Fast reading
- The Middle East conflict has prompted governments to re-assess their energy security and reduce exposure to hydrocarbon imports, encouraging the uptake of alternative energy sources. It has also spurred policy support for electrification which should boost a range of sectors, including electric vehicles (EVs), batteries and grid infrastructure.
- These shifts form part of a broader structural realignment driven by geopolitics, demographics, climate pressures and technological progress, and we believe companies able to respond to these challenges – while sustaining strong profitability and returns on equity – are well placed to outperform.
- Meanwhile, the huge sums of capital expenditure (capex) pouring into cloud service providers and data centres should significantly benefit emerging markets, driving further demand for semiconductors, while the knock-on benefits should boost companies providing solutions to ESG concerns (for example, energy demand and water scarcity) as well as manufacturers of servers, networking devices and other electronic components.
BYD and human rights due diligence
BYD is a leading Chinese electric vehicle (EV) manufacturer, seeking to build market share in key European territories. In April 2025 it outsold Tesla in Europe for the first time, following a consumer backlash against Tesla.
However, in May 2025, Brazilian prosecutors brought a lawsuit against BYD over labour conditions at a factory construction site. In Q1 2026, BYD faced allegations of labour abuses at its Hungarian site from an NGO.
Both cases highlighted the risks of inadequate human rights oversight in global supply chains. According to media reports, a surprise Brazilian labour department inspection in late 2024 allegedly revealed poor conditions for more than 100 Chinese workers at BYD’s EV plant construction site in Bahia, Brazil.
The lawsuit – which was filed in May – alleged human trafficking and forced labour and sought damages of approximately US$45m. The incident delayed the plant launch and disrupted BYD’s South American expansion, while raising reputational concerns globally.
We have engaged with BYD on this issue since early 2025, pressing for stronger governance and risk management. BYD responded by terminating its contractor in Brazil, repatriating workers, and forming a compliance committee. However, we view these steps as reactive, exposing gaps in its overall due diligence process (particularly in light of the subsequent allegations at its Hungarian site).
The allegations in Brazil present financially material risks, such as legal penalties and associated compensation. Other risks include operational delays and reputational harm, potentially deterring prospective buyers, and reducing sales and revenue.
We continue to advocate for systematic improvements, including third party audits, greater local expertise, and robust oversight, to prevent a recurrence at other overseas manufacturing premises, and protect long-term value.
GEMs ESG Materiality, H1 2026
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