China’s Uyghur Forced Labor Allegations Present ESG and Supply Chain Case Study

February 18, 2021

Constant international news of forced labor and other human rights abuses in the Xinjiang region of China provide companies with a valuable case study on the intersection of employee-voice protests, ESG, and investor activism.      
 
Supply chain management and its intersection with human rights violations has long been a focus point for global companies with global-reaching supply chains to make sure all levels of the supply chain are free from human rights abuses.  However, more recently, this component has been picked up as a core part of ESG by investor groups.  
 
Around seven or eight years ago there was a major shift in the strategy by advocate groups, like the Better Cotton Initiative (more on that below), in influencing companies.  Prior to this shift, these groups would work to influence the company directly.  However, the shift saw resources pushed to influence investors, which, in theory, would turn and influence the companies in which they own shares.  The strategy has been very effective.  
 
In this scenario, ESG-oriented investor groups are highlighting the accused human rights violations in Uyghur China as a violation of the core tenants of ESG principles.  As is detailed in an article in Responsible Investor, “investors have in general avoided challenging global brands aggressively on their China supply chain violations.”  The article urges investors to do the opposite – put the heat on global brands to make sure that supply chain arrangements – and here, specifically, business dealings in China – are free from the accused human rights abuses.  Companies need to be prepared for the possibility that their investors push for information and disclosure of supply chain and human rights practices broadly, as well as specific policies or issues around problematic areas like this scenario in China.  
 
Companies also need to be aware of other non-profit sustainability, advocacy groups and social media campaigns which can target them for supply chain issues.  Employees and other groups, like the above-mentioned Better Cotton Initiative can take steps to draw attention to supply chain and human rights abuses and can do so quickly.  Companies should be prepared to address problematic areas, like in Xinjiang Uyghur proactively to help set discussions.