ESG Has Hit the Human Rights Iceberg

ESG Has Hit the Human Rights Iceberg
A paramilitary police officer gestures outside the Belgium embassy in Beijing on June 19, 2019. (Nicolas Asfouri/AFP via Getty Images)
Keith Krach

Throughout my career, I often said “corporate responsibility is social responsibility.” Nothing exemplifies an attempt to make that a reality today as much as ESG, or “Environmental, Social, and Governance” criteria, that an increasing number of companies and corporations are signing up for.

Essentially, if a company signs up for ESG, it agrees to conduct itself in a way that respects the environment, contributes to local communities, and is honest and transparent in its financial practices. This enables conscientious investors to invest their money in companies that don’t violate their values and contribute to making the world a better place.

ESG began approximately fifteen years ago with companies operating by its standards collectively worth around $17 billion. Today, that number is nearly $20 trillion. The power of the ESG community cannot be underestimated.

But there’s a huge flaw in how ESG is currently structured, and I can sum it up in one word: China.

Americans Unwittingly Fund Communist Genocide

The reality is that China, under the rule of the Chinese Communist Party (CCP), is engaged in genocide of the Uyghur people in its Xinjiang province. As Under Secretary of State, I wrote three letters to CEOs, the governing boards of American universities, and civil society partners on this tragedy, and their responsibility for ensuring their organizations were not unwittingly supporting it with their investments or supply chains.
 Keith Krach testifies before the Senate Foreign Relations Committee on March 27, 2019. (Screenshot via Keith Krach)
Keith Krach testifies before the Senate Foreign Relations Committee on March 27, 2019. (Screenshot via Keith Krach)
The blunt reality is that the average American investor is unknowingly financing the CCP’s human rights abuses, surveillance state, and military-civil fusion because the CCP has infiltrated American capital markets through the back door. They’ve managed to get around the financial transparency laws that American and other companies must follow in order to enjoy the same access, and are often buried in various index bonds, which are then incorporated into hundreds of products, ETFs, and mutual funds.

The Hole in ESG

During my time at the State Department, we championed the Trust Principle. The idea is simple: if you are going to participate in our markets, you must also agree to abide by a set of trust principles that we, in the free world, respect. This includes things like transparency, integrity, respect for human rights, the environment, rule of law, etc.

The authoritarian alternative is the Power Principle, which relies on bullying, cheating, and coercion.

By insisting that all participants in our markets abide by the Trust Principle, we were able to defeat China, Inc.’s 5G master plan, which was on the brink of wresting control over international 5G networks and handing it to the CCP. The bully backed down.

ESG must now do the same thing. That will mean simply living up to its own standards. When you think about it, ESG itself is based on the Trust Principle. For a company to qualify for ESG, it must comply with ESG standards. In many ways, those standards align with the Trust Principle I championed at the State Department.

But among those principles are transparency and reciprocity. If we’re going to shine the light of transparency on Xinjiang, we must reciprocate and also shine it on ourselves.

After the Holocaust, the world said, “never again.” Did we mean it?

As House Speaker Nancy Pelosi (D-Calif.) recently observed about corporate sponsors of the recent Beijing Olympics, “If we don’t speak out against human rights violations in China for commercial reasons, we lose all moral authority to speak out for human rights anywhere.” That’s a polite way of saying there’s a conflict of interest, and it seems that for some corporations there’s simply too much money on the table to do anything about genocide.

An Appeal to the World Economic Forum

Then there are forums like the World Economic Forum (WEF), which is the preeminent gathering for government and corporate leaders who seek to uphold the high standards outlined in ESG.

WEF asset managers collectively manage trillions of dollars. They have the power, the wealth, and the prestige to speak out.

But they’ve said nothing.

Why isn’t the Uyghur genocide among the lengthy list of topics the WEF is actively addressing? Indeed, its own mission, as stated on its own website, declares that “the Forum strives in all its efforts to demonstrate entrepreneurship in the global public interest while upholding the highest standards of governance. Moral and intellectual integrity is at the heart of everything it does.”

Is remaining silent on Xinjiang “in the global public interest”? Can any of us claim “moral and intellectual integrity” is at the heart of everything we do when we not only turn a blind eye to genocide, but passively profit from it?

The WEF has done great work on many fronts. But when it comes to human rights, let alone genocide, it hasn’t stood by its espoused principles. It's been silent when it comes to China.

Call to Action: Wake Up ESG!

The truth is many have been silent for decades. The free world not only turned a blind eye to the CCP’s crimes, but we financed them by providing access to our capital markets. We not only sent over a treasure trove of our best investment bankers, lawyers, money managers, private equity investors, and venture capitalists, but we funded China, Inc. through our pension funds, university endowments, foundations, mutual funds, and bond portfolios. We all did—on a bipartisan basis. We espoused the Trust Principle with our words, but constantly sat by as it was violated and abused by those who only value the Power Principle.

Now, we must do something about it.

So I call upon the ESG community, the World Economic Forum, and financial managers like Black Rock, to wake up, to be consistent, and to practice what you preach with respect to China. Do not turn a blind eye to the CCP bully. Stand up to the Power Principle with the Trust Principle.

The ESG community—including the World Economic Forum—is a powerful group, one that has a great human heart. If it spoke out against CCP human rights abuses with one voice, the world would take notice.

As one former CEO to other CEOs, I call on you to make your supply chains clean.

 Keith Krach, during an interview on Fox Business. (Fox News/Screenshot via Keith Krach)
Keith Krach, during an interview on Fox Business. (Fox News/Screenshot via Keith Krach)

To financial institutions: you have a moral responsibility, and a fiduciary duty, to disclose if you’re investing in Chinese companies, particularly ones that are involved in the surveillance state, human rights abuses, and military-civil fusion—especially if they are involved in an emerging index like the MSCI or FTSE emerging index funds, as they recently added 250 Chinese companies to the mix as of last June.

And finally, to my fellow citizens: let your voice be heard. There’s strength in numbers, especially when pocketbooks are involved. Use yours to bring awareness about this issue. If you have a pension plan, contribute to your university’s endowment fund, or are invested in a mutual fund or ETF (especially an emerging market index fund), ask if they follow ESG guidelines on human rights. Ask if they disclose their Chinese investments. If they don’t, ask them when they will. If they don’t have a good answer, consider putting your money elsewhere.
As I wrote with my colleague Ellie Cohanim, “the sound of emptying the cash register will be heard loud and clear on the other side of the world in Xinjiang.”

Whether or not we meant “never again” will be confirmed in Xinjiang.

No one should bend the knee to the CCP. We have the moral high ground of democratic values. Our Trust Principle is greater than their Power Principle.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Keith Krach is an Epoch Times contributor who was unanimously confirmed as Under Secretary of State and is currently the chairman of the Krach Institute for Tech Diplomacy. He served as chairman and CEO of DocuSign and Ariba and chairman of the Purdue Board of Trustees. Krach was nominated for the 2022 Nobel Peace Prize.
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