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19 Apr 2021

DOUGLAS APPELL, Pensions & Investments (USA)

Continued embrace of ESG undeterred by geopolitics and boycotts of foreign brands, investment advisers say

"Focus on human rights a challenge in China", 19 April 2021

Human rights could be poised to challenge climate change's lock on the hearts and minds of ESG investors even as that topic has left some global retailers under pressure this year in the world's fastest-growing consumer market. [...]

Following a pattern

Some observers — noting that instances of global companies ruffling the feathers of overseas consumers and seeing their business suffer temporarily as a result are nothing new — predict the current brouhaha on the mainland could follow that pattern. "It's not the first time" Chinese nationals have launched boycotts, and Korean brands, Japanese brands and Australian suppliers have all been targets in the past, noted Robin You, a Hong Kong-based senior investment analyst with investment consulting firm RisCura Holdings (Pty) Ltd. "It comes and goes in a few months," he said.

Others say growing geopolitical tensions between China and the U.S., technological advances such as the spread of social media and the importance of online sales could make the current backlash by Chinese consumers trickier to defuse, with little or no scope for the kind of constructive engagement that's animated climate-related issues and even other social issues widely viewed as problematic, such as child labor.

The aggressive pushback now on the mainland against these foreign companies' sustainability statements or credentials "is pretty unchartered territory," with the potential to impose more damage on their businesses in China than previous boycotts have, said a Hong Kong-based ESG executive with one global money manager, who declined to be named. [...]

In this instance, threading the needle "is going to be very, very tough," agreed Frontier's Mr. Alcock. "The (Chinese) consumers who are boycotting the Western brands, for whatever reason, are stating that the reasons why those companies are not buying the cotton are erroneous," lies and conspiracies, he said.

Market participants predict the fireworks of the past month or so should eventually recede but they add that how the foreign companies being targeted now can get there from here remains considerably murky.

ESG amid geopolitics

The collision of ESG with geopolitics in China last month won't necessarily be a game changer but it could prove to be a key case study — part of the "bumps and turns and learnings" that will accompany the continued embrace of ESG, Mr. Alcock said.

While some elements of the latest news about foreign companies grappling with human rights issues in China point to a "new dynamic" in terms of the level of engagement by state and local actors, navigating labor challenges around the globe is not new and tensions vis-a-vis China are unlikely to derail the takeup of ESG by companies, money managers and asset owners, Ropes & Gray's Mr. Littenberg said. [...]

Part of the following timelines

China: 83 major brands implicated in report on forced labour of ethnic minorities from Xinjiang assigned to factories across provinces; Includes company responses

China: Mounting concerns over forced labour in Xinjiang

Brands face boycott in China over decision not to source Xinjiang cotton due to allegations of forced labour