On 30 July 2021, Amnesty International released an extensive report on Venture Capital (VC) firms, showing how investments made by these firms may have direct ties to human rights abuses. These findings also state that the top 10 leading VC firms, which have generated over $82 billion in wealth in total, have little to no processes assessing whether uses of their capital are ethical.

Venture capital funding is a type of private equity that investors provide to upcoming startups with projected positive financial returns in the future. Though many investments in startups and small businesses fail in their first stages of funding, a handful of investments become successful. These particular VC-backed startups grow into financially powerful, multinational companies with significant influence in today’s world. This widespread influence and power can have severe implications for human rights worldwide.

In their investigation, Amnesty International used publicly available information to assess VC firm’s stances on human rights practices. Amnesty also used surveys sent to top firms to understand the ethical considerations of VC firms when making investments. The analysis found that the leading 50 venture capital firms had little to no evidence for any human rights due diligence processes to examine the ethical implications of their investments. According to the United Nations Human Rights Office of the High Commissioner, due diligence is a process by which corporations are made accountable for assessing whether their operations and investments worsen human rights abuses on certain groups. Amnesty argues that VC firms, without these due diligence protocols, fail to follow the United Nations Guiding Principles on Business and Human Rights.

The United Nations Guiding Principles on Business and Human Rights, or the UN Guiding Principles (UNGP), is a framework created in 2011 that emphasizes three “pillars:” first, the state’s responsibility to protect human rights; second, the corporation’s responsibility to respect human rights; and lastly, the company’s need to remedy any business-inflicted harm. In the past five years, companies from varying industries have supported the initiative. However, these principles have many limitations.

Unlike UN treaties, such as the International Covenant on Civil and Political Rights (ICCPR), the UN Guiding Principles is not a binding piece of legislation. Instead, the UNGPs “represent ‘soft law,'” meaning that they are not “enforceable” and are merely “voluntary.” Therefore, although the UNGPs provide an ideal outline of how businesses can and should remain ethical, companies have the choice of whether to adopt or ignore this framework. Even upon adoption, UNGPs may not be a priority for companies, as these principles can hinder the maximization of financial performance. Moreover, corporate leaders’ unwillingness to adopt these initiatives, especially in Silicon Valley, undermine efforts to uphold human rights.

Case Studies

Unexamined capital flows by VC firms and a lack of corporate accountability contribute to egregious business practices such as hyper-surveillance and intrusive data collection. To examine how VC-backed funding can contribute directly to international human rights abuses, we will analyze how surveillance technology is used in the Xinjiang Autonomous Region in China and in the West Bank, where Israel continues to surveil Palestinians.

Xinjiang Autonomous Region

According to Human Rights Watch, the Chinese government has been responsible for the “arbitrary detention [in camps], forced political indoctrination, [and] religious oppression” of Uighurs, a Muslim minority, in the north-western Xinjiang region of the country. Additionally, recent investigations from the New York Times show that these Uighur camps have grown in size since 2016. Experts believe that Uighurs are now subject to forced labor within these camps, being given little autonomy and few freedoms.

To do this, the Chinese government has relied on invasive surveillance technology that closely monitors Uighurs. A 2019 New York Times article states that this technology was used by China’s law enforcement to “identify Uighur/non-Uighur attributes” to identify where Uighur populations reside. The Chinese government would then use this information to justify campaigns that “[cited] ethnic violence in Xinjiang,” stating that Uighurs were responsible for “terrorist attacks.” By doing so, the Chinese government effectively paints a false narrative of the Uighur population on state media, which allows them to justify stripping Uighurs of their livelihoods and identity.

This technology was partially made possible by startups SenseTime and Megvii, both of which have a “two billion-dollar” valuation in China. Upon investigation, Amnesty International found that Megvii was funded by Chinese-based VC firms, while U.S.-based VC firm, Tiger Global Management, funded SenseTime. According to Forbes, Tiger Global Management is considered one of the top ten VC firms globally, “oversee[ing] some $40 billion in assets” in 2021. In addition to big VC firms, smaller firms in the U.S. have also invested in SenseTime, such as Qualcomm Ventures and Silverlake, according to Crunchbase reports available online. Similarly, a BuzzFeed investigation found that “U.S. university endowments, foundations, and retirement funds” have also invested in surveillance tech used in Xinjiang.

Capital flows from U.S. private equity firms and companies have accelerated the Chinese government’s social control over minorities. This issue further highlights the need for due diligence processes to hold firms accountable for the influence that their investments have on human rights.

The West Bank

A Human Rights Watch report in April of 2021 outlines how Israeli forces “exercise[d] primary authority” over Palestinian peoples, citing “crimes of apartheid and persecution” by the Israeli state. The Israeli state, in an attempt to “methodically privilege Jewish Israelis” and “discriminate against Palestinians,” forcibly occupied Palestinian territory, such as the West Bank, by taking over land and “deny[ing Palestinians] residency rights.” Much of this occupation was made possible by surveillance technology similar to that used in Xinjiang, China.

Furthermore, NPR reports that facial recognition software is being used in the West Bank to conduct frequent “screen[ing] of Palestinians.” Additionally, NBC News stated that this technology, implemented by the Israeli military, closely monitored the movements of “nearly 100,000 Palestinians” using “thousands of cameras” and several “checkpoints.” With greater capacity for state control and advanced surveillance techniques, Palestinians become more oppressed and face dangers if they retaliate.

AnyVision is an Israeli-based company behind these surveillance technologies. According to Amnesty International’s recent investigation, Lightspeed Venture Partners, a U.S.-based venture capital firm, has “participated in two rounds of funding” for the company as recently as September 2020. Like Tiger Global Management, Lightspeed Venture Partners is one of the largest VC firms in the world. Additionally, KR Asia, a business-related news outlet, states that AnyVision raised around $43 million from Qualcomm Ventures, another U.S.-based firm, in addition to Lightspeed. Microsoft, according to a 2019 NBC News report, has also been shown to fund AnyVision.

Some VC firms state that investments in Israel contribute to spurring innovation that would shape the future for the better. Yet, when we consider the harm these technologies have imposed, more needs to be done to ensure that investments are not disproportionately harming and exploiting specific populations.

Solutions

Understanding how VC firms operate and who operates them can provide insight invaluable to implementing ethical investment practices. Additionally, pressuring companies to follow human rights-based due diligence processes will be crucial to socially responsible investing.

1) Increasing Diversity in Venture Capital

Amnesty’s report finds that white men predominantly lead the Venture Capital space. These findings show an astounding lack of racial and gender diversity. Subsequently, a joint finding by Deloitte, Venture Forward, and National Venture capital found that women only comprise 23% of professionals in this field. Additionally, they found that minorities, such as Black and Latinx/a/o founders and investors, have little power in decision-making processes and receive only “0.5% of all US-based venture capital funding.”

These disparities in numbers allude to potentially harmful investment decisions that fail to account for communities of color and women. Without their perspectives, big investments may have many negative implications on how new technologies disproportionately impact institutionally marginalized groups.

2) Increasing Pressure for Due Diligence Processes

One of the most crucial steps for ensuring accountability for VC firms and companies would be creating human rights-based due diligence processes for investments.

The discourse regarding due diligence prioritizes maximizing capital, fostering “profitable relationships,” and minimizing liabilities, shifting focus away from critical ethical considerations. However, pressure for companies to maintain supply chain due diligence has increased over the years. Recent investigations revealing the connection between products – such as face masks and clothing apparel – and Uighur forced labor have pushed companies such as Nike, H&M, and Zara to stop manufacturing in China, citing concerns over human rights allegations. Moreover, investigative journalism and international outcry has challenged companies to re-evaluate their supply chains and put human rights at the forefront of their agenda – at least for the time being. The progress made with supply chain transparency shows that pressure applied by civil-society groups, academics, and researchers can push firms to commit to due diligence processes for investments.

Conclusion

Generating billions of dollars each year internationally, all venture capital firms and companies must ensure their investments are ethical and abide by human rights frameworks. These firms and their constituents must look beyond profitability and financial gains in their investments, for they hold significant leverage and power over how new technologies are used and exploited to strengthen oppressive government regimes.