LSE Sad Second Choice for SHEIN IPO

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    Fast fashion behemoth SHEIN is on the verge of listing its shares on the London Stock Exchange (LSE), according to media reports on Monday 3 June 2024.  With an expected capitalisation exceeding €60 billion, the shares are likely to find their way into many index-tracking institutional investment portfolios.  SHEIN factory workers had better get to work on producing the multiple ESG red flags that this initial public offering (IPO) represents.

    The first question that comes up is: Why London?  It seems that the UK capital was not SHEIN’s first choice.  The New York Stock Exchange apparently rejected the company’s IPO following political pressure fuelled by security concerns over the company being controlled from China – despite its headquarters having been moved to Singapore in 2022 in a deliberate effort to allay such fears.  It seems the US authorities were not particularly focused on the company’s various ESG red flags, just worried about spying.  Meanwhile, the poor old post-Brexit LSE has been suffering from rejection anxiety, with British microchip manufacturer ARM preferring to list on New York’s Nasdaq in a damaging snub to the London exchange.  The LSE’s self esteem was further damaged with rumours that even the likes of oil giant Shell might decamp across the pond.  It stands to reason that being wooed by funky fashion giant SHEIN is a welcome ego boost for the beleaguered LSE.  However, starting an ill-thought-out new liaison with a manifestly dodgy but strangely sexy new partner shortly after being dumped is never a wise move.  The LSE’s close friends need to take it out for a quiet coffee to have a chat about rebound relationships.

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    What has SHEIN done to warrant its second Laundromat appearance? In the first instance it is only fair to look at both sides of the SHEIN model, as it is simultaneously a cause and a symptom of sustainability-related problems in our consumer-driven society.  The fact that the company is on track to reach annual revenues of $60 billion by next year is largely thanks to its almost 90 million active shoppers and their insatiable appetite for ridiculously cheap fashion items.  Many of these clothes are so cheap and badly made that they end up being thrown away after one or two uses.  There is little or no circularity in the fashion industry, with roughly 85% of textiles ending up in landfill – or dumped in the Chilean desert in a pile large enough to be visible from space.  SHEIN pretty much wins at Environmental Disaster Bingo, with the full set of red flags: despite its claims to the contrary the company’s value chain is littered with sustainability issues.  The constant need for raw materials requires huge amounts of water in the case of cotton, or copious volumes of greenhouse gas emissions for its mainly petrochemical derived textiles.  The dying and production process also leads to water and air pollution from the multitude of chemicals involved.

    On 28 May 2024 the South Korean authorities published the results of an investigation into the presence of dangerous chemicals in a random selection of SHEIN products, including children’s shoes and leather goods.  In one instance they found levels of phthalates in a pair of shoes 428 times the permitted levels.  Phthalates are used to soften plastics and are not nice – in the words of the European Chemical Agency: “We are exposed to phthalates through food, skin, and air.  As phthalates are not chemically bound in the materials they are added to, they can easily leach out or evaporate.  Several [of these phthalates] may damage fertility or the unborn baby and interfere with our hormonal system.  In particular, they affect the sexual development of boys which can lead to infertility in adults.”

    As well as slam dunking all the worst “E” scores, SHEIN is the king of red flags for the “S” in ESG.  Making a profit by shipping a $2 t-shirt halfway round the globe is not easy.  The company claims to sub-contract all of its manufacturing to third parties, but there are numerous reports of workers working 18-hour shifts, producing more than 500 items of clothing and earning as little as 3 € cents for each one.  Moreover, laboratory analysis has revealed SHEIN items made from cotton that originates from China’s Xinjiang region, where it is highly likely that it is being processed by Uyghur forced labour.

    The LSE and the UK government will undoubtedly celebrate an eventual SHEIN IPO as a sign that the country can still attract dynamic and fast-growing global businesses.  SHEIN itself has responded to criticism of its waste mountain by establishing a resale platform for unwanted items in the US, which is expected to launch in Europe in the near future.  However given the poor quality of the products it sells the idea that they will go on to live a long life as “vintage” clothes seems highly dubious.  The main questions the Laundromat has in the face of this massive IPO are: What type of world do we want to live in and do we need this constant stream of harmful, shoddy, disposable stuff?  Secondly, with our sustainable investment hat on: Should SHEIN shares not be a case of straight-to-the-blacklist?

    Image courtesy of Arno Senoner on Unsplash
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