Investors face a new era of supply-chain risks with the potential to hit asset values, as the US expands enforcement of a law targeting forced labor in China’s Xinjiang region, according to JPMorgan Chase & Co.’s head of ESG equity research for the Asia-Pacific region.
Hannah Lee, who oversees environmental, social and governance research for JPMorgan from Hong Kong, says she and her team have been closely monitoring how the US Customs and Border Protection agency is implementing the Uyghur Forced Labor Prevention Act, which came into force in June 2022.
It’s the latest sign that no matter how much political backlash engulfs “ESG” as a label, ignoring what it stands for is riskier than ever. Recent examples include AT&T Inc., which has lost about 8% of its market value since early July, amid reports its cables contained toxic lead. And companies that fail to monitor their supply chains are increasingly likely to be called out, thanks to services such as the Human Rights Foundation’s Uyghur Forced Labor Checker.
Another metric JPMorgan is monitoring is the extent to which stocks are held by ESG investors, the idea being that a high ratio of ESG ownership makes a company more exposed to investor exclusions if supply-chain controls are found to be lacking. It’s a risk that’s also been identified by analysts at Societe Generale SA, who noted that such selloffs look set to become more common with ESG investors projected to hold roughly a third of the total global asset market by 2025.
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