I recently met a senior merchandiser at one of the UK’s best-known fast-fashion brands. I asked whether they were thinking about reshoring production from Far Eastern factories to the UK. The answer was a resounding “no”; the company had already used UK factories in the past, but had stopped when they were refused access to audit them as part of their supply chain compliance. It was far easier, they said, to keep a watchful eye on factories thousands of miles away than in Leicester which, I was told, are run by “a mafia”.
These claims are, of course, very hard to prove, let alone do anything to change. The FT’s Sarah O’Connor raised this story – and gave evidence to the same effect in a Parliamentary Select Committee – two years ago. It is only thanks to Covid-19 that criminal investigations are now taking place that could reveal a tangled web of illegal worker exploitation. Who will be implicated is another question altogether.
One company at the heart of the current scandal is Boohoo, also based in Leicester and which produces many of its clothes there. Its shares have plunged on suggestions that it too has been using such factories, allegations that it has strenuously denied. It has launched an independent inquiry into its supply chain, and perhaps the QC in charge of it will find that Boohoo’s supply chain is indeed squeaky clean.
This matters from an investment perspective – Boohoo’s shares have been marketed as ESG-friendly, and have found themselves in many ethical portfolios, which could partly explain their stellar run this year. Investors today are more mindful than ever of wanting to invest for good, and ready to jump on anything with an ESG label.
Yet even if Boohoo’s supply chain is given the all-clear, the idea that a fast-fashion company can be classed as a leading exponent of ESG principles has had me scratching my head for some time. Operating in an industry that is responsible for worker exploitation and the production of throwaway clothes that contribute to massive environmental degradation should have raised red flags – an industry built on cheap and cheap alone is an industry that cuts corners, perhaps dangerously. In Boohoo’s case, a series of related-party transactions should have raised a few more.
Perhaps, then, the bigger scandal is what the investment industry is marketing as ESG, when the self-reported basis upon which companies are determined to qualify or not is so flimsy. If companies and funds are writing ESG cheques they can’t cash to attract capital, their investors are not getting what they paid for. Another mis-selling scandal could be about to unravel.
