Shein’s Sustainability Report Unveiled: Child Labor Scandals and Emissions Concerns Amid IPO Buzz
By Helen Reid
Introduction
The fast fashion titan Shein has recently disclosed its 2023 sustainability report, revealing two incidents of child labor at its suppliers from the previous year. This move comes as the company intensifies its audit practices in China to counter criticism of its low-cost business model, especially with a planned public offering on the horizon.
Child Labor Findings and Remedial Actions
Shein's report, released on Thursday, indicates that the company has suspended orders from the suppliers involved in employing children under 16. These suppliers will only be re-engaged once they have demonstrated improved processes, including rigorous verification of workers' identity documents.
Both cases were "resolved swiftly," with corrective measures such as terminating the underage employees' contracts, arranging medical checkups, and facilitating their return to their parents or guardians where necessary.
In October last year, Shein tightened its supplier policy to address severe breaches—termed "Immediate Termination Violations"—resulting in the immediate termination of the relationship with any noncompliant supplier. Previously, suppliers had a 30-day window to resolve such issues before Shein would sever ties.
Annabella Ng, Senior Director of Global Government Relations at Shein in Singapore, stated that the updated supply chain policy reflects feedback from regulators and suppliers.
Shein had not previously disclosed the exact number of child labor cases, only the percentage of audits that uncovered such violations. Child labor was identified in 1.8% of supplier audits in 2021, 0.3% in 2022, and 0.1% in 2023.
"We remain vigilant in guarding against such violations going forward, and in line with current policies, will terminate any noncompliant suppliers," Shein emphasized in the report.
Audit Expansion and Third-Party Verification
Shein has significantly increased its audit activities, conducting 3,990 audits in 2023, up from 2,812 in 2022 and 664 in 2021. The company utilized third-party agencies—Bureau Veritas, Intertek, Openview, SGS, Tuv Rheinland, and QIMA—for 92% of its audits last year, with an aim to achieve 100% third-party audits.
The audit results indicated fewer serious violations in comparison to previous years.
Emissions Surge and Mitigation Efforts
The sustainability report, crucial for potential investors ahead of Shein's anticipated IPO, also highlights a surge in emissions. CEO Sky Xu outlined that improving supply chain governance and managing the company's carbon footprint, especially indirect "scope 3" emissions, are critical areas of focus.
Shein’s practice of shipping products directly from suppliers in China to customers via air significantly increased its carbon emissions, which more than doubled in 2023 to 6.35 million tonnes of CO2 equivalent. The company collaborates with 5,800 contract manufacturers, predominantly located in China's Guangdong province.
To mitigate emissions, Shein has begun sourcing some products from suppliers closer to its consumer base, such as in Turkey and Brazil. This initiative helped Shein save 49,578 tonnes of CO2 equivalent last year by transitioning from air to sea and land freight.
In June, Shein submitted its emissions reduction goals to the Science-Based Targets Initiative for validation.
Governance and ESG Commitments
In July last year, Shein established a board-level sustainability committee to bolster its governance. The committee includes the CEO, executive chairman, and three investor representatives: HongShan partner Jiajia Zou, Global Head of ESG at General Atlantic Cornelia Gomez, and Brookfield Growth Managing Partner Josh Raffaelli.
When questioned about the timing of this committee in relation to the IPO, Ng refrained from commenting on IPO-related queries but acknowledged that enhancing governance structures is part of Shein’s broader ESG journey towards greater transparency and accountability.
Conclusion
Simplified Analysis for Everyone:
- Child Labor Issues: Shein found two instances of child labor at its suppliers last year. They acted quickly by stopping orders and making sure the suppliers improved their checks.
- Stricter Policies: Shein now immediately terminates contracts with suppliers that break major rules, unlike before when they had 30 days to fix issues.
- Increased Audits: The company is doing more checks on its suppliers, using trusted third-party auditors to ensure compliance.
- Emissions Concerns: Shein’s carbon emissions have doubled due to air shipping. They are trying to reduce this by sourcing products closer to customers and using sea and land transport.
- Governance Enhancements: To improve oversight and transparency, Shein has set up a new sustainability committee that includes top company leaders and investor representatives.
Impact on Your Life and Finances:
- For Investors: Shein is working to improve its practices, which could make it a more responsible investment option, especially with a potential IPO.
- For Consumers: Knowing that Shein is addressing these issues might influence your decision to support their business.
- For Everyone: Improved company practices can lead to better working conditions globally and reduced environmental impact, benefiting society as a whole.
This report is essential for understanding Shein's efforts towards better ethical practices and sustainability, which can influence both their market position and public perception.