One of Boohoo’s largest shareholders has sold the majority of its stake in the online fashion retailer, saying the company’s response to reports of poor working conditions in its supply chain had been inadequate.
Aberdeen Standard Investments sold off 27m shares this week, representing two-thirds of its shareholding, as it said recent events had knocked its conviction that Boohoo was improving standards. It is not clear if Aberdeen intends to sell its remaining 13m shares.
Lesley Duncan, the deputy head of UK equities at Aberdeen Standard, which was the company’s sixth largest shareholder before the share sale, said it had invested in Boohoo when it listed on the stock market in 2015, at which point the fashion firm met its ethical criteria.
She said: “Over the years we have lobbied the company to improve its management of supply chain transparency, environmental efficiency and working conditions. While we would have liked progress to have been quicker we did feel that progress was being made.
“However, in the last few weeks our concerns have grown on the progress being made, which even before recent developments had negatively impacted our conviction levels in the company. Having spoken to Boohoo’s management team a number of times this week in light of recent concerning allegations, we view their response as inadequate in scope, timeliness and gravity.”
Duncan said Aberdeen Standard tried to use its influence as an investor to prompt change but in instances where standards had not been met, divestment was appropriate and responsible. The shares sold were worth nearly £80m at Thursday’s closing price. The largest shareholder in Boohoo is its co-founder and executive chairman, Mahmud Kamani, with a 12% stake.
The divestment came despite Boohoo announcing on Wednesday an independent review of its UK supply chain. The review, led by Alison Levitt QC, will be accompanied by a £10m investment in “eradicating malpractice” in its supply chain.
Ethical investment experts said Aberdeen Standard’s move, which followed allegations of low pay and poor hygiene at a Leicester-based supplier to Boohoo, was likely to influence other groups to reassess their holdings in the company.
Ben Nelmes, head of public policy at the UK Sustainable Investment & Finance Association, said: “Boohoo is a company that a lot of ethical investors have had concerns about for a long time. Some won’t go near it and some have made repeated representations to management to get them to improve what they are doing. No doubt having seen what Boohoo have said and done in recent days, some will be leaning more towards what Aberdeen Standard have done.”
According to the Morningstar research group, 20 sustainable funds have investments in Boohoo, including funds offered by Legal & General Investment Management and Man Group. L&G said it would be raising concerns with Boohoo’s management in the coming weeks.
Man Group said: “The reported issues at Boohoo are concerning and our stewardship team is looking closely at how we can most effectively engage with them on it.”
Shares in Boohoo dropped 2.3% on Friday to 280p, partly reversing a bounceback on Thursday from three days of declines. The shares have dived 28% in a week, wiping £1.4bn off the value of the company – which is now worth £3.5bn. The hit came after allegations in the Sunday Times that a factory in Leicester supplying the company, which owns a string of brands including Nasty Gal and Pretty Little Thing, paid workers below the minimum wage and failed to provide adequate protection from the coronavirus outbreak.
The reports follow a string of exposés on poor labour rights in garment factories in Leicester, where Boohoo sources 40% of its clothing, kicked off by an Ethical Trading Initiative-backed report in 2015.
Thulsi Narayanasamy, at the Business & Human Rights Resource Centre, which has campaigned for investors to divest from Boohoo over labour rights issues, said: “This [divestment] has been a long time coming. It is remarkable that it has taken an exposé in 2020, five years after the issue was first raised. It should be taken as a sign for other brands that poor labour rights are not acceptable.”