National Contact Point of Switzerland

Initial Assessment
Specific Instance regarding UBS Group AG submitted by the
Society for Threatened Peoples Switzerland

Berne, January 20, 2021

Executive summary

The Swiss NCP received a submission by the non-governmental organization Society for
Threatened Peoples to consider a specific instance under the OECD Guidelines regarding
UBS Group AG (hereafter “UBS”) related to an alleged business relationship with the
Chinese company Hikvision. The Swiss NCP comes to the conclusion that a business
relationship according to the OECD Guidelines between UBS and Hikvision and a direct link
between UBS’s products and services and the alleged human rights violations could not be
excluded with regard to the UBS fund sold by UBS. However, in relation to UBS’s role as
custodian for Hikvision shares on behalf of clients, the Swiss NCP concludes that no
business relationship between UBS and Hikvision exists.
Therefore, the Swiss NCP partially accepts this specific instance for further consideration.
The Swiss NCP considers that by accepting this specific instance and offering its good
offices to the parties even after the exclusion of Hikvision shares from the UBS fund on
5 January 2021, it could help them to reach a better common understanding on the issues
raised in the submission. This decision is not based on conclusive research or fact-finding,
nor does it represent a conclusion as to whether UBS observed the OECD Guidelines or not.

1 Submission and alleged violations of the OECD Guidelines

The Swiss NCP received a written submission on 22 June 2020 to consider a specific
instance under the OECD Guidelines regarding UBS Group AG (hereafter “UBS”), a bank
headquartered in Zurich, Switzerland. This specific instance has been raised by the non-
governmental organization Society for Threatened Peoples (hereafter “STP”).
The submission is related to possible human rights violations in the context of an alleged
business relationship with the Chinese company Hangzhou Hikvision Digital Technology Co.
Ltd (hereafter “Hikvision”). According to the submitting party, this company manufactures
technology used for surveillance of the Uyghurs and other Turkic minorities living in the
Xinjiang Uyghur Autonomous Region in China. On the grounds of its involvement in the
crackdown on ethnic minority communities in the region, Hikvision, together with 27 other
entities, was blacklisted by the United States (hereafter “US”) in October 2019 1.
The STP claims that UBS is directly linked to the repression and oppression of the Uyghur
and other Turkic minorities. According to its view, it has failed to fulfil its corporate social
responsibility and to implement the OECD Guidelines and other international principles on
business and human rights. Moreover, it has not complied with its own policies and
commitments, particularly its Code of Conduct, which requires the bank to monitor and

1 See www.reuters.com/article/us-usa-trade-china-exclusive-idUSKBN1WM25M

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manage any negative impact of its activities on human rights. By having entered and
maintained a business relationship with Hikvision, the STP contends that UBS has neither
fulfilled its duties regarding due diligence, i.e. avoided infringing on the rights of the ethnic
minorities living in Xinjiang, nor sought ways to prevent or mitigate, i.e. address, the adverse
human rights impacts despite being directly linked to them through its products and services.
On the initiative of STP, an initial meeting between STP, the Uyghur World Congress and
UBS was held on 28 January 2020 to discuss the human rights situation in Xinjiang and,
relatedly, UBS’s business relationship with Hikvision.
In conclusion, STP claims the violation of the following recommendations of the OECD
Guidelines’ chapters II (General Policies) and IV (Human Rights) 2:
1. Carry out risk-based and human rights due diligence (II.10 and IV.5).
2. Respect internationally recognized human rights, i.e. avoid infringing on human rights
of others and address adverse impacts with which they are involved (II.2 and IV.1).
3. Prevent or mitigate adverse human rights impact when it is directly linked to its
operations, products or services by a business relationship (II.12 and IV.3).

2 Expectations of the submitting party regarding the Swiss NCP proceedings

The submitting party invites the NCP to mediate an agreement to solve the issues raised.
STP expects the NCP to enable a dialogue which will create insight within UBS that the bank
is directly linked to the adverse human rights impacts contributed to by Hikvision. Based on
this, STP would like to discuss the following demands addressed at UBS:
1. To withdraw from all financial transactions, products and services related to Hikvision.
2. To adapt its internal policies:
• To ensure that its entire equity business is covered by the bank’s human rights due
diligence processes in order to pre-empt the bank’s involvement in adverse human
rights impacts in the future.
• To incorporate clear exit clauses in its contractual agreements so as to allow the
bank to withdraw from business relationships at any point should these directly link
UBS to adverse human rights impacts in the future.
• Especially with regard to passive investments, to adjust its due diligence
mechanisms, both prior and ongoing, by improving the prioritization of cases and
sectors for risk assessment as well as by establishing procedures to verify that due
diligence processes have been implemented.
3. To increase transparency by accounting for how the adverse human rights impacts,
both potential and actual, to which UBS is linked are addressed by the bank, at the
relevant level of detail.
Finally, the STP also hopes that the present case may serve as a basis for a debate on the
applicability of the Guidelines specifically to institutional investors holding nominee shares
and be utile in reaching a conclusive interpretation.

3 Statement of the responding party

On 24 August 2020, UBS submitted a written statement to the Swiss NCP concerning the
issues raised in this specific instance. In its statement, UBS requests the NCP not to proceed
with the specific instance in particular due to the following reasons:

2 See full text of provisions in the https://mneguidelines.oecd.org/mneguidelines, 2011

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1. UBS is not a shareholder of Hikvision but only a custodian for shares held by clients.
UBS states that it does not hold any shares of Hikvision for its own account and,
therefore, is neither an investor nor a (majority or minority) shareholder of Hikvision.
UBS – like most financial institutions worldwide – offers its clients the opportunity to
invest into publicly traded shares. The Hikvision A-shares are publically traded and
free from regulatory or legal restrictions. Furthermore UBS does not actively advise
their clients on these shares. For operational reasons, the shares of Hikvision can be
held in so-called omnibus accounts under the name of the custodian, which can be a
UBS entity. However, they economically belong to the clients of UBS, who are the
beneficial owners.
2. The US trade blacklist of October 2019 mentioned in the submission of STP does not
restrict transactions by either US or foreign persons in the shares of Hikvision. This
measure directed at exports makes Hikvision subject of US export control and
technology transfer regulations administered by the US Department of Commerce
that prohibit, in particular, the exportation, or re-exportation of goods and technologies
of US origin to blacklisted companies.
3. Furthermore, according to UBS no direct link between UBS’s products and services
and the alleged human rights violations exists, as the alleged violations are
committed by the state of China and not Hikvision. As UBS is not an investor in the
company, no business relationship exists which would be the basis for a direct link.
Additionally according to the responding party, Hikvision is a world leading loT
(“Internet of Things”) solution provider whose products include, amongst others,
network products such as commercial displays, monitors, video cameras and
recorder or intelligent traffic products.
4. UBS further specifies that the OECD Guidelines do not foresee a concept of indirect
linkage. An enterprise’s services, products or operations are either “directly linked to
an adverse impact through a business relationship or not linked at all”. The term
“directly” was included in the text of the Guidelines in order to ensure that extremely
loosely connected associations would cause a responsibility to apply.
5. UBS submits that an expansive interpretation of the OECD Guidelines as stated in
the submission would not contribute to their purpose and effectiveness because it
would result in unmanageable responsibilities of financial institutions and exclusion of
potentially entire industry sectors from public finance. Furthermore as other banks
hold more shares of Hikvision as custodians than UBS, the choice of UBS by STP is
entirely arbitrary. Therefore the questions STP would like to discuss do not relate to
UBS but are much more fundamental and are of political nature and concern the
entire financial industry in Switzerland and abroad. Consequently industry wide
discussions, for instance initiated by the Principles for Responsible Investment would
be needed. As a consequence the alleged violations cannot be remediated by way of
an NCP mediation proceedings.
On 7 December 2020, UBS submitted an additional written statement providing
information on the fund UBS ETF MSCI China ESG. UBS explains that this fund is
passively managed tracking the MSCI China ESG Universal 5% Issuer Capped Index.
Furthermore, UBS clarifies, that this fund is a Société d’investissement à capital variable
(Sicav), an investment fund in the form of a joint-stock company with variable capital and
its own shareholders, the respective investors. UBS is a mere service provider to the fund
and does not own Hikvision shares. These shares are owned by the fund UBS ETF MSCI
ESG which is owned by its shareholders. According to UBS, this does not result in a
business relationship between UBS and Hikvision and consequently no direct link
between UBS and the alleged human rights violations exists.

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 On 17 December 2020, UBS informed the NCP regarding MSCI’s decision to delete
securities of Chinese companies referenced in the U.S. Executive Order 1359, including
Hikvison, from its global investable market indices as of the close of business of 5 January
2021. 3

4 The proceedings of the Swiss NCP up to date

Since the receipt of the submission on 22 June 2020 the NCP took the following steps:
22.6.2020 Confirmation to acknowledge receipt of the submission to the submitting party
Submission was forwarded to the responding party
6.7.2020 Information of the Swiss Embassy in China
Constitution of an ad hoc working group including representatives from the
State Secretariat for Economic Affairs and the Federal Department of Foreign
Affairs according to the Specific Instances Procedure of the Swiss NCP 4
7.7.2020 Meeting of the ad hoc working group with the responding party to inform them
about the procedure of the specific instance. The submitting party renounced
to take part in such a meeting with the NCP as it is aware of the procedure
due to previous experiences with the Swiss NCP.
24.8.2020 Receipt of a written statement by the responding party
12.10 2020 Hearing with UBS and ad hoc working group
27.10 2020 Hearing with STP and ad hoc working group
16.11.2020 Report of draft initial assessment was sent to the STP and UBS for comments
on possible misrepresentations of factual information
30.11. 2020 Receipt of written comments by the submitting party
7.12. 2020 Receipt of written comments by the responding party
17.12. 2020 Receipt of additional information by both parties

5 Considerations and decision of the Swiss NCP

Based on the Procedural Guidance for the OECD Guidelines and the Specific Instances
Procedures of the Swiss NCP, the NCP considers the following points in its initial
assessment:
a) Identity of the party concerned and its interest in the matter

The Swiss NCP comes to the conclusion that the submitting party has provided sufficient
information regarding its interest in the issues raised. STP is a Swiss based international
human rights organisation working for the protection of persecuted minorities and
indigenous people. STP has a long-standing campaign on the issue of surveillance of
minorities within China and especially of their diaspora abroad by the Chinese
government and its international representations. It works very closely with the diaspora
communities as well as with their organisations, the World Uyghur Congress in the case of
this specific instance.

3
Financial times: MSCI drops seven Chinese companies from indices | Financial Times (ft.com)
4
www.seco.admin.ch/nkp

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b) Responsibility of the Swiss NCP
According to the Procedural Guidance for the OECD Guidelines, a specific instance must
be raised in the country in which the alleged breach occurred. If this country is not a
signatory of the Guidelines and therefore has no NCP, the issue should be raised in the
country where the multinational company has its headquarters. The Swiss NCP is
responsible for this specific instance regarding the issues in China because this country is
not a signatory state of the OECD Guidelines and UBS has its headquarters in
Switzerland 5. Furthermore, the Swiss NCP is also competent as the responsibility for
elaborating, implementing and monitoring UBS group human rights policies lays within the
UBS management at its headquarters in Switzerland.

c) Scope of application of the OECD Guidelines and materiality of the specific

instance
UBS is a leading Swiss bank headquartered in Zurich, Switzerland. Besides private
banking, UBS offers international wealth and asset management as well as investment
banking services for private, corporate, and institutional clients. It also provides securities
services such as fund administration and third-party fund management. The bank has a
presence in all major financial centers and offices in over 50 countries. 6 Accordingly, UBS
is a multinational enterprise within the meaning of the OECD Guidelines.
Business relationship
The OECD Guidelines apply to enterprises of all sectors 7, including the financial sector 8.
They distinguish between impacts on matters covered by the OECD Guidelines, including
human rights, through own activities 9 of the concerned enterprise and adverse impacts
directly linked to the operations, products or services of the enterprise by a business
relationship 10. The term ‘business relationship’ includes relationships with business
partners, entities in the supply chain and any other non-State or State entities directly
linked to its business operations, products or services 11. The use of the word ’includes’
indicates that this is a non-exhaustive and illustrative list of examples; hence business
relationships can go beyond the examples given. It is precisely because the OECD
Guidelines are recommendations and not legally enforceable that open-ended
descriptions of what is meant by business relations can be used. A legally binding
character would require much more precision with regard to their scope and applicability 12.
This expansive reading is also applicable in terms of business relationships in the financial
sector. According to an OECD reference document, for the financial sector business
relationships include, for example, suppliers, clients, customers and investee companies,
including a minority shareholding. The same may apply with respect to investments
through index funds despite the multiple tiers of business relationships 13.

5
OECD Guidelines, Commentary on the Implementation Procedures of the OECD Guidelines for Multinational Enterprises,
Paragraph 24
6
See website of UBS
7
OECD Guidelines, I. Concepts and Principles, Paragraph 4
8
Scope and application of ‘business relationships’ in the financial sector under the OECD Guidelines, OECD 2014, p. 6,
https://mneguidelines.oecd.org/global-forum/GFRBC-2014-financial-sector-document-2.pdf; Responsible business conduct for
institutional investors, Key considerations for due diligence under OECD Guidelines for Multinational Enterprises, OECD 2017,
p. 7, http://mneguidelines.oecd.org/RBC-for-Institutional-Investors.pdf
9
OECD Guidelines, Chapter II, Paragraph 11 and Chapter IV, Paragraph 2
10
OECD Guidelines, Chapter II, Paragraph 12 and Chapter IV, Paragraph 3
11
OECD Guidelines, Chapter II, Commentary on General Policies, paragraph 14
12
Scope and application of ‘business relationship’ in the financial sector under the OECD Guidelines for Multinational
Enterprises, OECD 2014, p. 3, https://mneguidelines.oecd.org/global-forum/GFRBC-2014-financial-sector-document-2.pdf
13
Due diligence in the financial sector: adverse impacts directly linked to financial sector operations, products or services by a
business relationship, OECD 2014, p. 10 and 11, https://mneguidelines.oecd.org/global-forum/GFRBC-2014-financial-sector-
document-1.pdf; Responsible business conduct for institutional investors: Key considerations for due diligence under the OECD
Guidelines for Multinational Enterprises, OECD 2017, p. 35, http://mneguidelines.oecd.org/RBC-for-Institutional-Investors.pdf.

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 Business relationship: acting as a custodian
Based on the information received from UBS, the Swiss NCP concludes that UBS is not
an investor in Hikvision, but acts as a custodian of Hikvision shares on behalf of its clients
and does not actively advice clients to buy Hikvision shares. The mere management of
clients' shares as a custodian implies a business relationship between the bank and its
clients, but not with Hikvision. This does not change even if, for operational reasons, UBS
holds the client shares in so-called omnibus accounts in its own name, as the owners of
the shares are the clients of the bank.
Business relationship: UBS Fund
UBS ETF, Sicav, an investment company under Luxembourg law, offers funds, such as
the UBS ETF MSCI China ESG (hereafter: the UBS Fund) to clients. The investment
objective of the UBS Fund is to replicate the price and return performance of the MSCI
China ESG Universal 5% Issuer Capped Index. The UBS Fund is passively managed and
the underlying index 14 is composed and provided to UBS by MSCI, Inc. This fund has
contained shares of Hangzhou Hikvision Digital Technology - Class A (e.g. 4,400 shares
for an amount of USD 20,682 in 2019 which corresponds to 0.25% of the UBS Funds' net
assets 15). Those shares, like all investments for and on behalf of investors, do not appear
on any UBS balance sheet. According to an information by MSCI from 12 December
2020, the securities of Chinese companies referenced in the U.S. Executive Order 1359,
including Hikvision, will be deleted from its global investable market indices as of the close
of business of 5 January 2021.
According to the Annual Report 2019 of UBS ETF, Sicav 16, the management company of
the UBS Fund is to a considerable extent governed by UBS staff 17. This could allow the
conclusion, that UBS through the management company has a certain leverage on the
composition of the fund. Furthermore, as it is an ESG fund, an enhanced due diligence on
responsible business conduct, taking in account possible human rights violations through
products of Hikvison, could be expected by investors.
The NCP notes that there is no agreement on whether a business relationship within the
meaning of the OECD Guidelines exists in the present case. There is currently no OECD
guidance directly applicable to this issue. However, there is a certain analogy to a supply
chain, as Hikvision shares were part of an UBS product sold to clients. A certain analogy
could also be drawn to activities of institutional investors and therefore the respective
OECD guidance 18 could be used as a reference. In conclusion, given the uncertainties, it
cannot be excluded that a business relationship according to the OECD Guidelines
related the UBS fund existed until 5 January 2021, when Hikvision shares were part of the
fund, or could be established again in the future, should Hikvision be placed on the MSCI
Index again.

14
MSCI describes its index as follows: “MSCI China ESG Universal 5% Issuer Capped Index is based on MSCI China Index,
and includes large and mid-cap securities of the Chinese equity markets. The maximum weight of an issuer is capped at 5%.
The index strategy seeks to gain exposure to companies that have both a robust ESG profile and a positive trend in improving
that profile. To a small extent, some companies are also excluded from the MSCI China Index”. See www.ubs.com/ch/de/asset-
management/etf-institutional/etf-products/etf-product-detail.ch.de.lu1953188833.indexbaseinfo.html
15
UBS Annual report 2019 Investment company under Luxembourg Law (SICAV) UBS ETF (SICAV),
www.ubs.com/2/e/files/lux_etf_ar2019e.pdf p. 428
16
Annual report 2019 of UBS ETF, Investment company under Luxembourg Law (SICAV),
www.ubs.com/2/e/files/lux_etf_ar2019e.pdf p. 4
17
E.g. four out of five Board directors are UBS staff
18
https://mneguidelines.oecd.org/RBC-for-Institutional-Investors.pdf

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 Direct link
If a business relationship as defined by the OECD Guidelines exists, the next question to
be answered is if the alleged human rights violations are directly linked to the operations,
products or services of UBS. According to the Swiss NCP’s assessment, Hikvision is a
global Chinese technology company that provides amongst many others products and
services in the field of surveillance technology. STP has credibly demonstrated that
Hikvision products could be used in the mass surveillance in the Xinjiang region of China
by the state of China. It is not within the competence of the Swiss NCP to investigate such
allegations. But based on a recommendation of the renowned Ethic Council of the
Norwegian Pension Fund regarding Hikvision shares 19, the Swiss NCP must assume the
existence of at least potential risks related to the products of the company. By investing in
shares of Hikvision, the UBS fund contributes to the funding of Hikvision. As the state of
China is an important shareholder of Hikvision, the NCP assumes, that a direct link
between the UBS Fund and the alleged human rights violations could not be excluded,
when Hikvision shares were part of the fund.
The issues raised in the submission are therefore material and substantiated in the sense
that, based on the information submitted, they are plausible and related to the application
of the OECD Guidelines, in particular Chapters II (General Policies) and IV (Human
Rights).
d) Legal context and parallel proceedings
The Swiss NCP will take into consideration ongoing parallel proceedings, including court
rulings. According to the Specific Instances Procedures of the Swiss NCP, already
concluded or ongoing parallel proceedings will not necessarily prevent the Swiss NCP
from pursuing a specific instance. However, in each individual case the Swiss NCP
assesses whether or not an offer to mediate would make a positive contribution to the
resolution of the issues raised or if it would prejudice either of the parties involved in other
proceedings. The NCP is not aware of parallel proceedings in relation to UBS.
e) Contribution to the purpose and effectiveness of the OECD Guidelines

The role of the NCP is to offer a forum for discussion and to assist the parties concerned
to address the issues raised. The submitting party has engaged in an exchange with the
responding party since January 2020. The Swiss NCP considers that by accepting this
specific instance and offering a confidential mediation even after the exclusion of Hikvision
shares from the UBS fund on 5 January 2021 it could help the parties to reach a better
mutual understanding of the issues raised (e.g. existence and nature of business
relationship, due diligence process in place regarding the services and products offered
by UBS, etc.) and a mutually acceptable outcome. The Swiss NCP also believes that this
offer of mediation could foster the continuation of this previous exchange between the
responding and the submitting party and contribute to a better mutual understanding,
despite UBS’ position, that the issue does not concern only UBS and therefore should be
discussed on an industry wide level.
f) Conclusion
The Swiss NCP concludes that a business relationship according to the OECD Guidelines
between UBS and Hikvision and a direct link between UBS’ products and services and the
alleged human rights violations could not be excluded with regard to the UBS Fund.

19
“…. to exclude shares of Hangzhou Hikvision Digital Technology Co Ltd from investment by the Government Pension Fund
Global due to an unacceptable risk that the company is contributing to serious human rights violations…”;
https://etikkradet.no/hangzhou-hikvision-digital-technology-co-ltd-2/

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 However, UBS’ role as custodian for Hikvision shares on behalf of its clients does not lead
to a business relationship with Hikvision. Therefore, the Swiss NCP partially accepts the
specific instance and offers its good offices to the parties for further consideration.

6 Next steps

The Swiss NCP will offer its good offices to the parties and ask them for confirmation
whether they are willing to accept this offer with the aim of reaching a mutually acceptable
outcome. If the parties reach an agreement and find a solution for the raised questions, the
Swiss NCP will make publicly available a final statement with the results of the proceedings.
Information regarding the contents of the discussions and the agreement will only be
published with the express consent of the parties involved. If no agreement is reached or one
of the parties is not willing to take part in the proceedings, the Swiss NCP will also make this
information publicly available in a final statement. The latter will include a summary of the
reasons why no agreement was reached.

The Swiss NCP may draw up recommendations for implementation of the OECD Guidelines,
which will also be included in the final statement. In addition, the NCP can envisage specific
follow-up activities, for which the NCP will provide support following completion of the
specific instance procedure. Final statements are published on the Swiss NCP website and
are referenced in the OECD Database on Specific Instances for the OECD Guidelines.
Before the statement is issued, the Swiss NCP gives the parties the opportunity to comment
on a draft statement. If there is no agreement between the Swiss NCP and the parties about
the wording of the statement, the Swiss NCP makes the final decision.
The Swiss NCP requests that the parties agree to maintain confidentiality during the further
proceedings. In order to establish an atmosphere of trust, the OECD Guidelines foresee that
no information regarding the content of the proceedings may be shared with third parties or
supporters of the submission. If sensitive business information is provided or discussed
during the meetings of the Swiss NCP, special requirements concerning the treatment of
confidential information can be agreed upon by the parties involved in this specific instance.
The NCP informs the parties that it reserves the right to stop the proceedings if one or the
other of the parties does not respect this confidentiality. Even after the proceedings have
been concluded, parties concerned remain committed to treat information received during the
proceedings in a confidential way unless the other party agrees to their disclosure.
The Swiss NCP will publish its report on the initial assessment on the Swiss NCP website.

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