The denim industry is often cited as a driver of change in making fashion more sustainable, through its choice of materials and innovation in processes. It is not, however, considered a model of best practices in social compliance. Will new due diligence legislation change the rules of the game? 

It is no longer if, but when. Due diligence legislation will be implemented, and it will make companies responsible for the conditions in which their goods are made, wherever they are made. Some may cringe at a future extension of corporate legal obligations. But voluntary mechanisms have been found largely ineffective. For many, the only true incentives are those that are legally binding.

The mass cancellation of contracts during covid shed a cruel light on the lack of consideration by brands and retailers for the companies that manufacture their products. “During the early months of the pandemic, fashion companies cancelled $40 billion worth of clothing in production, triggering layoffs without pay and a massive humanitarian crisis,” states Remake in its 2022 Accountability Report. Founded by Ayesha Barenblat, Remake advocates specifically for fair payment to women garment workers. Its highly successful #PayUp campaign helped recover $22 billion from 25 brands. 

Media coverage of the dramatic collapse of the Rana Plaza in 2013 was the first event to draw attention to working conditions in factories supplying clothes to global fashion retailers. The pandemic, a second event considered just as dramatic for its effects on workers, did not, despite Remake’s viral campaign, attract much media attention beyond business and trade publications. It is unlikely that consumers have wage theft in mind when they go shopping, though $5 T-shirts could raise a flag. Signs of dissatisfaction are, however, beginning to be heard inside the industry.

One such initiative is the Ethical Denim Council (EDC), which grew out of a Transformers Foundation 2020 report exposing unethical supply chain practices in the denim industry. A new report by the non-profit, the result of a voluntary poll, finds that change is slow. “Some brands and retailers have taken steps towards greater transparency and accountability, however, there is still a long way to go in terms of addressing their relationships with suppliers and the link between payment terms and worker welfare,” it states. 

The EDC has given itself one simple goal: to redefine transactions between parties. “What we want is that when brands and retailers sign an order, they fulfil it. And if they change their mind or don’t fulfil it, they offer compensation,” says EDC founder Andrew Olah. The EDC’s focus is on upholding contract sanctity, seen as a first, and essential, step in creating more balanced relations within the industry. “Brands and retailers impose a long list of rules and obligations on their suppliers. Manufacturers are not given that option and can impose little to nothing,” he points out. As a starting point, it proposes Eight Ethical Principles to make purchasing practices fairer, derived from the Transformers Foundation, which will be followed by a series of model clauses for more responsible contracts. “We are working on a small set of provisions that better addresses the considerations of both parties, the brands and retailers, and the manufacturers, to even the playing field,” says EDC project manager Sharmon Lebby. These measures will thus help “amplify the voice of the suppliers”. 

Introducing responsible contracts

The EDC's model clauses suggestions are being drafted in collaboration with the Responsible Contracting Project (RCP). This organisation, co-founded in 2022 by Sarah Dadush, a law professor at Rutgers Law School, and Olivia Windham Stewart, a business and human rights specialist, seeks to improve human rights in global supply chains with better contracts. RCP is a spinoff of an American Bar Association working group.

Another manufacturer-led coalition, the Sustainable Terms of Trade Initiative (STTI) is also seeking to realign the balance of power between buyers and manufacturers in the apparel industry. It is led by the STAR Network, a consortium of humanitarian organisations, the International Apparel Federation (IAF) and the Better Buying Institute with support from GIZ FABRIC, a German authority born from the country’s Supply Chain Act. One of its goals is “commercial compliance”, which it defines as “a common understanding of purchasing practices that do not cause obvious and avoidable harm to manufacturers”.

In addition to its work with EDC, the Responsible Contracting Project is also collaborating with STTI and GIZ to propose model clauses that apparel manufacturers, who rarely have extensive legal departments, can include in their agreements with brands. “We know that contracts are drafted by brands to be entirely favourable to them. Our mission is to make them more balanced, so that responsibilities are not shifted but shared,” Sarah Dadush tells Inside Denim.
As the first country to promulgate a law imposing due diligence, Germany serves as a testing ground for more ethical practices in business relations. GIZ, the Deutsche Gesellschaft für Internationale Zusammenarbeit or German Society for International Cooperation, has set up a Partnership for Sustainable Textiles (PST) to accompany the implementation of the new legislation. “The textile industry is one of the sectors in Germany that is best prepared for the Supply Chain Act,” says Linda Schraml, who heads the textile sector for GIZ. Its template for more responsible contracts clearly addresses human rights and wages. “Unfair contract terms and purchasing practices between buyers and their suppliers were found to be key drivers of human rights violations in the apparel sector,” she says. The payment of living wages is thus a key focus topic for the organisation. “Training courses were developed and implemented for both buyers and suppliers. While the former learned about the consequences of purchasing practices on working conditions in the supply chain, the latter were trained in calculating product prices in a way that takes into consideration workers’ wages.” 

More than a nudge 

Fierce competition between manufacturers, and overcapacity, create the conditions for manufacturers to bow to pressure, and coercion, to cut prices below the cost of making the products. When they were left without compensation, even after goods had been delivered during the pandemic, the scales began to tip from incentive to directive.

For organisations working in human rights and due diligence, legislation is the nudge that brands and retailers in the global north need to recognise their role on the working conditions in the global south. It is slowly, but steadily, taking shape. Last December, the European Commission and Parliament finalised the Corporate Sustainability Due Diligence Directive (CSDDD), which draws on the German Supply Chain Act. It will require businesses “to identify, prevent, and mitigate actual and potential adverse human rights or environmental impacts in their entire value chain”. Companies will thus be held directly responsible for the social and environmental impacts of all their activities.

The CSDDD will first apply to European companies with more than 500 employees and a global net turnover of €150 million. Three years later, it will apply to non-EU based companies that generate   €300 million in net sales in the bloc. Fines for breaching these rules could be as much as 5% of a company’s global revenues. Once adopted, the 27 EU member states will have two years to transpose the CSDDD into their national laws. 

The EU is not alone in drafting due diligence policies. The United States FABRIC Act ‘Fashioning Accountability and Building Real Institutional Change’, introduced in 2022, was the first federal bill seeking to protect American garment workers. The US has also banned the import of goods made from forced labour with the Uyghur Forced Labour Prevention Act (UFLPA), signed into law in late 2021. The EU is considering similar legislation. 

In this new context “brands and retailers will no longer be able to say that they are not responsible for abuses and non-payment of decent wages,” says Sarah Dadush. It broadens the scope of responsibility to those that place the orders, and it makes it possible for suppliers to negotiate better terms. “This is the first time that a link is being made between the behaviour of Western corporations and their impacts on human rights in the rest of the world.” Both the German law and the EU directive explicitly mention the role of contracts in protecting human rights, she further points out. 

Wages and cost structure 

The issue of living wages in the apparel industry made headlines at the end of last year when garment workers in Bangladesh took to the streets to demand a higher minimum wage that the government was in the process of revising, as it does every five years. Commenting on the unrest in Bangladesh, Anne Bienias, Living Wage Coordinator for the Clean Clothes Campaign (CCC), an alliance of labour unions and NGOs, notes that “the negotiation process itself was very untransparent and the proposals brought forward by the employers were not based on any assessment of cost of living in Bangladesh but were rather a reflection of economic interests and the desire to attract more foreign investment from brands.” CCC has been supporting trade unions in Bangladesh by calling on brands to increase their purchasing prices to help shoulder the wage hike. “Brands can do this if they are willing to revise their purchasing practices. Instead of paying their suppliers a lump sum for orders, they should earmark specific amounts in their purchasing price specifically for labour,” she says. 

Overproduction and overcapacity in the fashion industry are often cited as creating more competition between manufacturers and more abusive working conditions. This point was raised by Matthijs Crietee, head of the International Apparel Federation: “reducing overproduction could unlock funding for better wages,” speaking in a webinar on due diligence and responsible business conduct. 

The world’s first exporter of jeans to the EU and US, Bangladesh may be one of the cheaper sourcing countries, but prices are going up everywhere. Cambodia, Vietnam and Turkey have recently taken steps to raise minimum wages. Does this create the conditions for relocating manufacturing to zones that pay even lower wages? “Wages in Cambodia have increased quite substantially over the past 10 years and there are no signs that this has led buyers to leave the Cambodian market. The same goes for China. Wages of workers are not the only advantage countries can have over another country, things like infrastructure also play a big role, and in that sense, Bangladesh is still a very attractive sourcing destination for brands,” says Ms Bienias, at CCC. Denim-making factories in Bangladesh are typically three to four times larger than other cut-and-sew facilities, and the advanced automation of their production processes means they are not the worst offenders, notes Apoorva Kaiwar, regional secretary, South Asia, IndustriALL GLobal Union, which fights for better working conditions. “Wages are low, but denim factories typically pay 5-10% more than the minimum wage. It is not a fair wage, but it is better than the basic T-shirt factory,” she tells Inside Denim.

The cost of living has risen dramatically recently, affecting not only the world’s workers, who can barely afford food or shelter, but also consumers around the globe. In the denim industry, jeans are negotiated free-on-board (FOB) at around $8, and some say this average is now closer to $6. These prices do not cover the cost of doing business for manufacturers, and will not help workers make a living wage. Consumers may appreciate bargain-basement prices, but they may also find products uninspiring, or not inspiring enough to warrant adding a new pair of jeans to their wardrobe. Up till now, these unethical practices had little impact on brands and retailers, who have generally managed to maintain their margins. New legislation may make it more costly to pursue this business-as-usual scenario. 

Photo from the NGO’s Good Clothes Fair Pay campaign in 2022.

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