Moving the Fashion Industry Forward: Regulations and Industry Tools

Posted on April 24, 2018

Roxana Dobre
Roxana Dobre
Associate Director, Consumer Goods Research

Five years ago, the world was awakened to the reality of garment manufacturing conditions in Asia, and specifically in Bangladesh. The production of clothes for the developed markets was posing life-threatening hazards for Bangladeshi garment workers. The Rana Plaza factory collapse, which killed 1,100 people and severely injured 2,000, raised awareness among industry organizations, governments, investors and the public about fundamental human rights issues as well as poor working conditions in the region.

The fashion industry is one of the world’s largest consumer industries, generating USD 798.76 million in revenues in 2018 and, according to current estimates, the industry is expected to show an annual growth rate of approximately 10% by 2022. However, to maintain this growth, the fashion industry needs to address current challenges related to human rights abuses (such as child labor and forced labor) and overall working conditions, including workers’ health and safety.

The Accord

Over the past five years, some progress has been made in improving workers’ safety through the Accord on Fire and Safety in Bangladesh. Seeking to prevent another factory collapse like Rana Plaza, the legally binding Accord mandated stricter rules and frequent audits at manufacturing facilities. This helped improve working conditions for employees in Bangladesh both through remediation and workplace training.

In 2018, the Accord reported progress on 84% of remediation measures to reduce life-threating safety concerns, such as proper fire exits and alarms and structural factory retrofitting.

Remediation progress of safety issues identified during initial inspections (percentage)

Source: Accord on Fire and Safety in Bangladesh, www.bangladeshaccord.org

 

Despite these efforts, more is required to fully address gaps in human and workers’ rights in the garment sector, especially related to child labor, fair living wages, freedom of association and discrimination. Addressing these gaps requires strong supply chain management systems for apparel companies.

Sustainalytics’ research shows that out of 457 researched companies in the retailing and apparel sector, only 5% have disclosed a strong supply chain management program with monitoring and auditing practices and detailed reporting on their supply chain performance. Sadly, 56% of researched companies do not disclose supply chain management programs, indicating that the majority of the industry remains exposed to reputational risks if new controversies emerge.

Supply Chain Management Programs (Percentage)

Source: Sustainalytics Research 2018

 

International Developments Spurring Further Improvements

The Rana Plaza event and vocal opposition to fast-fashion from NGOs like The Clean Clothes Campaign and EcoAge, have put extra pressure on both companies and governments to amend existing regulations and business practices.

This engagement led the OECD to adopt, in 2017, a global guidance standard on companies’ due diligence requirements towards their supply chain. The document addresses some of the most salient topics in the garment supply chain: child labor, forced labor, workers’ wages and collective bargaining agreements. While the guidance is not legally binding, it has been ratified by OECD member states, and companies active in this industry are expected to conduct their business in accordance to this document.

Furthermore, some countries have amended existing legislation or created new legislation to address supply chain transparency. For instance, the UK and US have drafted laws requiring companies to provide extensive disclosure on topics related to human rights issues (i.e. slavery or human trafficking) detected in their supply chains.

France established the Duty of Care of Parent Companies and Ordering Companies law in 2017, stipulating that companies must set up vigilance plans to identify risks in their supply chains. Failure to implement such programs could lead to company fines of up to EUR 30 million.

The Netherlands has a more targeted approach. Through the Child Labor Due Diligence Law (2017), companies are required to investigate the presence of child labor in their supply chains and to develop and implement corrective action plans where needed.

The HIGG Index: Innovation Enabling Transparency

The Sustainable Apparel Coalition (SAC), founded in 2009, is an industry organization aimed at creating a framework for worldwide sustainable apparel production. It has more than 200 global members, covering brands, manufacturers and industry associations, as well as academia.

The SAC has recently broadened the scope of its sustainability toolkit, the HIGG Index, to cover the social, environmental and product development aspects of the apparel and footwear supply chain. The HIGG Index is a set of tools allowing companies to self-assess and measure environmental and social sustainability throughout their supply chains. The Index also allows for industry comparison, providing companies the opportunity to compare their performance against peers. Industry leaders like Inditex, H&M, GAP and Kering are tailoring their supply chain audits according to the Index.

The HIGG Index is based on three tools, each referring to a stage in the garment production process. The Facility Social and Labor Module (released in 2016) and the HIGG Brand Tool (beta release in 2018) address matters related to human rights issues in the supply chain.

The main areas of focus of these two tools are:

  • Child labor
  • Discrimination
  • Non-compliance with minimum wage laws
  • Work time
  • Facility workforce standards

The SAC aims for all HIGG tools and underlying modules to be fully functional by 2020, enabling increased supply chain transparency within the apparel industry.

While the garment industry has often been characterized as a “race to the bottom” for cheaper workforce and raw materials, the Index potentially allows for a shift in paradigm towards “a race to the top”. This new approach can drive improvements in supply chain management practices while reducing the burden on suppliers by aligning compliance to one common set of standards industry-wide.