Expectations that fast-fashion giant Shein will list on the London Stock Exchange have raised concerns about investor protections should human rights abuses in its supply chain cause share prices to drop.

While Shein, based in Singapore, has not publicly confirmed plans for an IPO in London, market analysts believe the company is considering it as an alternative to a New York listing after facing opposition in the U.S. A London IPO would require Shein to meet stringent eligibility and suitability criteria and gain approval from Beijing regulators.

If successful, Shein's flotation could become the largest-ever on the London Stock Exchange, attracting both direct and indirect investors through index tracker or passive funds. The listing would secure equity financing for Shein's global expansion.

"We need to ensure that there is a hospitable environment for normal risk-taking," said Steven Friel, CEO of collective redress litigation specialist Woodsford. "But we also need to ensure that there are consequences for catastrophic breakdowns in corporate governance at public equity companies that cause a significant decline in the share price."

Shein has denied allegations of modern slavery and human trafficking in its supply chain and has stated it is working to improve conditions. However, investors could face losses if these allegations are proven true. Under the Financial Services and Markets Act 2000, shareholders can seek recourse if a listed company makes false statements that lead to financial loss.

Badge Of Shame?

Human rights groups have criticized Shein's potential London IPO due to its labor practices. Stop Uyghur Genocide, a U.K.-based campaign group, has teamed up with Leigh Day to urge the Financial Conduct Authority to block the IPO, citing allegations of modern slavery involving Muslim Turkish ethnic minorities in Xinjiang, China.

Amnesty International has also called on the LSE and U.K. authorities to halt the listing until Shein proves its commitment to global human rights standards. "Rewarding Shein's current methods via a flotation would be a badge of shame for the London Stock Exchange," said Dominique Muller, a researcher at Amnesty International.

Shein, with significant operations in China, has faced criticism in the U.S. over alleged labor malpractices. U.S. Senator Marco Rubio has urged the U.K. government and the FCA to thoroughly investigate Shein before allowing it to float. "Slave labor, sweatshops, and trade tricks are the dirty secrets behind Shein's success," Rubio wrote.

Shein maintains a "zero-tolerance policy for forced labor" and is serious about supply chain visibility. The company declined to comment on IPO plans.

Seeking Legal Redress

Shareholders are increasingly concerned about ensuring sound ESG practices in the companies they invest in. Litigation is becoming a strategic tool to hold companies accountable for their ESG credentials.

"The emergence of litigation as a strategic tool to influence the actions of boards of listed companies reflects the increasing societal focus on ESG," said Richard Clayman, a partner at Kingsley Napley LLP.

Shareholders can sue a listed company under section 90 of the FSMA if it publishes misleading information, including about ESG credentials. This provision does not require individual shareholders to prove they relied on the false statements, opening the door for group actions.

Bringing such claims is complex and expensive, with the challenge of proving that a fall in share price is directly linked to a false statement. However, the FSMA provision allows shareholders to pursue not only the company but also the advisers involved.

Holding Feet To The Fire

Woodsford monitors corporate governance compliance and helps investors seek compensation and hold companies accountable. Engaging with the company through voting and investor calls is the first step, but litigation may be necessary if bad practices persist.

Investors must weigh the risks of public action against the potential for further share price decline. However, shareholder groups prioritizing ESG may pursue claims to generate negative attention and hold companies accountable.

"Companies forced to examine a catastrophic problem through litigation ultimately do better in the long run," Friel said. "Institutional investors should exert their ownership rights and identify that something needs to be done."