Bangladesh: Fair Action reports that Nordic banks fail to hold H&M and other brands accountable to living wage promises

Bangladesh_Garment Industry_Living Wage_Fair Action Report_Credit_BD Apparel News_04.02.2019

 

In February 2019, Fair Action released a report exploring, among other things, the role of Nordic banks (as shareholders) in holding H&M accountable to its promise to ensure living wages for garment workers in its supply chain by 2018, particularly in Bangladesh. Fair Action studied 14 banks, finding that "none of the banks are doing enough to push for living wages" and, specifically, that "the banks have not demanded that the garment companies set concrete objectives in terms of measurable wage increases." 

We invited Länsförsäkringar, Skandia Mutual Life; Handels Banken; Danske Bank, Swedbank, Nordea, SEB Group, DNB, Storebrand, KLP, Sparebank 1 Nord-Norge, Sparebank 1 SR-Bank, Sparebank 1 SMN, Sparebank 1 Østlandet, Sparebank 1 Østlandet to respond to the allegations.

Nordea and Danske Bank chose not to respond. 

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Article
4 March 2019

Bangladesh: Banks fail to hold H&M accountable to living wage promises, says Fair Action report

Author: Fair Action (Sweden), Fair Finance Guide International, The Future in Our Hands (Norway)

"Shareholders of H&M fail to take responsibility for garment workers’ wages", 31 January 2019

H&M did not keep the promise to make it possible for 850 000 garment workers to earn a living wage by 2018. Several Nordic banks are among H&M’s largest owners...However, the banks have not used their influence to hold H&M accountable for its living wage commitment, a new report by Fair Action and Fair Finance Guide shows...

The report outlines the investments of Danske Bank, DNB, Handelsbanken, KLP, Länsförsäkringar, Nordea, SEB, Skandia, Storebrand and Swedbank as well as four savings banks (Sparebank 1 Nord-Norge/ SMN/SR/Östlandet) in the Nordic brands H&M, KappAhl, Lindex and MQ. The four fashion companies all buy clothes from Bangladesh, where employees in the factories are among the lowest paid in the world. H&M is the world's largest buyer of garments from Bangladesh. Around 80 percent of the work force in the country's garment sector is female. 

The report shows that none of the banks are doing enough to push for living wages in the four companies’ supply chains. More specifically, the banks have not demanded that the garment companies set concrete objectives in terms of measurable wage increases.

[Full report attached below]

Read the full post here

Download the full document here

Company response
3 March 2019

DNB’s response to the Fair Action report “Broke in Bangladesh”

Author: Laura Natumi McTavish, Responsible Investment Analyst, DNB, Norwary

We have had extensive dialogue with Framtiden i Våre Hender to explain our position and how it would be presented in the report.  Unfortunately, we believe that the report’s conclusion does not accurately reflect DNB’s position and work with H&M.  We have worked with these issues for many years both directly towards companies and together with other investors.  It is also worth noting that we hold a small position in H&M (we own 0.01% of the company) and are not invested in any of the other companies mentioned in the report.

The topic of living wages is important, complex and challenging as there is no specific international norm to be breached and few countries have consensus on how much a “living” wage actually is.  In addition, it is also difficult to determine the root causes of living wages challenges, which are often systemic in nature. Consequently, we encourage companies to work in collaboration with key stakeholders, such as unions and government, to drive change at industry level and to enable appropriate country frameworks.  In Bangladesh in particular, due to the importance of the garment industry for exports, the issue is also highly political.  The solution to raising living wages is not as straightforward as “demanding that fashion brands share the costs of raising the wages with their suppliers” as there is no “one size fits all” approach and there are regional differences that must be accounted for.  For example, unions are not as powerful in China compared to other countries.

H&M is considered to be a leader within its industry when it comes to living wages.  H&M has published a strategy and goals, and works strategically to deliver on these.  We have engaged with H&M since 2011, when sustainable cotton, including wages,  was a thematic focus area.  Since 2011 we have identified, analysed and taken action in regards to living wages and working conditions in H&M’s supply chain.  H&M implemented its fair wage strategy on the back of such investor pressure in 2013.  Dialogues with H&M have generally focused on sustainability issues such as labour rights and human rights, including living wages, through investor initiatives and through our external engagement service provider.  We are and will continue to follow up H&M to see how they progress towards their targets, and to encourage ever increasing levels of transparency.

ESG issues in Bangladesh are not new to us.  Sustainable shipbreaking has been a focus area since 2017, where pollution, labour rights and human rights issues are all relevant.  We excluded four companies due to unsustainable shipbreaking practices in 2018.  Furthermore, living wages are also a challenge in other industries/regions.  We have been engaging on living wages and child labour in regards to cocoa supply chains since 2017.  Living wages will therefore continue to be an important theme in our thematic engagement on emerging markets supply chains in 2019.

 

Company response
3 March 2019

Handelsbanken's response to the Fair Action report “Broke in Bangladesh”

Author: Karin Askelöf, Head of Responsible Investments, Handelsbanken, Sweden

Our comment

As an investor we have an indisputable responsibility, and a great opportunity, to engage with companies in order to advance their sustainability performance, of which the respect for human rights is one principal area. The report highlights living wages which is about fundamental human rights. We agree with Fair Action that ensuring living wages is about creating a future where people can provide for the basic needs of their families and also contribute to creating sustainable societies. Living wages is also about lifting thousands of women and their children out of poverty.

It is positive that the report initially gives clear recommendations for investors' continued work. We take note of the report's recommendations and will consider them as we develop our methods going forward and in particular regarding how we can work with living wages in the best way possible.

Our holdings and engagements
Actively managed funds
Handelsbanken's actively managed funds currently have no shares in the companies that Fair Action has reviewed.

We have an integrated approach to sustainability within Handelsbanken as a whole, and also within asset management.  Sustainability risks and opportunities are defined as an integral part of our investment analysis and investment decisions. The inclusion of sustainable companies into our investment portfolios and active engagements with these companies, are pillars of our investment process.  Continuously we work dedicated to improving our methods which has also been the case during 2018. Going forward, if we invest in companies in which we assess wages risking not to allow a reasonable standard of living, we will engage to influence these companies in the right direction.
Within investment management we engage with companies in various ways; directly with the companies, together with other investors and through initiatives. We are dedicated to continue to strategically develop our active engagement activities. Part of this development will be a focus on human rights in supply chains during 2019-2020 as we see several risk areas in complex global supply chains.

Index funds
Handelsbanken’s passively managed funds, so called index funds, have holdings in the four companies as a result of that index funds must contain/reflect the exposure of it’s benchmark index.

For the index funds we engage with companies we are invested in, through so called pooled engagements which are engagements together with other investors. In this work our focus is on engagement with companies that are assessed to violate international norms and conventions. Up till now these four companies, and their linkages to the living wage issue as purchasers from suppliers, have not yet been assessed as norm violators.

Furthermore, pooled engagement also have a focus on companies that are active in sectors or markets with high sustainability risks. In recent years focus has been predominantly on climate related issues. The clothing industry is definitely a sector that exhibits high sustainability risks and where we historically have not had any engagements. We will consider how we can approach living wages going forward.

Karin Askelöf
Head of Responsible Investments
Blasieholmstorg 12
106 70 STOCKHOLM, Sweden

Article
3 March 2019

KLP’s response to the Fair Action report “Broke in Bangladesh”

Author: Jeanett Bergan, Head of responsible investments, KLP, Norway

On a general note KLP's guidelines for responsible investments describes how KLP works with engagement, voting and exclusions. Serious or systematic violations of human rights and other gross or systematic breaches of labor rights are part of KLP's exclusion criteria.

Labor rights is an important topic in many discussions with companies, and KLP has excluded companies in cases where workers have not had the right to organize (an important premise for being able to negotiate on wage and other working conditions) or there is documented forced labor and/or child labor. (See the exclusions under human rights and labor rights at klp.no.)With regards to H&M there was an engagement concerning labor rights were living wage was included in 2015. H&M launched a strategy in 2013 to reach a fair living wage by 2018, which was applauded at the time. However, the goal was not reached and it should be a topic for discussion with the company why that is, what they have learned and how they will work with living wage going forward. KLP is part of a collaborative project called N

ordic Engagement Cooperation. In 2017 NEC chose to focus on the textile industry. During this themed-engagement, NEC has met with several garment companies, and discussed the topic of child labor in the textile industry with both NGOs and other major investors. The next NEC-meeting will take place in March in Stockholm were we will have a meeting with H&M and the topic of living wage will be a natural part of that discussion.

Company response
3 March 2019

Länsförsäkringar response to the Fair Action report “Broke in Bangladesh”

Author: Sofia Aulin, Sweden

At Länsförsäkringar Fondförvaltning we do a sustainability analysis of the Swedish companies held within our actively managed portfolios, including H&M. We believe
that H&M has strong ESG practice but at the same time we are aware of the fact that their business poses great challenges. We therefore have a close dialogue with the company and we monitor how their sustainability work is being developed. The issue of living wages has been a priority issues at our latest meetings with the company. Our latest sustainability meeting with H&M was in February 2019.

We have reviewed the independent evaluation of H&Ms work made by the Ethical Trading Initiative (ETI) and we will monitor H&Ms consideration of the recommendations from that evaluation in their continued work. We share the view of ETI that H&M alone cannot change wage levels without the collaboration with other companies in the industry, with organizations such as the ILO and with the governments of the countries involved. Continued work with efficient wage management systems and strong representation of the workers at the factories is also required. These are issues that H&M is already working with but where they must continue to set clear requirements for their suppliers. These are all issues that will be part of our dialog with  H&M going further.

Company response
3 March 2019

Response from ODIN Fund Management to the Fair Action report “Broke in Bangladesh”

Author: Hans Tronstad, Director of Communications Sparebank 1 SMN, Norway

Responsibility and sustainability are integral parts in our way of investing. We spend both time and resources (externally and internally) to gather information to ensure that we have a solid basis to properly evaluate companies. ESG-factors are thus integrated in our investment process. We were shareholders in H&M from 2014 till 2018. H&M operate in an industry where supply chain challenges are one of the most significant risk factors from an ESG-perspective. When we chose to invest in H&M, we considered the company to have the focus and the resources needed to face these challenges. With its size the company had the possibility to positively influence the industry. We had several meetings with H&M in the period invested. At these meetings sustainability and responsibility, where fair living wage is included, were discussed. While H&M has shown progress, we agree that the progress has been too slow. 

 

Company response
3 March 2019

SEB Group's response to the Fair Action report “Broke in Bangladesh”

Author: Eva Siling, Group Sustainability, SEB Group, France

Thank you for your email and for giving us the opportunity to respond. We welcome being scrutinized and recognize the importance of fair living wages. We have been in dialogue with H&M on the issue since 2015 (directly and through our engagement consultant) and we have respect for the process taking time.

Company response
3 March 2019

Skandia's response to the Fair Action report “Broke in Bangladesh”

Author: Aurora Samuelsson, Investment Analyst, ESG, Skandia, Sweden

In short Skandia would like to high light that Skandia have both policies and processes in place to manage sustainability risks and opportunities when analyzing companies in its investment universe. Skandia does also have several “position papers” where, among several issues, Human Rights[1] and Labour Rights[2] are addressed. 

The issue of fair living wages is complex since the fashion brands are not able to fully manage how wages are agreed or the increase of living costs in the society where the workers in the garment sector lives. However, Skandia do recognize that living wages is an important issue to address and the conclusions in this report is taken into consideration.

During the year Skandia has addressed conditions in the supply chain in the garment industry, the focus has been gender based harassments but also the issue of living wage has been addressed. H&M is one of the companies Skandia has addressed. This thematic engagement will soon be presented in Skandia’s Engagement Report for 2018. 

Read the full post here

Company response
3 March 2019

SpareBank 1 SR-Bank's response to the Fair Action report “Broke in Bangladesh”

Author: Agnethe Brown Erland, Sustainability Manager, SpareBank 1 SR-Bank, Norwary

We are aware of the problems concerning living wages in the garment industry, and we recognize the importance of working towards better working conditions in the textile industry.

When it comes to this specific report we would like to specify that SpareBank 1 SR-Bank is a regional saving bank and rarely invest in publicly listed stocks at all. However, we do distribute mutual funds to our clients that are managed by Odin Asset Management. Odin was a shareholder in H&M between 2014 and 2018.

 We have reached out to Odin Asset Management and received the following comment

Responsibility and sustainability are integral parts in our way of investing. We spend both time and resources (externally and internally) to gather information to ensure that we have a solid basis to properly evaluate companies. ESG-factors are thus integrated in our investment process. We were shareholders in H&M from 2014 till 2018. H&M operate in an industry where supply chain challenges are one of the most significant risk factors from an ESG-perspective. When we chose to invest in H&M, we considered the company to have the focus and the resources needed to face these challenges. With its size the company had the possibility to positively influence the industry. We had several meetings with H&M in the period invested. At these meetings sustainability and responsibility, where fair living wage is included, were discussed. While H&M has shown progress, we agree that the progress has been too slow.  

Company response
3 March 2019

Storebrand’s response to the Fair Action report “Broke in Bangladesh”

Author: Tulia Machado-Helland, Senior Legal Adviser ESG, Storebrand, Norway

Thank you for contacting us regarding the Fair Action's report on the garment industry in Bangladesh with focus on Nordic companies and banks.

Since Storebrand Asset Management is not invested in either KappAhl or the Stockmann Group, which Lindex is part of, our answer will focus on our dialogue with Hennes & Mauritz (H&M).

Storebrand has been engaging with H&M over the years regarding labor conditions in general and child labour in particular. In 2012, Storebrand started to focus more on wages policies and purchasing practices at suppliers. In 2013, Storebrand visited H&M at its headquarters in Stockholm before H&M announced its Fair Living Wages roadmap. Organisations applauded H&M's announcement, as H&M was taking a leading role regarding this issue within the textile industry. After the announcement, Storebrand continued the dialogue regarding labour conditions and followed up on the actual implementation of H&M's commitment on living wages until 2015.

After the first years of implementation, our sustainability data provider was showing how the company was making progress. It highlighted that overtime had been reduced 40% and there had been an improvement in payment structures. Therefore, at that time, we decided to allocate resources to more pressing engagement initiatives. After the summer of 2018, we resumed our engagement with the company since it seemed the company was not meeting its objectives.

H&M has been helpful in explaining its Fair Living Wage strategy and how it has met the objectives that it set out in 2013. As the Fair Action's report states: H&M committed to make sure that the company's strategic suppliers should have pay structures in place to pay a fair living wage to 850 000 workers by 2018. The company's focus has been on working towards creating the mentioned pay structures together with 20 other brands by engaging via ACT (Action, Collaboration, Transformation) initiative with trade unions, governments and suppliers. Although, the company means they have been successful in creating these structures, it also admits that they have not been able to test its effectiveness in terms of raising wages across H&M group’s supply chain. It takes time to effect long-term societal structural changes. These are suppliers that are not used to engaging in collective bargaining with unions. All stakeholders need to learn the basics.

The strategy covers Cambodia, India, China, Indonesia, Turkey, Vietnam, Myanmar, Pakistan and Bangladesh. The company has explained that its progress should not be determined against the measure of whether 850,000 workers at strategic suppliers’ factories achieved a living wage in 2018. H&M group was explicit that it was not going to establish specific wage levels or rates at the outset of this work.

However, the company shows in its website how the average take-home wage has been higher for the suppliers that are enrolled in their wage-management systems during 2017 and 2018 compared to those that are not. It also admits that these wage improvements are still well below where a fair living wage should be.

Storebrand's dialogue with the company has focused on the implementation of purchasing practices that should lead to an increase in wages, ultimately living wages. The company so far, has not been able to provide to what extent it is sharing the cost of raising wages though the implementation of these practices. The company does not calculate if it is paying more for products coming from suppliers enrolled in wage-management systems. However, they do mention that they remove labour cost from price negotiations and that they are willing to pay more..

At this point, Storebrand will continue engaging with the company regarding this issue. Although, it seems that the company has made progress regarding wage-management systems or pay structures, it is still not clear to us to what extent the company is sharing the cost of raising wages with its suppliers. We will continue to engage with H&M to make the company accountable and make sure it does its very best to raise the standards in the textile industry. H&M considers itself a leader within the industry regarding this issue. We would like to make sure that it actually is. Their work could be used as an example for other textile companies that may still think that living wages are not an achievable proposition. To be that example, it is urgent that H&M continues to work for meaningful change. Storebrand will, together with other investors, continue its dialogue with the company as long as we believe it can make a difference going forward.Finally, we are extremely grateful to Fremtiden i våre hender and Fair Aciton for bringing attention to this issue, and for providing information to investors. This also makes us better responsible investors.