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Health and Safety in the clothing sector

Health and Safety in the clothing sector

19-08-2015 | Insight | Daniëlle Essink, Peter van der Werf Comparing ESG Risks in Fast Fashion vs Volume Fashion
To fuel growth many fashion brands have centered their strategies around shorting lead times from production to the shop floor, constantly presenting new product ranges and new products to drive sales and to capitalise quickly on upcoming trends. Such a strategy has been termed as ‘Fast fashion’ signifying a pattern of production and consumption in which products are produced, consumed and discarded in a shortened timespan. With these developments, competition to get clothes from the catwalk to the consumer has increased substantially, and increased pressure is placed upon factories to churn out ever increasing volumes in ever shortening periods of time. The industry is also characterised by a highly competitive structure, mainly driven by pressure on costs and a company’s ability to constantly present the ‘newest’ possible trends to the consumer. To maintain and grow market share within the sector, most companies have implemented supply chain strategies based around just-in-time sourcing, quick response systems and agile supply chain management. Critics suggest that this can lead to companies disregarding ethical, employment and environmental issues in order to maintain a high degree of responsiveness.

 


Brand reputation is key for critical consumers
With no signs that demand or growth will level off any time soon, the companies behind high-street brands such as Inditex (Zara) and H&M have grown significantly over the last decade. As a result of this heightened demand, consumption of natural resources rises, with associated effects such as high price volatility and short term shortages, and increasing social issues as witnessed during the Rana Plaza disaster where a lack of accountability contributed to the collapse of a Bangladeshi Factory supplying many Western mainstream fashion brands. Additionally, research by the Danish Fashion Institute named the fashion industry as the world’s 2nd most polluting industry, with 25% of chemicals produced worldwide used for textiles, making the industry the number two polluter of clean water after agriculture. Consumers are also increasingly regarding sustainability as one of the factors that determines where they shop. Preventing ESG risks in the clothing sector is therefore important for these companies whose reputation is at risk and where brand loyalty can be lost quickly due to the impact of social media, leading consumers to choose a competitor. Keeping this in mind, Robeco has been engaging with companies in the fashion industry on assessing and mitigating the ESG risks in their supply chains, taking particular note of the ‘fast fashion’ brands within the engagement peer group.

 


Fast Fashion Companies
During our engagement, Inditex stressed the importance of long working relationships between suppliers and their company as key to ensuring greater sustainability. The company observed that the best performance with regards to social, environmental, health and safety perspectives was observed in the factories where Inditex held long-term working relationships. Inditex refers to a step change in its approach five years ago: while previously commercial decisions and CSR were separated, the company has moved to an integrated approach which links sustainability criteria with the order systems. This integrated system is of major importance to the buyers who need to have complete information, and, based on which, they can allocate their orders to the best factories. Thus, the behaviour of factories in terms of CSR are put into the buyers’ perspective and allows them to choose the best ones in terms of quality, logistics, price as well as sustainability. In addition, there is a trend observed regarding the unwillingness among the buyers to work with badly performing factories despite their low prices, which, in the view of Inditex, presents a milestone development in their system. Separately, H&M is also implementing intensive sustainability practices in their procurement, stakeholder management, human resource management and environmental processes. Coinciding with the launch of the companies 2014 Sustainability report, we are in fact now able to successfully close our engagement with H&M.

 


Volume Fashion Companies
Whilst Primark belongs to the volume fashion sector as opposed to fast fashion, many of the challenges they face on the ground are the same. Indeed, Primark have focused in the last year upon getting more people on the ground and stepping up auditing within their supply chain to increase sustainability. They are now committed to auditing every part of their supply chain they possibly can, and if they have doubts as to where a product or material originates, they will track and audit to find out. However, auditing is not the complete answer to the question of increasing sustainability within Primark’s supply chain. Indeed, the company firmly believes that it is the action they take after the audits, rather than the process of auditing itself which can drive substantive change in the industry. 

 


Fast Fashion Vs Volume Fashion
When comparing potential ESG issues which may occur in the supply chains of textile company’scompanies, one key issue is the difference in lead times between fast fashion brands and volume fashion brands. Those in the fast fashion sector traditionally have much shorter lead times, and their business model depends on getting new trends from the catwalk into the stores on as short a time horizon as possible. This can potentially put great pressure on the factories in which these garments are made, and can lead potentially to increased ESG risks in the supply chain. This is why we especially value the efforts made by H&M and Inditex in mitigating these risks through implementing systems such as Inditex’s integration of CSR criteria into the complete buying process. However, that is not to say that companies in the volume fashion sector do not suffer from these same risks. Indeed, the cost leadership approach taken by companies such as Primark can lead to exactly the same risks, albeit with a different point of source i.e. cost cutting at factories to be able to meet Primark’s demanding cost structure. However, here Primark has made substantial progress, and their regular auditing schedule and swift action taken in response to issues also goes a long way to mitigating potential ESG risks within the supply chain.

Peter van der Werf

Engagement Specialist
"We add value to our investment portfolios by assessing how companies deal with ESG risks and create more awareness at the companies of the materiality of these risks. Social issues are challenging to assess but have the ability to significantly hurt a company’s license to operate, reputation and brand value."
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Peter van der Werf
Engagement Specialist


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