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Company Response

3 Mar 2019

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

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

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.