Canada-China Relations Committee on May 8th, 2023

[Jean Yip, Liberal, Scarborough—Agincourt, ON]

Thank you.

My next question goes to Professor Von Assche.

Today Minister Joly declared the Chinese diplomat Zhao Wei persona non grata.

Do you think there will retaliatory measures against businesses in Canada?

[Dr. Ari Van Assche]

I'm sure China will consider how to demonstrate its disappointment with the sending out of the diplomat. I would conjecture there might be some retaliation.

[Jean Yip, Liberal, Scarborough—Agincourt, ON]

[Technical difficulty—Editor] Canadian businesses in China?

[Stephen McLennan]

I'm sorry. I didn't hear the entire question.

[Jean Yip, Liberal, Scarborough—Agincourt, ON]

Do you think this will affect Canadian businesses in China?

[Dr. Ari Van Assche]

It depends how they will be retaliating. I'm not sure how they will do that.

[Jean Yip, Liberal, Scarborough—Agincourt, ON]

Okay.

My next question is for Mr. McLennan.

In recent news, we heard that China was barring thousands of citizens and foreigners from leaving the country. Most of this is due to pending civil matters, not criminal ones, and it is not necessarily related to national security. The PRC says they are open for business after COVID, but this seems to give a mixed message.

How will this affect financial investments?

[Stephen McLennan]

When we take a step back and think about what we're trying to do from a portfolio perspective, we are a fiduciary. We have a mandate to earn risk-adjusted returns, and part of that statement around risk-adjusted returns is thinking about the risk profile. One of those key considerations is the state of Canada-China relations and U.S.-China relations, and as that risk profile changes, we will look to adjust what type of exposure we'd like to have in the country.

To the extent that the statement or the issue you just raised is raising the risk profile or the geopolitical risk, all else being equal, we'll think about how that's going to affect our overall allocation.

[Jean Yip, Liberal, Scarborough—Agincourt, ON]

How will this accelerate the implementation of ESG requirements?

[Stephen McLennan]

When we look at our investment process, we look at things both from a commercial diligence perspective and from an ESG perspective. These types of issues should, hopefully, be picked up in any of the analysis that we'd be performing on the ESG side.

From the perspective of how this affects our incorporation of ESG, I think it emphasizes the importance of ESG in the investment process to ensure that we're delivering investments that satisfy the risk and return profile that we need to satisfy our pension promise.

[The Chair, Liberal, Ken Hardie]

Thank you, Ms. Yip.

We'll now go to Mr. Trudel for six minutes or less.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

Thank you, Mr. Chair.

Thanks to all the witnesses for being here this evening.

Mr. Van Assche, in an article in La Presse entitled "Du travail forcé dans votre t‑shirt", about the repression of Uyghur people in China, you said that companies were caught between a rock and a hard place, and that if they did not condemn this situation in Xinjiang, it would project a poor image to western consumers, and that if they did, it would lead to problems with the Chinese government and public. Basically, you said that it was impossible for companies to be fully transparent.

To give an example, how can investment funds invest in companies knowledgeably when they don't know whether the companies are making children work or complying with ESG criteria? How does that work?

[Dr. Ari Van Assche]

Thank you for the question.

I was talking about companies in China that were allegedly using forced labour in Xinjiang. Based on their reaction, one might of course presume that they were caught between a rock and a hard place.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

Do you have the name of a specific company to give us?

[Dr. Ari Van Assche]

Those at issue were companies like Zara, UNIQLO and H&M.

But on a positive note, we now pay more attention to the consequences of what we do, not only within the company, but throughout the global value chain. The use of forced labour is not a problem that companies can solve quickly. Many companies don't even know what's happening farther down the global value chain, but that's not the case for all companies.

For pension funds, it means that there is now a much higher risk level when situations like that occur. These risks are issues for which they can be held accountable, and reducing these risks is not easy.

At a previous meeting, witnesses spoke about the due diligence required of the firms in which they invest. Often, it's not these firms that use forced labour, but rather their suppliers and subcontractors. This is done by them clandestinely, of course. To solve the problem, our firms need a better understanding of what's going on. It's not easy to do, however.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

And yet witnesses came to this committee to tell us that it was easy to have full transparency, that everything in China was public, and that it was possible to obtain information. We were told that it was easy to get all the human rights information from the companies.

Would you agree with that statement?

[Dr. Ari Van Assche]

It's easy to find instances of a pension fund being invested in a company involved in forced labour. But identifying all the possible cases in which investors or firms might be linked to forced labour is very complicated.

I don't agree that it's easy to get information readily on the Internet. Relations would have to be established with some firms to ensure that they are revealing accurate information about their subcontractors, etc. It's very complicated.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

Okay.

How could the government intervene to create more transparency and enhanced access to information?

I understand that what happened today isn't going to help us plunge deeper into the workings of China so that we can know what's going on there.

Do you have any idea of what we could do to facilitate the transmission of information about whether public funds from Canada are being invested in firms that are not really respecting human rights.

[Dr. Ari Van Assche]

Thank you for your question.

I think that what the government is already doing, which is encouraging firms and investors to demonstrate a reasonable level of due diligence, is a good thing. It provides information. It also encourages companies to make more of an effort in this regard.

Of course, the government could also take initiatives. One of the problems facing the Canadian government is that a lot of forced labour is extraterritorial. It's being done in countries like China, but in many other countries as well.

As soon as we begin to provide information about what firms that do not respect human rights are doing, we will be disseminating information. That might be interpreted as a political issue, and it could lead to retaliation.

I believe that it would probably be important to work with other countries like the United States to develop this side of things.

[The Chair, Liberal, Ken Hardie]

Thank you very much, Mr. Trudel. Your time has expired.

We'll now go to Ms. McPherson for six minutes or less.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Thank you very much.

Thank you to all of the witnesses who have joined us today. This is absolutely fascinating for me. Your expertise is very useful. Thank you.

I'm recognizing that we have a very complex economic system. These funds are extraordinarily complex. There are many moving parts in how decisions are made.

We heard in our first panel that because there is such a size to these investment funds, they have the capacity to change the direction that companies take. They could work in that way.

We know Canadians want to ensure that their investments are not benefiting from forced labour, human rights abuses, environmental degradation or harms to indigenous peoples around the world. However, we've seen time and time again the lure of dollars. We know there is an awful lot of money to be made in the Chinese market in working with Chinese companies. The lure to make money often overshadows or trumps the desire to respect human rights and environmental care.

I'd like to start with Ms. Glick and then I'll ask Mr. Van Assche this question.

Should Canadians be worried that their pension plans, their investment funds, are using forced labour, or worry about other human rights or environmental abuses, and should there be stronger legislation from the Government of Canada and perhaps even the provincial governments?

[Paula Glick]

Those are difficult questions. I don't know whether I can answer them directly head-on.

I would say that folks care about these issues, but not everybody does. A lot of people tend to look the other way when it comes to their investments. There's a disconnect.

To your point, there is an increasing interest and concern about ensuring.... Some people feel very strongly about a whole range of ESG issues and are looking to invest their money in that capacity.

For those people who are maybe not educated on or are not aware of what they're investing in, there needs to be greater education and better opportunity to make decisions in that regard. I do think that transparency is key.

Very quickly, I would point to certain products out there. In particular, since Russia—again, another dictatorship—invaded Ukraine, we've seen a lot of money moving to freedom indexes, indexes that don't invest in countries like this. There is definitely a group out there who are acting with their money.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Can you tell me about the legislation? Do you feel that our current legislative structure is sufficient? This is for you, Ms. Glick.

[Paula Glick]

It's a very complex world. China's the second-largest economy. There's a lot of interwoven connectivity. Over the years, we have seen the Canadian government step up on international conventions and take positions on other countries. If there's enough will to do something, then it can be done. I believe it can be done, but there's definitely a lot of conundrum when dealing with China and all of the complexities that we're facing.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Thank you so much.

Mr. Van Assche, would you comment?