Yahoo Finance Top investor dumps Boohoo after 'inadequate' response to sweatshop claims
Embattled fast fashion firm Boohoo suffered a fresh blow on Friday after one of its biggest investors sold down its stake and labelled the firm's response to illegal pay allegations "inadequate".
The £3.5bn company's efforts to defend itself against sweatshop claims were dismissed by Standard Life Aberdeen, previously one of Boohoo’s biggest investors, which has now sold most of its 3pc holding in the company.
Boohoo has insisted there is no evidence its suppliers are paying staff less than the minimum wage following claims reported earlier this week.
But the company - which sells dresses for as little as £4 - has faced a growing backlash over working conditions at businesses which it partners with.
Standard Life was the first shareholder to break cover and issued a public rebuke to management in a move which will pile pressure on other investors to follow suit.
Lesley Duncan of Standard Life said: “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."
The investor sold two-thirds of its stake, or 27m shares, following questions this week about why its "ethical" ASI fund owned stock in a fast-fashion brand.
In comments first reported by the Financial Times, Ms Duncan said: “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.”
Boohoo’s third-biggest shareholder, Invesco, is now considering its own position. A spokesman said: “We take issues of company governance very seriously and will be investigating these reported concerns to assess their circumstances and validity.”
Investors who sell now will suffer a substantial paper loss compared to their position a week ago. Boohoo has long been a market darling and the shares were further boosted by lockdown, which effectively took bricks and mortar rivals such as Primark out of the game.
From the start of the year until Friday last week, Boohoo shares had risen 30pc but have now erased those gains since the allegations were published by the Sunday Times last weekend.
Boohoo’s second-largest investor Jupiter risked the wrath of activists by increasing its stake this week to 10pc, saying it had decided to take advantage of a weak share price.
A Jupiter spokesman said it was aware of the accusations, but had previously visited several suppliers to Boohoo in the UK and was satisfied with the retailer’s reassurances.
Boohoo’s Employee Benefit Trust has also seized on the slump in the stock to buy stock for its future bonus awards.
The shares fell another 2.3pc to close at 279p on Friday.
A Boohoo spokesman said: “Naturally we are disappointed that [Aberdeen Standard Investments] have taken this decision in respect of some of their funds.
“We have been engaging extensively with our shareholders and continue to take on board their feedback. We believe that our actions taken this week, including our recently announced independent review, make it very clear just how determined we are to ensure that our entire supply chain adheres to our code of conduct.”
Brokers at Peel Hunt retained their "buy" recommendation, saying it was not a surprise that Boohoo’s ethical credentials - known in City parlance as ESG - fell short of best practice: “Accepting this work in progress, the group’s multi-brand platform remains a compelling growth opportunity, but management must move to quickly embrace ESG improvement."
Boohoo this week drafted in independent specialists and launched a sweeping investigation headed by lawyer Alison Levitt QC of its supply chain in the wake of sweatshop allegations.
Following a three-day probe, it said that garments for its brand Nasty Gal were made in Morocco and not Leicester, but were shipped there for repackaging. It added that it had found no evidence of suppliers paying workers £3.50 an hour.
Boohoo’s top brass is in line for a £150m bonus payout if the company’s share price continues to rise by 2024.
