Sep 12, 2023

How GFF and FWF work towards social improvement of textile & apparel factories in South Asia

– Jayanth Kashyap B, Investment Lead, Good Fashion Fund

The perception of sustainability within the global textile and apparel industry is at an inflection point. While apparel brands intensify efforts towards building circular supply chains and reducing carbon emissions, the pressure to equally focus on building ethical and socially responsible value chains has never been greater.

The countries in Asia, part of the Global South, contribute to over 55% of textile and apparel exports with more than 60 million workers employed in the region[1]. Due to geographical separation of apparel companies and the manufacturing locations, awareness and transparency of workers’ conditions in the textile/apparel industry was extremely low – until the Rana Plaza disaster in 2013[2].

While several voluntary codes of conduct were introduced after, the focus was restricted to ‘doing no harm’ rather than ‘doing better’. Controlling a vast and fragmented supply chain yielded minimal progress towards improving workers’ rights, despite the increase in certifications, social audits and corporate disclosures[3]. But a turning point is here. On 1st June 2023, the European Parliament positively voted on the Corporate Sustainability Due Diligence Directive (CSDDD) – thanks to coordinated efforts of multi-stakeholder initiatives (such as Fair Wear) with key stakeholders and regulators.

The Good Fashion Fund (GFF), a first-of-its-kind initiative by Laudes Foundation and Fashion for Good, was established to create systemic change in the textile and apparel industry by encouraging mainstream uptake of impactful and disruptive production technologies. The fund provides long-term USD loans to apparel and textile manufacturers in India and Bangladesh to enable them to implement innovative and sustainable technologies in the production process.

Every GFF investment should lead to a minimum of 50% reduction in consumption of one of our three environmental goods: Good Energy, Good Water, or Good Materials (incl. chemicals) and lead to positive outcomes in Good Lives (fair jobs and gender equality) and Good Economy (revenue growth) – part of our Five Goods framework. As an impact fund focused on demonstrating environmental and social impact, our expectation from our potential investees is to work towards the betterment of their workers.

Our social framework has been developed in consultation with Laudes based on best practices such as the Fairtrade Textile Standard and we partner with Fair Wear during the pre- and post-investment phase for the assessment. Key elements of the framework assess various aspects of labour conditions such as freedom from any form of forced labour, conditions of employment, occupational health & safety, worker rights and representations, management systems and overall transparency of the factories.

As our Due Diligence partner, Fair Wear provides independent, comprehensive assessments of workers’ rights and working conditions at the factories in relation to the eight core labour standards of the ILO. They do this through interacting with all participants at factory level – staff, workers and the management – both offsite and onsite.

Based on the outcome of the social evaluation and guidance from Fair Wear, we agree with the manufacturer on a consolidated Environmental and Social Action Plan (ESAP) that is milestone-based, tailored to the local context and their ambitions. Importantly, the investment from the GFF is conditional to a legally binding commitment by the manufacturer to adhere to the ESAP within reasonable timelines, ideally less than 18 months. As part of our agreements, we also undertake ongoing progress monitoring and verification on a quarterly and annual basis. Besides the assessments by Fair Wear, we have also referred to the Higg Facility Social & Labour Module (FSLM) on a standalone basis for a recent transaction as the manufacturer was already using this.

Gender equality is an important pillar of our Good Lives component and we positively favour manufacturers actively recruiting and developing female workers, supervisors and management at the factory level. We are against any form of discrimination and ensure that male and female workers at the factory are fairly compensated in line with their experience and skills. For key improvements, especially related to occupational health & safety (OHS), GFF provides additional support to manufacturers (on a case-to-case basis) by way of dedicated and independent social improvement experts in the countries GFF operates. These local consultants help implement improvements with the support of the factory staff and act as a key value-add on behalf of the GFF.

In our experience, we have learned that social evaluations are to be interpreted in the context of the factory’s operations and prevalent socio-regulatory conditions. As a result, we have seen that manufacturers are able to plan for long-term improvements beyond the duration of the partnership with the GFF (e.g. establishment of female-led and managed factories). In certain cases, we have seen significant progress made within a very short period of time as a result of GFF accelerating the improvements already planned by the manufacturers (e.g. digital transformation of wage administration). Our key takeaway is that a consultative approach that places manufacturers as equal partners, supported by the right incentives, encourages sustainability-oriented manufacturers to do more than the minimum.

Our partner at Fair Wear, Annabel Meurs, Associate Director, explained the benefits of working with GFF:

“As a multi-stakeholder initiative, Fair Wear aligns with industry stakeholders whose vision we share as well as whose experiences differ to ours. Fair Wear and the GFF both aim to create lasting systemic change in the garment and textile industry. Fair Wear’s focus is to guide garment brands on how to implement impactful human rights due diligence (HRDD) across their supply chains, while the GFF finances technologies that can have positive environmental and social impacts. Our partnership has, therefore, been particularly valuable for Fair Wear, as we’ve been able to better understand financiers’ role in changing the industry. Gaining insights into how investors’ decisions and HRDD can enhance each other, we can jointly demonstrate the business case for investing in improving working conditions.”

Annabel also shared Fair Wear’s views on the upcoming EU legislation:

“The shift from a compliance approach to brands carrying out HRDD is something Fair Wear has long advocated for. We therefore welcome the upcoming EU legislation, which promises to ensure that brands take responsibility for human rights and environmental risks across their supply chains. In doing so, the garment industry can become less reliant on audits, which will ultimately relieve pressure on suppliers. Moreover, brands will be able to prioritise their due diligence efforts and ensure that their actions yield the most impactful results. For example, excessive overtime and high workforce turnover can both be reduced through brands adopting responsible purchasing practices that support suppliers’ long-term planning.”

We are excited to continue the relationship with Fair Wear, as our portfolio has expanded in 2023 (besides Pratibha Syntex) with two additional investments – Progress Apparels in Bangladesh and Sri Kannapiran Mills in India. Fair Wear has been an excellent partner in both countries with regards to the social assessment of the factories we invest in and the active monitoring of related social improvement plans. Together, the Good Fashion Fund and Fair Wear are committed to sharing knowledge as different stakeholders working towards the same goal of safeguarding and improving the lives of the thousands of workers employed in the textile and garment industry. Although our funding is focused on implementation of impact technology , contributing to social improvements at our investees is as important to support them on their journey towards sustainability.

The GFF is dedicated to creating systemic change in the fashion industry, not only by the direct impact of its investments but also by sharing experiences and lessons learned widely. We will continue to focus on suppliers as one of the few private impact investors in the world – as we exist to demonstrate both the commercial case and impact case for investing in sustainability. Our hope is for brands to incentivise suppliers to adopt good practices related to overall worker welfare and responsible purchasing practices so that suppliers can unquestionably pay living/premium wages and develop world-class facilities with safe and healthy working conditions.