Legal Considerations in Responsible Investment

***RECENT UPDATE***

U.S. Senate Re-introduces the Uyghur Forced Labor Prevention Act

Last week, the Uyghur Forced Labor Prevention Act (the “Act”), which seeks to bar the import of certain goods produced with forced labor from the Xinjiang region of China into the U.S., was re-introduced in the Senate. The Grant & Eisenhofer ESG Institute has, and will continue to, monitor the status of the Act.

For years, Uyghurs, a Muslim minority group that is located predominantly in China’s Xinjiang Province, have been the targets of unfettered discrimination and bigotry, in many cases being forced into detention camps. There, they are victims of forced labor in factories which are inextricably tied to the supply chains of renowned global brands such as Apple, Coca-Cola, and Nike. On September 22, 2020, the House of Representatives passed the Act by an overwhelming margin of 406 to 3. The Act did not pass the Senate before the 116th Congress concluded. On January 27, 2021, in a show of bipartisan support, Senators Marco Rubio (R-FL) and Jeff Merkley (D-OR) reintroduced the Act.

If enacted into law, the Act will prohibit the import of certain categories of goods produced with forced labor from the Xinjiang region into the United States; require that the president of the United States submit an annual report to Congress identifying each foreign person, including any Chinese government official, who is at all involved with forced labor in the Xinjiang region; impose sanctions on such individuals identified in the president’s report, which may include blocking any transactions in property interests in the U.S. and banning them from entry into the U.S.; and require U.S. companies to disclose to the SEC any links they may have to Xinjiang. Describing the impetus behind the Act, Senator Merkley stated, “For years, the Chinese government has been committing genocide in Xinjiang, subjecting Uyghurs and other predominantly Muslim ethnic minorities to torture, imprisonment, forced labor and pressure to abandon their religious and cultural practices.”

While the 116th Congress had, for the most part, welcomed the bill as a strategic effort to hold U.S. corporations accountable for human rights violations, brand-name companies such as those mentioned above, as well as Calvin Klein, and Campbell Soup, have spent millions of dollars lobbying to weaken some of the bill’s provisions. Their goals include extending compliance deadlines and disclosing supply chain information only to congressional committees, thereby keeping that data from the public.. While these companies continue to tout their ethical and responsible manufacturing and international labor standards, they have now made clear that they view the pending legislation as posing an imminent threat to the viability of their supply chains. The recent lobbying efforts of these corporations stand in obvious contravention to their public promises and assurances of responsible corporate behavior. This latest example of corporate lobbying offers two salient reminders: first, that the supply chains of so many U.S. companies we depend upon for everyday comforts and conveniences are fraught with forced labor; and second, that such corporations have much work to do to reach an acceptable level of corporate responsibility.

Combating forced labor abroad is a principal goal of the Grant & Eisenhofer ESG Institute. Recently, the Institute successfully petitioned the United States Customs and Border Patrol to block the importation of goods containing palm oil produced by FGV holdings.


 

Background on the Grant & Eisenhofer ESG Institute

Global investor interest in sustainable and responsible investment continues to accelerate at a rapid pace. The Global Sustainable Investment Alliance (GSIA) estimates $30 trillion in global assets are managed under responsible investment strategies, representing a 34% increase since 2018. Responsible investment strategies consider environmental, social and governance (ESG) factors in portfolio selection criteria and management with the belief that better corporate ESG profiles result in fewer disasters and corporate scandals. Investment policies that integrate ESG criteria tend to express investor values specific to weapons, carbon emissions, fossil fuel reserves, labor conditions, human rights, corporate governance, executive compensation and other concerns aimed at solving social or environmental problems. Corporate engagement and shareholder activism are also strategies investors are increasingly using to influence corporate behavior driven by ESG guidelines.

With over 23 years of actively protecting and promoting the rights of institutional investors and public entt & Eisenhofer (G&E) has built its legacy in corporate governance with an unwavering commitment to responsible investment. We continue to build on our history with an initiative designed to address the increasing dialogue on ESG criteria within the institutional investment community. The mission of the Grant & Eisenhofer ESG Institute, led by its co-directors Deborah Elman and Caitlin Moyna, is to provide thought leadership on legal issues related to ESG considerations and socially responsible investment. Key members of the global investment and ESG communities will participate on an Oversight Board to provide strategic insight and development for the Institute. The Oversight Board members have been thoughtfully selected to provide a diverse range of perspectives, experience and backgrounds that will collectively direct the future evolvement of the ESG Institute. Members bring global experience from asset managers, public pension funds and nonprofits.

Some of the legal issues the ESG Institute will focus on include:

  • Sustainability and Fiduciary Duty
  • Climate Change and Securities Law
  • Corporate Legal Responsibility for Activity in Developing Countries
  • International Whistleblower Developments
  • Legal Challenges to Limit Compensation

The ESG Institute meets periodically with high quality events both in the US and Europe to provide continuity and a forum for engagement to connect like-minded participants and organizations. The Institute will seek regular feedback from participants and the Oversight Board. Our objective is to continuously address the legal issues that decision makers and stakeholders in the investment community are grappling with in implementing sustainability considerations and responsible investment criteria.

Proportion of Global SRI Assets by Region

* Source: 2018 "Global Sustainable Investment Review" released by the Global Sustainable Investment Alliance

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G&E Petitions to Block Palm Oil Imports Produced by FGV Holdings Berhad Using Child and Forced Labor
ESG Initiatives Adopted by Exchanges
Hedge Funds Making Progress, But Slow to Adopt ESG
Uzbek Working to End Forced Labor in Cotton Fields
EU Agrees on New Requirements Regarding Sustainable Investments and Sustainability Risk Disclosures
Investment Professionals Increasingly Focused on ESG Factors
Aon Survey Shows 68% of Global Investors Consider Responsible Investing Important
Large Investors Ask SEC to Issue Rules on ESG Disclosure Standards
Ninth Circuit Holds No Duty to Disclose Unfair Labor Practices Under California Consumer Protection Law
D.O.L. Qualifies ERISA Fiduciaries’ Obligations Regarding ESG Considerations

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