Labour Practices in the Apparel Sector | 2017
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AN INVINVESTORESTOR BRIEFING ON THE APTHEPAREL APPAREL INDU INDUSTRY:STRY: MOVING THE NEEDLE ON RE- MOVING THE SPONSIBLE LABOUR PRAC- NEEDLE ON TICES RESPONSIBLE LABOUR PRACTICES An iinvestornvestor initiinitiativeative in partnepartnershiprship with UNEP FFinanceinance InitiInitiativeative and UN Global CCompactompact THE SIX PRINCIPLES PREAMBLE TO THE PRINCIPLES As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following: We will incorporate ESG issues into investment analysis and 1 decision-making processes. We will be active owners and incorporate ESG issues into our 2 ownership policies and practices. We will seek appropriate disclosure on ESG issues by 3 the entities in which we invest. We will promote acceptance and implementation of the Principles 4 within the investment industry. We will work together to enhance our effectiveness in 5 implementing the Principles. We will each report on our activities and progress towards 6 implementing the Principles. PRI's MISSION We believe that an economically efficient, sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole. The PRI will work to achieve this sustainable global financial system by encouraging adoption of the Principles and collaboration on their implementation; by fostering good governance, integrity and accountability; and by addressing obstacles to a sustainable financial system that lie within market practices, structures and regulation. PRI DISCLAIMER The information contained in this report is meant for the purposes of information only and is not intended to be investment, legal, tax or other advice, nor is it intended to be relied upon in making an investment or other decision. This report is provided with the understanding that the authors and publishers are not providing advice on legal, economic, investment or other professional issues and services. PRI Association is not responsible for the content of websites and information resources that may be referenced in the report. 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All information in this report is provided “as-is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, expressed or implied. 2 LABOUR PRACTICES IN THE APPAREL SECTOR | 2017 ACKNOWLEDGEMENTS The PRI would like to thank everyone who provided input and guidance during the creation of the publication, with a special thanks to the following people: ■ Martin Buttle, Ethical Trading Initiative ■ Måns Carlsson-Sweeny, Ausbil Investment Management ■ Lauren Compere, Boston Common Asset Managemet ■ Michelle de Cordova, NEI Investments ■ Anita Househam, UN Global Compact ■ Anna-Sterre Nette, MN ■ Liat Piazza, BMO Global Asset Management ■ David Schilling, Interfaith Center on Corporate Responsibility ■ Francesca Suarez, Mirova ■ Runa Urheim, Norwegian Government Pension Fund Global ■ Peter van der Werf, Robeco ■ Margaret Wachenfeld, Managing Director, Themis Research ■ Olivia Watson, PRI ■ Felicitas Weber, Business & Human Rights Resource Centre 3 WHY RESPONSIBLE LABOUR PRACTICES MATTER FOR INVESTORS The starting point for respecting human and labour rights Responsible supply chain labour practices present is to understand the impact of a company’s activities opportunities including: on people. There is a global expectation today that all companies need to respect human rights. The investment ■ Increase in employee motivation – more motivated community increasingly recognise they have a role to play employees lead to higher retention, increased in ensuring that investee companies are meaningfully productivity and improved product quality. For example, addressing human rights issues while mitigating any factories with improved labour practices reduce their negative impacts. product rejection rates by 44%2. ■ Supply security – building long, stable relationships Investors increasingly appreciate the need to understand with suppliers reduces a company’s risk of labour the root causes of the systemic issues typically found in the abuses in its supply chain, limiting the need to change apparel industry and how they affect the rights of people, or drop suppliers at short notice following unexpected impact businesses, and ultimately influence investment incidents. and financial returns. Whilst governments have the duty to ■ Access to supply chain innovations – building stable protect these rights, investors recognise the corporate duty relationships with suppliers can lead to companies to respect human rights, as well as the role companies can benefitting from more innovation within the supply provide to create a more sustainable industry. chain. Suppliers with innovative products or processes are most likely to share them with companies with whom they have positive relationships. RISKS AND OPPORTUNITIES As the apparel industry is dominated by multi-tiered supplier To understand existing and emerging risks that may impact relationships, a lack of traceability and rapid market-driven financial performance, both in the short and long term, changes, the scope for risks and negative human rights investors need greater transparency and an informed impacts remains large: understanding of how companies are managing practices on the ground. ■ Reputational risks – potential brand damage and consumer backlash, which could lead to potential loss of sales for companies. Triggered by social media, THE PUSH BY ‘SOFT LAW’ reputational concerns can reach a wider audience faster than before. Consumers are also better empowered to MECHANISMS research brands. An additional driver for investor focus on labour practices ■ Operational risks – potential cost savings from cheaper is the growing number of frameworks, standards and labour in countries like Bangladesh need to be balanced guidance on human rights. These include the UN Guiding against incremental business risks, such as impact on Principles on Business and Human Rights3, the revised ILO lead times and product quality. The discovery of poor Tripartite Declaration of Principles Concerning Multinational labour practices also leads to supply chain disruption Enterprises (MNE Declaration)4, the OECD’s Responsible which can cause stock outs, lost sales, reduced market business conduct for institutional investors5 and the UN share1, and lack of trust in the company brand. This Sustainable Development Goals. These frameworks have could ultimately directly impact company revenue. raised expectations for investors to identify human rights ■ Legal and regulatory risks – global regulatory pressure, impacts within their portfolio, and to use their leverage to including potential lawsuits and fines, encourages address impacts and risks, prioritising based on severity. greater transparency around sourcing of products and services. This is reflected through developments such as Drawing upon investor engagement in this area, this brief the UK Modern Slavery Act, the recent Duty of Care of highlights key issues at stake associated with labour Parent Companies and Ordering Companies in France, practices, investor insights and recommendations based on the Dutch Child Labour Due Diligence Law, the Trade multi-year engagements on the topic led by PRI signatories. Facilitation and Trade Enforcement Act in the US (which It focuses on the apparel industry supply chain, from the bans the import of goods produced by force labour) and production of raw materials to manufacturing. the California Transparency in Supply Chains Act. 1 Jacobs, B.W., SInghale, V.R. (2017) The effect of the Rana Plaza disaster on shareholder wealth of retailers: Implications for sourcing strategies and supply chain governance 2 SAI, IFC (2010) https://www.sustainabilityxchange.info/filesagri/SAI_IFC_LaborHandbook.pdf 3 http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf