Is Shein the canary in the coalmine for corporate sustainability law?

The retailer is facing a regulatory and legal onslaught. Should other businesses be paying attention to the arguments being tested?

It’s been a tough week for Shein.  

On Monday, French senators passed a bill to combat the influx of cheap online clothing by imposing fees and banning adverts. 

The legislation uses two criteria to determine who gets hit: the volume of clothing placed on the market, and the cost of repairing garments relative to their purchase price. 

There’s been disagreement over whether the final, diluted version of the law is tough enough, but the member of parliament who proposed it, Anne-Cecile Violland, insisted: “We’re coming down very hard on Shein, and that’s the first step”.

On the same day, German environmental campaign group DUH announced it was taking legal action against the fast fashion giant over the sale of products that allegedly contain hazardous chemicals or “concerning” chemical residues.

It’s already being sued by Texas for allegedly selling clothes that exceed the state’s toxicity levels. 

Meanwhile on Wednesday, the EU introduced a flat-rate fee of €3 for small packages entering the bloc, marking the end of duty-free shopping from Shein and its peers.  

Some of these challenges are specific, either to Shein itself or to the broader fashion industry.

But the company is also being used as a testing ground for legal arguments that could be harnessed to tackle sustainability issues at businesses across sectors and regions. 

DUH has already used Germany’s Act Against Unfair Competition to bring a case against the Dublin-based entity that operates Shein’s online platforms, for example.  

It argued that the firm’s climate pledges fell foul of the law because they weren’t backed up by an explanation about how they could be achieved, given Shein’s current growth rate.  

The firm subsequently signed a cease-and-desist agreement that means it can only advertise its net-zero target if it provides concrete information about how it plans to get there and what it will do about its residual emissions.

A spokesperson for Shein told REP in March that the firm had “engaged constructively with DUH over recent months, providing additional clarity on our sustainability roadmap, targets, and underlying data” in response to the case. 

“Following our engagement, we proactively published further information on our corporate website to provide our stakeholders with additional transparency around our plans and progress,” she said.

More companies are set to face these kinds of legal challenges once the EU’s Empowering Consumers for the Green Transition Directive (EmpCo) kicks in in September. 

Roman Schilling, a consultant for ecological consumer advice and market monitoring at DUH, told Real Economy Progress that the incoming anti-greenwashing law will be “of great importance”. 

“The requirements contained therein give our market surveillance activities a boost,” he explained, adding that DUH will “continue to monitor the market and intervene when necessary”. 

Elsewhere, lawyers have been using money laundering to challenge Shein’s sustainability credentials. 

Campaign group Stop Uyghur Genocide sought to stop the company from listing on the London Stock Exchange on the grounds that some of its products may allegedly have come from an industrial park in China suspected of using forced labour – claims Shein’s spokesperson described as “utterly groundless and predicated entirely on unsubstantiated conjecture”.

SUG’s law firm, Leigh Day, argued that, if a company makes money by selling products that come from illegal activity, their business would contravene the UK Proceeds of Crime Act. 

“One quirk of UK money laundering law is that it defines ‘criminal property’ as money derived from conduct which would have been criminal had it happened in the UK,” explains Ricardo Gama, a partner in the human rights and public law department of Leigh Day. 

That means that, even if the activity is legal in the country it was conducted, the money it generates can still be treated as the proceeds of crime under UK law. 

In 2024, Leigh Day set out to convince the Financial Conduct Authority (FCA) that it shouldn’t accept Shein’s application to list on the London Stock Exchange on these grounds.  

“We wrote to the FCA to warn them that listing Shein in London could enable the UK markets to be used to launder the proceeds of crime,” explains Gama. 

The following year, Leigh Day sent an official letter notifying the FCA that SUG might pursue a judicial review if it approved Shein’s listing. 

In the end, Shein listed in Hong Kong instead, although it’s not clear whether Leigh Day’s case contributed to the decision. 

The firm’s spokesperson told REP: “We comply with the relevant laws and regulations of each market we operate in.” 

“As is extensively documented, we enforce supplier compliance through our policies and Supplier Code of Conduct, which are informed by the core conventions of the International Labour Organization and the United Nations’ Universal Declaration of Human Rights,” she added.  

Gama notes that the legal argument used in the Shein case “is transferable to any company operating in the UK that has activity in its supply chain which would be criminal if it took place here”. 

That includes environmental issues like deforestation and pollution as well as labour and human rights breaches. 

“If management are aware of the criminal conduct, it can either make listing difficult or prompt a money laundering investigation by the National Crime Agency,” he said. 

Similar cases have been brought using money laundering laws in France and the US, although no rulings have taken place yet. 

Still, says Gama: “It could become a powerful tool to address human rights abuses or environmental crimes in supply chains, if it was taken up more widely.”