Due diligence, a step towards supply chain justice in fashion?

by Antonio Roade Tato

Fashion retail is one the most globalised industries in the world.

Any given garment has probably seen three or four different countries before arriving in your wardrobe — and will see even more once it is disposed of. Businesses who rely on global supply chains have naturally suffered acutely from the COVID-19 lockdowns, taking blows as it spread from East to West; from sourcing countries to the final markets.

Fashion is a labour intensive industry — that to this day plays on low wages — which means that the socioeconomic consequences in sourcing countries — such as mass unemployment — due to the lack of orders and unpaid cancellations by some brands, are tremendous.

Garment workers in the “Global South” are the most affected by the economic consequences of this crisis.

With shuttered stores, fashion brands have seen their income decrease dramatically. In Europe, home of the core of the luxury industry (LVMH, Kering) as well as the world’s two largest retailers (Inditex and H&M), governments are attempting to mitigate the crisis by propping up companies and giving furloughed workers payouts. The importance of the Fashion industry in Europe goes beyond these big multinationals; according to the European Commision the sector employs 1,7 million people, generating a turnover of EUR 166 billion.

The weakest links of the supply chain are located in countries where governments can ill afford safety nets or subsidies. A number of brands have cancelled orders that had already been placed. Just hear the Bangladesh Garment and Manufacturing Association (BGMA), desperately appealing to brands to pay for their orders. This, combined with a lack of demand of global markets, have vast consequences on garment workers. In Myanmar, workers have been striking in an effort to halt layoffs and demand unpaid wages. These mass layoffs appear to be targeting union members in particular.

A lack of effective legislation on supply chains benefits those who have — and apply — the weakest ethical standards.

Just before the COVID-19 crisis unfolded, the European Commission unveiled a new EU legislation on mandatory human rights and environmental due diligence for companies, to be materialised in the first quarter of 2021. This European law aims at setting the responsibilities and accountabilities of companies over their multinational supply chains — broadening the scope of the national bills. The law aims to hold companies accountable for their social environmental impact outside of the EU. It could be a critical tool to ensure the same rules will apply in terms of supply chain corporate responsibility to companies operating in the Union.

The framework will be part of the — already under scrutiny — European Green Deal and will seek to implement a higher bar in terms of human rights and environmental sustainability compliance in companies. How successful it will be remains to be seen.

Due diligence law is necessary to put pressure on companies to comply with ethical and environmental standards.

Many companies have already been seeing value in more sustainable ways of doing business: it reduces risks in the supply chain and boosts consumer engagement back home. Moreover, in a post-pandemic world, this may also be met with a public that increasingly disapproves of consumerism, and cuts spending on non-essential goods.

Additionally, we must remember that if some garments are so inexpensive, it is because externalities such as social inequality and environmental degradation are not considered in the final cost of the garment. The new EU due diligence regulation must strive to bring these into the equation and become a tool that will not only help to protect the environment, but also end environmental and labour costs dumping by less stringent jurisdictions.

But even more importantly, this set of rules — focused on due diligence requirements on businesses to identify, prevent, mitigate and account for abuses of human rights and the environment in supply chains, would incentivise companies to harness the momentum of supply chain re-localisation; which would also help to increase the quality of the products and the resilience of the sourcing model. Combined with other legislation — e.g. on circularity — the application of this set of rules, could incentivise other, more sustainable business models.

In that regard, the Green New Deal for Europe (GNDE) proposed by DiEM25 advocates for the implementation of an oversight body, the Environmental Justice commission (EJC). The EJC, which would take a holistic approach to “monitor the progress of the green transition, investigate questionable practices, and advise EU authorities on how to redress Europe’s role in environmental injustice around the world”, could be an essential body to ensure the correct application of this legislation.

Europe has traditionally taken the lead on many regulatory aspects, be it the environment or privacy laws. We must not compromise and take this new opportunity to lead once again and become a force of good in the global trade arena.

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