Index provider MSCI replaced a “red flag” controversy rating for Volkswagen stock with an “orange flag” after reviewing the results of a labour rights audit at Volkswagen’s jointly-owned Xinjiang site, MSCI said on Thursday.
The move enables sustainability-focused investors who sold Volkswagen stock after MSCI’s red rating, which indicates involvement in “very severe” environmental, social or governance controversies, to reassess whether to invest in the carmaker.
Top-20 Volkswagen shareholder Deka Investment’s head of sustainability and corporate governance, Ingo Speich, said Volkswagen stock remained unattractive for its sustainable funds because of what it described as “deficits in corporate governance”.
Speich has previously criticised the lack of a transition plan at Volkswagen’s supervisory board and said the carmaker’s stock price suffers from a “governance discount”.
MSCI marked Volkswagen with the “red flag” in its social issue category in November 2022 due to allegations of forced labour in Xinjiang, prompting some investors to drop the stock from their portfolios and call for the carmaker to conduct an audit.
Last week, Volkswagen said in a statement the management consultancy it had commissioned to audit the Xinjiang site, Loening GmbH, had found no signs of forced labour.
Still, Loening GmbH highlighted the challenges of collecting data in China, and several of Loening’s senior staff distanced themselves from the project on LinkedIn.
The “orange flag” rating indicates that a controversy classed as very severe has been “either partially resolved, or indirectly attributed to the company’s actions, products, or operations”, according to MSCI.
