The House of Commons Special Committee studying Canada-China relations is calling on the federal government to bar Canadian pension funds from investing in Chinese companies linked to human rights abuses or that pose a threat to national security.

In a report released last month, the special committee noted the Canada Pension Plan Investment Board and several provincial pension funds are invested in technology firms, including Alibaba Group Holding Ltd. and Tencent Holdings Ltd., which are known for their controversial activities in China.

Read: Canadian pension plans named as passive beneficiaries of China’s crimes against humanity: report

The report cited Sam Goodman, the director of policy and advocacy at Hong Kong Watch and co-founder and co-chair of New Diplomacy UK, who noted many of these funds have divested from direct investments in companies linked to Uyghur forced labour; however, they continue to invest passively in index-tracking funds like the Morgan Stanley Capital International’s Index, the China Index and Emerging Markets Index, which include companies implicated in Uyghur forced labour.

Institutional investors’ exposure to investments in China ranged from roughly two per cent to 10 per cent of assets under management, said the report, noting these investments represent a small percentage of their full portfolios and don’t necessarily include companies linked to human right violations.

However, there are currently no enforceable measures preventing Canadian public pension plans from investing in companies committing or complicit in human rights violations, nor are there any legislative or regulatory requirements to ensure the full transparency and accountability of all portfolio investments or a requirement to consider environmental, social and governance factors when making investment decisions.

Read: BCI, CPPIB and OTPP investments tied to human rights abuses in China, finds watchdog

This lack of enforcement action for goods produced by forced labour could make it challenging to effectively implement and enforce a restricted entities list for investments. According to Goodman, some investors believe that a blacklist, with both active and passive investments included, could be used as “a road map of the companies to avoid.” A range of options considered includes banning investment in certain entities, imposing transparency requirements on fund managers, enhancing ESG disclosures and increasing due diligence requirements.

The special committee recommended the federal government study how it could compile and maintain an official list of companies deemed unsuitable for investment and that it study, in partnership with the provinces, the establishment of a list of companies in China that Canadian public pensions plans are prohibited from investing in due to risks to national security, corruption or gross human rights violations.

It also recommended that Canada work with the U.S. and other allies to develop common approaches to human rights implications of public pension plan investments, including developing a list of banned investments because of suspected human rights abuses and, in accordance with its commitment in the latest federal budget, propose legislative changes and enhanced enforcement to eliminate forced labour from Canadian supply chains and to reinforce the prohibition on the import of goods produced by forced labour.

Read: ESG investing and human rights: “Ignorance is no longer an excuse”