Abuses lurk deep in fashion supply chain

Welcome back. One important, albeit hardly surprising, point to start. The acting head of the US Securities and Exchange Commission, Mark Uyeda, has moved to halt the SEC’s legal defence of its landmark climate disclosure rule introduced last year.

The rule, introduced last March, requires companies to file public reports on their climate-related risks. Its implementation has been postponed pending legal challenges from business groups and state officials, which the SEC has been contesting.

Uyeda, appointed by Donald Trump as acting SEC head following the resignation of Gary Gensler, said the commission would now ask the court not to schedule the case for argument. Uyeda said the SEC’s previous submissions to the court “do not reflect my views”, and that the commission would “promptly” announce its revised position on the litigation.

“The rule is deeply flawed and could inflict significant harm on the capital markets and our economy,” Uyeda said in his statement.

In today’s newsletter we look at developments half a world away from Washington, which nonetheless raise similar questions around transparency in global business.

As Bangladesh struggles to move beyond the authoritarian regime of recently deposed leader Sheikh Hasina — who may be guilty of crimes against humanity, UN investigators said today — there’s an opportunity to raise human rights standards in the country’s major industries. And international clothing companies may have an important role to play.

human rights

Bangladesh labour problems pose an important test for global clothing giants 

The 2013 collapse of the Rana Plaza factory complex in Bangladesh, which killed 1,138 people, was a hideous wake-up call for the global fashion industry. Big brands like Primark and Benetton collaborated on new initiatives to avoid a repeat tragedy (and another public relations disaster).

Twelve years on, safety standards in Bangladesh’s clothing factories have improved significantly, proving multinational companies’ capacity to drive positive change in their supply chains when they make an effort. But new research has highlighted the limits of this progress — and the extent to which big clothing companies themselves are a driver of human rights problems among their suppliers.

The study — co-ordinated by the University of Nottingham, the Bangladesh Labour Foundation and Goodweave International — showed basic safety standard improvements. Ninety per cent of the 1,974 workers interviewed said there was a safety committee with worker representation at their factory.

But in other regards, the results were dispiriting. The research, which was conducted from late 2023 to mid-2024, showed widespread violations of Bangladeshi law and basic human rights. With Bangladesh ranking as the world’s second-largest apparel exporter after China, the problems are significant for the global garment industry as a whole.

About a third of workers said they were paid below the legal minimum wage (which itself is not enough to pay for basic necessities, according to the Global Living Wage Coalition). A similar proportion said they worked more than the legal maximum of 10 hours a day, six days a week; all the legal minors interviewed said they worked more than the limit for under-18s. More than half the workers said they suffered threats or abuse at work.

Importantly, these problems were far more severe among the subcontractors that supply the exporters. This suggests that, while due diligence by international clothing companies is having some effect on basic labour rights at their direct suppliers, it’s having little such impact further down the supply chain.

The majority of workers at subcontracting factories said they were paid below the minimum wage, and they were far more likely to be working illegally long hours.

The research authors recommended that clothing companies invest in proper “mapping” of their extended supply chains, and collaborate with other businesses and non-profit groups to promote a broader improvement in transparency around indirect suppliers.

Many businesses now have a legal incentive to take these risks seriously. The EU’s corporate sustainability due diligence directive, passed last year and now being phased into effect, carries tough penalties for harms caused by a European company’s supplier, if it has failed to take proper measures to identify and act on related risks.

But clothing retailers need to ask themselves to what extent these abuses are, in fact, a function of their business model. Bangladesh’s fragmented garment sector — its 7,000 factories are roughly evenly divided between exporters and their subcontractors — has evolved in part because of the huge need for flexibility, as suppliers race to respond to foreign orders with tight deadlines.

The report found that the time pressure from foreign customers was a major reason behind the illegally long hours worked by many factory workers. Another was the fact that some foreign customers had refused to increase their payment rates in response to a rise in Bangladesh’s minimum wage.

The researchers argued that international clothing companies should co-ordinate to offer a premium to the payments made to their Bangladeshi suppliers, to fund higher worker wages. That might seem an optimistic request to make of clothing companies in the fast fashion era, as they jostle for low-margin business pushing out new designs at the frantic pace of viral social media trends.

For Bangladesh, the situation presents an economic dilemma. Competition among clothing exporters has been heating up, and the country has lost market share over the past four years to other Asian nations including Vietnam, India and Indonesia. Anything that adds to the cost of production might seem like a self-defeating move.

But failing to take action on these systemic labour violations may threaten Bangladesh’s competitive position in a different way, as international companies face new legal pressure to eliminate abuses in their supply chains.

Whether those companies play a constructive role in addressing those problems — rather than simply pushing suppliers for lower prices, or abandoning Bangladesh for still lower-cost destinations — will provide an important test of their approach to questions of social responsibility.

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