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Uyghur Forced Labor Disclosure Act passed By US Congress

What’s happening? The US Congress recently passed a legislative bill with regards to the mass forced labour camps of minority demographics in China’s Xinjiang province. The new Uyghur Forced Labor Disclosure Act of 2020 means publicly traded US companies will need to disclose further information on their supply chains with the SEC, including gross revenue and net profits affiliated with goods sourced from the region. The mass internment of Uyghurs and other Muslim minorities has been noted as a "clear and material risk to shared values" of companies, investors and consumers, according to Representative Jim McGovern speaking at the US House of Representatives.

Why does this matter? The Uyghur Forced Labor Disclosure Act is a key, concrete step towards greater supply chain transparency that can aid ESG compliance. The bill, which passed with an overwhelming majority vote of 406-3, is likely to have direct implications for corporates, multinational companies and investors alike, and perhaps even more broadly. Moving forward, this landslide result could also pave the way for catalysing similar legislation in other geographies.

The scale of human rights issues in Xinjiang has come to light in recent months, with an estimated 1-1.8 million people thought to have been subject to arbitrary mass detention in 380 internment camps. On top of this, reports from Amnesty International and other human rights organisations found the ability to observe the month of Ramadan and pray was being curtailed in such facilities. This goes against the right for ethnic minorities to freely practise cultural and religious beliefs, as articulated by the United Nations' international standards and other frameworks.

Approximately 20% of global cotton garment sales are estimated to derive from China’s Xinjiang region, highlighting the need to address these human rights risks both within corporate strategies and across supply chains. Several corporates and multinationals have avoided addressing the Chinese government’s stance on local minority rights, however, perhaps due to the risk of damaging rapport with one of the world’s fastest growing consumer markets.

There have been calls for action among NGOs, civil society and trade unions, including the End Uyghur Forced Labour Campaign coalition. There are also growing collaborations between multilateral entities such as the United Nations, governments and the private sector on the issue. Closer to home, a UK cross-party parliamentary initiative has proposed the UK government curtails trade ties with Beijing. Under the propositions, campaigners would have the right to petition for cases of alleged genocide in UK courts for the first time, rather than at the UN.

Lateral thought from Curation – The polarising question of whether the approach of divestment, or instead engagement and dialogue, is more effective in catalysing true change can be applied in this situation. Institutional approaches have varied – we recently saw a Norwegian fund’s divestment from three textiles companies on the basis of human rights concerns. However, Norges Bank Investment Management has simultaneously noted there are instances where dialogue and “active ownership” may be a viable strategy. One such example cited is its engagement with China’s largest oil and gas company, PetroChina, on anti-corruption. 

In a globalised world there are increasingly interdependent, yet fragmented and complex supply chains. This poses a challenge that goes beyond China and the textiles industry alone. Many technology companies source components from factories in multiple geographies, such as Apple, which has suppliers across 43 countries and six continents. Tracking human rights compliance across this complex system clearly needs some work – a US Government Accountability Office report recently found human rights was the least disclosed ESG topic by companies.

Nick Finegold is Founder & CEO of Curation Corp, an emerging and peripheral risks monitoring service.

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