In our investment research, we focus on addressing the most material issues for each industry. For apparel, we find that labor practices and supply chain management are two of the six most material issues.
Companies in the apparel and textiles sector may operate and control their manufacturing plants themselves, though they often partly outsource this responsibility to their supplier network. Those operating their own plants have a direct responsibility to provide a safe place to work and commit to respecting labor and human rights.
When manufacturing is outsourced, companies will typically find suppliers in countries with the lowest direct cost, which also have limited regulation and enforced worker protection. Suppliers are often dependent on the contracting apparel company and have to adapt to price pressure – both are factors that increase the risk of a deterioration in labor conditions. Wages paid to supply chain workers are often well below living wage estimates and far too often put them on the poverty line.
In order to create resilient and competitive supply chains, manufacturers of apparel, accessories, luxury goods, footwear and textiles need to balance commercial imperatives such as quality, costs and delivery time with broader issues (like the environmental impact, social considerations and business practices). Companies that implement policies effectively can significantly reduce their reputational and operational risks and potential regulatory scrutiny.
Companies with transparent supply chains will strengthen their social license to operate and boost their brand image. Carrying out effective due diligence across the supply chain is crucial to identifying high risk areas where labor-related issues might arise. This assessment should be followed by concrete actions to prevent and mitigate these issues, including a consistent measurement of the effectiveness of these actions.
Several apparel brands and retailers cancelled or postponed orders as the pandemic forced store closures globally and revenue streams shrunk drastically. Factories in producing countries face major challenges to keep their businesses running whilst experiencing a decline in the volume of orders. In Bangladesh, the second-largest exporter of garments in the world, manufacturers lost more than EUR 2.7 billion in payments for orders that had already been produced or sourced.
Workers in low-cost manufacturing countries have been hit the hardest, given the lack of robust social protection systems in these markets. They are more exposed to sudden job termination, lack of severance pay, and inadequate social security and health insurance.
Our engagement work in the garment industry is conducted in collaboration with other financial institutions through the Platform Living Wage Financials (PLWF).2 The platform is an alliance of 15 mostly Dutch financial institutions with EUR 2.6 trillion in assets under management that aims to improve conditions in the clothing manufacturing sector, which is heavily reliant on low-paid workers. This platform has been in existence for a few years now, and has proved its worth in the pandemic.
For example, in the first half of the year, we sent a letter to our investee companies requesting that they manage the Covid-19 crisis responsibly across their supply chains. Our key asks focused on seeking financial prudence, securing appropriate health and safety for all employees, and protecting workers’ rights across the supply chain. We encouraged our investee companies to get involved in industry-wide multi-stakeholder initiatives to find solutions to these challenges.
Furthermore, the International Labor Organization has put forward a ‘Call to Action in the Garment Sector’.3 Global brands, manufacturers, labor unions and other stakeholders can publicly endorse this statement, which aims to catalyse action to enable manufacturers to survive the economic disruption caused by the pandemic, and to protect garment workers’ income, health and employment. The PLWF has publicly endorsed this initiative, together with more than 100 stakeholders.
One of the key components of our engagement work through the PLWF consists in the annual assessment of how our investee companies accelerate the payment of living wages across their supply chains. The members of the Garment and Footwear working group, which is chaired by Robeco, have concluded the assessment of 29 companies and publicly reported the results on this webpage.
Our results show that there is overall progress in embedding the relevance of living wages within the industry. The principal challenge is how to close the gap between commitments that are being put forward by brands, and the actual actions taking place on the ground. Despite widespread acceptance of the need to raise living wages, none of the companies assessed had sufficient processes in place to guarantee the full payment of living wages across its own operations and supply chain.
The research and the information gleaned from engagement on labor and supply chain issues are integrated into our in investment decision-making process for the apparel and retail sectors, as these are considered material issues.
One example is the case of a large DIY retailer. Our discussion about labor practices across the company’s operations was important for the portfolio manager of the RobecoSAM gender equality fund. Covid-19 had a positive impact on the company’s sales, which increased significantly due to people spending more time doing improvement work on their houses. However, the company has a very large base of employees working in its stores, including many migrant workers and female employees, with high turnover rates. We discussed with the company how it manages its workforce so as to ensure equal opportunities for employees across different job levels – an important component of the RobecoSAM gender equality score.
Another example is our engagement with two apparel companies which are important holdings for our consumer trends funds. Both companies embody best practices in their business segments (sportswear/luxury), so this led to positive comments in the ESG integration component of the investment case, positively adding to the rationale for holding these companies in the portfolio.
Although we are seeing an increasing commitment from the sector to solve these issues, there is still work to be done in implementation. Several challenges need to be addressed when it comes to apparel supply chains and paying a living wage. First of all, there is a need to improve data availability so that companies are better able to understand what are the wage levels being paid by suppliers, and how that compares to living wage benchmarks.
Furthermore, it is important that brands commit to more sustainable practices by building long-term supplier relationships, which will enable them to better account for the labor cost in their procurement work. There should also be a social dialogue to ensure freedom of association and collective bargaining agreements as tools to really drive wage improvements. This goes back to the importance of industry-wide collaborations with not only brands, manufacturers and workers, but also with governments and other stakeholders who can collectively contribute to accelerate the systemic change that is needed in the industry.
Lastly, there is a need to bring the rest of the garments industry on board. Legislative changes on mandatory human rights due diligence can really contribute to building a more resilient supply chain at the end of the day. We see some promising signs with lawmakers in the Netherlands who are preparing to bring such a proposal before the Dutch parliament, and hope that other countries will follow suit.
1 McKinsey: The state of fashion 2020: Coronavirus update
2 For more about the Platform Living Wage Financials, go to https://www.livingwage.nl/
This information is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation.
The contents of this document have not been reviewed by the Monetary Authority of Singapore (“MAS”). Robeco Singapore Private Limited holds a capital markets services license for fund management issued by the MAS and is subject to certain clientele restrictions under such license.
An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.
Warning/Important note: This website contains information which is only available to qualified investors as defined below. If you are not a qualified investor, please click “I Disagree” to leave the website.
By clicking on "I agree", I declare that:
1 - This website may only be accessed directly or indirectly by the following persons in Singapore:
1) “institutional investor” under section 304 of the Securities and Futures Act (Cap.289)(“SFA”), which means:
(i) the Government; (ii) a statutory board as may be prescribed by regulations made under section 341 of the SFA; (iii) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is (A) to manage its own funds; (B) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or (C) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country; (iv) any entity (A) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and (B) whose funds are managed by an entity mentioned in sub-paragraph (iii); (v) a central bank in a jurisdiction other than Singapore; (vi) a central government in a country other than Singapore; (vii) an agency (of a central government in a country other than Singapore) that is incorporated or established in a country other than Singapore; (viii) a multilateral agency, international organisation or supranational agency as may be prescribed by regulations made under section 341 of the SFA; (ix) a bank that is licensed under the Banking Act (Cap.19); (x) a merchant bank that is approved as a financial institution under section 28 of the Monetary Authority of Singapore Act (Cap.186); (xi) a finance company that is licensed under the Finance Companies Act (Cap.108); (xii) a company or co-operative society that is licensed under the Insurance Act (Cap.142) to carry on insurance business in Singapore; (xiii) a company licensed under the Trust Companies Act (Cap.336); (xiv) a holder of a capital markets services licence; (xv) an approved exchange; (xvi) a recognised market operator; (xvii) an approved clearing house; (xviii) a recognised clearing house; (xix) a licensed trade repository; (xx) a licensed foreign trade repository; (xxi) an approved holding company; (xxii) a Depository as defined in section 81SF of the SFA; (xxiii) an entity or a trust formed or incorporated in a jurisdiction other than Singapore, which is regulated for the carrying on of any financial activity in that jurisdiction by a public authority of that jurisdiction that exercises a function that corresponds to a regulatory function of the Authority under this Act, the Banking Act (Cap.19), the Finance Companies Act (Cap.108), the Monetary Authority of Singapore Act (Cap.186), the Insurance Act (Cap.142), the Trust Companies Act (Cap.336) or such other Act as may be prescribed by regulations made under section 341 of the SFA; (xxiv) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere; (xxv) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors; (xxvi) the trustee of such trust as the Authority may prescribe, when acting in that capacity; or; (xxvii) such other person as the Authority may prescribe.
2) “relevant person” under section 305(1) of the SFA, which means:
(i) An accredited investor; (ii) a corporation the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; (iii) a trustee of a trust the sole purpose of which is to hold investments and each beneficiary of which is an individual who is an accredited investor; (iv) an officer or equivalent person of the person making the offer (such person being an entity) or a spouse, parent, brother, sister, son or daughter of that officer or equivalent person; or (v) a spouse, parent, brother, sister, son or daughter of the person making the offer (such person being an individual).
3) any person who acquires the units [in a collective investment scheme] as principal if the offer is on terms that the units may only be required at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of units in a collective investment scheme, securities, securities-based derivatives contracts or other assets, and if the following condition is satisfied: (i) the offer is not accompanied by an advertisement making an offer or calling attention to the offer or intended offer; (ii) no selling or promotional expenses are paid or incurred in connection with the offer other than those incurred for administrative or professional services, or by way of commission or fee for services rendered by any of the persons specified in section 302B(1)(d)(i) to (vi) of the SFA; and (iii) no prospectus in respect of the offer has been registered by the Authority or, where a prospectus has been registered (A) the prospectus has eAccxpired pursuant to section 299 of the SFA; or (B) the person making the offer has before making the offer 1. informed the Authority by notice in writing of its intent to make the offer in reliance on the exemption under this subsection; and 2. taken reasonable steps to inform in writing the person to whom the offer is made that the offer is made in reliance on the exemption under this subsection.
4) Or otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
If you are not any of the types of persons described above, you are not authorized to enter this website and you should leave this website immediately.
2 Terms and Conditions
You acknowledge that you have read these Terms and Conditions (“Terms”) prior to accessing the website located at www.robeco.com/sg (“Website”) and you agree to be bound by the Terms. If you do not agree to all of the Terms, you are not an authorised user and you should not use the Website. The Website is owned by Robeco Singapore Private Limited (company registration number: UEN. 201541306Z), which is licensed by the Monetary Authority of Singapore (“MAS”) pursuant to the Securities and Futures Act (Cap.289) (“SFA”) of Singapore, and is managed by Robeco Singapore Private Limited and/or its affiliates (collectively, as “Robeco”). The Website is intended for and should be accessed by institutional investors or accredited investors (as defined under Section 4A of the SFA) of Singapore. The Website is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject the Robeco to any registration or licensing requirement within such jurisdiction. It is your responsibility to observe all applicable laws, rules and regulations of any relevant jurisdiction. The content contained in the Website is owned by Robeco and/or its information providers and is protected by applicable copyrights, trademarks, service marks, and/or other intellectual property rights. You may not copy, distribute, modify, post, frame or link the Website, including any text, graphics, video, audio, software code, user interface, design or logos. You may not distribute, modify, transmit, reuse, repost, or use the content of the Website for public or commercial use, including all text, images, audio and/or video. Robeco may terminate your access to the Website for any reason, without prior notice. Neither Robeco, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from the access of the Website. You agree to indemnity and hold Robeco, its associates, directors, officers or employees harmless against any and all claims, losses, liability, costs and expenses arising from your use of the Website due to violation of the Terms. Robeco reserves the right to change, modify, add or remove any parts of the Terms at any time and for any reason. The Terms shall deemed to be effective immediately upon posting. The Terms shall be governed by, and shall be construed in accordance with, the law of Singapore.
The Website has not been reviewed by the MAS. Accordingly, the Website may not be accessed directly or indirectly to persons in Singapore other than (i) to an institutional investor under Section 304 of the SFA, (ii) to a relevant person pursuant to Section 305(1), or any person pursuant to Section 305(2), and in accordance with the conditions specified in Section 305, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Nothing in the Website constitutes tax, accounting, regulatory, legal or investment advice. The Website is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation or for the purpose of soliciting any action in relation to Robeco’s businesses, or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such an offer and solicitation. Any reproduction or distribution of information from the Website, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accessing to the Website, you agree to the foregoing.
The funds referred to in the Website are for information only. It is not a recommendation or investment advice, nor does it mean the funds is suitable for all investors. The contents of the website is not reviewed by the MAS. Any decision to participate in the funds should be made only after reviewing the sections regarding investment considerations, conflicts of interest, risk factors and the relevant Singapore selling restrictions. You should consult your professional adviser if you are in doubt about the stringent restrictions applicable to the use of the Website, regulatory status of the funds, applicable regulatory protection, associated risks and suitability of the funds to your objectives.
Any decisions made based on the information contained in the Website are the sole responsibility of yours. Any investments made or to be made shall be with your independent analyses based on your financial situation and objectives. The investments and strategies contained in the Website may not be suitable for all investors and are not guaranteed by Robeco.
Investment involves risks and may lose value. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance. The Website may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies and such projection or forecast is not indicative of the future. The information contained in the Website, including any data, projections and underlying assumptions are based upon certain assumptions, management forecasts and analysis of information available on an “as is” basis and without warranties of any kind, whether express or implied, and reflects prevailing conditions and Robeco’s views as of the date published or indicated, and maybe superseded by subsequent events or for other reasons. The information contained in the Website are accordingly subject to change at any time without notice and Robeco are under no obligation to notify you of any of these changes. Robeco expressly disclaims all liability for errors and omissions in the information presented in the Website and for the use or interpretation by others of information contained in the Website.
Robeco Singapore Private Limited holds a capital markets services licence for fund management issued by the MAS and is subject to certain clientele restrictions under such licence. An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.