Candriam keeps eye on facial recognition risks with new initiative
Facial recognition technology (FRT) has made its way in our everyday lives from unlocking mobile phones to passing security checks at airports. Forecasts expect the facial recognition market to reach $9.6bn by next year while it is estimated one billion surveillance cameras will be in operation by the end of 2021. If the FRT displays undeniable edges, it also carries out several risks from a social and governance perspective. Mass surveillance; impact on privacy, data protection and civil liberties; misidentification; racial and gender biases; and the list is not exhaustive.
In such period where human rights emerge as a rising investor concern, Candriam is set to voice out investor demands for improved corporate disclosure at companies selling products and services that use FRT. To do so, it has published its Investor Statement of Facial Recognition on Tuesday alongside guidance assessing FRT's investment risks and opportunities. Concretely, the investment manager kicks off a two-year collaborative engagement initiative, welcomed by the United Nations-supported principles for responsible investment (UNPRI), to engage with the companies developing or using FRT.
Candriam’s proxy voting and engagement analyst Benjamin Chekroun told Asset News that if the largest US and Chinese tech companies lie behind this rapidly developing technology, many others enter the scope of the initiative such as hardware, software and data provider companies. Worries are growing as fast as the development of the FRT among the investor community. Earlier this year, the Belgian asset manager surveyed 300 investors on the matter. The survey highlighted 30% of respondents finding FRT to be a convenient and useful tool and 70% of investors expressing some reservations about FRT.
“Some 10+ investors have already expressed their interest in this initiative but we barely start speaking about it with our peers. For this initiative to be a success, we need representative investors, that are not only based in the regions where companies using and developing FRT are domiciled but that are also shareholders of these companies. Like any collaborative initiative, the signatories’ combined assets under management will weigh much in engaging through dialogue with the targeted companies. Investor diversity in the initiative is even more desirable provided the real differences on FRT we see from a region to another,” Chekroun said.
Candriam recalled the technology is used worldwide, except for Luxembourg, Belgium and Morocco which classify the use of facial recognition by state as a breach of national law. Moreover, it pointed out that even in US cities like San Francisco, the birthplace of the technology the FRT has been banned in law enforcement and local agencies. The company said no investor dialogue has ever been established hitherto with states over the risks linked to the use of biometric technologies, and by extension none over FRT.
Chekroun however pointed out that many non-governmental organisations have already called on governments upon the technology. “As for companies, we had supported a shareholder resolution at Amazon’s general meeting in 2019. The resolution was requiring improved transparency from Amazon as to the impact of FRT when used by government agencies. At that time, shareholder support was around 28%. Investors and the targeted companies have also engaged directly (namely, non-collaborative dialogue) but the outcomes are mixed,” commented Candriam’s proxy voting and engagement analyst.
'No new regulations'
Chekroun said the initiative signatories are not asking for new regulations. They are rather demanding guarantees on the implementation of necessary safeguards and transparency to the good management of risks associated with the FRT. On the initiative's possible impact over stock valuations, Chekroun observed that companies did not wait the initiative to be hardly hit in their operations and finances. Moratoriums, fines and bans are now part of their life, he said.
Could the initiative impact government bonds’ valuations too? “Regarding govies, let’s be pragmatic, the initiative will not affect their valuation. Nonetheless, it is part of a rising trend that aims to systematically take into account social and societal criteria linked with the respect of fundamental rights while analysing sovereign bonds,” Chekroun answered.