Supply Chain Management: Counting the True Cost of Cut-price Clothing

From NEI Investments

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By Michelle de Cordova

Supply chain management is a key corporate engagement topic within our consumer sector holdings. The importance of this issue has been underlined by the recent Rana Plaza tragedy in Bangladesh: the collapse of the building, which housed factories producing garments for numerous global brands including Loblaw’s Joe Fresh clothing line, has cost the lives of more than a thousand people.

Last year, we began to orient our engagement with Canadian retailer Loblaw toward supply chain management for Joe Fresh. Loblaw had already made significant progress on sustainable seafood and was taking steps on responsible palm oil sourcing, but we were concerned that Joe Fresh could be exposed to different types of supply chain risk associated with human and labour rights and worker safety. We encourage consumer companies sourcing globally to publish their supply chain policy and provide disclosure on compliance verification efforts and results. Although Loblaw had published a supply chain policy, there was little disclosure about performance against the policy.

Following the Rana Plaza collapse, we wrote to Loblaw to welcome the company’s early commitments to provide compensation, incorporate building safety to supply chain standards, and put people on the ground in Bangladesh to ensure compliance. We also encouraged the company to join other brands in a multi-stakeholder accord on building safety in the Bangladesh garment industry. We were pleased to see Loblaw sign on to this accord.

This issue has clearly struck a chord among investors. In May, we endorsed a letter by a coalition of more than 100 investment institutions controlling more than $1 trillion in assets, urging major apparel retailers to sign onto a plan to “implement systemic reforms that will ensure worker safety and welfare and to adopt zero tolerance policies on global supply chain abuses.”

The Rana Plaza tragedy has generated much debate on the ethics of sourcing from Bangladesh. This is a complex issue. A race to the bottom on wages and conditions generates risk for local garment workers and for global brands. Yet in countries like Bangladesh, garment factory work can be attractive compared to the alternatives, and an important factor in women’s economic empowerment. We continue to see potential for ethical sourcing from Bangladesh, as long as labour and safety standards are enhanced and enforced. A fair deal for garment workers globally might mean some corporate participants in the supply chain taking a little less and the consumer paying a little more – as well as asking more questions about those cut-price clothing bargains.

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Leede Jones Gable Inc. is a
Member of IIROC and the Canadian Investor Protection Fund
Stephen Whipp is a member of the Responsible Investment Association