Corporate Accountability: a solution for numerous human rights abuses within the fashion industry
By Johanna Ramaer
The aim of this report is to propose government policy recommendations to address a lack of corporate accountability within the fashion industry which will help prevent human rights abuses within the industry’s supply chains. The focus of this report is on four issues in particular: Living Wage, Modern Slavery, access to judicial systems and Ecolabels. Even though these four issues vary widely in scope, there is one root cause that all issues have in common. That is, a lack of corporate accountability. Therefore, the following report proposes policy recommendations that will enhance corporate accountability within all four issues.
Human Rights abuses within the fashion industry
The textile and clothing industry is one of the most globalized sectors, providing employment opportunities to more than 60 million workers worldwide, mainly women and unskilled workers. Over the years strong competition has pushed retailers to move production offshore and to outsource manufacturing in search of low-cost labour and production opportunities. This outsourcing predominantly takes place in Asian countries such as China, Bangladesh and Pakistan but has recently also moved to African countries such as Ethiopia and Morocco. Brands choose these countries specifically because of their low production costs and weak regulations. Subsequently, outsourcing shifts to whatever country is the cheapest/most efficient. Countries in which workers very rarely enjoy sufficient protection of labour rights. As a result garment workers are very vulnerable and often experience violations of their human rights. The vulnerability of garment workers is especially felt during crises such as the 2008 economic crisis and the current Corona crisis. This asks for effective measures to regulate the human rights abuses within the industry’s supply chains.
Because of the geographically dispersed supply chains and the many different actors, however, production in the clothing industry is very complex to manage. Corporations operate across national borders with few or no obstacles. Speed to market is essential for a business that runs to just in time schedules. Subsequently, transparency is very low and knowing where, how and who made a piece of clothing is very difficult to locate. Complex corporate structures and supply chains make it difficult, frequently impossible, to attribute responsibility to parent companies for Human Rights violations in their global operations.
Complexity and lack of transparency keep consumers from making conscious and sustainable buying choices. Something that is especially worrying considering the number of consumers who want to know where and how their clothes are made is rising. As sustainability is increasing in importance, more and more companies put effort in demonstrating their contribution to sustainability through the adoption of different types of certifications, labels and ethical commitments. Over the years there has been an immense rise in Corporate Social Responsibility (CSR) initiatives that try to regulate the complex supply chains. One very recent example of a voluntary initiative is the Kering Fashion Pact in which 32 leading companies from the fashion and textile industry have committed to a set of shared objectives. CSR initiatives, however, have proven to do very little to actually improve the human rights conditions within the fashion industry. This is due to a number of issues that prevent such initiatives from actually guaranteeing human rights to garment workers:
- Most of them are voluntary and not legally binding and as a result not enforceable. Reports such as Fashion Focus: the fundamental right to a living wage and The Tailored Wages have demonstrated that voluntary codes have very little or no impact on the improvement of living wages. In addition, the false promise of certification' 2018 report on labelling standards by Changing Markets Foundation, shows that ecolabels are not delivering their promise because of their voluntary nature.
- The initiatives and agreements do not put the responsibility on the corporations. Corporations often outsource their human rights commitments to multiple CSR initiatives. Each initiative, however, takes a different approach to achieve human rights standards. This decreases transparency with respect to what companies are actually committing to in terms of human rights.
- Weak regulation and enforcement. It is often a corporation’s own responsibility to comply with codes of conduct. There is not one overarching body that checks whether corporations comply or not. Subsequently, codes of conduct are very rarely or weakly regulated and enforced.
In addition to CSR initiatives there are also some international and national regulations that try to set standards with regards to human rights within the fashion industry. Some are:
- UN Guiding Principles for Business & Human Rights
- Universal Declaration of Human Rights
The same problem, however, occurs with most international regulations: they are either not legally binding or not regulated regularly. Because most regulations and initiatives have not been able to regulate the complex supply chains sufficiently, there is an increasing demand for regulation to set a corporate accountability for human rights abuses within supply chains. The lack of corporate accountability and the problems as a result thereof is especially present within four different topics related to the fashion industry:
- Living Wage
- Modern Day Slavery
- Access to justice for victims of corporate harm
- Eco labels
Therefore, this policy piece will discuss why a lack of corporate accountability is problematic within these areas and in what way corporate accountability can be improved.
Living wage
According to a 2019 report by the University of Sheffield, low pay continues to be the status quo in the garment industry. The legal minimum wages in manufacturing countries are often extremely low and do not come close to an actual living wage. Many of the top 20 producers in the world, such as Bangladesh, Viet Nam, India, Pakistan, Cambodia and Sri Lanka, have the lowest minimum wages in the industry. A living wage is different from a minimum wage in that it ensures garment workers a wage with which they are able to live a decent life. The reason why current regulations have not been able to guarantee garment workers a living wage is twofold:
- All agreements/initiatives use different meanings of a living wage. Most of them do not actually mention the term ‘living wage’ but instead use terms such as minimum, adequate, decent or favourable wages. As a result, there is no universal definition and usage of the term ‘living wage’.
- Most of the regulations are voluntary and not legally binding and as a result not enforceable. Reports such as Fashion Focus: the fundamental right to a living wage and The Tailored Wages have demonstrated that voluntary codes have very little or no impact on the improvement of living wages.
Solution:
- Adopt a universal definition of living wage using the Anker methodology.
- Implement a similar law as the French corporate duty of vigilance law that establishes a legally binding obligation for parent companies to guarantee a living wage.
UK Modern Slavery Act
The UK government implemented a Modern Slavery Act in 2015 to prevent and prosecute modern slavery and protect modern slavery victims. The act was considered as world-leading and hailed for its breakthrough in corporate transparency. Despite the excitement about the act, however, there is actually quite slim evidence that it is capable of spurring meaningful change in corporate behaviour. Its efficiency is increasingly being questioned as very little companies have managed to publish slavery disclosures. Section 54 of the Act lays down the requirement to publish an annual slavery statement. Corporations, however, often fail to publish a statement because this section has various problems:
- What this statement has to include is not much. Companies are not required to lay out exact details, the outcome, no extraterritorial liability, or no provision of budget that is needed to make these changes;
- There are no immediate financial penalties for companies that fail to publish an anti-slavery statement in line with the Act;
- And nobody is meaningfully checking whether companies are complying with it or not.
Solution:
- Change section 54 as it was intended in the first model of the Act to make the Modern Slavery Act more stringent and include more corporate liability.
Access to justice
Unfortunately, victims of corporate harm often experience difficulties in accessing judicial systems to get compensation for committed human rights abuses. The absence of legal standards that ensure access to justice for victims of corporate harm allows companies to profit from operating in countries where laws guaranteeing human rights or environmental standards do not exist or are not adequately enforced. Weak national laws often mean that the victim's only chance to seek justice is to take the case to the court in which the corporation is registered. Accessing these judicial systems, however, is extremely difficult. Numerous barriers obstruct victims of corporate harm from actually accessing justice in the UK/EU. There are typically three phases in the process of seeking justice. In all three phases different barriers can occur.
1. The phase of getting started.
This phase can be inhibited by lack of finance and lack of access to information and legal counsel. Seeking remedy in Europe can be very costly in and of itself. And in addition, many European States require the losing party to pay the costs of the other party, including the lawyers’ fees, which can have a dissuasive effect when the prospects of success are low. Also, because of its complexity and low chance of winning, there are very few lawyers who are willing to take on such a case. These are all factors that make it difficult for victims to start seeking justice.
2. Surviving motions of dismissal.
According to the Rome II Regulation the applicable law is that of the State in which the damage has occurred. As a result, many cases in Europe get dismissed on the principle of forum non conveniens. Thus, surviving such motions of dismissal are a big barrier to many victims and make it difficult to access EU judicial systems.
3. Applicable tests for corporate liability.
The burden of proof lies with the claimants, which frequently poses a significant hurdle in accessing effective remedies. This is especially difficult because of the complex corporate structures. Lifting the corporate veil can be a very challenging process. The corporate veil is a legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company’s obligations. This concept forms a big barrier when it comes to proving corporate liability for abuses committed by its subsidiaries.
Solution:
- Bring forward legislation to impose a duty on all companies to prevent human rights abuses. At a minimum this should include the reversal of the burden of proof as is the case with the UK Bribery Act. Such a legislation would make it much easier for victims to establish corporate accountability. In addition, it would also address the barriers of the first phase, that of high costs and lack of information, because the responsibility then lies with the corporations to prevent human rights abuses.
Ecolabels
According to Ecolabel Index there are currently 445 ecolabels circulating within 197 countries spread across 25 industries. Of these 445 ecolabels, 107 are on textiles; addressing environmental and/or social sustainability within the fashion industry. 'The false promise of certification' 2018 report on labelling standards by Changing Markets Foundation, shows that, rather than being an accelerator for positive change, this ‘flood’ of labels is actually standing in the way of genuinely sustainable consumption. It finds that voluntary sustainability certification has largely been derailed from its original promise and that, in the vast majority of cases, consumers are not getting what they pay for with their well-intentioned purchasing decisions. The fact that all ecolabels differ so much in terms of scope and stringency has created numerous problems.
- Lack of an Holistic Approach.
Many standards only certify one aspect of the whole production process. Considering that the fashion industry involves very complex supply chains, consumers can get very confused in terms of what a specific label covers and what it does not. Thus, it is very important that a standard covers all aspects of the supply chain and is clear about the required criteria.
- Lack Of Independence.
Some standards are set up ‘in-house’ and/or monitored by brands themselves, which creates a conflict of interest. Moreover, many standards are focused on getting all industry players on board to meet the growing demand for certified products. This, in turn, can create a race to the bottom and lower the entry requirements.
- Transparency.
It is often unclear for consumers which criteria a label uses to assess products and also whether criteria are optional or mandatory. Moreover, reporting on the performance of different members is often not published. This makes it difficult for consumers to know what the performance of a brand is and which criteria they are actually fulfilling.
- Weak monitoring and enforcement mechanisms.
With some labels, brands are not monitored by an external partner. Instead, they provide the information themselves which allows for misleading information. Moreover, brands are not always checked up regularly which means that they can change their practices without losing the certification.
- Lack of common definition.
Standards use different terms and criteria, which allows for a different understanding of what constitutes sustainable clothing.
Solution:
In order to create more structure and clarity the government should step in and take the lead to implement structure and organization with regards to the big variety of ecolabels operating in the textile and fashion industry. To create this structure the government should:
- Create a Panel to assess existing certifications and labels;
- Recognise the labels that are most rigorous and transparent by officially publishing them on gov.uk, so that private sector and consumers distinguish which labels are reliable;
- Create an awareness campaign, bringing to public attention the new implementations;
- Assess the list every 1-2 years, which gives the opportunity to labels to enter or exit the list.
Conclusion
It goes without saying that each and every problem within the fashion industry has its own complexities. Understanding the specific complications is crucial to come to effective solutions. Finding one solution to deal with all the complex issues at once is nearly impossible. Nevertheless, considering the issues and corresponding solutions discussed so far there is one root cause that all issues have in common. That is, a lack of corporate accountability. The fashion sector operates within an industry that is characterized by power imbalances. Corporations, despite recognizing the extreme competition within the industry, have power over the factories and its employees. Whether it is guaranteeing a living wage, eradicating modern slavery, granting victims access to judicial systems or enhancing the sustainable production of clothing, an effective solution to deal with this power imbalance does not yet exist. The reason for this is not so much that finding an effective solution is too difficult. On the contrary, there are already solutions out there with huge potential. Unfortunately, however, potential legislation is often diminished throughout the law-making process or simply never makes the process at all. More stringent legislation is not in the interest of all. As a result, all discussed problems have no effective solution yet.
The French Duty of Vigilance law is one of the first pieces of legislation that has been successful in establishing a legal liability for corporations to uphold human rights throughout their supply chains. This law gives hope that the future of the fashion industry can become more sustainable. At the same time, however, this law has lost a part of its revolutionary character during the law-making process as a result of intense lobbying from business. The proposal initially put forward was meant to introduce a reversal of the burden of proof from victims to companies. This is a feature, as discussed above, that is very important to make it easier for victims to access judicial systems. Moreover, the French Duty of Vigilance law does not specifically mention the right to a living wage nor does it define what a living wage constitutes. Therefore, if it were to deal with all the discussed issues effectively the French law should be amended. Nonetheless, it is a law that gives hope and can serve as an example for other countries to implement corporate liability laws. Such a law would be a first step to deal with the numerous issues within the fashion industry and can effectively deal with one of the root causes of human rights abuses within the industry. Therefore, Fashion Roundtable recommends the UK government to follow the French example while taking its discussed weaknesses into consideration.
Of course a law on corporate accountability would be most effective if it were implemented on a regional and/or international level. Only then will it be possible to create a level-playing field with regards to human rights standards within the fashion industry. Creating a level playing field is important because otherwise some corporations have a competitive advantage over others. With the recent Brexit developments it is therefore of vital importance for the UK to keep operating at the global level to design and implement effective policies to manage the complex supply chains in the garment industry.