Investor ESG Litigation: Investors sue UK fashion retailer for £100m for allegedly misleading ESG disclosure under FSMA

On 17 May 2024, institutional investors in Boohoo Group Plc, a UK-based fashion retail company (“Boohoo”), filed a claim against the company seeking compensation for allegedly misleading disclosures relating to its ESG responsibilities, which were said to have resulted in a financial loss for its shareholders.

This claim is one of the first of its kind in the UK. With the increase in disclosure requirements and the degree of attention being paid by regulators, consumers, claimant lawyers and litigation funders to ESG issues, it will only be a matter of time before further investors seek compensation for losses due to alleged breaches of ESG responsibilities, and this claim is likely to be seen as a litmus test of the viability of such a claim.

Background

On 5 July 2020, the Sunday Times published a report revealing multiple allegations of labour rights violations at Boohoo’s suppliers’ factories in Leicester (the “Report”). One such allegation was that some workers in the factories were paid as little as £3.50 per hour. Following the Report, we understand that Boohoo’s share price dropped significantly, reducing the company’s valuation by more than £1.5 billion. 

Allegations of breach of FSMA

On 17 May 2024, a claim was filed against Boohoo on behalf of 49 of Boohoo’s institutional investors.

The claim is brought under sections 90 and 90A of the Financial Services and Markets Act 2000 (“FSMA”). Sections 90 and 90A of FSMA enable investors to claim compensation for losses resulting from untrue or misleading statements, a dishonest delay in disclosing information and a failure to disclose information.

We understand that the claim is based on allegations that Boohoo breached these obligations under FSMA in respect of the matters subject to the Report.

It is reported that investors who purchased shares leading up to the publication of the Report in July 2020 suffered significant financial loss as a result of the fall in share price following the publication of the Report. They are reportedly seeking to recover more than £100 million in damages, plus interest and costs. 

Comment

This action reconfirms the importance of businesses effectively implementing comprehensive environmental, social and governance policies and conducting thorough due diligence down their supply chains. The risk of investors seeking compensation for ESG failures reinforces the need to pay close attention to ESG disclosure requirements.

We expect this case will serve as a warning to UK listed companies regarding the risk of ESG investor actions.

For more information on the growing trend of ESG investor claims in the UK and other jurisdictions, please see our commentary in this Bloomberg article (subscription required).