During the fourth quarter of 2024, we excluded the multinational commerce group PDD Holdings Inc from our portfolios, due to risks related to product safety and forced labour. PDD Holdings operates several e-commerce platforms such as its wholly-owned subsidiary Temu.
Temu, which operates one of the most popular internet retail platforms in the world, offers shoppers in countries around the world a large range of products, including clothing, toys and gadgets, at low prices. For shoppers outside of China, the products sold are often shipped directly to them from China by sellers on the Temu platform.
Summary of the case
Our concerns with the company were based on two main risks:
• risks related to product safety that are considered very severe and systematic, as many types of products in different parts of the world have been found to be dangerous
• risk of links to forced labour in Xinjiang, as the company sources products from the region
The safety problems uncovered in products sold on the Temu platform spanned many categories, from toys to household products, building materials and more.
Regarding product safety, although Temu claims it follows relevant regulations and checks sellers carefully to ensure quality, several cases have been documented in which products sold on its platform include illegal and/or toxic chemicals known to be severely harmful to people, or defects that may cause electric shocks or catch fire. For instance, studies have uncovered evidence that many toys sold through Temu do not meet EU safety standards, constituting a significant risk of causing severe damage to the health of children.
In addition to product safety, we also assessed allegations of Temu not providing sufficient information about the many merchants operating on the platform, in addition to using manipulative designs and obscuring the facts around why and how individual products are recommended to users.
Temu was also found to have a high potential risk for involvement in forced labour. The company does not conduct audits or reports on non-compliance with relevant legislation on forced labour, such as the United States UFLPA (Uyghur Forced Labor Protection Act). Furthermore, the company has admitted that it “does not expressly prohibit third-party sellers from selling products based on their origin in the Xinjiang Autonomous Region”.
Furthermore, Temu appears to have further risks looming in the arena of digital human rights. In October 2024, the European Commission opened a formal investigation of the company, based on potential breaches of the Digital Services Act, such as in the area of addictive service design.
More specifically, the investigation will focus on the following areas:
- The systems Temu has in place to limit the sale of non-compliant products in the European Union. Among others, it concerns systems designed to limit the reappearance of previously suspended rogue traders, known to have been selling non-compliant products in the past, as well as systems to limit the reappearance of non-compliant goods.
- The risks linked to the addictive design of the service, including game-like reward programmes, and the systems Temu has in place to mitigate the risks stemming from such addictive design, which could have negative consequences to a person's physical and mental well-being.
Expectations gap and lack of response
Given the issues assessed Storebrand’s expectations would be for the company to address the issues meaningfully. Regarding product safety, we expect the company to ensure the safety of the products it sells, by requiring providers to disclose ingredients and safety certificates, as well as testing them itself to ensure compliance. We would expect that non-compliant suppliers should be suspended until they can show evidence of having become compliant.
On the issue of risk of forced labour, we would expect PDD Holdings and Temu to map its supply chain, to identify risks connected to product safety and forced labour. Once identified, we expect the company to terminate contracts with suppliers operating in Xinjiang to mitigate its exposure to forced labour.
Despite our having contacted PDD Holdings/ Temu on several occasions to engage them regarding our findings of concern, they failed to respond to our inquiries.
Following our formal assessment and the non-responsiveness of the company to dialogue, we excluded the company from investment during the fourth quarter of 2024.
