When more than 150 American universities divested their assets from South Africa in the 1970s and 1980s, they led the way for a global pressure campaign that helped end apartheid. Today, students around the country are following that example by demanding their universities divest from the Chinese government’s atrocities against Uyghurs, deemed a continuing genocide by the State Department.

The movement scored one of its biggest victories in January when Yale announced it would investigate its investments in China for ties to entities complicit in the genocide of Uyghurs.

But for investigations like Yale’s to succeed, they must overcome a widespread willingness to ignore passive investments, leaving financial ties to human rights abuses intact.

The danger is that even as universities reconsider direct investments in firms tied to human rights abuses in China, they may ignore passive investments — indirect stakes in index funds and mutual funds that allow them to track market sectors or even whole national economies — tying them to many of the same companies.

There is precedent for such an oversight. In 2007, Inside Higher Ed reported that after committing to “complete divestment” from companies tied to the genocide in Darfur, Harvard continued investing in funds with holdings in those very companies.

In fact, most universities committed to divestment from Sudan neglected to eliminate passive investments that violated their commitments. In their view, they could do little to influence fund managers’ behavior. Eliminating these indirect investments would have required switching to new funds — something investors divesting from fossil fuels have also been reluctant to do because they fear it might hurt returns.

This lesson is particularly relevant to Yale. In a disclosure filed with the SEC on August 12, Yale reported a $14.2 million investment in Vanguard’s FTSE Emerging Markets ETF (VWO) as of June 30. VWO is hardly an exotic investment. With $96.1 billion in net assets as of August 31, it is among the largest index funds focused on emerging markets. Even a cursory analysis of the latest reported holdings strongly suggests that it invests in some of the companies most complicit in the worst abuses underway in China.

As of August 31, VWO’s holdings included iFlyTek Ltd. and Hoshine Silicon Industry Ltd., which appear on the Department of Commerce’s Entity List, an export control list targeting companies engaged in activities “contrary to U.S. national security and/or foreign policy interests,” because of human rights concerns, including the use of Uyghur forced labor.

Another holding, BGI Genomics Ltd., is a subsidiary of BGI Group, a Chinese company accused of unethically collecting the genetic material of ethnic minorities, especially Uyghurs. Two BGI subsidiaries are on the Entity List. Other holdings or affiliated companies — including Inspur Electronic Information Industry Co., China United Network Communications Group Co. Ltd., and AECC Aviation Power Co. Ltd. — have been added to the Military End User or Non-SDN Chinese Military-Industrial Complex Companies lists because of their ties to China’s military.

This is not just an ethical problem. Exposure to the worst companies in China’s capital markets isn’t just immoral; it’s also risky. Companies that fail to comply with U.S. standards on forced labor or mass surveillance are also less likely to follow the basic accounting standards we associate with good corporate governance. And firms that are already sanctioned may face investment bans in the future.

For example, SenseTime, one of the Chinese companies most responsible for the mass surveillance of ethnic minorities, was added to the Entity List in October 2019; in December 2021, the Biden administration went further and banned investments in SenseTime entirely.

Divestment is both financially prudent and unquestionably the right thing to do. But as Yale’s investments show, getting divestment right will require universities to look at their passive investments, too.

In doing so, they can create real change that aligns with their growing commitment to socially responsible investing. Last year, the combined value of all U.S. university endowments was $821 billion, a figure greater than the total wealth of Chile.

This is a tremendous amount of money, enough to put pressure on investment managers to eliminate unethical holdings. If universities turn away from passive investments in atrocities, Wall Street may begin to follow.