The U.S. government sent a plea to universities to pull their endowment investments out of companies implicated in human rights abuses or that could threaten U.S. national security. But such a weighty whole-of-federal-government approach to overseeing educational institutions doesn’t quite exist in Canada to tackle this issue.
“I urge you to divest from companies that are on the [U.S.] Entity List or that contribute to human rights violations,” wrote Keith Krach, Under Secretary for Economic Growth, Energy, and the Environment at the U.S. Department of State, in an Aug. 18 letter addressed to the governing boards of American universities.
Companies on the entity list—such as Chinese telecommunications giant Huawei—are prohibited from buying certain U.S.-made products, as these companies are deemed to pose a major risk to national security or foreign policy interests.
University endowment investments are an avenue through which the Chinese Communist Party (CCP) is garnering capital from institutions in other countries, including the United States and Canada.
The culprit for money flowing into blacklisted companies is emerging markets (EM) index funds, which form part of the portfolios of many endowments. For example, Chinese companies made up 41 percent of the benchmark Morgan Stanley EM index on July 31.
At the federal level, Canada has no exact equivalent to the U.S. State Department that would issue a directive like Krach’s. However, the Canadian Security Intelligence Service brings to the government’s attention any national security threats and will also interface directly with universities in particular situations like Beijing’s recruitment of academics, as recently reported by The Globe and Mail.
But universities remain vulnerable in Canada, where educational institutions fall under provincial jurisdiction, says Christian Leuprecht, a political science professor at Royal Military College and Queen’s University. Unlike Australia, for example, Canada has no effective federal foreign interference laws in place.
‘Accelerating Investigations’
Chinese companies are notorious for their lack of transparency in accounting audits and for not being subject to oversight and regulatory requirements as are firms in other countries.
Another risk of investing in those companies is that those currently trading in the United States could get delisted from U.S. stock exchanges if they fail to meet stricter U.S. auditing requirements by Jan. 1, 2022.
“The boards of U.S. university endowments would be prudent to divest from PRC [People’s Republic of China] firms’ stocks in the likely outcome that enhanced listing standards lead to a wholesale delisting of PRC firms from U.S. exchanges by the end of next year,” Krach wrote.
“Holding these stocks also runs the high risks associated with PRC companies having to restate financials.”
The letter also warned universities of the “growing threat of authoritarian influence” by the CCP on U.S. campuses. In addition, it noted the U.S. government’s “accelerating investigations” into illicit PRC funding of research, intellectual property theft, and talent recruitment on those campuses.
