Investors struggle to get to a grip on modern slavery in fast fashion

Boohoo scandal highlights persistent issue in garment industry

The UK is still reeling from allegations that garment-factory workers for fast fashion giant Boohoo face modern slavery conditions in Leicester factories in Central England.

On Friday, Aberdeen Standard Investments, one of the AIM-listed company’s largest investors, divested the stock completely. It had exposure through a number of responsible and impact funds. Lesley Duncan, Deputy Head of UK Equities at Aberdeen Standard Investments, said it had lobbied the company to improve working conditions and felt 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,” she says. 

Thulsi Narayanasamy  Senior Labour Rights Researcher at the Business & Human Rights Resource Centre (BHRRC), says the problem with factories in Boohoo’s supply chain has been well-documented since 2015 – even highlighted in UK Parliament by the Environmental Audit Committee (EAC), which made a number of recommendations to the government as a result. Those recommendations weren’t taken up.

EAC Chairman, MP Philip Dunne, has written to Boohoo’s Chief Executive this week saying: “It is incredible that over a year since the Committee highlighted illegal working practices in its supply chain, Boohoo publicly denied knowledge of what has been happening for years."

Boohoo in a statement has said it is grateful for the Sunday Times investigation, and that it is investigating the matter. 

Just before the scandal broke, BHRRC was planning to do investor-facing work on the issue of labour and human rights in fast fashion, focusing on the Norwegian Government Pension Fund Global (GPFG). “We were aware that they previously had essentially blacklisted other kinds of fashion or textile companies because of their human rights abuses in their supply chain, and we wondered why there hadn’t been a similar investigation into Boohoo,” explains Narayanasamy.

GPFG told RI that it was aware of the issue but didn’t comment on company-specific engagement.

The GPFG is seen as a beacon of responsible investment. Boohoo was also surprisingly in a number of funds badged ‘sustainable’. According to Morningstar, 20 sustainable funds held the stock, including those offered by Legal and General Investment Management, Man Group, JPMorgan, Premier Miton and DWS. Questions are being asked how a fast fashion retailer – arguably the antithesis of sustainability – made it into these products at all. 

Aberdeen Standard Investments even had exposure to Boohoo in an impact fund focused on good employment in the UK. Anti-poverty social enterprise Big Issue Invest was a social advisory partner on that fund, and said in a statement: “The findings, outlined in the recent Labour Behind the Label Report are deeply concerning and the type of practices adopted by Boohoo or its supply chain companies are unacceptable. This Fund aims to promote best practice for UK employers to generate good jobs for people across the UK, particularly in areas of the country that have been traditionally marginalised from the chance to develop economically”.

And it isn’t just Boohoo that is coming under scrutiny. Narayanasamy says: “These online brands say they are democratising fashion by having accessible prices. It’s quite ridiculous. They are extending the availability of low-cost fashion to people in the Global North, while the industry as a whole is exploiting people of colour as a fundamental part of their supply chain in the Global South. Even within the UK, in Leicester, for example, the workforce is predominantly people of colour. And so that racial division of labour in the apparel industry remains.”

Supply chain transparency

One issue for investors trying to tackle the issue is a lack of transparency on what is going on within companies’ workforces. Narayanasamy says the global fashion industry has made enormous strides in the past five years to increase levels of transparency within its supply chains.

“Most apparel brands now disclose and list factories where they are producing, regardless of whether that’s in the UK or overseas. But Boohoo are one of the very few, now publicly listed, that still refuses to publish its export factories.”

In the Netherlands, investors created ‘Platform Living Wage Financials’ to encourage and monitor companies to pay a living wage in their supply chains. Its first assessment report focused on the apparel and footwear industry. In the UK, NGO ShareAction, with investor support, created the Workforce Disclosure Initiative, focused on improving data from listed companies on how they manage workers in their direct operations and in their supply chains. 

Both rely on voluntary involvement. Swedish fashion giant H&M engaged with both initiatives and is now under scrutiny for allegedly not paying garment workers in Bangladesh. 

In a statement to RI, H&M said: “We take delivery of, and pay for, already-produced goods, as well as goods in production, if delivered within a reasonable timeframe. We are fulfilling our payments for delivered goods in accordance with contracts, on time and at the originally agreed price. While the full implications of COVID-19 are yet to be experienced, we will tackle challenges today and in the future, together with our suppliers – they are our business partners and we all depend on having a viable and sustainable textile industry going forward.”

But comparing news reports and social media from the ground with these official statements makes for an unclear picture. Reportedly, fashion retailers Zara, H&M, Nike, Gap, Levi’s and more have cancelled orders from garment suppliers because of the pandemic, impacting workers. Popular reality TV star Kylie Jenner has come under serious fire for reportedly not paying garment workers in Bangladesh – an allegation she denies. 

ShareAction has tweeted that human rights abuse in the fast-fashion industry has been an open secret for years. James Coldwell, Programme Lead at ShareAction’s Workforce Disclosure Initiative, says it plans to convene a new drive on the issue after requests from investor members. 

Investors engaging with workforce

Earlier this year, as Covid-19 escalated, the Interfaith Center on Corporate Responsibility (ICCR), which represents around 300 institutional investors, devised a set of steps it wanted apparel and footwear companies to take, including continuing to pay suppliers despite the pandemic. 

At the time, H&M was applauded by ICCR for committing to pay their suppliers in full for orders. David Schilling, ICCR Senior Programme Director, says it has a meeting coming up with H&M, where it will raise issues recently reported in the press and on social media.  

Fiona Reynolds, Chief Executive of the Principles for Responsible Investment, chaired  a commission on modern slavery and human trafficking, and says investors have a responsibility to people in garment supply chains. 

“The Business and Human Rights Resource Centre recently really focused on the garment sector, which has a big issue of not paying suppliers,” she tells RI. “They conducted a survey of 35 fashion brands and 14 made no public commitment to pay for orders that were completed.”

“In March and April some companies were still helping suppliers access loans. But while companies have made these commitments, we’re still seeing large protests in countries like Cambodia and Bangladesh where workers are just not being paid. A lot of companies have also delayed payments, extending their usual payment time to suppliers.”

Reynolds says investors need to have a better understanding of what is happening in companies’ supply chains. 

Tom Powdrill, Head of Stewardship at the UK-based Pensions and Investment Research Consultants, says a key issue is that investors do not talk directly to the workforce. “Investors will engage with companies about labour issues and they won't even talk to the workforce themselves, or the unions. And that seems to me an entirely outmoded way of looking at these issues. You cannot get a good sense for how a company is managing its workforce, unless you talk to the workforce.”

There are emerging reports that many companies, including fashion retailers, are exposed to slave labour in the Uighur region in China – home to a Muslim ethnic minority that has been subject to high-profile persecution, which some experts have described as “genocide”. 

ICCR’s list of requests for the apparel and footwear sector during Covid-19 includes one around preventing sourcing or production connected to the Xinjiang Uighur Autonomous Region. Schilling says it is putting together a guide for investors and companies on these issues shortly.