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Case study

Global Emerging Markets case study: Baozun

10 February 2021 |
Active ESG
Investing in companies throughout market cycles as an active owner and partner, we maintain a regular dialogue and encourage strong environmental, social and governance (ESG) practices. Here we demonstrate how we are engaging with portfolio holding Baozun.

Shanghai-based Baozun is a leading Chinese provider of e-commerce technology and solutions. It is often referred to as “the Shopify of China” since both companies help retailers sell their products online via various e-commerce platforms (although there are some differences in their approach1).

Engagement themes

  • Environmental: packaging and logistics
  • Governance: disclosure, accounting, Nasdaq listing, Variable Interest Entity (VIE) and related party transactions
  • Social: US ban on cotton imports from Xinjiang due to human rights concerns, data protection

Baozun provides ex-China multinationals with a relatively quick and cost-effective “one-stop solution” to accessing China’s thriving online-retail market. Its clients include iconic Western brands such as Nike, Microsoft and Starbucks. It offers these companies services such as digital store setup, customised online stores, order fulfilment, logistics and customer service. Baozun is able to provide seamless omni-channel services covering not only official brand websites and stores on marketplaces such as Alibaba’s Tmall and, but also emerging channels. These include mobile (for example WeChat Stores) and online to offline (O2O) – using a digital environment to encourage purchases from physical businesses.

Measuring and reducing carbon footprint

As more and more Chinese consumers buy online, the environmental impact of packaging and delivery is a key issue. During our Q4 2020 video call with management we encouraged Baozun to consider how the volume of packaging and the emissions caused by delivery systems affects the planet. The company confirmed that it uses electric vehicles (EVs) in its warehouses and encourages its logistics partners to use electric fleets to deliver goods to buyers (EVs have been incentivised in China for years). We encouraged the company to monitor and disclose the percentage of recycled material in its packaging and the percentage of EVs in its delivery fleet, as well as considering optimising routes to reduce congestion. Baozun highlighted its efforts in terms of using ships-in-own-container (SIOC) packaging. This saves resources both by reducing the unnecessary use of packaging materials and by bringing down the weight of goods transported. We believe it is a good example of a sustainable strategy that supports not only the planet but also the bottom line. We believe the company could take things even further by playing a role in collecting and disposing of goods at the end of their life, for example collecting defunct electronic goods at the time of delivery of a new phone or appliance (ideally for a fee).

Governance structure, disclosure and accounting

In Q4 2020 we encouraged the company to improve its environmental, social and governance (ESG) disclosure. Baozun indicated that it intends to publish its first sustainability report in H1 2021: we will get back in touch with them in Q1 2021 to check progress on this. We believe improved disclosure is important given that the company is affected by several ESG issues which grab media attention, and the market could reward greater clarity. One of these issues from a governance perspective is the potential delisting of American Depositary Receipts (ADRs)2 from US exchanges if Chinese auditors fail to pass their notes to their counterparts in the US.  We are hopeful that China-US negotiations will lead to a solution which increases accounting transparency and avoids the delisting of ADRs from US markets. However, we are pleased that Baozun has mitigated this risk with its recent secondary share offering on the Stock Exchange of Hong Kong, even if this caused some dilution.

Another issue we are paying close attention to is the company’s overall governance structure and media reports at the country level regarding how this could be affected. Like other Chinese internet companies listed abroad, Baozun has a Variable Interest Entity (VIE)3 legal structure in place. This means that Baozun’s shareholders do not have control over the Chinese operating assets (VIEs are a necessary evil to allow foreigners to invest in internet companies in China today). In addition to that, investors need to be vigilant regarding Related Party Transactions (RPTs), since Baozun does a large percentage of its business with one of its largest shareholders, Alibaba, and its subsidiaries. It is worth noting that the Chinese regulator is critical of the role of internet giants and wants to encourage more competition via anti-trust investigations and recommendations. Baozun has been growing its relationship with other channels (for example Tencent’s mini programs) and the percentage of gross merchandise value (GMV) sold via Alibaba’s platforms is in decline.4 We encouraged management to elaborate on its diversification strategy whilst ensuring that the group continues to exploit growth opportunities across all channels as they arise.

The value chain: from cotton fields to cyberspace

Approximately 50% of Baozun’s GMV comes from apparel, much of which is produced using cotton. The US recently banned imports of cotton, yarn and other goods from producers in the Xinjiang region in China due to human rights concerns. We questioned Baozun about any potential repercussions for its business and its clients, since roughly 20% of the cotton consumed globally is produced in Xinjiang. It is important to stress that Baozun focuses only on e-commerce, logistics and customer service and has no involvement whatsoever in the procurement and manufacturing activities of its clients. However, we are reassured to note that large clients like Nike have confronted their suppliers in Xinjiang to stop recruiting new employees from the region.5 Indeed, according to The United Nations Guiding Principles on Business and Human Rights (UNGPs), businesses should use their leverage over their clients or suppliers to address human rights violations even when they have not directly contributed to them.

At the other end of the value chain, we welcome improvements in Baozun’s approach to data security and in particular the handling of its customers’ personal information. The company’s data protection policy now has group-wide coverage and customers have the right to access, modify and/or delete their personal data. Baozun has obtained ISO 27001 certification for its information security system, which recognises that it conducts information security audits and employee training on data handling.

This case study will feature in the Global Emerging Markets: ESG Materiality, Q1 2021 newsletter which will be published in the coming weeks.


Risk profile

  • This document does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.
  • The value of investments and income from them may go down as well as up, and you may not get back the original amount invested.
  • Past performance is not a reliable indicator of future results and targets are not guaranteed.
  • Investments in emerging markets tend to be more volatile than those in mature markets and the value of an investment can move sharply down or up.

1 Baozun is an “end-to-end” e-commerce solution that helps merchants at every step, whereas Shopify merely provides the cloud-based tools for merchants to run their own online businesses and does not involve itself in inventories or shipping. Baozun mainly serves large retailers who want to establish an ecommerce presence in China without hiring their own local teams. As such, its business is more capital-intensive than Shopify’s.

2 An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. depository bank representing a specified number of shares—often one share—of a foreign company’s stock. The ADR trades on U.S. stock markets as any domestic shares would.

3 A variable interest entity (VIE) refers to a legal business structure in which an investor has a controlling interest despite not having a majority of voting rights.

4 In M9 2020 72% of GMV came from Alibaba, down from 80% in 2019. Source: Investor relations call, 16/12/2020.

5 As per Nike’s statement, when reports of the situation in Xinjiang Uyghur Autonomous Region (XUAR) ‘began to surface in 2019 Taekwang stopped hiring new employees from the XUAR to its Qingdao facility and an independent third-party audit confirmed there are no longer any employees from XUAR at the facility.’ Source:, accessed January 2021.

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