Biplab Das 
Volkswagen has released the findings of an audit commissioned by the company to investigate allegations of forced labour at its jointly-owned site in Xinjiang, China. The audit, conducted by German human rights due diligence firm Loening Human Rights & Responsible Business GmbH, aimed to assess the working conditions at the facility. While Volkswagen claims the audit found no signs of forced labour, it acknowledged the challenges of data collection in China, where the government controls information flow.
Audit details and on-site inspection
The audit included on-site interviews and inspections of employee contracts and salary payments for the 197 employees at the Xinjiang site. The findings come amid heightened global concerns over human rights abuses in the Xinjiang region, particularly concerning the treatment of the Uyghur minority. The report stated that Beijing denies any allegations of such abuses, adding a layer of complexity to investigations.
ESG concerns and ‘red flag’ by MSC
In November 2022, global index provider MSC marked Volkswagen with a ‘red flag’ in its social issue category, citing allegations of forced labour in Xinjiang. This move led to some investors removing Volkswagen stock from their portfolios. Addressing these concerns, Volkswagen commissioned the audit to investigate the allegations and provide clarity on the working conditions at the Xinjiang site.
Citi analysts’ perspective
Citi analysts suggest that the audit findings could potentially reverse the stock’s recent underperformance following the ‘red flag’ by MSC. If the audit conclusion satisfies MSC, there may be a shift in investor sentiment, allowing EU investors restricted by ESG metrics to reconsider holding Volkswagen shares.
Audit challenges and Beijing’s influence
Loening Human Rights & Responsible Business GmbH conducted the audit with two Chinese lawyers from a firm in Shenzhen. The inclusion of Chinese lawyers raises eyebrows amid Beijing’s attempts to limit the influence of Western auditors in the country. Earlier this year, a U.S. auditor’s office was raided in Beijing, and reports emerged that China instructed state-owned enterprises to cease using the ‘Big Four’ auditing firms.
SA8000 standard and certification status
Volkswagen stated that the audit was conducted following the SA8000 standard, a management systems standard based on international human rights principles. The SA8000 standard assesses various areas, including child labour, forced labour, and health and safety. However, the Xinjiang site did not receive an official SA8000 certification, adding a layer of ambiguity to the assessment.
Site operations and employee composition
Volkswagen had downsized the Xinjiang site’s operations after the pandemic, reducing the staff from 650 to 197. The site, which previously assembled the Santana model, now focuses on technical commissioning and regional deliveries. Notably, just under a quarter of the current workforce at the site comprises Uyghur employees. Despite Volkswagen’s assertion that employees are paid above average, questions persist about the overall working conditions.
Brandstaetter’s earlier comments and ongoing concerns
Volkswagen’s China chief, Ralf Brandstaetter, had previously toured the Xinjiang site in February and stated that he saw no signs of forced labour. However, his comments faced criticism from campaigners and a significant Volkswagen investor, who argued that verifying labour standards in the region is challenging. The complexities of investigating working conditions in Xinjiang, coupled with geopolitical sensitivities, continue to raise concerns among stakeholders.
Volkswagen’s commissioned audit represents an attempt to address allegations of forced labour in Xinjiang and mitigate concerns raised by global index providers. However, challenges in data collection, the influence of the Chinese government, and the nuanced dynamics of the Xinjiang region pose ongoing challenges for companies navigating human rights issues in the complex landscape of China’s industrial operations.
