Supply chain managers in the apparel and footwear industries are getting a new assignment: ensure that their suppliers meet ESG standards, including those that measure the rights and working conditions of employees. While this issue is not new for apparel and footwear—it has been almost 25 years since activists successfully pressured Nike to address working conditions for women in its suppliers’ factories—concerns about exploitation and forced labor are growing.
NGOs are ramping up pressure and laws in the UK and California and proposed legislation in New York are turning forced labor and other facets of ESG into significant compliance issues for many large companies. Growing concerns about climate change as well as other environmental impacts are leading investors and activists to pressure large corporations to disclose and mitigate the greenhouse gas (GHG) emissions, air, water, and other impacts created in their supply chains.
Supply chain ESG issues are most imperative for consumer goods firms, for whom more than 80% of GHGs and 90% of other environmental impacts occur in supply chains, according to recent estimates from McKinsey & Company. And within consumer goods, apparel and footwear companies are particularly vulnerable to the danger of contracting with suppliers that exploit workers or pollute local environments. Because brands can source essentially the same products from many contract manufacturers, suppliers face low margins and intense competition—especially in the cut-make-trim (CMT) business and the many subcontractors to which CMT firms outsource functions such as embroidery and printing.
Apparel importers have been among the main targets of U.S. Customs and Border Protection’s enforced ban on cotton from Xinjiang, the Chinese province where Uyghur Muslims suffer human rights abuses and forced labor. Initiated by the Trump Administration, the Xinjian cotton sanctions have been continued under President Biden. Xinjiang produces an estimated 80% of Chinese cotton, so “trade lawyers and business groups expect more import bans and disputed shipments to come as Washington puts more emphasis on human rights in its intensifying rivalry with Beijing,” wrote the Wall Street Journal in June 2021.
Tackling forced labor and other ESG issues in apparel and footwear supply chains is a complex project that requires commitments from corporate leadership and consistent, careful implementation by procurement and supply chain departments. Achieving supply chain “sustainability goals is an all-encompassing organizational challenge and often means change for both the product portfolio and the organization,” wrote the McKinsey analysts.
A key pillar of a successful supply chain ESG initiative is an accurate and regularly updated map of supply chains—one that penetrates many tiers down to identify vendors and sub-contractors to direct suppliers. These hard-to-identify indirect suppliers can be the places where workers are exploited and environmental impacts are severe.
Such mapping also enables companies to meet the transparency requirements of voluntary initiatives such as The Apparel and Footwear Supply Chain Transparency Pledge and the bill that may become law in New York. “The NY bill, which could impact retailers ranging from Shein to Prada, requires companies to map out at least 50% of their supply chain process across each tier of production, identify and share the negative social and environmental effects of the process, and set targets to reduce those impacts. The retailers are then required to meet their targets and report their annual compliance,” reported CBS News in early January.