Looking Back to Rana Plaza to Find a Way Forward

By Roel Nieuwenkamp, Chair of the OECD Working Party for Responsible Business Conduct

April 24th of this year marked the one year anniversary of the tragic collapse of the Rana Plaza factory which claimed over 1,130 lives and inspired shock and sorrow globally.  The Rana Plaza disaster was a jarring reminder of the fact that responsibility over global supply chains needs to be strengthened.

Global Mobilization

Stakeholders worldwide from industry to labour organizations to civil society mobilized to respond to this need. The breadth of initiatives launched to tackle these issues in the past year is impressive.  Private industry collaborated to form the Bangladesh Accord on Fire and Building Safety, an association of 150 apparel corporations, as well as the Alliance for Bangladesh Worker Safety, which represents 26 retailors. Both initiatives are committed to inspecting and repairing garment factories to assure safe working conditions in Bangladesh.  On a multilateral level the International Labour Organization launched the Improving Working Conditions in the Ready-Made Garment Sector (RMGP) initiative, and the Better Work Program which likewise involves factory inspections as well as implements a standard approach to assessing supplier compliance and auditing. These initiatives are coordinated on a national level by the National Tripartite Plan of Action on Fire Safety and Structural integrity which aims to extend inspections and repair to the factories not already covered by the Alliance and Accord initiatives.

Importing countries have likewise been active in this regard through their National Contact Points (national entities tasked with promoting and mediating claims under the OECD Guidelines for Multinational Enterprises). [1]  The French National Contact Point published a report earlier this year analysing the application of the Guidelines to the textile and garment sector and has since been active in promoting the recommendations of the report amongst local industry.  The Belgian, Italian, Dutch and Canadian NCPs have likewise been active in analysing challenges in their textile and garment sector supply chains and promoting due diligence to tackle some of these issues.

The impacts of these initiatives are slowly starting to be seen.  For example, the Accord initiative has already completed inspection of 550 factories and hopes to complete all 1,500 factories it sources from by September.  In addition to factory inspections the families of victims of the Rana Plaza incident are slowly being compensated. A total of nearly 15 million USD has raised for compensation through donations to the Rana Plaza Arrangement, and another 1.3 million USD has been raised through The Prime Minister’s Relief and Welfare Fund.

Remaining Challenges

Despite this progress much more needs to be done. Firstly a lack of capacity and resources for monitoring and enforcement means that the proposed initiatives may not be adequately implemented.  Since industry related initiatives only apply to first tier factories (factories brands source from directly) there remain risks that smaller factories used for subcontracting, generally those with the poorest standards, may escape adequate inspection and regulation.  Secondly current compensation schemes have been criticized as being insufficient and inefficient. Currently only half of all brands with ties to Rana Plaza have contributed to compensation funds.

Thirdly, such initiatives need to extend beyond Bangladesh to other garment producing nations with similar production risks and institutional weaknesses.

Finally, when discussing supply chain due diligence in the textile and garment sector it is important to go beyond workplace health and safety issues. Workers should be paid a living wage for their labour and multinational brands and retailors should encourage this. Brands and retailors can help promote living wage standards by conducting due diligence on adverse impacts in their supply chains to assure that fair labour standards are being respected.

Based on a pilot project of production of cotton t-shirts in India Fairwear Foundation, found that labour costs for such a garment account for only 0.6% of its total price compared to retail mark-ups which account for 59%. [2]Given the tiny proportion labour costs represent relative to total costs, competition and downward price pressures cannot be used as justification for failure to provide a living wage.

Fairwear foundation: Cost breakdown sample t-shirt

 

Another frequent excuse for a lack of collaboration on living wage standards is the liability implications for enterprises under competition law, the argument being that industry cooperation on fair wage policies may be found to be a form of collusion on price fixing.  The relatively insignificant proportion that labour costs comprise in terms of garment pricing seems to render this argument unwarranted.  However, until there is clarity on this issue it will continue to hinder progress on achieving agreement on living wage standards. Experts in the field of competition law should come together to provide answers to this issue and help resolve the debate.

 

The Guidelines and Supply Chain Due Diligence

Although serious challenges and risks still exist in the Bangladesh textile sector relevant actors should cooperate to overcome these risks rather than attempting to avoid them all together by pulling out their operations or investments.  Millions of Bangladeshi workers’ livelihoods depend on this sector. Disengagement should only be considered as an option of last resort.

The OECD Guidelines for Multinational Enterprises recommend use of risk-based due diligence to avoid adverse impacts throughout a supply chain. This approach is fully aligned with the UN Guiding Principles on Business and Human Rights and complementary to ISO 26000 which, in addition to the Guidelines have been endorsed by most G20 countries.

Under the due diligence framework buyers and suppliers work together to assure lack of adverse impacts at every tier of the supply chain. As noted some of the most serious issues in the garment and textiles sector exist in the bottom tiers of the textile and garment supply chains, amongst small companies  which are hired for ad hoc rush jobs and are not part of formal sourcing networks. Although such practices are widespread and hard to regulate in these instances buyers are still expected to take action. Often a single actor in a complex supply chain will not possess much leverage with regard to preventing or mitigation adverse impacts. However a lack of leverage does not justify a lack of action. Rather actors are encouraged to collaborate with one another in order to increase collective leverage through contracting, collective buying agreements and so on.

The year ahead

Much has been accomplished since the Rana Plaza tragedy one year ago but much more remains to be done.  Workplace safety initiatives need to be adequately monitored to assure they are being effectively implemented and compensation schemes need to be strengthened.  Such initiatives need to reach beyond Bangladesh to other garment producing nations. Additionally matters beyond work place safety, most prominently living wage issues, need to be given adequate attention.

For addressing problems of this magnitude collective action has been and will continue to be important. The second annual Global Forum will take place June 26-27, 2014. It will be an opportunity to bring together diverse stakeholder groups to review the existing initiatives and ongoing challenges present in this sector.  An informational meeting amongst senior ministers will take place during the forum which will also take stock of these issues. I encourage ministers to take an active role in reaching out to MNEs about the need for stronger engagement in this sector. MNEs can effectively engage through application of the OECD Guidelines, which provide an effective model for applying risk-based due diligence systems to avoid adverse impacts throughout supply chains and for cooperation with different actors in a supply chain to achieve this goal.  This utility of this framework could further strengthened by production of industry specific guidance for application of principles of the Guidelines to the textile and garment sector, something national ministers and stakeholder groups should encourage.

 

 

[1] National Contact Points are good offices set up by national adherents to the OECD MNE Guidelines. They are responsible for Industry will need to approach these issues seriously as scrutiny regarding responsible business conduct standards in the financial sector continues to intensify.

[2] Source http://www.fairwear.org/ul/cms/fck-uploaded/documents/policydocs/ClimbingtheLadderReport.pdf

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Statement by Minister Bricq and Minister Ploumen on Social and Environmental Standards for International Trade

Statement by French Minister Nicole Bricq and Dutch Minister Lilianne Ploumen presented during the meeting Boosting social and environmental standards in international trade Paris, 2014 March 31st

”In the run-up to the European elections, France and the Netherlands want to highlight that  European trade policy, and policy in favor of the internationalization of business should  embody social and environmental progress and values.”

Cut and run, or stay and improve?

By Professor Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct

Companies have an opportunity, and a duty, to improve worker conditions and the sustainability of their supply chains

Over the past year,  more and more, an appropriate principle for companies from the 46 countries that adhere to the OECD guidelines for multinational enterprises has been: “Don’t run. Stay and improve!” The Rana Plaza factory collapse was a wake-up call, even for sustainable business leaders . The central question was: what do companies, governments and civil society need to do to prevent these tragedies?

©Thinkstock.Istockphoto/kzenon

©Thinkstock.Istockphoto/kzenon

You can outsource your production but you cannot outsource corporate responsibility. The OECD guidelines state that multinational enterprises should do their due diligence to prevent and mitigate such adverse impacts, along their entire supply chains. Due diligence is the process that companies should use to manage the risks of causing or contributing to negative impacts on human rights or labour rights.

This means that companies need to identify such risks in their supply chains and to try to prevent these risks from materialising. If these do materialise, companies should try to mitigate or remediate them. The question for famous brands is how they ensure they are not linked to a breach of human rights of people working on their shirts and trousers in Bangladesh.
My feeling is that the brands should not “run” away from Bangladesh, but stay and improve the situation. Leaving will make matters even worse for the people working in the factories.

The Bangladesh Accord on Fire and Building Safety signed by companies operating in Bangladesh and the  Bangladesh Alliance for Worker Safety both represent efforts to deal with this. The accord, in particular, lifts responsible business conduct to a whole new level, by making a voluntary but binding agreement between companies and trade unions to do due diligence on building security and safety training. Will this be the beginning of a trend? Watch closely.

The message that companies should stay and improve conditions is not only relevant to the garment sector. Many discussions the OECD working party on responsible business conduct focussed on this during 2013.
If a breach of the OECD guidelines occurs, companies should first use their influence to try to improve the situation in their supply chain. If they lack the leverage to do so, they should try to increase their influence, for example through cooperating with other companies, trade unions or NGOs.

Improvement is the best solution. Disengagement is the last resort.

Likewise, the electronics industry should not run away from Congo and Rwanda, but cooperate to source tin, tantalum, tungsten and gold responsibly. Leaving the region would mean that miners will lose their jobs and livelihoods. Companies should stay, engage, and improve the situation.

And the wider international business community should not stay away from Burma, but work to improve the situation on the ground. Only responsible investment in Burma will lead to sustainable development of the country.
Financial institutions should do a careful assessment of the projects they provide finance for. If a financial institution notices – for instance through its due diligence process – that it invests in a company that breaches human rights or other principles of the OECD guidelines, simply selling the shares of that company is not the best solution. It might be the easy way out, but it does not help anybody. Very often, engagement with the company is the appropriate way forward to try to change its behaviour.

So, a few weeks in, what will the rest of 2014 bring for responsible business conduct? In at least four areas this might be a pivotal year.

Garments and textiles

First of all it is a critical year for the garment and textiles sector. This is the year in which the companies have to step up their efforts to make the accord and the worker safety alliance successful. These efforts need to focus beyond just Bangladesh and factory safety. Decent wages, responsible pricing and placement of orders are issues in the companies should include in their due diligence assessments.
To help with this process, the International Labour Organisation and OECD will organise a high level roundtable in May to discuss responsible supply chains in the textiles and garment sector with the stakeholders.

Sporting questions

2014 will also be a critical year for finding out how multinational companies should deal with major sports events, such as the football World Cup or the Winter Olympic Games.
Multinationals sponsoring these events need to be aware of human rights and environmental issues, as well as corruption and labour conditions. Will the organisers of such big sporting events – including the IOC for the Olympics and Fifa for football – and the host countries get to grips with these problems? Or will there be – in addition to blood diamonds, blood flowers, blood coal and recently blood bricks – also blood sports?

Solving problems

The national contact points (NCPs) for the OECD guidelines serve as a unique grievance mechanism on all corporate responsibility matters, ranging from labour and human rights to corruption and environment. In 2014 the NCPs will try to solve problems that vary from, for example, alleged human rights breaches by high tech telecoms companies to an alleged lack of stakeholder engagement with indigenous communities by mining companies.

Disclosure and reporting

2014 will also be a critical year for disclosure. The EU has developed a mandatory “comply or explain” reporting system, and will publish details of its plans for conflict minerals. In the US the first reports on conflict minerals are due, and companies will have report on investments in Burma.
In a time where companies in India and state owned companies in China are legally obliged to publish their corporate responsibility reports and many stock exchanges include sustainability reports in their listing requirements, perhaps 2014 be the year that a critical mass of governments support mainstreaming of such reporting.

To address these issues, and others, in June for the first time ministers responsible for corporate responsibility from all over the world are planning to meet in Paris. If progress can be made there, then 2014 could indeed be a successful year.

This article was originally published by Ethical Corporation, March 5, 2014. http://www.ethicalcorp.com/supply-chains/cut-and-run-or-stay-and-help