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

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr). This article was originally published on OECD Insights on 31 January 2017.

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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