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UK fund managers have warned that investors will “scramble to support” London-based fashion company Shein over concerns about its alleged treatment of workers.
The online fashion group, which was valued at $66 billion in its latest funding round, is looking to list on the London Stock Exchange – a potential boost for the City after a lack of large initial public offerings in recent years.
But major UK institutional investors have said the controversy over Shein’s alleged use of forced labor would deter them from investing. Human rights groups have alleged that ethnic minorities are being subjected to forced labor in Shein’s cotton supply from Xinjiang, which Shein has denied.
“It’s complicated,” said one UK fund manager. “I don’t think anyone with ESG [environmental, social and governance] the team will be able to buy it. It reeks of desperation for the London Stock Exchange – they will take everything.”
He said the risk to the LSE was “collateral brand damage”.
Richard Buxton, a former long-term UK equity fund manager, told the Financial Times: “While the LSE can be delighted to have attracted such a large listing, I suspect that uncertainties around ESG and other hygiene factors will mean that many UK asset managers will struggle to support this IPO.”
Referring to the UK retail chain, he added: “Would I sell Next time to invest in Shein? No.”
However, other investors said listings like Shein’s were crucial to the future of the stock market, which has lost companies to US rivals as they seek higher valuations. Relatively cheap UK-listed companies are also attractive to foreign investors as takeover targets: on Wednesday, Wood Group said it would enter into discussions with Dubai-based Sidara, which could lead to the loss of the company Aberdeen-based engineering firm on its London listing.
Barry Norris, fund manager at Argonaut Capital, said: “Investors can make up their own minds. Not everyone is an ESG fanatic and as we’ve seen with our growing Boohoo, fast fashion is a rough and ready industry.”
Many asset managers have their own ESG benchmarks, which they use as a framework for selecting or rejecting certain stocks. The UK’s Financial Conduct Authority also has listing rules that set a standard for companies looking to float.
Although Shein was founded in China and sources most of its suppliers there, it is headquartered in Singapore and does not sell its products in China. Shein forecast $2 billion in profits for 2023. By comparison, Inditex, owner of rival Zara, this week reported operating income of 1.6 billion euros ($1.7 billion) in the three months to April 30.
Gabriel Caillaux, co-president of General Atlantic, an investor in Shein, said the company could be a catalyst for galvanizing the global IPO market.
“We need [IPO] market to reopen,” Caillaux said. “Whether it’s a company of Shein’s quality, they have the global model, the scale, the growth, the profitability, that’s the type of company that can reopen the market, but we need these IPO markets to work again.”
Shein had planned to list in the US and filed preparatory documents with regulators just over six months ago, but that has stalled due to concerns about Shein’s ties to Beijing. China’s securities regulator has yet to give its approval for a US IPO, and it remains unclear whether the China Securities Regulatory Commission will approve a UK float.
Another investor said: “Given corporate governance . . . issues, a Shein IPO could clearly have negative reputational impact on the UK market.
James Alexander, chief executive of UK trade body the Association for Sustainable Investment and Finance, said: “The notion that some companies with particularly poor human rights practices and sustainability credentials might choose London as a listing destination It’s not going to help make us more competitive in the long run.”
The LSE declined to comment.
A Shein spokesman said the company had a zero-tolerance policy on forced labor and wanted to be held to the highest standards. “We take visibility seriously throughout our supply chain and are committed to respecting human rights,” the person said.
