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Wednesday, June 19, 2024

Boohoo failed to live up to its ESG standards as investors seek legal damages

Shares in Boohoo dived more than 40 percent over several days, wiping more than £1.5bn off its valuation, after a 2020 Sunday Times report of labour rights violations at the group’s suppliers’ factories in Leicester.

The report suggested some workers were paid as little as £3.50 an hour, well below the legal minimum wage. In response the report a group of investors in Boohoo are seeking more than £100m in compensation from the online fashion specialist that caused its share price to plummet.

Boohoo Group PLC is a UK-based online fashion retailer, known for its fast-fashion clothing targeting young consumers. Boohoo operates primarily online, which allows it to keep overhead costs low compared to traditional brick-and-mortar stores. The company focuses on fast fashion, quickly responding to changing trends and bringing new products to market in a matter of weeks.

Boohoo has faced several controversies, particularly related to labor practices. In 2020, a report uncovered poor working conditions and underpayment of workers in factories in Leicester, UK, that supplied Boohoo. This led to increased scrutiny and calls for better labor practices.

The damning independent report conducted by Alison Levitt QC on behalf of the fast fashion retailer later found that allegations of poor working practices in the company’s supply chain – initially denied – were “substantially true”.

A legal claim on behalf of 49 investors including the California State Teachers’ Retirement System – which has investment assets totalling $332.5bn – led by lawyers at Fox Williams filed against Boohoo Group last. The group are understood to be seeking £100m in damages as well as legal costs and interest that could add millions of pounds more to the potential bill for Boohoo.

The investors, whose legal filing was first revealed by City AM, say those who bought shares ahead of the 2020 report suffered huge losses as a result of the share price drop when the problems in Boohoo’s supply chain emerged.

 “Boohoo has long been aware of these issues, failing to keep to past promises of fair production,” said Andrew Hill, a partner at Fox Williams who has previously led two shareholder claims against Tesco that were settled out of court over the supermarket group’s admission of a profits overstatement in 2014.

“Boohoo is a prominent example of a company that failed to live up to its environmental, social and governance (ESG) responsibilities and caused significant harm to investors. We believe that our clients have a strong case for compensation.

“This is a landmark case that will test the legal framework for securities litigation in the UK and the role of ESG factors in corporate governance and disclosure.”

A spokesperson for Boohoo said the company strongly contests the allegations and will vigorously defend any claim.According to the high court claims system, Boohoo has instructed the UK-Australian law firm Herbert Smith Freehills.

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