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A Responsibility Revolution in the Fashion Industry: How OECD’s new Due Diligence Instrument can transform the global garment industry

31 January 2017
by Guest author

Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

The collapse of the Rana Plaza factory in 2013 with a loss of over 1,130 lives was a jarring reminder that though much has been accomplished to improve working conditions in global supply chains, more is needed. Following the tragedy, stakeholders worldwide, ranging from industry to labour organizations and civil society, mobilised to respond to this need. The breadth of initiatives launched to tackle these issues is impressive. Perhaps most visible are the Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety. Together, these initiatives have joined over 250 brands, retailers and their suppliers to inspect and upgrade shared factories, demonstrating that a sector-wide approach to building safer supply chains is not only feasible but effective. During my last trip to Bangladesh, I witnessed the great progress these initiatives have made. The Accord and the Alliance are only two responses amongst many since the Rana Plaza tragedy.

A common understanding of company responsibility in an age of globalization

Rana Plaza was a subcontractor to many garment companies, meaning that in many cases global brands did not place their orders directly with factories operating out of Rana Plaza. Furthermore, in some cases the subcontracting was illegal. While there was already general agreement in the sector that companies should identify and address risks with direct suppliers, the complexities of Rana Plaza raised the question, whose responsibility is due diligence when we look beyond direct contractors and further up the supply chain?

The OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights are clear: companies have a responsibility to identify, prevent, mitigate and account for adverse impacts in their supply chains. In June 2015 the G7 promoted international efforts to promulgate industry-wide due diligence standards in the textile and ready-made garment sector.

On 8 February 2017 the OECD will launch a Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector which responds to this call. This Guidance, developed through an intense multi-stakeholder process, supports a common understanding of due diligence and responsible supply chain management in the sector.

The Guidance is a global instrument

This is really a global instrument, contributing towards a level playing field for responsible business conduct. The OECD Guidelines apply to all companies operating in or sourcing from the 46 adhering countries, but they are likewise relevant for any company operating in their global supply chains. The Guidelines are relevant for a Bangladeshi factory that sells to companies in the US, even while Bangladesh itself is not an Adherent, just as they are relevant for cotton producers in Pakistan exporting to EU markets. OECD , demonstrating the global reach of the OECD Guidelines in the garment sector alone.

Adherents to the OECD Guidelines account for over 72% of world imports of clothing

The relevance of the OECD Guidelines globally is no longer hypothetical. The National Contact Points (NCPs), the globally active grievance mechanism of the Guidelines, have already handled several cases related to due diligence in the garment and footwear sector. For example, the Danish NCP recently concluded its consideration of a case involving PWT Group, a Danish retailer, for failing to carry out due diligence in relation to its textile manufacturer in the Rana Plaza building. Both the Guidance and the conclusions of the Danish NCP in this case are significant for the future of human rights due diligence in the textile sector globally.

The Guidance is progressive, realistic and balanced

The Guidance encourages the sector to think differently and to react differently, but does so in a progressive, balanced, and realistic way. Under the Guidance, companies are expected to scope risks across the full length of their supply chain, including risks related to subcontracting and homeworkers. Moreover, this assessment moves beyond auditing to not only identify labour, human rights and environmental impacts, but also understand why they are occurring. This tailor-made approach to risk assessment recognises that risks in the garment and footwear sector are very different and the assessment methodologies should reflect these differences. An assessment for child labour and forced labour should not be the same as an assessment of occupational health and safety or wage compliance. This Guidance also recognises the challenge of ‘audit fatigue’, so it pushes the sector towards harmonised assessments and most importantly effective monitoring.

While the Guidance is ambitious, it is also realistic. Addressing the full range of challenges in the sector all at once is mission impossible for brands with vast supply chains that go several layers deep. So brands will have to prioritise issues where the impacts are most severe. This could be, for example in relation to hazardous chemicals in finishing or forced labour in cotton.

Finally, the Guidance recognises the diversity of actors in this sector and the diversity of sourcing models. It does not prescribe a one-size-fits all approach, seeking rather to provide recommendations for how companies can carry out due diligence given their circumstances (size, context, etc). For example, the Guidance recognises that companies may source materials and products directly from suppliers or indirectly through buying agents and provides tailored recommendations for each. Similarly, it acknowledges the role subcontracting plays and therefore recommendations point more to ‘responsible subcontracting’ than always ruling out subcontracting altogether.

No more neo-colonial top-down system

In November of last year I participated as a panellist in India on responsible garment supply chains. A fellow panellist, a factory owner, called the traditional garment audit model a colonialist approach: ‘Western brands telling the developing country factories what to do’. With the new OECD Due Diligence Guidance we finally say goodbye to this neo-colonialist approach. It appreciates the importance of a partnership between buyers, suppliers and workers in identifying methods to address risks and monitor progress over time.

But just as important as this partnership, is the fact that due diligence is not merely about looking outward; it’s also about looking inward. Another remark made by my fellow panellist is that companies do not align their purchasing policies with responsible business policies. For example, brand purchasing officers often ask the factory to cut prices by 10%, while the brand ethical sourcing team asks for a 20% wage rise. In a study conducted by ETI Norway, Suppliers speak up, suppliers responded that paying legal minimum wage and legal overtime premiums would increase labour costs by 10-20%. However, despite this reality, little science goes into price-setting by brands and retailers. So functional alignment of brand policies needs to be part of due diligence.

Under the OECD Due Diligence Guidance, companies, particularly brands and retailers, are expected to assess their own purchasing practices and determine how their price setting and ordering may be contributing to excessive overtime, low wages, precarious contracts, illegal subcontracting, etc. Personally, I think that embedding responsibility indicators in the bonuses or performance appraisals of purchasing officers should incentivise due diligence; otherwise due diligence and respect for human rights will stay a peripheral issue.

The new global instrument for garment due diligence that will be launched next week at the OECD Roundtable on Due Diligence in the Garment and Footwear Sector can change the fashion industry worldwide. It is global, progressive, and realistic, and assists in more mature supply chain dialogues than the neo-colonialist audit system. Now is the time to implement and make fair fashion the standard.

Useful links

More on the garment industry and on due diligence on OECD Insights

4 Responses leave one →
  1. ana mafalda almeida permalink
    February 5, 2017

    Hope OECD DD Guidance will progressively break this unfair production cycle – as consumers we must also play an important role in the change. Good news though.

  2. Raymond Leung permalink
    February 6, 2017

    Thanks for sharing your thought about the new guideline of DD in supply chain, however, I am just wondering if there are any suppliers participated in the process of making up the guideline.

    Since the establishment of BSCI, ETI, WRAP more than 10 years ago, we always missed an important piece of our puzzle to invite our suppliers to work together in creating a realistic, bilateral and respectful way to deal with the supply chain noncompliance issues. We need to have their voices not only coming from the big one but also from the small one to share their thought about our idea because they are in different scale of competition including obtaining support from bank and orders from their corresponding customers.

    I like the idea of “National Contact Points”, but it must include local contacts in production countries so that not only the brands local offices can use its facilities and support to collaborate with their suppliers, but the local suppliers/factories can also seek consultation for further improvement from the local experts.

    Meanwhile, I suggest we may further escalate local banks to enhance the guideline so that any supplier needs to demonstrate their duty of DD as part of criteria for applying any finance facilities.

    Regards,
    RL

    • Roel Nieuwenkamp permalink
      February 21, 2017

      Dear Raymond,
      Thanks for your response!
      The OECD Due Diligence Guidance was developed with extensive input from a multi-stakeholder advisory group to the project which included representatives from business, governments, trade unions and civil society,. The China National Apparel and Textile Council (CNTAC) were very active members of this Advisory Group and provided feedback on each draft of the Guidance including through an in-person consultation with Chinese suppliers in December 2015. Esquel likewise played an active role in the Advisory Group. Moving forward, CNTAC is committed to developing a Chinese version of the Guidance for Chinese brands, retailers and suppliers with technical input from the OECD. The OECD and CNTAC will hold a consultation on this collaboration in September 2017 and we’d be delighted to invite Debenhams to participate. Beyond China, however, we did realise that the Advisory Group lacked supplier representation. Therefore, the OECD held a number of consultations with suppliers to seek their inputs, including through an in-person consultation in Paris in October 2015, which included feedback from BGMEA, GMAC, and a number of Turkish Associations as well as through an in-person consultation with Indian suppliers in Delhi in November 2015 and a public consultation in March 2016.

      I appreciate your recommendation regarding local banks. This is something that we too are looking into. The OECD has recently proposed a partnership with the Indian Government to look at upscaling the textile sector in India as part of its Make in India programme. Within this partnership, we have proposed promoting access to financing for upgrading while also addressing some of the key challenges around responsible business conduct at this tier-2 in the supply chain. However, while we recognising that access to finance is going to be key to the equation, so is rethinking purchasing practices. The Due Diligence Guidance addresses how a company should also look internally at its own purchasing practices to understand if it is contributing to some of the harmful impacts in its supply chain. Looping back up to our discussion on supplier involvement, this was certainly a point that resonated very well with suppliers and brands.
      Best regards, Roel

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