to a perceived fear of reprisal from Chinese authorities. Critics add that there are also some safety risks for employees in areas where such operations take place.
There is an advocacy for more general sector-wide divestment in order to reduce risks and make ethical investments. Many, however, still continue facing challenges in auditing supply chains effectively. This does bring into question the credibility of ESG commitments.
Calls for Action
Industry experts call for greater responsibility on the part of the asset managers. Some funds have apparently quietly divested from firms with allegations of forced labor without making an issue out of it; however, it will be much better if the industry speaks out in unison concerning its stand on human rights violation.
The Role of Regulation
Global regulators and other watchdog bodies continue keeping a sharper focus on investment ethics. ESG funds, therefore have to reformulate their portfolio. It includes transparent audit practices and reduced dependence on third-party data providers. This Xinjiang-related investment controversy does present the challenges involved in meeting the ideals of ESG principles in real-world terms.
Conclusion
Exposure to Xinjiang-related forced labor claims is one of the challenges that high globalization in the economy imposes on ethical investors. In the wake of continued oversight, asset managers start facing more pressure regarding ensuring that their investments are consistent with environmental considerations and human rights standards as well.
Source: Ignites Asia, Financial Times Group