Article 5 of 5

As discussed in previous articles, Responsible Supply Chain is one of the most critical elements of organization’s overall Sustainable development strategy. Therefore, it is imperative that organizations focus on both collaboration with vendor partners on sustainable practices and processes as well as ensuring ESG compliance within the Vendor partner factories.

The complex and opaque challenge

Globalization and the prevalent trend of outsourcing, with subcontractors and sub-tier sourcing relationships, have made the supply chains complex and obscure. Though, outsourcing production to suppliers in countries with a cost advantage can deliver significant economic benefits but traceability and transparency into the supplier’s activity becomes a big challenge, especially while managing the ESG issues that carry reputational as well as operational risks.

In today’s world, a brand can neither afford an operational risk nor take a chance of effecting its reputation as the market value of an organizations is very tightly knit with its reputation. In fact for some organizations brand value is even considered as an asset and plays a key role in discussions with the investors.

As stated by Pam Fitzpatrick, research analyst for Gartner, “A widely cited World Economic Forum report says that more than 25 percent of a company’s market value is attributed to its reputation.”

Business performance - in respect to ESG concerns - has become one of the crucial criteria when investors evaluate a potential investment. Therefore, it is imperative for organizations to assess their ESG performance and ensure that they are in compliance with the environmental, social and ethical regulations since it better aligns investor interests with society’s broader objectives.

Textile and Apparel sector

In the Textile and Apparel sector, being a labor-intensive sector, many steps of the value chain take place in developing and emerging markets. As a result, there is a high risk of ESG non-compliance and organizations are always at risk of paying a higher cost in case of non-compliance: the fine for noncompliance and the steep drop in sales and/or funding for breaching the trust of consumers and investors.

However despite several tragedies in the past that exposed the non-compliance of ESG requirements within the textile and apparel sector, meeting ESG compliance is still considered as a cost in most of the cases, at least in the larger fragmented and smaller manufacturing units.

The collapse of the Rana Plaza building in Dhaka, Bangladesh, in 2013 exposed the entire industry practice of poor safety and worker standards, amongst others, and highlighted the associated risks of reputation loss and the associated decrease in sales / share price, Inventory loss, interrupted supply, compliance cost to more stringent legislation amongst others

Meeting the safety requirements, adhering to social regulations and following pollution norms are added separately to cost of manufacturing. The irony is that this discussion happens from both the ends, the brands as well as the vendors.

The brands trying to match the requirement of cheapest and fast fashion end up pushing vendors to cut cost and provide the merchandise at the lowest cost without understanding the ESG implications of remaining competitive. The vendor who, as a result, wants to be competitive in the cut throat sector first provides the basic quote and then adds the ESG cost as per customer requirements.

I believe the biggest problem in the textile and apparel sector is that the larger percentage of organized as well as unorganized companies are not focusing on the ESG compliance and are trying to compete only on the cost. Further, the customers, as discussed earlier, may want a sustainable product but usually end up buying the cheaper option and the investor push, if any, may get subdued once market reality hits. All these reasons shift the balance of discussion to the idea that ESG compliance is a cost rather than an investment.

But is it really the truth?

Is ESG compliance a Cost? My answer is a big NO.

Collaboration and Commitment

I believe that ESG compliance should be seen as an investment that can generate enormous amount of stakeholder value. For this, industry needs to undergo a cultural shift and shun the discussion of lower costs and competitive advantage due to ESG non-compliance.

Coalition of brands should be formed in each geographical market to define the basic ESG criteria and the information that needs to be shared with their stakeholders including investors, government and the consumer. The brands should support the vendor partners and work towards a long term commitment of the ESG compliance within the operations. It is equally important that the consumers and investors are educated about the minimum requirement of the ESG compliance and ill impacts of the non-compliance.

All the above will create the much needed market barrier and ensure a sustainable fashion and a sustainable tomorrow.

I sincerely hope that the series of these 5 articles were informative and provided the direction in which organizations should focus to ensure we together work towards a sustainable tomorrow. I am keen to know your views and will be happy to engage in 1:1 discussion if anyone wants to deep dive on any of the topics that I have discussed.

RELATED TOPICS:#Apparel,sustainable development,Eco Friendly,Tushar Jindal