Legal landscape shifts to promote ethical supply chains

  • Written by Peter Needle
  • Published on 19 March 2014
  • Blogs

Professor Roel Nieuwenkamp, chair of the Organisation for Economic Co-operation and Development (OECD) working party on responsible business conduct, recently stated: “You can outsource your production, but you cannot outsource corporate responsibility.”

Professor Roel Nieuwenkamp, chair of the Organisation for Economic Co-operation and Development (OECD) working party on responsible business conduct, recently stated: “You can outsource your production, but you cannot outsource corporate responsibility.”

From budget retailers to luxury labels, a multitude of fashion brands have suffered ethical supply chain nightmares with very damaging public consequences, not to mention the damage to the livelihoods of garment industry workers. The public have become increasingly unforgiving towards high street retailers found to be engaging in unethical practices, and international laws are also changing in light of this attitude.

Supply chain ethics made into law

The Rana Plaza factory collapse in April last year was condemned worldwide as a needless tragedy, and led to a huge outcry by the media and the public in protest against sweatshop conditions in the apparel industry. Nevertheless, Bangladesh's garment export market grew by almost 18% in the first seven months of the financial year beginning 1 July 2013, reaching a dizzying value of $14.2 billion. It is clear that the garment industry in the developing world is not likely to shrink anytime soon, despite strikes in Cambodiasalary disputes in Haiti and ongoing concern surrounding the safety of Bangladeshi factories.

However, 2014 could be a critical year for supply chain transparency, marking a turning point in corporate responsibility. The EU Parliament and Council have implemented new legislation forcing large public companies to report a wealth of non-financial data, making once-voluntary declarations of supply chain ethics a mandatory and public procedure. Businesses will be required to disclose information about their social, environmental and human rights practices, thereby increasing supply chain visibility across European companies.

Developing economies can transform their garment industries

While developed nations are making big changes to ethical sourcing in the garment industry, emerging economies can also wield their own power.

In the 1990s, Indonesia’s garment industry was a collection of low-cost sweatshop factories, similar to Bangladesh. However, thanks to support from the new democratic government, trade unions and foreign companies, labour reforms have given Indonesian workers a better life. In the past year alone, minimum monthly wages in Indonesia grew by as much as 40%, now ranging from $80 to $160, in contrast to just $37 in Bangladesh and $75 in Cambodia.

Indonesia was also subject to a historic trade union rights agreement, the first ever to be signed by both local labour groups and suppliers and global retailers, ensuring that workers were free to push for better pay and working conditions. The freedom of association protocol (FOAP) was signed in 2011 by Indonesian trade unions, supplier factories and six international sportswear brands, including Adidas, Nike and Puma.

While Indonesia has lost some market share to cheaper competitors, the country’s better working conditions and codes of conduct on health and safety could attract fashion retailers from developed countries who are concerned about ethical supply chain standards. Indonesia seems to have more control over its supply chain ethics than many developing countries, and this could prove a potential model for countries such as Bangladesh in the future.

The costs of non-ethical supply chains

The repercussions of the Rana Plaza factory collapse continue to be felt around the globe. Just last week, Primark agreed to pay a further $10m (£6m) in compensation to victims and their families. This will bring Primark's total compensation bill to $12m so far. The second Global Forum on Responsible Business Conduct is due to be held in Paris this June, and will bring together policymakers, businesses, trade unions and charities to discuss responsible business conduct in light of the Rana Plaza tragedy and attempt to learn from this ethical supply chain catastrophe.

As the Chartered Institute of Procurement and Supply (CIPS) Group CEO David Noble recently explained: “We can’t underestimate the complexity of today’s supply chains... failing this may result in consequences that can be disastrous for business, as well as those experiencing life in bonded labour.”

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