Over the past decade, there has been a much stronger focus on the actions that third parties and suppliers based in developing countries take on behalf of the multinational companies they are commissioned by.

Very often, these locally based operators are blamed for many of the corrupt, unethical—and frankly unsafe—practices that their western customers are forced to account for from regulators, investors, charities, campaign groups, consumers, and the media.

In the past, multinationals have pleaded ignorance about the activities that these contractors have engaged in. Times have changed, however: As every compliance professional ought to know, it is now their own organisations—rather than the third parties working for them—that will be ultimately held responsible (and potentially legally culpable) for the actions in their own supply chains. And as a result, potentially dangerous or illegal behaviour committed by overseas suppliers cannot be ignored or tolerated.

Failure to monitor, check, inspect, and challenge an organisation’s supply chain is no longer an option, as bad practices committed by any supplier or contractor acting on your company’s behalf is widely regarded as being as much your fault as theirs. An investigation recently carried out by Netherlands-based campaign group the Changing Markets Foundation highlights the reputational problems that multinational companies and highly respected brands face when contractors in developing countries put lives at risk by the way they operate.

The investigation, a follow-up to a report first published last June and called Dirty Fashion revisited: spotlight on a polluting viscose giant, has found that factories in India supplying material for garments sold by major retailers including H&M, Asda, Next, and Tesco are leaking toxic chemicals into rivers and the atmosphere, leading to cases of cancer, tuberculosis, reproductive problems, birth defects, and stomach disorders.

The report lists serious allegations against India’s Aditya Birla Group, one of the world’s biggest producers of viscose (also known as rayon), a semi-synthetic fibre used widely in the garment industry. The Mumbai-based company is the world’s leading producer of viscose, providing about a fifth of the global market, meaning that many clothes purchased online and in the high street in the United Kingdom and throughout Europe are made from its materials.

Changing Markets says that last October two people died and 60 others were left seriously ill following one major pollution incident near one of the group’s factories in Nagda, Madhya Pradesh, in India, while another of its viscose factories in Indonesia discharged chemicals into a river in which children bathed. Water around the discharge pipe was found to be “extremely polluted” and not compliant with Indonesian water quality standards, which the report’s authors describe as “worst-in-class.” The plant was temporarily closed down in January by local authorities after 11 villagers were rushed to the hospital with suspected carbon monoxide poisoning because of the factory’s lax standards.

Furthermore, an independent laboratory test of air samples taken outside one of the company’s plants found that the level of carbon disulphide—a toxic chemical used in viscose production—was 125 times the World Health Organisation limit.

Failure to monitor, check, inspect, and challenge an organisation’s supply chain is no longer an option, as bad practices committed by any supplier or contractor acting on your company’s behalf is widely regarded as being as much your fault as theirs.

Workers inside the factory may have been exposed to far higher levels of carbon disulphide, because the chemical is highly volatile, meaning that it quickly breaks down when exposed to air, says Natasha Hurley, campaign manager at Changing Markets.

Aditya Birla Group denies that the problems were linked to its operations, and refutes the report’s allegations.

Some of the group’s big-name customers, however, have already responded to the report’s claims. In an e-mailed statement, Asda said: “We’re aware of this report and are reviewing its findings and will take action where appropriate.”

One major viscose producer, Austria’s Lenzing, has pledged to ensure that it will move to what’s known as “closed-loop” production by 2022. This means that the harmful chemicals put into the process to produce the fibre are captured and reused so that they do not leak out and pollute the environment. The company also plans to address its safety, health, and environmental performance by engaging with various parties, such as multi-stakeholder initiatives, NGOs, and an independent auditor. Retailers H&M, Inditex, and Asos, which are also named in the report, have similarly pledged to move toward close-loop production, and have also vowed to improve monitoring. Next has called for an industry-wide approach to ensure that viscose is produced responsibly.

Viscose production is currently highly concentrated—ten companies supply approximately 75 percent of the market—and the fibre is predominantly manufactured in Asia. Demand for viscose is expected to increase by around 5 percent per year to 2021, and by 2030 viscose/cellulosic fibres are projected to account for 8.5 percent of the total fibre market. Changing Markets says that the projected increase in growth “represents a key opportunity for brands to demand better standards for new factories.”

To accompany the report, Changing Markets has produced a “roadmap” for the industry that includes a series of steps to ensure that viscose production becomes more sustainable. The guidance, however, is broad enough for companies working outside of the apparel industry to also use or make reference to so that they too can monitor and audit their supply chains more effectively. As a result, compliance professionals working in other industry sectors can also benefit from the publication.

What a “good” responsible sourcing policy should look like

According to Changing Markets, any responsible production policy (not limited to viscose) that aims to protect the environment, as well as workers’ and public health, should ensure:

Compliance with laws and workplace regulations;

Recognition, respect for, and upholding of human rights and the rights of communities;

Raw materials sourced from plantations, forests, or farms that are responsibly managed;

Consideration for biodiversity;

Waste prevented, reused, recycled, recovered, and/or disposed of in an environmentally sustainable way;

Greenhouse gas emissions reduced;

Air emissions from processing plants reduced, with appropriate air pollution control systems in place;

Implementation of precautionary measures to reduce/eliminate release of toxic chemicals, including accident-prevention measures and regular surveillance;

Development of a plan for zero discharge of hazardous waste through leaks, spills, regular operations, uncontrolled discharges, etc.;

Transparent communication on environmental track record, e.g. making monitoring data available online;

Impacts on water mitigated by implementing water management plans and additional measures in water-stressed areas, including:

Establishment of impact assessments, including water resource assessments;

Minimisation of water withdrawal from the environment;

Prevention of water pollution, in particular the cessation of release of any priority hazardous substances (zero liquid discharge);

Deployment of dedicated wastewater treatment systems appropriate to the volume of wastewater produced, so that chemicals used in the production of viscose are discharged in compliance with best practice.
Source: Changing Markets Foundation

First, the guidance says that brands/companies should establish a responsible production policy, either as part of a general responsible sourcing policy or as a standalone document, which includes specific requirements for suppliers (see sidebar). This should include compliance with local laws and regulations, procedures around sourcing materials responsibly and ethically, and the need for regular environmental impact assessments and monitoring.

Organisations should also map their supply chain and provide full transparency on the identity of all the suppliers they are buying from, as well as potential environmental and social issues involved in their operations on the company’s behalf, and how these are being addressed. This information should be communicated publicly through the publication of a supplier list, which should be updated periodically. Suppliers should also be transparent and should publicly disclose information about any hazardous chemicals used and discharged in the production process, and about their own commitments to sustainability. As proof of improvement (or otherwise), brands should publish progress reports—including audited performance and testing data showing releases and discharges—on their corporate Website or public database.

The roadmap also says that companies should evaluate and assess factories throughout their supply chain to assess their alignment with criteria for responsible production. This will then enable them to promote best practice; remove the worst practices and the suppliers that refuse to improve; set milestones and timelines for suppliers to comply; and hold companies to account, with actions and outcomes being key to long-term buying partnerships. This can be done, says Changing Markets, via a gap analysis, which would identify incidences of non-compliance. Subsequent corrective action plans should then have clear indicators to address the issues step by step. Starting with the most critical issues first, companies should ensure the implementation of an action plan that is both relevant and adapted to the context, and ask for regular updates and transparency on progress.

Companies should also ensure that there is a process to monitor and verify their suppliers that is independent (such as through third-party monitoring). This monitoring process should also be regular; transparent; participative; and committed to addressing non-compliance, such as contacting the appropriate authorities if laws are broken or ensuring that suppliers take measures to restore good practice.

The guidance also recommends that companies should encourage their suppliers to establish appropriate grievance procedures that allow stakeholders to report concerns without fear of recrimination or dismissal. Such protocols should include redress for workers, impacted individuals or communities. Companies should respond rapidly and effectively to issues raised and address them as transparently as possible, notes the roadmap. Further, if a supplier does cause air or water pollution, it should consult with the affected communities about how it can best remedy the situation: For example, a remediation policy could include corrective actions on pollution prevention/control measures, drinking water, waste removal, and so on, to improve the lives of affected people.

Checking that suppliers have the requisite environmental permits and that they comply with relevant national and local regulations is also important, says Changing Markets. As part of that process, the roadmap says that companies should ask their suppliers to demonstrate that they possess the required environmental permits.

One way to check compliance in China, for example, is by using the “Blue Map Database,” maintained by the country’s Institute of Public & Environmental Affairs, which includes viscose factories. Through the database, companies can check in real time whether factories are complying with Chinese regulations, and how often they have breached national pollution standards. The platform also offers an opportunity to request that companies take corrective action, and it also has an option for factories to report on voluntary commitments, such as disclosure of pollutant release and transfer (PRTR) emissions data and Greenpeace Detox commitments. The roadmap suggests that companies should request that suppliers rapidly address all omissions and demand corrective action for any breaches—to the point that companies should clearly indicate that they will stop buying from a particular factory/manufacturer if corrective action is not taken by a specified deadline, or if the supplier does not undertake significant efforts to address and remediate environmental damage.

While it is important for companies to demand more assurance from organisations within their supply chains, however, Changing Markets is quick to point out that ultimate responsibility for verifying their compliance rests with just one organisation: one’s own.

“To implement the commitments in this roadmap, brands should integrate them into their responsible procurement policies as they see fit. These should be regularly verified and monitored on the ground, and transparently reported to the public,” it says.