Engaging Solar Companies on Uyghur Forced Labor
A blog post by Ruben Walter, Business 360 Associate Analyst for Eventide Asset Management
At Eventide Asset Management, one of our core investment ideals is respecting the value and freedom of all people. For this reason, we take a strong stance against the use of forced labor at any stage in a company’s supply chain. For example, when we discover that one of our portfolio companies sources from a factory with labor issues, we engage the company to work with their suppliers to address this issue. If their supplier is unwilling or unable to do so and the company is unwilling to cut ties with the supplier, we would divest the company in question. Simple enough. But what if an entire supply chain is riddled with forced labor issues? What if an entire industry has become entangled in a state-sanctioned, ethnically motivated system of oppression? This is the question facing the solar industry, and investors, today.
It is no secret that the Chinese government has been engaging in a concerted effort to imprison and subjugate the Uyghur people of the Xinjiang Uyghur Autonomous Region, with approximately one million Uyghurs being imprisoned in internment camps and many forced into labor assignments underpinned by a system of mass surveillance. What is not so widely known is how companies are connected to this system of repression through their supply chains. The solar industry is particularly entrenched in this repressive system, with up to 97% of solar panels estimated to be connected to Uyghur forced labor at some stage of the supply chain. Since the issue is widespread, an industry-wide shift is needed.
In August of 2021, U.S. Customs and Border Protection (CBP) placed a Withhold Release Order (WRO) on mining company Hoshine Silicon Industry, resulting in solar panels that contain polysilicon from Hoshine being seized by the CBP. In addition, the proposed Uyghur Forced Labor Prevention Act, pending passage by the U.S. House, bans the importation of products from Xinjiang unless importers can demonstrate that no forced labor was used in the production of the goods. In response to these developments, many companies that import solar panels have begun implementing traceability measures, which aim to create infrastructure to track solar panels from raw materials to finished product to ensure no forced labor is used. While helpful, such measures, in our estimation, do not go far enough.
At Eventide, we support the implementation of traceability as a first step. However, traceability, on its own, has the potential to create a bifurcated supply chain that falls far short of creating fair labor practices and justice for the Uyghur people. In a bifurcation scenario, for example, one company can support two separate supply chains, one with forced labor risks to serve markets with limited measures in place to address the problem and another without forced labor to serve the U.S. and E.U. Implementing traceability alone allows the company to continue to benefit from and rely on exploitation through forced labor without losing important business due to illegal practices. Suppliers could, in theory, expand their use of forced labor in the Uyghur Region or other parts of China, while still passing through product in a separate supply chain that meets the traceability protocol.
Bifurcation, then, is clearly problematic. It does little to preclude companies from participating in the creeping genocide of the Uyghur people through forced labor, mass surveillance, family separation, religious oppression, and forced sterilization, among other atrocities. So, what is the solution? Sourcing from companies that do not use forced labor — directly or in their supply chains — is the long-term solution.
The reality is that the vast majority of panel makers are implicated in forced labor, and without the traceability strategy, there are very few options for buyers who wish to avoid forced labor. We recognize this dilemma, which is why we suggest a phased approach that focuses first on the worst offenders.
Phase 1: we will ask solar developers to stop sourcing from panel makers that directly employ forced labor or are based in the Uyghur Region.
Phase 2: we will ask that solar developers stop sourcing from panel makers that get their polysilicon from providers that directly employ forced labor.
Phase 3: we will ask that solar developers stop sourcing from either panel makers or polysilicon companies that retain raw material providers who directly use forced labor or are implicated in such practices. In this step, companies must cease the procurement of raw materials from suppliers that operate in the Uyghur Region until the raw material supply from the region becomes free of forced labor.
We expect each step to take approximately six months.
While this approach will require resources and time, we believe it is necessary to create a fair and free supply chain that meets our growing need for renewable energy. At Eventide, we believe that the transition to renewables must happen in a way that honors workers throughout the supply chain as people created in the image of God. Investors have a unique opportunity to influence companies to build sustainable supply chains for all stakeholders involved. We encourage investors to join us in this goal for the freedom of the Uyghur people.
 Bernreuter, Johannes. “Solar Value Chain.” Bernreuter Research. June 20, 2020. https://www.bernreuter.com/solar-industry/value-chain/.