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A Hong Kong Watch report shows that leading asset managers are exposed to index funds that include companies accused of being complicit in human rights violations © Thomas White/Reuters

The world’s biggest asset management, state pension and sovereign wealth funds are passively invested in companies which have allegedly been involved in the repression of Uyghur Muslims in north-west China’s Xinjiang region, a new report says.

According to Hong Kong Watch, a UK-based research group, and the Helena Kennedy Centre for International Justice at Sheffield Hallam University, three major stock indices provided by index publisher MSCI include at least 13 companies which have allegedly used forced labour or have profited from China’s construction of internment camps in Xinjiang and its surveillance apparatus in recent years.

The report, which will be published on Monday, shows how leading asset managers, including BlackRock, HSBC, UBS and Deutsche Bank, are exposed to index funds that include companies accused of being complicit in rights violations.

Hong Kong Watch said pension funds from Canada, the US and UK — including the Church of England’s fund — as well as Japan’s Government Pension Investment Fund and the New Zealand Superannuation Fund are also exposed. However, the Church of England insisted its pension fund does not use the MSCI emerging markets tracker for its passive index.*

“Major institutional investors are funding companies known to be involved and benefiting from the crisis in the Uyghur region,” the report said. “It is vital that firms take action and actually live up to the ethical commitments that they have made under ESG frameworks and through signing international human rights compacts.”

China has come under renewed international pressure over its treatment of Xinjiang’s Uyghur population, which numbers about 12mn in a region of 25mn. In a landmark report in September, the UN’s top human rights body said China’s actions could constitute “crimes against humanity”. Beijing has denied the allegations as a “fabricated lie”.

The Hong Kong Watch report focuses on companies included in the MSCI indices which have been identified in academic research and news reports as allegedly complicit in the human rights violations.

The report lists seven companies that allegedly used Uyghur workers obtained through state-sponsored transfers, a form of forced labour. They include electronics group Avary Holding, Foxconn, the main manufacturer of Apple iPhones in China, and Xinjiang Goldwind Science & Technology, China’s biggest wind turbine maker.

It also lists six groups allegedly involved in the construction of prisons, internment camps and surveillance infrastructure in Xinjiang, including video surveillance maker Dahua Technology, speech recognition developer iFlytek, biotech group BGI Genomics and telecoms company ZTE.

Twelve of the companies are in the MSCI China index, 13 are in the MSCI Emerging Markets index and four are in the MSCI All Country World index.

MSCI told the Financial Times that the only “filters for inclusion” in its global indices are “accessibility and investability”. 

“If an international investor is able to access the stock market and invest in companies in the market, then the market and those companies are eligible for inclusion in our market indices,” the company said.

MSCI added that it has various ESG-focused indices for which its researchers conduct “daily monitoring of controversies and other governance issues”.

Foxconn and Avary denied all allegations of forced labour. Each company pointed to independent audits and investigations in the past two years that found no evidence of labour abuse.

Dahua and BGI, two of the groups which allegedly supported the surveillance apparatus, have also rejected allegations of human rights abuses. The remaining nine companies identified by Hong Kong Watch did not respond to a request for comment.

Morningstar data show that the stocks flagged in the new report are included in 16 dollar- and sterling-denominated funds benchmarked against the three MSCI stock indices in question, representing a combined market value of more than $106bn.

Among the biggest benefits of inclusion in such benchmarks are the passive inflows prompted by these and other stock indices, which can provide a substantial boost to valuation by driving demand for the underlying equities.

Taken together, the market capitalisation of the 13 listings named in Hong Kong Watch’s report comes to roughly $158bn, according to FT calculations based on Bloomberg data.

*This article has been amended to make clear that the Church of England denies its pension fund uses the MSCI emerging markets tracker for its passive index.

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