RPIA SUSTAINABILITY REPORT 2023
OVERVIEW FIRM
28
INVESTMENT MANAGEMENT
German Automaker December 2023
Social
Governance
In November 2022, MSCI marked a German automaker with a “red flag” in its social issue category due to allegations of forced labour related to Uyghur employees at a joint venture manufacturing plant in Xinjiang, China. The automaker commissioned an independent audit performed by a Berlin-based auditor, which published results on December 6, 2023, confirming that they found no indication of forced labour. On December 12, 2023, MSCI upgraded the red flag on labour rights and supply chain issues to an orange flag, in response to the positive audit. However, the following day, senior staff at the auditor distanced themselves from the audit, posting on LinkedIn that very few team members within their firm “participated, supported, or backed this projected.” The Founder and CEO of the auditing firm, has stood by the results of this audit, stating that his assessment as project director of this audit remains unchanged.
Engagement Focus
We met with members of the German automaker’s Investor Relations team and Management Board following these updates in December 2023. During our discussion, we asked about the recent audit and the subsequent distancing by members of the auditing team. The company confirmed that MSCI is pleased with the audit process, and the automaker was in dialogue with MSCI prior to the audit and ensured all required materials were included in the audit process. In addition to the social issue category upgrade, the company was also upgraded from fail to watchlist on the MSCI UN Global Compact Alignment assessment, which makes them eligible for certain ESG indices that screen for these scores.
Outcome
This engagement increased our confidence in the company’s credit profile, and the MSCI rating upgrades regarding the labour issue helped improve demand, with investors bidding up the company’s secondary bonds following the MSCI update. We will continue to monitor the company’s governance oversight and labour rights practices. The automaker also has carbon neutral and carbon emission reduction goals on the environmental side, which we are monitoring as we wait for updated reporting on their progress.
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