We reflect on the recent revelations around fast fashion retailer Boohoo, and what the episode can teach ESG investors:
The recent media attention on Boohoo and the alleged exploitative working conditions at its factory in Leicester has been shocking – although unfortunately, not altogether unsurprising. The reality is that it is very hard to produce a £5 dress without cheap labour appearing somewhere in the supply chain.
For the investment management community, this has also been embarrassing. There were twenty funds labelled as ‘sustainable’ that counted Boohoo as a holding, and the stock was AA rated by MSCI on ESG factors. It highlights the propensity for greenwashing and an overreliance on ratings providers to be at the core of many asset managers responsible and sustainable investment propositions.
We originally screened Boohoo back in 2014 when the company first IPO’d, and it failed to pass our ESG/ responsibility screen. Were we do have exposure to clothing and apparel companies, we look for strong supply chain management and carefully managed environmental impact. Fast fashion falls woefully short in most respects within these two core areas.
Above all, perhaps what this episode teaches ESG investors is the underlying importance of looking for responsibly run businesses to invest in and in doing their own research into these companies; by getting that right, investors will be better placed to seek out those real leaders in sustainability.