OECD launches a due diligence guidance for supply chains of garment and footwear sectors

OECD launches a due diligence guidance for supply chains of garment and footwear sectors

The OECD has just released a new Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector, designed to help companies identify and prevent potential negative impacts related to human rights, labour, the environment and corruption in garment and footwear supply chains worldwide. Since this seems to be an important step forward, TextileFuture is presenting the foremost facts.OECD Logo

It recommends that enterprises take a collaborative and risk-based approach to identify ways to address impacts of their operations and sourcing decisions and monitor progress over time, while encouraging ongoing engagement with business partners in developing economies. It also calls on buyers to embed social, human rights and environmental considerations into their purchasing practices.

The OECD and emerging economies worked closely with businesses throughout the supply chain, trade unions, non-governmental organisations and other experts to produce the guidance. It is a concrete response to the G7 Leaders’ Declaration adopted on 7-8 June 2015 in Schloss Elmau, which welcomed international efforts to “promulgate industry-wide due diligence standards in the textile and ready-made garment sector.”

OECDThe OECD Guide‌lines for Multinational Enterprises are the most comprehensive set of government-backed recommendations on responsible business conduct in existence today. The governments adhering to the Guidelines aim to encourage and maximise the positive impact MNEs can make to sustainable development and enduring social progress.

The Guidelines are far-reaching recommendations addressed by governments to multinational enterprises operating in or from adhering countries. They provide voluntary principles and standards for responsible business conduct in areas such as employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, and taxation.

The Guidelines were first adopted in 1976 and have been reviewed 5 times since then to ensure that they remain a leading tool to promote responsible business conduct in the changing landscape of the global economy.

Read the brochure on the Guidelines and why responsible business conduct matters.

How the guidelines work in practice

Although enterprises are ultimately responsible for observing the Guidelines in their day-to-day operations, governments and stakeholders also have a vested interest in enhancing the Guidelines profile and effectiveness. In addition, governments adhering to the Guidelines have specific obligations.

The role of adhering countries – Governments adhering to the Guidelines are obliged to set up National Contact Points (NCPs) whose main role is to further the effectiveness of the Guidelines by undertaking promotional activities, handling enquiries, and contributing to the resolution of issues that arise from the alleged non-observance of the Guidelines in specific instances.

The Guidelines are the only government-backed international instrument on responsible business conduct with a built-in grievance mechanism. The specific instances mechanism requires NCPs to provide a platform for discussion and assistance to stakeholders to help find a resolution for issues arising from the alleged non-observance of the Guidelines.

Adhering countries have flexibility in how they organise their NCPs as long as such arrangements provide an effective basis for dealing with the broad range of issues covered by the Guidelines and enable the NCP to operate in an impartial manner while maintaining an adequate level of accountability to the adhering government. To ensure that all NCPs operate in a comparable way, the concept of “functional equivalence” is used. NCPs report to and meet regularly with the OECD Investment Committee and its Working Party on Responsible Business Conduct.

NCPs rely heavily on multi-stakeholder input and are committed to developing and maintaining relationships with representatives of the business community, worker organisations, NGOs and other interested parties that are able to contribute to the effective implementation of the Guidelines.

The role of the Working Party on Responsible Business Conduct – The only inter-governmental body of this kind in the world, this working party of the OECD Investment Committee was inaugurated in 2013 with a mandate to assist in furthering the effectiveness of the Guidelines, fostering NCP functional equivalence, pursuing the proactive agenda, promoting engagement with non-adhering countries, partner organisations, and stakeholders, and serving as central point of information on the Guidelines. The OECD Investment Committee is the body responsible for overseeing the functioning of all elements of the Declaration on International Investment and Multinational Enterprises.

The role of the OECD Secretariat – The OECD Secretariat supports the Guidelines work. It provides continuous analytical and logistical assistance to NCPs and the Working Party and serves as as central hub for Guidelines-related information to NCPs and the public at large.

Responsible Supply Chains in the Garment and Footwear Sector

The garment and footwear sector is one of the largest consumer goods sectors in the world. Although it represents an important economic driving force, the tragic collapse of the Rana Plaza factory in 2013 brought global attention to the risks of severe adverse impacts both in manufacturing but also further upstream.

Tpexels-photo-93488he OECD has developed a Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector. This Guidance, developed through an intense multi-stakeholder process, supports a common understanding of due diligence and responsible supply chain management in the sector.

The Guidance was released at a launch event in Paris on February 8, 2017, followed by a roundtable to discuss best practices for building responsible garment and footwear supply chains. Download the agenda

How OECD’s new Due Diligence Instrument can transform the global garment industry

The collapse of the Rana Plaza factory in 2013 with a loss of over 1,130 lives was a jarring reminder that though much has been accomplished to improvepexels-photo-25641 working conditions in global supply chains, more is needed. Following the tragedy, stakeholders worldwide, ranging from industry to labour organizations and civil society, mobilised to respond to this need. The breadth of initiatives launched to tackle these issues is impressive. Perhaps most visible are the Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety. Together, these initiatives have joined over 250 brands, retailers and their suppliers to inspect and upgrade shared factories, demonstrating that a sector-wide approach to building safer supply chains is not only feasible but effective. During my last trip to Bangladesh, I witnessed the great progress these initiatives have made. The Accord and the Alliance are only two responses amongst many since the Rana Plaza tragedy.

A common understanding of company responsibility in an age of globalisation

Rana Plaza was a subcontractor to many garment companies, meaning that in many cases global brands did not place their orders directly with factories operating out of Rana Plaza. Furthermore, in some cases the subcontracting was illegal. While there was already general agreement in the sector that companies should identify and address risks with direct suppliers, the complexities of Rana Plaza raised the question, whose responsibility is due diligence when we look beyond direct contractors and further up the supply chain?

The OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights are clear: companies have a responsibility to identify, prevent, mitigate and account for adverse impacts in their supply chains. In June 2015 the G7 promoted international efforts to promulgate industry-wide due diligence standards in the textile and ready-made garment sector.

On February 8, 2017 the OECD has launched a Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector which responds to this call. This Guidance, developed through an intense multi-stakeholder process, supports a common understanding of due diligence and responsible supply chain management in the sector.

The Guidance is a global instrument

This is really a global instrument, contributing towards a level playing field for responsible business conduct. The OECD Guidelines apply to all companies operating in or sourcing from the 46 adhering countries, but they are likewise relevant for any company operating in their global supply chains. The Guidelines are relevant for a Bangladeshi factory that sells to companies in the US, even while Bangladesh itself is not an Adherent, just as they are relevant for cotton producers in Pakistan exporting to EU markets. OECD , demonstrating the global reach of the OECD Guidelines in the garment sector alone.

A responsibility revolution in the Fashion Industry: How OECD’s new Due Diligence Instrument can transform the global garment industry

by Guest author Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct

“The collapse of the Rana Plaza factory in 2013 with a loss of over 1,130 lives was a jarring reminder that though much has been accomplished to improve working conditions in global supply chains, more is needed. Following the tragedy, stakeholders worldwide, ranging from industry to labour organizations and civil society, mobilised to respond to this need. The breadth of initiatives launched to tackle these issues is impressive. Perhaps most visible are the Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety. Together, these initiatives have joined over 250 brands, retailers and their suppliers to inspect and upgrade shared factories, demonstrating that a sector-wide approach to building safer supply chains is not only feasible but effective. During my last trip to Bangladesh, I witnessed the great progress these initiatives have made. The Accord and the Alliance are only two responses amongst many since the Rana Plaza tragedy.

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Techprocess Februar 2017

A common understanding of company responsibility in an age of globalisation

Rana Plaza was a subcontractor to many garment companies, meaning that in many cases global brands did not place their orders directly with factories operating out of Rana Plaza. Furthermore, in some cases the subcontracting was illegal. While there was already general agreement in the sector that companies should identify and address risks with direct suppliers, the complexities of Rana Plaza raised the question, whose responsibility is due diligence when we look beyond direct contractors and further up the supply chain?

The OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights are clear: companies have a responsibility to identify, prevent, mitigate and account for adverse impacts in their supply chains. In June 2015 the G7 promoted international efforts to promulgate industry-wide due diligence standards in the textile and ready-made garment sector.

On February 8, 2017 the OECD has launched a Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector which responds to this call. This Guidance, developed through an intense multi-stakeholder process, supports a common understanding of due diligence and responsible supply chain management in the sector.

The Guidance is a global instrument

This is really a global instrument, contributing towards a level playing field for responsible business conduct. The OECD Guidelines apply to all companies operating in or sourcing from the 46 adhering countries, but they are likewise relevant for any company operating in their global supply chains. The Guidelines are relevant for a Bangladeshi factory that sells to companies in the US, even while Bangladesh itself is not an Adherent, just as they are relevant for cotton producers in Pakistan exporting to EU markets. OECD, demonstrating the global reach of the OECD Guidelines in the garment sector alone.

Adherents to the OECD Guidelines account for over 72 % of world imports of clothing.

OECD About

The relevance of the OECD Guidelines globally is no longer hypothetical. The National Contact Points (NCPs), the globally active grievance mechanism of the Guidelines, have already handled several cases related to due diligence in the garment and footwear sector. For example, the Danish NCP recently concluded its consideration of a case involving PWT Group, a Danish retailer, for failing to carry out due diligence in relation to its textile manufacturer in the Rana Plaza building. Both the Guidance and the conclusions of the Danish NCP in this case are significant for the future of human rights due diligence in the textile sector globally.

The Guidance is progressive, realistic and balanced

The Guidance encourages the sector to think differently and to react differently, but does so in a progressive, balanced, and realistic way. Under the Guidance, companies are expected to scope risks across the full length of their supply chain, including risks related to subcontracting and homeworkers. Moreover, this assessment moves beyond auditing to not only identify labour, human rights and environmental impacts, but also understand why they are occurring. This tailor-made approach to risk assessment recognises that risks in the garment and footwear sector are very different and the assessment methodologies should reflect these differences. An assessment for child labour and forced labour should not be the same as an assessment of occupational health and safety or wage compliance. This Guidance also recognises the challenge of ‘audit fatigue’, so it pushes the sector towards harmonised assessments and most importantly effective monitoring.

While the Guidance is ambitious, it is also realistic. Addressing the full range of challenges in the sector all at once is mission impossible for brands with vast supply chains that go several layers deep. So brands will have to prioritise issues where the impacts are most severe. This could be, for example in relation to hazardous chemicals in finishing or forced labour in cotton.

Finally, the Guidance recognises the diversity of actors in this sector and the diversity of sourcing models. It does not prescribe a one-size-fits all approach, seeking rather to provide recommendations for how companies can carry out due diligence given their circumstances (size, context, etc). For example, the Guidance recognises that companies may source materials and products directly from suppliers or indirectly through buying agents and provides tailored recommendations for each. Similarly, it acknowledges the role subcontracting plays and therefore recommendations point more to ‘responsible subcontracting’ than always ruling out subcontracting altogether.

No more neo-colonial top-down system

In November of last year I participated as a panellist in India on responsible garment supply chains. A fellow panellist, a factory owner, called the traditional garment audit model a colonialist approach: ‘Western brands telling the developing country factories what to do’. With the new OECD Due Diligence Guidance we finally say goodbye to this neo-colonialist approach. It appreciates the importance of a partnership between buyers, suppliers and workers in identifying methods to address risks and monitor progress over time.

But just as important as this partnership, is the fact that due diligence is not merely about looking outward; it’s also about looking inward. Another remark made by my fellow panellist is that companies do not align their purchasing policies with responsible business policies. For example, brand purchasing officers often ask the factory to cut prices by 10%, while the brand ethical sourcing team asks for a 20 % wage rise. In a study conducted by ETI Norway, Suppliers speak up, suppliers responded that paying legal minimum wage and legal overtime premiums would increase labour costs by 10-20 %. However, despite this reality, little science goes into price-setting by brands and retailers. So functional alignment of brand policies needs to be part of due diligence.

Under the OECD Due Diligence Guidance, companies, particularly brands and retailers, are expected to assess their own purchasing practices and determine how their price setting and ordering may be contributing to excessive overtime, low wages, precarious contracts, illegal subcontracting, etc. Personally, I think that embedding responsibility indicators in the bonuses or performance appraisals of purchasing officers should incentivise due diligence; otherwise due diligence and respect for human rights will stay a peripheral issue.

The new global instrument for garment due diligence that will be launched next week at the OECD Roundtable on Due Diligence in the Garment and Footwear Sector can change the fashion industry worldwide. It is global, progressive, and realistic, and assists in more mature supply chain dialogues than the neo-colonialist audit system. Now is the time to implement and make fair fashion the standard.”

OECD Expecs

The garment and footwear sector employs millions of low-skilled workers, many of whom are women, and acts as an entry point into the formal economy in many countries. As such, enterprises operating in the sector have the potential to generate growth, employment and skill development through their own operations and sourcing. However, human rights and labour abuses and harm to the environment by enterprises are prevalent throughout the supply chain in this sector. While such impacts are not new to the sector, the characteristics of modern global supply chains— such as, stages of the production process spread across diverse countries, short lead times, and short-term buyer-supplier relationships—can reduce visibility and control over an enterprise’s supply chain and can make and create challenges for enterprises to meet their responsibilities. Within this context, the risks of human rights and labour abuses, of environmental damage and integrity risks should be managed throughout the supply chain in order to ensure that the positive impacts of this global industry are maximised.

The purpose of this Guidance is to support a common understanding of due diligence in the garment and footwear sector aligned with the OECD Guidelines. This Guidance provides recommendations for enterprises on how to implement due diligence according to the OECD Guidelines in their own operations and in their supply chains. Due diligence should be on- going, proactive and reactive and applied with flexibility and should not lead to a “tick the box” approach.

This Guidance is relevant for all enterprises operating in the garment and footwear supply chain seeking to implement the OECD Guidelines. This includes but is not limited to raw material and fibre producers, material manufacturers and processors, components manufacturers, footwear and garment manufacturers, brands, retailers and their intermediaries.

This Guidance is therefore also relevant for:

•             Enterprises operating at various points along the supply chain including global commodities merchandisers, buying agents, distributors, etc.

•             Small, medium and large enterprises operating in the sector alike. While the expectation of due diligence is applicable to all enterprises regardless of their size, this Guidance does seek to highlight instances in which a small and medium-sized enterprise may choose to use different mechanisms to apply due diligence in light of its resources, position in the supply chain and leverage,  see Introduction, and

•             Enterprises that are privately owned, State-owned or mixed.

The full text of the guidelines can be downloaded here

www.oecd.org

 

TextileFuture’s short comment: The due diligence Guidance is a useful instrument for all textile relevant sectors, especially in manufacturing countries. All of the experience of the past ten years is comprised and all sectors of activity are touched. The offered modules entail child labour, sexual harassment and sexual and gender-based violence in the workplace, forced labour, working time, occupational health and safety, trade unions and collective bargaining, and wages. The environmental modules embrace hazardous chemicals, water, Greenhouse gas emissions, bribery and corruption and responsible sourcing from homeworkers. Also limitations by law are mentioned, as well as their interpretation. What the effect will be can only be measured over time, but we consider it a useful tool for all involved along the textile value chain.

 

 


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