Investment giant Standard Life Aberdeen has dumped its entire stake in fast fashion firm Boohoo after the retailer was caught up in a scandal over low pay and poor conditions for factory workers.
Boohoo launched an independent review of its UK supply chain following allegations of poor working practices and underpayment of workers at a clothing factory in Leicester.
The company it had found evidence of non-compliance with its code of conduct, and has terminated its relationship with two suppliers.
However, in news first reported by the Financial Times, Standard Life Aberdeen said the action taken by Boohoo was “inadequate”.
“Over the years we have lobbied the company to improve its management of supply chain transparency, environmental efficiency and working conditions,” Lesley Duncan, deputy head of UK Equities at Aberdeen Standard Investments, said.
“While we would have liked progress to have been quicker we did feel that 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.
“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.”
Boohoo said it had been engaging with shareholders on the matter. Jupiter Asset Management, which has a stake in the retailer through its UK small and mid cap equity desk, said it will continue to own shares in the firm.
“We are aware of the accusations made regarding Boohoo’s clothing suppliers in Leicester,” a spokesperson said.
“We have been actively engaging with the company on this topic and have previously undertaken site visits to several of boohoo’s UK suppliers to further understand the firm’s approach to the complex issue of supply-chain management.
“We have been given strong assurances by management that any suppliers found to be in breach of the company’s strict code of conduct will be terminated immediately and we will continue to engage with the firm regarding this situation.”
Boohoo’s share price, which was badly affected by the allegations, had started to recover by the end of the week. However it is still down more than 27 per cent compared to last Friday.
Shares have dipped two per cent this afternoon.
David Beadle, vice president at Moody’s, said earlier this week: “The dramatic fall in Boohoo’s share price in recent days is an illustration of how important ESG considerations are for investors.
“Reputational damage leading to lower sales is credit negative for any company and the outcome of Boohoo’s independent review into its supply chain will be keenly watched.”
Boohoo said it was “disappointed” with Standard Life Aberdeen’s decision.
“We have been engaging extensively with our shareholders and continue to take on board their feedback,” a spokesperson said.
“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.”