Kim and Johanna first met at a meeting about living wages. “Kim asked a critical question about the subject, and I immediately knew that I could learn a lot from her,” says Johanna. “As investors, we have the opportunity to challenge multinationals about living wages and question how they will provide them. Thanks to Kim, I learned to ask better questions.”
Kim, you were the manager of a garment factory in Cambodia. How did that experience shape your vision for a fair clothing industry?
Kim: “I studied human rights and was determined to show that you can treat employees fairly in the clothing industry. But I had very little room to do that at the factory. The balance of power in the industry means factory managers have their backs against the wall. For instance, I sometimes had to outsource work to other factories if we couldn’t complete an order on time. I didn’t know if these factories treated their staff well. I had never expected to be in this position. But the balance of power between clothing brands and factories means that you have almost no choice.”
The power of clothing brands is clearly visible in the way they place orders. They start with a projection, such as ‘We want 100,000 green tops in different sizes.’ Based on that, I would buy materials and estimate the number of employees we would need. But there’s one problem: their projection is not binding. And the order often turns out to be completely different. The brand may only take half the number of items or decide to choose a different colour. As a clothing factory, you are then stuck with the investment costs. Margins for factories are small, so a setback like this can quickly push figures into the red.
”How can this change?
Kim: “It’s fascinating that we take the status quo in the industry for granted. We’re not even questioning why clothing brands don’t make their own clothes. But that’s the crux of the matter. They don’t make clothes because they don’t want to pay for materials and personnel. And that choice is linked to the shareholders’ unwillingness to take risks.”
Clothing brands – and therefore also their shareholders – should bear the risks in the chain together with factories. And this includes jointly bearing the costs for the losses incurred when the projected and actual order do not match. It would also help if clothing brands made a down payment at the start of the production process as a financial commitment. This is the only way to create a fairer chain, where employee wages are not cut to cover the risks in the chain.”
In many countries and sectors, the minimum wage is still significantly lower than the income employees need for their livelihoods (see box). How does Triodos deal with this?
Johanna: “Triodos Investment Management (the investment arm of Triodos Bank) is pushing for a living wage. This is because living wages enable employees to get out of the vulnerable position of poverty. As an investor, we put pressure on clothing brands to ensure that their suppliers pay a living wage to their employees. We do this on our own as well as along with 20 other investors, through the Platform Living Wage Financials. I talk to Nike on behalf of the platform, and during this process, I draw inspiration from Kim’s stories.
I ask whether the clothing brand’s profit margins enable their suppliers to pay a living wage. And whether the client is contributing to the costs for the supplier to comply with environmental and social regulations and the costs of monitoring them. Building long-term relationships between clothing brands and producers is essential for improving wages and working conditions.”
How do you influence a major clothing brand like Nike?
Johanna: “We attend the shareholders’ meeting where we ask questions. In addition, we meet annually with the company’s management. This can sometimes be a challenging exercise. Last year, for instance, Nike only gave us half an hour, which was mainly spent on a promotional talk. This year, we had 45 minutes, and they had prepared well for answering our questions about their progress on living wages. This shows improvement, but their answers were still not as detailed as we would like. I hope next year they will clearly identify the factories where they pay a living wage and explain how they are releasing the budget for this. At least the management team are now aware that we think that is important.”
What does Triodos do when a company fails to do enough?
Johanna: “We can express our dissatisfaction in various ways. For example, by writing a formal letter to the management of a company. We may then issue a public statement asking the company to make improvements. If that doesn’t help, we may decide to withdraw our investment.
A few years ago, we decided not to invest in fast fashion brands anymore. We reviewed their business case and concluded that it is extremely unlikely that they will ever find the capacity to pay a living wage. This led to divestments from H&M and Inditex, Zara’s parent company. Triodos has a strong reputation for corporate responsibility, so divestment generates bad press for these fashion brands.
However, we know our niche. We are a relatively small asset manager and a company like Inditex won’t encounter financial problems if they lose us. We therefore also need the cooperation of larger funds, so that a divestment is not limited to (potential) reputational damage, but also hurts financially. We are trying to achieve that through the Living Wage Financials Platform.”
Johanna, what next steps are needed to achieve a living wage in the clothing industry?
Johanna: “More investors need to push for living wages. Then we can collectively say to brands: we will accept a lower return on our investments if you show that you share the risks in the production chain more fairly. This will create the space for clothing factories to pay a living wage. I see movement in that direction, but mainstream asset managers are far from this point.”
Kim, what developments in the clothing sector make you hopeful?
Kim: “The growing awareness that systemic change is needed to achieve a fair and sustainable chain. But we still have a long way to go. In recent decades, attempts have been made to achieve a fair industry through voluntary agreements, but unfortunately this did not bring about real change. We need to do more. This awareness is filtering into more areas.”