Investors call for better fix to garment supply-chain risk

Investors call for better fix to garment supply-chain risk

A coalition of investors are calling for more investment and stricter reporting on garment factory labor conditions in Bangladesh.

On April 24, 2013, a building with five garment factories in it collapsed in Rana Plaza in Bangladesh, killing more than 1,100 workers.

Most major clothing retailers in developed nations source clothing they sell from factories in Bangladesh, and working conditions that led to the collapse convinced many to become signatories to the Accord on Fire and Building Safety in Bangladesh — a legally binding agreement that commits corporate signatories to the financing and implementation of a program of safety inspections, transparency and reporting and remediation.

The fact that the Accord now includes some 200 companies as signatories can be traced at least in part to pressure from an investor coalition organized by the Interfaith Center on Corporate Responsibility (ICCR). The coalition has more than 200 members globally and represents $4.1 trillion in assets under management.

Another initiative, the Alliance for Bangladesh Worker Safety, also was formed in the months following the collapse. At present, the Alliance consists of 26 companies and trade associations.

In an update published in March, the Alliance reported that it has inspected every factory producing garments for members, and “brought 19 immediate risk cases to the Bangladesh government-established review panel.” Five factories cited have been closed completely.

Still, two years after Rana Plaza, corporate disclosures remain insufficient for investors to know the extent to which remediation is taking place.

The ICCR coalition has written letters to corporate members of both the Accord and the Alliance requesting that they increase disclosure relating to their efforts.

“We understand that a few members have issued low-cost remediation loans and changes to factory payment terms to some suppliers and that an Alliance credit facility is being developed to provide loans to suppliers,” the coalition wrote to Alliance members. “As investors we are seeking to understand how remediation plans are proceeding and whether they are sufficiently funded. It is essential to establish solid financial arrangements between brands and factories to create safe factories that are sustainable.”

The letter also asks for more specific information on the funding and time frame for improvements.

“We request that you disclose the type of financing arrangements that are being made so that corrective actions are implemented by factories without delay,” the letter continued. “Timely remediation financing and the formation of worker/management committees as key indicators for assessing if systemic changes are being carried out.”

The investors also sent letters to companies with supply chain companies in the Bangladesh garment industry, asking that they contribute to the Rana Plaza Donors Trust Fund. The Fund, which seeks $30 million in contributions from international garment brands, has yet to reach its goal almost two years after it was established.

“Worker health and safety is a material issue for investors,” said Adam Kanzer of Domini Social Investments, an ICCR member. “When workers do not have an effective voice, they are made vulnerable, and Rana Plaza has made it clear that their vulnerability creates risks for all of us."

While progress has been slow to date, he said that activist investors don't plan to let the issue fall by the wayside.

"Investors take a long-term view; we are sticking to this issue and will continue to raise questions, press companies and assess progress until factories are sustainable and safe," Kanzer said. "We must work to ensure that our investment returns are built on a foundation of equity."

This article originally appeared at SocialFunds.