Why this £52bn stock market listing could become a headache for Starmer

If all goes to plan, Labour will no sooner have taken office than it lands a global business coup. That’s what Sir Keir Starmer and the shadow chancellor, Rachel Reeves, like to believe anyway.

They hope to see Shein get away with its blockbuster £52bn flotation in London. The listing by the giant, fast-growing, world-conquering Chinese-founded fast fashion group would be a clear indication that having been in the doldrums where IPOs are concerned, London is back; foreign companies are not dissuaded by Labour, rather they’re persuaded that the UK is firmly “open for business”.

Yet it seems the reason Shein has chosen London over New York, currently the world leader in new listings, is that the US won’t forgive their allegedly brutal working practices (which Shein denies). That’s hardly something for the UK to celebrate.

Labour has been apprised of the issue and takes the view that having Shein listed on the London Stock Exchange is better than not, that the process of listing will itself aid compliance with laws and obligations.

A Labour spokesperson said they had met the company, adding that “raising investment, productivity and growth is one of Labour’s priorities for government”.

But law firm Preiskel & Co has written to the Financial Conduct Authority (FCA) on behalf of a European-based clothing supplier, raising concerns about Shein coming to London. Shein’s “failure to satisfy the [New York Stock Exchange] places the spotlight on whether London operates to the same or higher standards. We understand that there is a need to review best practice and ensure that London is an attractive stock exchange, but this should not mean weaker oversight of risks facing shareholders,” the letter says.

The independent Swiss organisation, Public Eye, has found that people working in some of the factories in the brand’s supply chain work over 75 hours a week on average. A Channel 4 investigation in 2022 alleged that factory workers were working up to 18 hours a day, including at weekends, and had just one day off per month, while being paid 3p per garment.

Claims have been made also linking Shein with China’s persecution and slavery of the Uyghur community.

For its part, Shein, which is based in Singapore, denies using forced labour. It claims to have a “zero tolerance” policy, taking visibility across its supply chain seriously and committing to human rights. The company says it pays “manufacturing suppliers competitively so they can pay fair wages to their workers”.

Some of the materials used in Shein’s clothing also give rise to alarm. Greenpeace in November 2022 identified hazardous and toxic chemicals in excess of EU limits in some Shein products. Shein removed the products for investigation and said it was dedicated to providing “safe and reliable products”.

Then there is the question of copyright infringement. Shein is a fast fashion supplier, often producing likenesses of other companies’ work. It’s been accused of crossing the line and plagiarising. A class action lawsuit in the US against the company is underway. This comes on top of 90 US cases alleging illegal copying. Sixteen attorneys general in the US wrote to the Securities and Exchange Commission citing Shein as “often blurring the lines of intellectual property and copyright” and seeing independent audits before Shein was allowed to go public.

Other issues cover the use of loopholes to avoid import tariffs (Shein consumers are treated as individual importers whenever they make a purchase, enabling the company to take advantage of low-value exemptions); Shein’s environmental record (one report alleged its use of virgin polyester and oil meant it emitted as much carbon dioxide as 180 coal-fired power stations); and corporate governance (Shein has been accused of failing to disclose its ultimate beneficial owners, pointing only to Roadget Business Pte Ltd, a Singapore-based company).

Another law firm, Leigh Day, has also written to the FCA urging the regulator to block the listing. “Any attempt by Shein to list on the [London Stock Exchange] should be refused,” said Leigh Day, which is representing the human rights group, Stop Uyghur Genocide. The statement added that the FCA had a “statutory duty of integrity and to protect its investors”.

It’s pressing the FCA to require Shein to provide additional information “regarding the accuracy of its published Modern Slavery statement”. Under the Modern Slavery Act, large businesses in the UK have to publish a statement every year setting out the steps they’ve taken to ensure slavery and trafficking do not take place in their operations or supply chains.

Labour maintains that UK regulation will prevail and the listing will act as an advertisement for London’s higher standards. The party would do well, though, to listen to its new City friends. While Shein may be seen as a marketing fillip, even fund managers – not ones to normally resist potential business – are wary. Peter Hugh Smith, chief executive of CCLA Investment Management, has warned that allowing Shein to list in London would risk the City becoming “a listing venue of last resort”.

In their rush to secure early good news, Starmer and Reeve may end up with an embarrassment on their hands.