The PC(USA)’s Committee on Mission Responsibility Through Investment asks Microchip Technologies to conduct human rights due diligence

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The Presbyterian Church (U.S.A.), through investments of the Board of Pensions, has submitted a proposal to Microchip Technology Incorporated (MTI) requesting its board of directors commission an independent study “to determine whether its customers’ use of its products contribute or are linked to violations of international humanitarian law (IHL).”

Specifically, the PC(USA) is concerned that the chip maker’s products are being used by Russian forces to target civilians in Ukraine.

The proposal was fled with the Securities and Exchange Commission (SEC) by Katie Carter, director of Faith-Based Investing and Shareholder Engagement, on behalf of the denomination’s Committee on Mission Responsibility Through Investment (MRTI) group. It was co-filed by Portico Benefit Services, the benefit arm of the Evangelical Lutheran Church in America, and Friends Fiduciary. The proposal is entitled “Independent Third-Party Report on Due Diligence Process to Determine Whether Customers’ Use of Products Contribute or are Linked to Violations of International Law,” and asks shareholders to approve the creation of a report at their August 20, 2024, meeting that includes:

• An assessment of whether Microchip’s heightened human rights due diligence (hHRDD) and know your customer (KYC) due diligence processes adequately address human rights and material risks associated with customer misuse during Russia’s invasion of Ukraine and in other conflict-affected and high-risk areas (CAHRA)
• An assessment of material legal, regulatory, and reputational risks to shareholder value posed by the misuse of Microchip’s products in connection with the invasion and across CAHRA
• The role of the Board of Directors in overseeing the identification and management of human rights and material risks in CAHRA.

The United States government banned the sale of weapons systems technologies to Russia through sanctions and export controls following Russia’s annexation of Crimea in 2014 and extended these sanctions following its invasion of Ukraine in February 2022.

An August 2022 report by the Royal United Services Institute (RUSI) and Ukrainian government showed Microchip’s products were “among the most prevalent of the 208 dual-use components recovered from 26 Russian weapons systems.”

While Microchip halted sales of defense-related components to Russia as a result of sanctions, an estimated $83 million of its products were imported into Russia from January to October of 2023. This same report shows that of the 2,797 foreign components found in Russian weapons in this period, 2,007 (72%) were supplied by the United States.

In some cases, U.S. companies may have been able to avoid sanctions by selling their goods to an authorized foreign entity that subsequently redirects the components to Russia in a process known as transshipments. The report “Silicon Lifeline: Western Electronics at The Heart of Russia’s War Machine” states:

“Transshipment through third countries is a more important, but difficult, case. Microelectronic third-party distributors and wholesalers often operate from intermediary jurisdictions such as Hong Kong, meaning that components bound for Russia are sometimes legitimately supplied through trading entities domiciled outside of Russia itself. However, third countries are also often exploited by procurement agents looking to move sensitive and controlled goods by obscuring the real exporter or end user.”

In other cases, microchips and other components may have multiple uses and can be exported with one designation and subsequently deployed into weapons systems.

The report acknowledges it can be a difficult process to track transshipments and repurposing of technologies for military uses, but a growing list of semiconductor companies is taking steps to prevent or mitigate the use of their products in human rights violations.

Microchip’s industry peer Qualcomm has implemented a Human Rights Working Group that, with oversight by its board of directors and engagement with senior leadership, reports on human rights activities to its board and shareholders. The multi-disciplinary group “regularly conduct[s] formal, third-party human rights impact assessments to determine and prioritize salient human rights risk across Qualcomm's operations and products.” It further evaluates its suppliers, manufacturers and distributors to ensure “compliance with all applicable laws, regulations, and rules of the countries in which they operate.”

Industry giant Intel has also implemented a “product responsibility” policy in its Global Human Rights Principles and Approach statement, with which it expects all suppliers and implementers of its technologies to comply.

Intel acknowledges it can’t always know or control the products its customers create or how these products will be applied. Yet, when it discovers a use that violates its human rights principles, it has made a commitment to “restrict or cease business with the third party unless and until we have a high confidence that Intelʼs products are not being used to adversely impact human rights.”

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“As investors, the PC(USA) is asking Microchip to commission a third-party report to better assess the escalating legal, reputational, and moral risks associated with its business activities in conflict-affected and high-risk areas through heightened human rights and know your customer due diligence,” Carter said. “There are the demands of the law and the demands of human decency. Basic sanctions compliance should be the floor of corporate action, not the ceiling. We encourage all Presbyterian individuals and entities who invest in Microchip to vote in favor of our proposal.”

The Board of Pensions of the Presbyterian Church (U.S.A.) is a shareholder in Microchip Technologies Incorporated and has owned at least $2,000 of the company’s stock for the past three years, making it eligible to submit this proposal via MRTI. Individual investors in Microchip may vote on this proposal via their proxy ballots. Presbyterians may also call their money managers, asking them to support this proposal.

 ">Mission Responsibility Through Investment implements the PC(USA)’s General Assembly policies on socially responsible investing by engaging corporations in which the church owns stock. This is accomplished through correspondence, dialogue, voting shareholder proxies and recommending similar action to others, and occasionally filing shareholder resolutions. The General Assembly’s investment policy identifies specific concerns that MRTI is to promote the pursuit of peace; racial, social and economic justice; environmental responsibility; and securing women’s rights. MRTI prioritizes issues on these concerns from requests by ecumenical partners, mid councils and congregations.