Shein’s Proposed London IPO and Its Opponents

Article by Oscar Luck

What’s going on here?

Shein, the Chinese-based fast-fashion sensation, recently filed an application with the UK Financial Conduct Authority (FCA) to gain approval for an Initial Public Offering (IPO) in the UK. The IPO, with an expected value exceeding £50 billion, would represent the London Stock Exchange’s largest transaction.

Despite the benefits of this potential injection into the UK financial markets, there has been significant opposition to this proposal. Various human rights groups, including Amnesty International and Stop Uyghur Genocide, have made public campaigns against Shein, hoping to sway the FCA’s decision against the possibility. 

Why is Shein looking for a UK IPO?

Around a year ago, there were rumours that Shein was going to undertake an IPO on the New York Stock Exchange; however, due to the burgeoning tensions between China and the US, these plans fell through, causing Shein to turn to the waning underdog of the London Stock Exchange. As the US authorities remain hawkish on China (evident through forcing ByteDance to sell TikTok to prevent it from being banned), the UK market represents a more tolerant (and arguably more desperate) alternative, already holding listings of many similar companies such as ASOS and BooHoo providing an element of assurance for market sentiment.

What allegations are being made against them?

As a fast fashion retailer, Shein allegedly relies on exploitative labour practices to maintain its successful business structure, demanding unsustainable working hours for negligible wages (estimated to be around 3p per garment). Furthermore, the business model itself is entirely contrary to the sustainability movement, using low-quality and polluting materials with the intention that they will be worn only briefly before being disposed of – this results in excessive landfill, greenhouse emissions and plastic waste.

But what does this have to do with the Uyghur Genocide? As per a London court decision earlier this week, the cotton supply chain from the Xinjiang region may rely on forced/slave labour, justifying a re-evaluation of the UK’s imports from that region. Shein, although claiming to implement safeguards in their supply chain to avoid sourcing cotton from areas of forced labour, is critiqued for knowingly or recklessly utilising these practices as part of its cost-cutting mission.

How is this relevant to an IPO?

Amnesty International claims that permitting Shein’s IPO to go ahead in London would be a ‘badge of shame’ on the market, showing tacit institutional support for Shein’s ongoing exploitative practices. According to Amnesty, supporting such financing would allow the corporation to gain significant financial gain and potentially expand its unsustainable business and policies. 

Referring to the proposed plans for the partial deregulation of the London markets, which attempt to increase the competitiveness of UK capital markets and allow greater international competitiveness, they claim it is important for the UK not to set a precedent of support for such organisations, undermining the UK’s credibility, and instead maintain standards of rights and justice. 

Should the FCA and LSE accept Shein?

Arguably, accepting the listing would, in fact, encourage the opposite, incentivising more sustainable and ethical business practices from Shein. A public listing on the UK market requires significant disclosure, both relating to financial and governance matters, which would provide a transparency as of yet unachievable into Shein’s practices. Furthermore, the ESG focus and metrics involved in the valuation of companies on the LSE may encourage Shein to try to tap into this capital by re-evaluating its processes. Concerning the proposed deregulation attempts earlier this year, the FCA hoped to change the party onto which the onus of change is placed, encouraging the active participation of investors to guide the practices of businesses rather than creating procrustean, institutional, burdensome regulation. Additionally, is it better to bring Shein into the UK regulatory regime rather than allow the practices to continue under the blind eyes of a different country?

Furthermore, given the progressive deterioration of UK capital markets,  with performance, listings and investor capital falling significantly behind its competitors both in Europe and globally, the FCA may be pressured into allowing the float as a significant boost to the UK both in itself and insofar as it encourages subsequent listings and market confidence. The number of IPOs on the London market now is around a quarter of those two decades ago as part of a wider fall in confidence in UK capital markets, and thus, to turn away companies based on unproven ethical concerns would likely do more harm than good to the reputation of the LSE, and therefore further detracting from the strength of UK capital markets.

As the wider theme of activist practises gains prevalence within capital markets, whether traditionally through activist investing, campaigns against listing, or other events, law firms have an important role to play in safeguarding firms and the population. Law firms can utilise opportunities on either side of the spectrum, pushing for the recognition of environmental and social issues, attempting to raise legal challenges against firms and their activities, or alternatively, protecting businesses and their financial interests from such challenges. They have a particularly important role in accounting for the potential risk that these challenges pose, adapting their strategy in recognition, and encouraging companies to take steps towards transparency and proper due process in their activities.