Boohoo Highlights the Need for Robust Due Diligence Across the Fashion Industry Supply Chain

Amidst a massive increase in revenue since the start of the COVID-19 pandemic, Boohoo, a British online fashion firm, has come under fire concerning allegations of poor working conditions in a Leicester factory. These recent accusations, mainly involving poor working conditions and potential illicit underpayment of garment workers in Boohoo’s supply chain, have led to a viral #boycot boohoo campaign on Instagram and Twitter. And Boohoo is not the only company under fire because of questionable practices related to the fashion supply chain. The Uyghurs for Sale report published in March 2020 renewed media attention on the issue of forced labour.

Produced by the respected Australian Strategic Policy Institute, the report notes that Uyghurs, an ethnic minority in China,are being relocated and put to work - in likely forced labour conditions - in factories in the supply chains of at least “82 well-known global brands including Apple,BMW, Gap, Huawei, Nike,Samsung, Sony and Volkswagen.” The findings underline the complexity of tracing global supply networks and the importance of a comprehensive supply chain due diligence to meet Environmental, Social Governance (ESG) commitments.

The pattern behind the Boohoo backlash

Recently, allegations of poor working conditions and dramatic underpayment in so-called sweatshops have ravaged the fashion retail sector. While the latest backlash was spurred by COVID-19 safety concerns, Boohoo joins the ranks of fashion, technology and automotive brands that face increased public scrutiny the lack of supply chain transparency that enables unsafe or forced labour conditions.

The need for increased attention to these topics compliments an ongoing shift both in consumer and investor behaviour. Both are increasingly interested in brands and entities that understand the importance of ESG criteria beyond being a buzzword.

According to analysts at the Bank of America,the current backlash against Boohoo has wiped almost £500m off the value of the retailer and could continue to impact its business in the months to come. After an undercover reporter from the Sunday Times reported an alleged payment of £3.50 an hour, other accusations followed. Amidst a global pandemic that has left the UK as one of the hardest hit regions in Europe, a number of Boohoo’s Tier 2 suppliers allegedly continued to produce in Leicester, directly undermining official measures trying to prevent the further spread of COVID-19.

Why transparency matters

In response to the numerous public backlashes the fashion retail industry has faced in recent years,some of its members have started to take up the challenge and shift to a more proactive stand when it comes to the compliance of ESG criteria and supply chain transparency. The ITC Ethical Fashion Initiative (EFI) ranks among the most prominent initiatives. The UN led organisation emphasizes the need for sustainable fashion and seeks to improve the livelihood of fashion retail workers around the globe.

The recent Boohoo scandal convinced the fashion ecommerce Asos to begin supporting the Transparency Pledge, an initiative launched in 2016 by Human Rights Watch and the Clean Clothes Campaign which seeks to strengthen supply chain transparency. With this step Asos has committed to report on its supply chain publicly and regularly, a massive due diligence undertaking since approximately 60 per cent of the products sold by Asos are supplied by third parties.

Benefits of a comprehensive due diligence process

No organisation is immune to the increased risk that comes from global supply chains. Complex third-party networks expose organisations to a wider array of regulatory and reputational risks-and as Boohoo’s  experience shows, considerable financial and strategic risk as well, particularly when it comes to forced labour and other worker abuses.

How can organisations build a comprehensive approach to addressing these issues? Check out this white paper that singles out the most important performance benchmarks for the fashion industry:

• Commitment: Pursue a strong and sound governance for the oversight of policy compliance and designate a team or individuals for these tasks.
• Asses & Trace:  Provide a detailed and public list of third-party involvements and pursue a comprehensive impact assessment of these parties.
• Procurement  Practices: Implement  responsible  sourcing  of  raw  materials  and  fair  labour standards, along the requirement of third-party suppliers to adopt similar standards.
• Recruitment: Constantly monitor external partners that engage in recruitment and employment for comprehensive labour and employment standards.
• Emphasize participation: Engage with and educate employees and workers on all levels and require third parties to follow suit.
• Monitor  constantly: Establish a supplier audit process, including non-scheduled visits and interviews with workers.
• Act decisively: Establish clear consequences for potential compliance breaches as well as a process to support potential victims of systematic malpractice.

Companies can realize  measurable benefits  by building a due diligence  and risk monitoring  process aligned to the level of risk they face. The added value of a positive public reputation,in combination with averting potential financial setbacks in the form of sanctions,will continue to push organisations toward supply chain transparency.