That Shein, in a matter of mere years, has become near-synonymous with the worst excesses of the fashion industry, including rapid turnaround times, sky-high volumes and aggressively, almost impossibly low prices that its detractors claim can only exacerbate the risks of worker exploitation, should come as no surprise to anyone who’s been paying the slightest bit of attention. It isn’t for nothing after all that the business model exemplified by the Chinese-founded e-tail giant necessitated the addition of “ultra” to set it apart from the “fast fashion” system popularized by H&M and Zara.
But Shein’s spotty disclosure about its human rights risks should also serve as due-diligence “red flags” to investors ahead of a long-anticipated initial public offering on the London Stock Exchange, a new briefing from KnowTheChain warned Wednesday.
Shein has gotten some basic things right, said Rosie Monaghan, senior researcher at KnowTheChain and the Business & Human Rights Resource Centre. For one thing, it boasts a supplier code of conduct that forbids forced labor and worker-recruitment fees, plus an internal team responsible for implementing those policies with advisory board oversight. There is also a grievance mechanism for employees of the factories it contracts from, a process for monitoring suppliers against its standards and efforts to amass wage data from a select cohort of manufacturing partners.
What’s missing, however, is critically so. In comparison to 54 percent of the fashion purveyors KnowTheChain assessed last year, Shein has yet to reveal if and how it conducts a human rights risk assessment of high-risk hotspots in its supply chains, which are predominantly located in the southern Chinese province of Guangdong, though it has been working to establish networks in Brazil and Turkey following criticism of its dependence on China. The Missguided owner has also failed to divulge any forced labor risks it might have identified through the course of ensuring supplier compliance, unlike 32 percent of companies that disclosed the same amid mounting regulatory scrutiny over modern slavery in supply chains.
Shein’s heavy reliance on social audits isn’t especially reassuring for Monaghan. Flawed methodologies, incentives to obfuscate violations and a propensity toward fraud have made it challenging for buyers to glean an accurate picture of what happens within a factory’s four walls. Audits are also “particularly inadequate” when it comes to state-sponsored forced labor, which the Chinese government has been accused of embedding in its crackdown on Turkic Muslim minorities from the Xinjiang Uyghur Autonomous Region, suggesting that Shein may not be “substantially reducing risk for the company and its investors,” she said.
Purchasing practices are another sticking point. While 43 percent of companies in KnowTheChain’s apparel and footwear benchmark have revealed the steps they’ve taken to adopt responsible commercial protocols, with 23 percent further disclosing quantitative data related to planning, forecasting or ring-fencing labor costs, Shein has done little to show how it ensures its prices cover the full cost of production or that workers aren’t physically or mentally put through the wringer by unexpected surges in production.
Even one of the lowest-hanging fruit of transparency—publishing a first-tier supplier list—has yet to be plucked, the report noted. More than half (52 percent) of brands do this, according to KnowTheChain, with 32 percent digging deeper into the second tier.
Shein, in a two-page statement, said that it’s committed to operating its business in a “responsible and ethical manner” that adheres to all relevant laws and regulations, including those concerning human and labor rights. It said that it has developed and implemented “robust” supply chain governance policies, including a code of ethics, human rights policy, supplier code of conduct, supplier responsibility standards and a responsible sourcing policy that follows guidance from international standards such as the United Nations’ Universal Declaration of Human Rights and the core conventions of the International Labour Organization.
“Currently, Shein’s key mechanism for identifying non-compliance with its supply chain governance policies and requirements is through the conduct of its SRS social compliance audits,” it said, using an acronym for Shein Responsible Sourcing. “Nearly all SRS audits are conducted by third-party verification agencies such as Bureau Veritas, Intertek, Openview, SGS, TÜV Rheinland and Qima, all of which are member firms of the Association of Professional Social Compliance Auditors.”
The Temu nemesis said that a total of 3,990 on-site SRS audits were conducted, typically without prior notice, on suppliers and subcontractors that represented approximately 95 percent of the procurement value of Shein-branded products in 2023. While the audits assessed specific forced labor risks such as bonded, indentured, involuntary or exploitative prison labor, they uncovered no such occurrences that year, it added.
Despite Shein’s repeated assurances that it doesn’t employ Xinjiang contractors or has zero tolerance for forced labor, these are concerns that likely tanked an earlier float on Wall Street and serve as the driving force of bipartisan de minimis reform in the United States. They could also be the reason the United Kingdom’s financial regulator has been taking longer than usual to approve Shein’s IPO.
In June, for instance, Britain’s Independent Anti-Slavery Commissioner warned the government and the Financial Conduct Authority that allowing Shein to list on the London Stock Exchange could imply an endorsement of “poor labor practices and a “prioritization of business growth at the expense of human rights.” The same month, the U.K.-based human rights group Stop Uyghur Genocide launched a legal challenge to block a potential listing by alleging that Shein uses Xinjiang cotton, traces of which were found in its products in 2022.
Shein failed to provide a modern slavery statement, as required by U.K. law, for its first years of operation in the United Kingdom, said Kathryn Parkinson, a member of the Independent Anti-Slavery Commissioner’s communications team. While the company has now published one, the fact it has yet to be uploaded to the registry for modern slavery statements “does not instill confidence,” she added. (Shein didn’t respond to this point.)
“The U.K. needs to go further and strengthen its transparency and supply chains legislation if it is truly to be a part of the conversation around eradicating slavery,” Parkinson said. “The U.K. is falling behind international partners who are implementing mandatory human rights due diligence to ensure profit is not at the expense of people.”
Adrian Zenz, a leading academic on repressive policies on Muslim ethnic minorities in Xinjiang, agreed that U.K. regulators need to take forced labor allegations against Shein “very seriously.”
“Given that over 90 percent of China’s cotton is produced in Xinjiang, it is difficult to see how Shein with its low-cost business model can credibly assert that it is not at direct risk of being linked to state-imposed forced labor,” he said.
Reuters reported Tuesday that Shein, as a way to facilitate its IPO, is now considering asking U.K. regulators to waive rules that require at least 10 percent of its shares to be sold to the public, citing two people with knowledge of the matter. If greenlit, this would be a listing first, it said. Shein declined to comment on any matters connected with going public.
Áine Clarke, head of KnowTheChain and investor strategy at the Business & Human Rights Resource Centre, said that the type of ultra-fast fashion strategy that Shein embodies, along with the kind of purchasing practices that entails, “really demands” heightened human rights due diligence because it places financial pressures on suppliers that can stoke risks of labor rights violations, including forced labor. So far she’s not seeing anything like that being addressed, let alone any indication of worker consultation or support of freedom of association and collective bargaining across its operations.
“We operate from the premise that forced labor exists across all supply chains, particularly when you’re sourcing from high-risk contexts where you have endemic wage and labor exploitation,” Clarke said. “So when you operate from the premise that that that can be an issue, we would want companies to be responding kind of commensurately to the level of risk. And I think having the policy framework and the practices in place can identify, mitigate and remedy those risks when they occur.”
From KnowTheChain’s vantage point, no company is immune from forced labor. And while the platform is refraining from taking a public stand about whether the IPO should go through, Clarke says that there should be a consensus among global regulators that human rights due diligence is an important practice to mitigate both business risks and modern slavery risks.
“Xinjiang notwithstanding, it’s not clear that Shein is taking the steps to address those risks properly or providing the evidence for how it does so,” she said. “So while I appreciate that says it’s not sourcing from Xinjiang and that it hasn’t identified any forced labor risks within its audit process, we can see the limitations to its due diligence approach based on its disclosure, which raises concerns about the likelihood of that being the case.”
