Shein reveals cases of child labor as it intensifies supplier audits

Fast-fashion retailer Shein found two cases of child labor at its suppliers last year, it said in its 2023 sustainability report, as it stepped up audits of manufacturers in China to quell criticism of its low-cost business model ahead of a planned IPO.

Shein said in Thursday's report that it had suspended orders from suppliers that had employed children under 16, and resumed sourcing from them only after they had strengthened their processes, including verifying workers' IDs.

The company said both cases had been “swiftly resolved,” with corrective measures including terminating the contracts of underage employees, arranging medical checks and facilitating repatriation to parents or guardians as necessary.

Shein tightened its supplier policy last October after child labor cases were discovered, so that any serious violations, dubbed “Immediate Termination Violations,” would result in immediate termination of the supplier relationship.

Previously, suppliers, including those who employed minors, had 30 days to resolve the problem; if they failed to do so, Shein would cut ties.

Annabella Ng, senior director of global government relations at Shein in Singapore, said the updated supply chain policy took into account feedback from regulators and suppliers.

The company had not previously reported on the number of child labor cases, citing only the percentage of audits that found minors in the workplace. Such a violation was detected in 1.8% of supplier audits in 2021, 0.3% of audits in 2022 and 0.1% in 2023.

“We will remain vigilant to prevent such violations from occurring in the future and, in accordance with current policies, will terminate any supplier who fails to comply,” Shein said in the report.

Shein, which has grown rapidly by selling $5 blouses and $10 dresses online to shoppers around the world, said it conducted 3,990 audits in 2023, up from 2,812 in 2022 and 664 in 2021.

Last year it used Bureau Veritas, Intertek, Openview, SGS, Tuv Rheinland and QIMA for 92% of its audits, and said it aims to have 100% of audits carried out by such third-party agencies.

Overall, the audit results Shein released showed fewer serious violations than last year.

Shein's 2023 sustainability report, released more than a year after its 2022 one, will be closely scrutinised by investors weighing up whether to buy shares in the retail chain should it go public. The group filed for an initial public offering in London in early June.

In an introductory note, Shein CEO Sky Xu said improving Shein's supply chain governance and managing its carbon footprint, particularly indirect “scope 3” emissions, were “critical” areas for the company.

Shein ships products directly from suppliers in China to customers by air, and its emissions from transporting products more than doubled in 2023 to 6.35 million tons of carbon dioxide equivalent, the report showed.

The company has 5,800 contracted manufacturers in total, most of them located in China's Guangdong province.

The company has started sourcing some products from suppliers closer to its consumers, in Turkey and Brazil, which it says will help it reduce transport emissions. Last year, the company said it had saved 49,578 tonnes of CO2 equivalent by switching from air to sea and land transport to transport those products.

Shein said it submitted its emissions reduction targets in June this year to the Science Based Targets Initiative, the world's main arbiter of how companies set climate goals, and is going through the validation process.

It also said it had established a board-level sustainability committee in July last year, comprising its chief executive, executive chairman and three investor representatives: HongShan partner Jiajia Zou, General Atlantic global head of ESG Cornelia Gomez and Brookfield Growth managing partner Josh Raffaelli.

Asked whether Shein had set up the committee to strengthen its governance in light of the upcoming IPO, Ng said he could not comment on any matters related to the IPO.

“But we have definitely been looking to improve our governance structures as part of our overall ESG journey toward greater transparency and accountability,” he said.