Aberdeen Standard Investments (ASI) has divested from Boohoo in its responsible investment funds describing its response to allegations of slavery and poor conditions within its supply chain as “inadequate in scope, timeliness and gravity”
Boohoo came under fire last weekend after an undercover investigation from The Times revealed workers at one Leicester factory were being paid as little as £3.50 an hour, less than half the minimum wage for workers over 25 years. Several days earlier, a report raised concerns Leicester factory conditions were putting workers in the Boohoo supply chain at risk of Covid-19 infection.
Its suppliers now under investigation by the National Crime Agency for modern slavery under orders from the Home Office.
The ASI UK Ethical Equity, UK Responsible Equity and UK Impact Employment Opportunities Equity funds were all were revealed to hold the fashion brand. But ASI revealed on Friday that these funds began selling out of Boohoo last week and were fully divested by Thursday afternoon.
The Boohoo share price fell 43.2% to 219.2p in the three days following The Times investigation with Next and Asos announcing they had ceased distributing Boohoo items. But the share price rebounded substantially on Thursday and had hit 308p by Friday morning.
Premier Miton, the only other responsible investment fund in the Investment Association universe with exposure to Boohoo, has also removed the company from its Ethical fund, which is co-managed by Benji Dawes and Jon Hudson, in light of the controversy.
‘We view their response as inadequate in scope, timeliness and gravity’
ASI deputy head of UK equities Lesley Duncan (pictured) gave a damning assessment of Boohoo’s response to the labour scandal.
“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.
“We strive to use our influence as significant investors to achieve progress. In instances where our standards have not been met, divestment is both appropriate as responsible stewards of our clients’ capital and aligned to our goal of investing for better outcomes.”
ASI invested in the company at IPO, at which stage it passed its ethical screens, but it had become disillusioned with progress being made on ESG issues in the last few weeks, Duncan said.
An Aberdeen Standard Investments note examining the ESG case around Boohoo from March said the company had given it reassurance around the level of auditing within its Leicester factories. ASI intended to visit the factories later in the year.
The note concluded ASI was “encouraged” by progress Boohoo had made during the engagement process. “We believe that it will be rewarded in the long run by delivering on its aspirations of being a leader in sustainability.”
Jupiter cranked up position immediately after slavery scandal broke
The divestment from responsible investment funds come as Boohoo tries to rebuild its reputation with investors and consumers. But not everyone was put off investing in the company.
On Monday, in the immediate aftermath of the The Times investigation Jupiter topped up its position from 9.62% to 10.12%.
Jupiter is one of the company’s biggest shareholders due to punchy holdings across a number of funds including Richard Watt’s Merian UK Mid Cap fund and Luke Kerr’s UK Dynamic Equity fund, which both hold weightings over 10%.
“Following conversations with management about its strategy, the fund manager decided to top up the position based on share price weakness,” a Jupiter spokesperson said. “We will continue to engage with the business regarding the ongoing investigation.”
In a regulatory filing issued on Wednesday morning, two days after Jupiter started buying into the share price dip, Boohoo announced it had launched an independent review of its supply chain, committed £10m to eradicate supply chain malpractice and accelerated an existing independent review into its third party supply chain.
Boohoo said it had not found evidence of workers being paid £3.50 but had found “other evidence of non-compliance with our code of conduct” and terminated contracts with two suppliers.
The terms of reference for Boohoo’s independent review, which is being led by Alison Levitt QC, will be published in late July. It will update investors on its supply chain review in September and January.