Attention has turned once again to Boohoo and its biggest backers following fresh allegations of exploitative labour practices at one of its approved factories in Leicester.
The fast fashion brand, which owns the Pretty Little Thing, Debenhams and Karen Millen brands, has been jumping through hoops to show it has cleaned up its act a year after an undercover investigation from The Times revealed workers at some of its Leicester factories were being paid as little as £3.50 an hour.
The cut-price retailer enlisted retired judge Sir Brian Levenson to overhaul its supply chain as part of its “Agenda for Change” programme, scrapped ties with hundreds of manufacturers and banned the use of subcontractors outright. The company also published a full list of its 78 UK suppliers in March, many of which it said had been audited twice in a span of eight months.
However, a report from Sky News last week alleges one of Boohoo’s approved Leicester factories is still finding loopholes to avoid paying staff the legal minimum wage of £8.91 per hour.
One unnamed employee showed the news outlet her payslips, detailing the correct hours worked and that she was paid the minimum wage, as well as a separate slip of paper she is given by her boss each month with a handwritten number, representing the amount of cash she must withdraw and return to the factory.
Latest allegations are not surprising
Rathbone Greenbank Investments head of ethical, sustainable and impact research Kate Elliott says the latest rumblings around the Leicester textile industry’s exploitation of workers is a “stark reminder that companies and investors cannot be complacent about supply chain risks”.
“There is a common misconception that labour violations only occur overseas, with countries such as the UK being classed as low risk in supply chain audits and human rights risk assessments,” she says. “But in our experience, and as this recent story demonstrates, issues can arise anywhere in the world.”
Martin Buttle, head of good work at Shareaction, says he is not surprised by the latest modern slavery allegations in Boohoo’s supply chain. Several rights groups who have been monitoring the Aim-listed firm’s activities, including Shareaction and the Business & Human Rights Resource Centre, said they found little evidence Boohoo had addressed its commercial purchasing practices, one of the “fundamental drivers of poor labour practice in the supply chain”.
Buttle says many high street retailers have already decided not to source from Leicester, which has garnered a reputation for illegal activity such as underpayment of workers and modern slavery-type practices. Boohoo’s current list of suppliers includes more than 50 factories in Leicester.
“They realised that it was almost impossible to square the circle,” he says. “I imagine Boohoo will follow that same path but they are at least, six or seven years behind where the other retailers were at that time.”
The funds still backing Boohoo
Portfolio Adviser previously highlighted the funds exposed to the fast fashion brand hot on the heels of The Times investigation, four of which were responsible investment products.
Abrdn had a trio of ethical funds tied up in Boohoo but quickly divested its holdings days after the slavery scandal broke, with deputy head of UK equities Lesley Duncan condemning Boohoo’s response to the allegations as “inadequate in scope, timeliness and gravity”. Duncan’s ASI UK Impact Employment Opportunities fund, one of the funds caught up in the scandal, was recently wound-up.
See also: ASI divests from Boohoo with damning assessment of its response to slavery investigation
But other major backers have continued to stick by the controversial clothing company. Jupiter remains Boohoo’s largest institutional shareholder, with six of its funds, all former Merian vehicles, still maintaining punchy positions in the stock.
The £446.1m Jupiter UK Dynamic Equity fund, run by Luke Kerr, currently has the biggest weighting at 7.3%, according to FE Fundinfo, followed by the Quilter Investors – Equity 1 fund, a Merian run mandate, with 7.2% and Richard Watts’ £3.6bn Jupiter UK Mid Cap fund with 6.9%.
Jupiter currently owns 9% of Boohoo, according to data from Refinitiv, down from 10% a year ago. The fund group topped up its position in the days following The Times investigation to take advantage of “share price weakness”.
Boohoo also features in the top 10 holdings of a handful of other funds, including the L&G Growth Trust, the Baillie Gifford British Smaller Companies fund and Premier Miton UK Growth.
Portfolio Adviser contacted Jupiter, Legal & General Investment Management and Premier Miton but did not hear back in time for publication.
A spokesperson for Baillie Gifford said the company was not speaking publicly on the topic.
Funds with largest weighting to Boohoo
| Fund | Holding (%) |
| Jupiter UK Dynamic Equity | 7.30 |
| Quilter Investors – Equity 1 | 7.19 |
| Jupiter UK Mid Cap | 6.90 |
| Jupiter UK Specialist Equity (offshore) | 4.90 |
| Jupiter UK Smaller Companies Focus | 4.70 |
| L&G Growth Trust | 4.10 |
| VT Holland Advisors Equity | 3.25 |
| Jupiter UK Smaller Companies | 3.10 |
| Baillie Gifford British Smaller Companies | 2.80 |
| Premier Miton UK Growth | 2.65 |
Source: FE Fundinfo
Trio of Jupiter funds claim to factor ESG risks into investment process
None of the funds that currently have meaningful stakes in Boohoo are billed as ESG or sustainable vehicles.
However, three belonging to Jupiter – UK Dynamic, UK Specialist Equity and UK Smaller Companies Focus – claim to take ESG risks into account when making investment decisions.
A prospectus for the trio of funds published in February 2021 states that “material sustainability risks are integrated into the investment decision making process and risk management process,” adding the active ownership approach “considers material ESG factors, such as environmental or social considerations,” measures which enhance decision making and lead to better client outcomes.
Portfolio companies are monitored using primary research, third party ESG risk data, including climate analysis, proxy voting research, direct and collaborative engagement with companies, industry bodies and other investors and commitment to responsible investment codes, the document notes.
That said, the funds are not subject to sustainability risk-related limits or ESG investment restrictions save for those that arise in line with regulatory requirements.
Jupiter did not respond to Portfolio Adviser’s question as to why certain UK equity funds factored ESG risks into their approach while others did not.
See also: Boohoo scandal ‘poses challenge’ to ESG ratings
Is shareholder engagement working?
Independent wealth expert Adrian Lowcock says: “Incorporating ESG factors into a research process is not new and in itself doesn’t mean companies are being excluded just that the risks are considered and weighed up ahead of any investment. This is fine so long as the fund’s investors understand what this situation is.”
Chelsea Financial Services senior research analyst James Yardley points out that Jupiter and other asset managers have been “very engaged” with Boohoo over its supply chain issues and as a result it has made “substantial efforts to improve the situation”.
Jupiter rejected calls for the fast fashion retailer’s senior leaders to be removed after the widespread labour abuse in its supply chain came to light. But it also pushed the company to publish its list of suppliers and add two new board members to oversee its sustainability efforts, according to the Financial Times.
“Almost every clothing chain has some ESG issues in their supply chains and it’s only with this type of engagement that things will get better,” says Yardley, who holds shares in Boohoo himself.
“The stock has actually performed very well while held by Jupiter and made a lot of money for investors which is the primary remit.”
Since debuting on the Aim sub-section of the London Stock Exchange in 2014, Boohoo’s share price has nearly quadrupled. But at 261p shares are not trading much higher than they were at the end of July 2020 when they lost a third of their value in a month after The Times story broke.
Boohoo avoiding the elephant in the room
Buttle believes investor engagement has worked to a certain extent. But while Boohoo has stepped up the policing of its supply chain and enhanced its auditing efforts, this is distracting from another issue – whether its low-cost fast fashion business model is sustainable.
“The other side of the coin is the business model of Boohoo, and the price point that they operate and whether you can manufacture the product that they’re selling in the UK compliantly,” he says.
“When you’re paying the UK minimum wage, you’re paying all of the benefits that employers have to give workers, that creates a situation where the pressures on suppliers are almost impossible to square.”
Buttle says he has spoken to the company’s major investors on this topic but there is still a “question mark” about the extent to which questions about its business model are being seriously raised.
Fast fashion industry currently not compatible with sustainable investing
From Elliott’s perspective the fast fashion industry in its current guise is not compatible with sustainable development, which is why these companies are excluded from the Rathbone Greenbank Multi-Asset Portfolios.
Alongside the negative social impacts around low pay, health and safety violations and poor working conditions in garment supply chains, the industry is responsible for a litany of environmental sins, from the use of toxic chemicals in dyeing and processing materials to carbon emissions from manufacturing garments and transporting materials and waste to landfill from clothes being thrown out.
Elliott says many of these issues apply to ‘slow’ fashion retailers as well but adds there are some structural factors that make fast fashion higher risk.
“For example, rapidly changing product lines mean shorter lead times for orders. In turn, this can result in garment factories requiring employees to work long hours, or even subcontracting work to other factories that are outside the scope of supply chain auditing.”
