A Republican from Florida urged a federal anti-market manipulation agency to crack down on enterprises that fail to declare their civil rights compliance on Oct. 7.
Sen. Marco Rubio questioned the U.S. Securities and Exchange Commission (SEC) for requiring companies to disclose environmental, social, and governance (ESG) performance without also demanding the same for human rights practices in mainland China.
“[P]revious positions taken by the SEC indicate that the consistent application of its policies to the People’s Republic of China (PRC) is not guaranteed,” he said in an open letter to SEC chairman Gary Gensler and Commissioner Allison Herren. “In recent years, the SEC has created arbitrary exceptions to its general rules for activities in the PRC.”
Rubio warned imposing double standards on China only encourages the Chinese Communist Party (CCP) to keep committing countless human rights abuses across the country and abroad.
“[Consider w]hether China-based issuers or issuers with significant business in the PRC should require the representation or information about the representation of underrepresented ethnic or religious groups historically oppressed by the CCP, including Uyghurs, ethnic Kazakhs, Kyrgyz, and members of other Muslim groups, Tibetans, Christians, and practitioners of Falun Gong, among others,” he said.
The senator believes the SEC should consider applying the same standards for supply chain resiliency and investor protection. This includes whether China-based issuers violated or participated, wittingly or unwittingly, in support of human rights violations. It also includes the extent to which the issuer knew about such violations or participation.
“Given the CCP’s control over strategic sectors in China and elsewhere, supply chains located in China–or which rely on PRC-based partners–pose risks to resiliency and sustainability,” he said. “The hoarding of medical supplies by the PRC during the COVID-19 (CCP virus) pandemic is one prominent example of these risks.”
Rubio revealed the SEC previously allowed China-based issuers and some issuers with significant business activities in the PRC to be listed on U.S. stock exchanges despite failing to comply with U.S. law.
“[This happened] without the enforcement of applicable U.S. law pertaining to the ability of the Public Company Accounting Oversight Board (PCAOB) to inspect the audits of those issuers,” he said. “The fact remains that the commission’s policy in this area operates from a baseline exception for the PRC.”
He is also concerned about the commission’s August 2021 decision to let the Nasdaq stock exchange grant leniency for foreign issuers that fail to demonstrate a commitment to board diversity.
“China-based issuers are exempt from board diversity disclosures if they are based in a jurisdiction that prevents such disclosures,” he said. “This gives PRC the ability to exempt China-based issuers from the rule, just as the PRC does for audits by the PCAOB.
“Even if the PRC does not exempt China-based issuers from the rule, the rule provides the further flexibility that foreign issuers … can meet board diversity requirements by adding an additional female director or other individual instead of an underrepresented minority, while U.S. issuers must add both,” he added.
“SEC approved these exceptions for foreign and China-based issuers despite the fact that the exchange’s stated basis for its rule—to correct the ‘historical marginalization’ of underrepresented minorities—applies strongly to China under the control of the CCP.”