There is a global expectation today that all companies and stakeholders must respect human rights. Whilst in many countries there is evidence of mistreatment and inequality, policies and preventative methods are not always put in place to prevent human rights breaches from occurring. The investment community have increasingly recognised that they have a significant role to play in ensuring that investee companies are meaningfully addressing human rights impact.

The apparel industry is a large sector that accounts for a global market of approximately 2% of the world’s GDP – valued at US$3 trillion. The number of working employees in the sector also tripled from around 20 million workers to 60-75 million, further highlighting the huge global impact and need for governance surrounding human rights. Economic and social development has also grown in the apparel industry, providing employment opportunities for women, youth and low-skilled workers. As most garment workers worldwide are female, they are often subject to a lack of gender rights. Issues such as sexual harassment in the workplace and a lack of professional development, childcare, hygiene and sanitation facilities are realities for many garment workers.

Adverse human rights issues and prevalent incidents of forced labour through the supply chain are taking place in both developed and developing markets. Labour intensive work, such as harvesting cotton, are often sourced in countries such as Uzbekistan, Tajikistan or India where there is a lack of enforcement of national law and forced child labour is prevalent. The industry has also suffered from numerous safety incidents such as the Tazreen garment factory fire in 2012 and the Rana Plaza collapse in Bangladesh in 2013, resulting in the death of 1,100 workers. These events have drawn concern from consumers, stakeholders and investors regarding industrial safety and treatment of workers.

Workers often lack both an understanding of and access to their human rights as they tend to be low-skilled and come from rural or low-income communities. Challenging political environments in which civil society organisations and trade unions are not accessible may also risk limiting workers’ voices.

It is not always commonplace to know when specific human rights abuses are taking place, however, investors should be aware of several warning signs that are highlighted as potential indicators of negative, actual or potential human rights impacts. These include companies that have no human rights policies in place (e.g. codes of conduct, policies covering internationally recognised human rights and labour standards, or referencing the Ethical Trading Initiative’s base code); are unresponsive to investor requests for dialogue; lack of disclosure on sourcing regions and recruitment practices; non-existent supply chain mapping; and a previous track record for human rights violations.

The report also highlights recommendations to encourage apparel companies to improve labour practices in the apparel industry. Investors can encourage companies to publish factory lists; ask companies to report on challenges and performance, not just policies and commitments; encourage leading companies to use their leverage and collaborate with multi-stakeholder initiatives; and take advantage of new and innovative technologies.

1. There is a global expectation today that all companies and stakeholders must respect human rights. Whilst in many countries there is evidence of mistreatment and inequality, policies and preventative methods are not always put in place to prevent human rights breaches from occurring.
2. Responsible supply chain labour practices present opportunities including an increase in employee motivation, where more motivated employees lead to higher retention, increased productivity and improved product quality; for example, factories with improved labour practices reduce their product rejection rates by 44%.
3. Investors should regularly communicate with local organisations to solve labour issues and gain a comprehensive understanding of the challenges for workers and trade unions when organising themselves (e.g. hostility, violence, fraud).
4. Investors can consider companies’ sourcing geographies and the risks they present. Resources such as The Responsible Sourcing Tool, The Danish Institute for Human rights impact assessment guidance and toolbox and Verisk Maplecroft’s Human Rights Risk Atlas can help investors identify regions of concern.
5. Where workers are not aware of or are unable to exercise their rights, companies can focus on educating workers, providing awareness-raising programmes, training and local capacity building.
6. Companies that do not distinguish between a living and minimum wage can pose a risk to investors, as it is unsustainable for a business model to rely on underpaying workers. Sustaining a living wage can translate into operational benefits reflected in improvements in turnover, retention, absenteeism and morale, and therefore investors should ask for companies to integrate fair and responsible hiring policies and practices into corporate-wide operation.
7. Investors highlighted the need to look at some of the areas where labour issues, such as forced labour or use of worker recruitment fees, can be addressed through new technologies which can provide more reliable and accurate workers’ voices (e.g. use of mobile phones to document poor labour conditions).
8. To encourage apparel companies to improve labour practices in the apparel industry, investors can encourage companies to publish factory lists; ask companies to report on challenges and performances, not just policies and commitments; encourage leading companies to use their leverage and collaborate with multi-stakeholder initiatives; and to ask concrete questions in engagement dialogues with suppliers.
9. Investors are encouraged to ask for more disclosure on results, not only on policies and commitments, but also for performance information that demonstrates the company has a systematic approach to the issues.
10. The report includes case studies on health and safety in the clothing sector, the role of pension funds in enhancing labour practices, four years on from the Bangladesh investor statement and engaging for a living wage.