Shein Uncovers Child Labor at Suppliers, Tightens Policies Amid Criticism and IPO Plans

Fast fashion giant Shein revealed in its 2023 sustainability report that it found two instances of child labor at its suppliers last year. The discovery comes as the company intensifies audits of its manufacturers in China, addressing concerns over its low-cost business model while preparing for a potential public offering.

In the report released on Thursday, Shein stated that it had suspended orders from the suppliers involved until they implemented stricter measures, including verifying workers’ identity documents. The company emphasized that both cases were “resolved swiftly,” with corrective actions such as terminating the underage workers’ contracts, arranging medical checkups, and facilitating their return to their families or guardians.

Following the incidents, Shein tightened its supplier policy in October 2022, introducing a zero-tolerance approach to severe breaches, which it termed “Immediate Termination Violations.” Under the new policy, suppliers found employing minors would face an immediate termination of their contracts with Shein. Previously, suppliers were given 30 days to address such issues before the company severed ties.

Annabella Ng, Senior Director of Global Government Relations at Shein in Singapore, explained that the updated supply chain policy was developed in response to feedback from regulators and suppliers. The company had not previously disclosed the number of child labor cases, only reporting the percentage of audits that identified minors. Violations were found 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 stated in the report.

Shein, known for its rapid growth selling affordable fashion items online, conducted 3,990 audits in 2023, a significant increase from 2,812 in 2022 and 664 in 2021. The company employed third-party agencies such as Bureau Veritas, Intertek, and SGS for 92% of its audits last year, with a goal of reaching 100% third-party audits.

The report also highlighted a surge in emissions, with Shein’s carbon footprint from product transportation more than doubling in 2023 to 6.35 million tonnes of CO2 equivalent. The company has started sourcing products from suppliers in Turkey and Brazil to reduce transport emissions, saving 49,578 tonnes of CO2 equivalent last year by shifting from air to sea and land freight.

Shein’s 2023 sustainability report is expected to be scrutinized by potential investors as the company prepares for a possible initial public offering (IPO). The company filed for an IPO in London in early June, and CEO Sky Xu noted that improving supply chain governance and managing carbon emissions are critical areas for Shein.

The report also mentioned the establishment of a board-level sustainability committee in July 2022, including the CEO, executive chairman, and three investor representatives. When asked if the committee was formed to enhance governance in anticipation of the IPO, Ng declined to comment on IPO-related matters but emphasized Shein’s commitment to transparency and accountability in its environmental, social, and governance (ESG) efforts.