A City investment manager has placed human rights at the centre of whether Chinese fashion giant Shein should list on the London Stock Exchange.

In an article this week, Peter Hugh Smith, chief executive of CCLA Investment Management, argues that Shein’s potential arrival in London places the UK at a “crossroads”.

“Do we prioritise short-term gains by welcoming companies with a track record of alleged irresponsible labour practices, or do we uphold our commitment to responsible business conduct?”, he writes.

Shein became City news this week when it emerged that the Labour Party leadership has met with Shein executives to discuss a London listing.

However, there has been speculation since early this year that Shein was eyeing a place on the LSE, a market that has seen new listing numbers fall in recent years.

Pulling at the threads

The intervention of CCLA raises key governance concerns for investors. Hugh Smith writes in The Times that Shein’s plans could “signal that the UK is willing to overlook significant human rights concerns. That is not a healthy image for a stock exchange.”

His is not the only concern. Others centre their concern on a fashion industry in need of cleaning up the image of its governance. Natalie Swan, labour rights project manager at the Business & Human Rights Resource Centre, says Shein’s track record should “sound an alarm” to investors and the company “must now demonstrate how it is identifying and mitigating human rights risk.”

“As the need for a truly sustainable fashion industry that centres people and planet becomes ever more urgent,” says Swan, “the UK stock exchange must ensure that it does not provide a safe haven for those who do not lead with a human rights approach in all areas of their supply chain.”

Hugh Smith’s intervention comes at a time when governance has become a key element in discussion about the future of UK business and the London Stock Exchange’s prospects.

Last year, LSE chief executive Julia Hoggett, in her role as chair of the Capital Markets Industry Taskforce, a lobby group, called for a “reset” of governance to reduce the compliance burden on UK companies.

At the end of 2007, LSE had about 3,305 listed companies, while the figure now is 1,900.

Hoggett has also called for higher chief executive pay rates to help bolster the UK economy. In a recent speech she claimed to be winning that argument, saying that more remuneration committee chairs were willing to be placed on the “naughty step” by shareholders (by facing shareholder rebellions) over pay.

In the public eye

Companies registered in the UK must publish a modern slavery report but Hugh Smith states that Shein’s record has been questioned by Swiss watchdog Public Eye.

Hugh Smith also draws attention to the way regulation has developed in the EU with the introduction of the Corporate Sustainability Due Diligence Directive (CS3D), finalised last week, which now demands that companies undertake human rights due diligence in the supply chain and report on how they will fix any failings. UK companies with EU operations will likely have to comply with the CS3D.

In February, members of the House of Lords began a review of the UK’s Modern Slavery Act, introduced in 2015, and its “efficacy”.

The UK act was considered “pioneering” at the time of its implementation while the CSDDD has gone much further in making compliance mandatory and focusing on due diligence.

The London Stock Exchange this week declined to comment on Shein but CCLA has raised an important discussion which begs the question: should listings come at any price?