The Boohoo slavery investigation has prompted questions over whether the low-cost UK fashion brand should have ever featured in responsible investment portfolios, even if asset managers were pushing the company to improve standards.
Aberdeen Standard Investments and Premier Miton have already been highlighted as asset managers holding the company within responsible investments, with ASI even including it in their UK Impact Employment Opportunities fund, which claims to invest in companies with strong employment practices.
ASI says it has been engaging with Boohoo for some time and had been in contact over the latest allegations, while Premier Miton says it has been in contact with the company and is awaiting a response.
But the supply chain controversy is not just an issue for responsible investments. Boohoo’s share price has nearly halved since The Times published its investigation over the weekend, falling 43.2% to 219.2p. The brand has been dropped by distributors such as Next and Asos.
Three funds run by Merian, now part of Jupiter, have the punchiest allocations to Boohoo with the Merian UK Mid Cap, Quilter Investors Equity 1 and Merian UK Dynamic Equity all holding more than 10%. A Jupiter spokesperson said Merian had already been engaging with Boohoo on supply chain issues and has been assured that “suppliers found to be in breach of the company’s strict code of conduct will be terminated”.
Baillie Gifford says it is continuing to engage with Boohoo on supply chain and sustainability issues in light of its holdings in the British Smaller Companies fund and UK Growth investment trust. The L&G Growth Trust and Marlborough Multi-Cap fund also hold Boohoo but did not provide comment.
See also: ASI exposed to Boohoo slavery investigation via ethical funds
‘I can’t believe that these allegations came as a surprise to anyone’
It is not the first time Boohoo has faced allegations about working conditions in the factories of its Leicester suppliers. In 2017, a Channel 4 investigation highlighted poor labour conditions for factory workers supplying Boohoo as well as other fast fashion brands like Missguided, River Island and New Look.
Boring Money CEO Holly Mackay reckons fund managers use the engagement argument to maintain holdings in companies that might otherwise be described as “dodgy”.
“I can’t believe that these allegations came as a surprise to anyone who has scrutinised the firm in any detail,” Mackay says. “You don’t need to be a genius to work out that you can’t sell dresses for £15 and treat everyone in that supply chain nicely.”
Red Circle financial planner Darren Cooke reckons responsible investment products that held Boohoo now look “foolish” but notes that it is a difficult area for fund managers to monitor. “Frankly very few, if any, fashion businesses are properly ESG as somewhere in their supply chain there will be a problem.”
Wingate financial planning director Alistair Cunningham says he cannot see how the “hugely wasteful” fast fashion sector should feature in any responsible investment portfolio.
The responsible investors ditching fast fashion
While ASI has taken an engagement approach to funds within its responsible investment products other asset managers have excluded fast fashion in portfolios.
Liontrust’s sustainable investment team ended its exposure to fast fashion in 2018 selling out of its holdings in H&M and Inditex. Peter Michaelis, who heads up the team, says retailers have been “unable to show sufficient improvements in the supply chain”.
Royal London Asset Management similarly does not hold Boohoo or any fast fashion brands.
On the wealth management side, Whitechurch investment director Amanda Tovey says they have been challenging ethical funds over Boohoo for the past few years due to supply chain and environmental concerns.
EQ Investors does not have any exposure to the company in its Positive Impact Portfolios, which are aligned with the United Nations Sustainable Development Goals (SDGs). Fast fashion doesn’t contribute to those goals, says EQ Investors impact specialist Louisiana Salge.
“The accessibility benefit of the items sold does not outweigh the negative environmental, and as shown social, externalities of their production,” Salge says.
At least ASI is persisting in its engagement
But SRI Services director Julia Dreblow reckons an engagement approach can have merit.
Fast fashion was an engagement theme for BMO Global Asset Management in 2019 with 18 companies targeted over both waste and labour conditions. Those efforts aligned with SDGs focused on decent work and responsible consumption and production, it said in its Responsible Investment 2019 Review.
Federated Hermes’s stewardship arm EOS had not previously engaged with Boohoo as part of its fast fashion work but has contacted the firm in regards to the slavery investigation.
ASI emphasises engagement as central to its strategy and therefore Dreblow would expect it to persist pressuring Boohoo “unless it became obvious that their efforts were futile”. “From experience I know engagement often takes many years, so although this does not appear to cover ASI in glory it could be that they are persevering where others have walked away.”
Boohoo shines spotlight on asset managers’ modern slavery statements
One wider issue that Dreblow reckons the Boohoo controversy has highlighted is the limitations of asset managers’ modern slavery act statements, which are published annually and require companies to detail actions they’ve taken to address modern slavery in their business and supply chains.
“In most cases the investors struggle to look beyond their immediate, in-house and directly linked impacts, which is plainly nonsense,” she says. “The biggest impacts, positive and negative, that investors have is through where they invest and the relationships they have with investee companies.”
Merian’s new owner Jupiter, Premier Miton, LGIM’s parent Legal & General and Baillie Gifford all focus on modern slavery within their own businesses and supply chains for their modern slavery statements. Baillie Gifford specifically emphasises that its statement is not related to its investment activities and refers investors elsewhere to understand how ESG factors are incorporated into investment decisions.
In contrast, Standard Life Aberdeen’s statement describes ESG as a key way it can drive change stating modern slavery risk is an ongoing part of its investment research process. “Where we believe a company is exposed to modern slavery risk and not taking action to mitigate this risk, we will look to incorporate this into our investment view and engage with the company to drive positive change,” the document says.
