Investor stewardship in the Border & Surveillance Industries: roundtable summary

Forceful stewardship

On 28 October 2021, Preventable Surprises hosted an investor roundtable to launch the Border & Surveillance Industries (BSI) Stewardship Project. Participants discussed how institutional investors in these industries  can and should become more active owners, and how they can better assess human rights and reputational risks. Top takeaways: 

  • There is a growing body of experience to guide investor engagement on BSI. 
  • Engagement should address companies but also their sources of equity and debt finance. 
  • ESG data providers have yet to respond to this emerging class of risk. Others are filling the gap. 

As technology, private prison and security firms focus their business growth plans on expanding private migrant control and detention systems and fortified borders, investors will have to carefully consider their allocations to the BSI. 

As countries such as the UK consider adopting Australia’s approach to internment camps for asylum seekers, including potential for indefinite detention in high-cost privately run prisons, investors must develop a suitable global engagement plan for BSI sectors from logistics to border control, migrant detention and surveillance. This process should include systematic engagement with both business leaders, banks who provide lending to the BSI, and policymakers. It should identify opportunities for behavior shifts in the private sector, as well as governance shifts in the devolution of public authority to the private sector, elevating respect for migrants, their rights, and international human rights law. 

A rising tide of reputational & legal risks for investors

Experts from the BCGEU, Candide Group and the American Friends Service Committee highlighted reputational and investment risks in the BSI, and explained engagement opportunities for investor action as early as the 2022 proxy season. According to Candide Group Founding Partner Morgan Simon, investors should start by reviewing their exposures to BSI companies across asset classes, and consider the Investigate list of companies, focusing on the worst actors for engagement or exclusion. Decisions over whether to engage or divest can be made based on benchmarking against well-established standards, including the United Nations Guiding Principles on Human Rights (UNGPs), alongside existing internal human rights screening standards. The speakers agreed that shareholder resolutions are essential to influence company and industry practices, as well as to re-frame public narratives on global migration and on the importance of migrants in supporting healthy labor markets in G20 economies. 

Engagement must include banks who provide debt financing to BSI

The speakers discussed the sources of finance for the BSI. Morgan Simon described the credit arrangements of private prison companies with major banks, a crucial source of capital. Structured as real estate investment trusts (REIT), companies have also been able to source capital from retail investors via the ETF market. Banks also support private firms detaining migrants in other G20 markets, including in Europe and Australia. Investors must therefore prepare to engage with providers of debt finance across these markets, similar to their engagements with lenders to fossil fuel companies.

Emma Pullman, Capital Stewardship Officer at the BC General Employees Union (BCGEU) spoke about their work in Canada on defunding US private prison and migrant detention facility operators. BCGEU engaged Canadian banks invested in – or having credit arrangements with – US private prison companies. This includes the Royal Bank of Canada (RBC), one of the country’s largest banks. In response, RBC agreed to develop and publish a human rights policy informed by the UNGPs. In parallel, the Canada Pension Plan Investment Board  committed to divesting out of US private prisons. These shifts and the willingness to divest or cease bond underwriting for the most problematic private prison firms demonstrate how engagement can move investors together in response to human rights concerns.

The Big Tech stewardship challenge 

Emma Pullman spoke about tech firms involved in the  business of border control. For example, alongside a number of their tech sector peers, Thomson Reuters provides software to the U.S. Department of Homeland Security’s Immigration Customs and Enforcement Agency (ICE) where it is being used to track and arrest migrants. BCGEU’s engagement with the company started in 2020, when they sought to better understand how the firm assesses and mitigates the risk of contributing to human rights impacts by end users of its technology; whether the company remains in compliance with the UN Global Compact; and whether its failure to align its business practices with the UNGPs deviates from market practice and should be assessed by the board. As a result of BCGEU’s engagement, over 70% of independent shareholders voted in favour of a shareholder proposal asking the company to investigate and report on potential human rights abuses enabled by contracts with U.S. Immigration and Customs Enforcement (ICE) and the U.S. Department of Homeland Security. Shareholders are waiting for the company to respond to this request.

Dov Baum, Director of Economic Activism at the American Friends Service Committee, spoke about Microsoft’s history of involvement in facial recognition and security systems. In 2018, then president of Microsoft Brad Smith, announced guidelines for facial recognition technologies. The goal  was to position Microsoft as a leader in understanding human rights requirements when providing surveillance tools to governments. By 2020, a number of companies including IBM and Amazon had announced that they planned to stop providing facial recognition technologies to the police, and to cease dealing in the technology altogether in the case of IBM. In response to action at peer companies, investors this year asked for a more systematic company policy from Microsoft, culminating in a shareholder resolution and an agreement for a third-party human rights audit. The human rights audit commitment includes an agreement to make publicly available the results of the report and to consult with the people most impacted by Microsoft tools used for policing, mass incarceration, and migrant surveillance. Engagement success at Thomson Reuters and Microsoft shows how engagement and benchmarking of company conduct against their peers can shift behavior.

ESG data and research providers missing human rights risk in BSI company analysis

Speakes raised a final point about the need for better ESG data, and for research providers to explain how human rights risks are incorporated in their assessment of BSI firms. Dov Baum highlighted how the Investigate research database already provides open access to detailed information on banks that finance private prisons, including notes on banks who have announced that they would stop financing private prisons; and tech companies providing software for surveillance and tracking of immigrants. This research database allows investors to assess portfolio exposure to these issues by highlighting the companies that are on Investigate’s database, and showing how much money is invested in them. The database also recommends specific companies for divestment using an internal rating system. Although this data is  publicly available, ESG research firms do not yet provide systematic information on human rights and reputational risks for companies that service the border security system.

Preventable Surprises will host a week-long global online investor dialogue in March 2022. This dialogue will aim to comprehensively map ideas and investor strategies for engaging with companies in the tech, border security, and refugee/migrant detention and transport industries, in order to address human rights risk and ensure more consistent respect for migrant rights and international law. Please signal your interest via info at preventablesurprises.com

Back to all

Read next post

Time to act, part II: Seven Steps investors can take today on Gender Based Violence & Harassment

4 November 2021