Transparency and Incentives Can Re-Fashion the Apparel Industry

Multiple crises have rocked the global apparel industry. The health crisis has spawned an economic crisis. Decreasing demand from consumers has led to growing bankruptcies among apparel brands and retailers. In turn, many companies have withheld payments for already produced garments, and cut contracts for future orders. To add insult to injury, reports have surfaced of companies requesting discounts for new orders. Workers at the bottom of global supply chains face withheld pay, risks to their health, and further downward pressure on their livelihoods.

The pandemic exposed all that’s wrong with the apparel sector

There is an immediate need for the industry to work together to coordinate to keep factories open and to guarantee that workers are safe, healthy, and paid. This first means paying all past contracts in full, and disclosing this publicly. An international #PayUp campaign has worked over the last several months to document and pressure brands that have not paid for contracts.

Even this basic exercise in holding companies accountable has been extremely difficult.

These crises have exposed a lack of transparency and problematic incentives in the global apparel industry, and brought into clear relief the limitations of recent industry efforts to improve environmental and social conditions.

Our research over the last four years has shown that even the most advanced industry initiatives for sustainability such as the Sustainable Apparel Coalition’s Higg Index – which measures an apparel facility’s environmental management capabilities, procedures and plans – have been limited in their impact in the face of downward economic pressure on the industry. Our analysis, released today, confirms that critical changes are needed in the industry and its governance.

Transparency and governance in the apparel industry are only the start

We analyzed Higg Index data from nearly twelve thousand factories across 80 countries, surveyed 500 of these facilities, and conducted in-depth case studies of high-performing factories in Bangladesh and China. Through interviews with apparel industry managers, document review, and facility tours we sought to understand what the very best factories were doing, and what role governance schemes such as the Higg Index played in their efforts to improve performance.

While creating an important foundation for unified standards and measurement, the effectiveness of the Higg Index in driving real action has been limited by slow progress on public transparency and a lack of incentives between buyers and factories.

Our research confirms that industry standards and monitoring organizations – such as the Higg Index – have acted like a scale without a diet.

The good news is we now know that it is possible to measure labor and environmental conditions in detail. But there is more work to improve these systems and integrate them with decision making procedures.

As the global apparel industry has evolved from supply chains, to webs, to platforms for production, apparel firms have steadily adapted new technologies and operating procedures such as lean manufacturing, just-in-time delivery, demand forecasting, and rapid product development. A similar effort is long overdue for environmental and social improvements. We know that this is necessary, but not sufficient to drive real improvements.

Doing the minimum for garment workers is far from enough

As the apparel industry struggles to survive, they will need clear incentives to invest in improvements. As demand returns, orders should be tied to improvements in the treatment of workers and sustainability. The best factories should receive increased orders, better payment terms, ­longer contracts and higher-margin orders. Contract terms should incentivize, not hamstring a factory’s ability to make improvements. There is a need to combine standardized data collection (for contract payment, wage payment, hours worked, environmental performance, etc.) with incentive structures that support continuous improvements.

Firms also need stronger incentives. The apparel industry can and should move towards public transparency of supply chain performance. Not just visibility within and between firms – as the Higg Index now facilitates – but information all the way out to end consumers. If we can provide information that is material and meaningful to consumers, investors, and NGOs, it will unlock incentives for the best brands and factories.

You’re tracking data – now it’s time to share it

Accountability from transparency requires comparable, trustworthy, and meaningful data. While the Higg Index has focused on standardization and data collection, it’s time to share meaningful information publicly. This is a challenging step. While the Higg Index tracks hundreds of attributes (from energy use, to water use to pollution) consumers often only want 1 or 2 pieces of information, embedded in the flow of their normal shopping process, helping them align their shopping with their values. Regulators, investors, and NGOs will want other information in different formats. Experimentation and iteration are both needed.

As groups work to save factories and “build back better,” it is critical to advance both greater transparency of supply chains and clearer incentives for motivating real improvements in factories and in the lives of workers.

Our goal should be a recovery that leads to safer, more sustainable, more equitable workplaces. And to conditions that are verifiable through trustworthy, meaningful, public transparency.

It is time to move from measurement and the good intentions of individual buyers, to a system with clear mechanisms and incentives to drive improvements at scale.

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