Luxury Brands Need Better Due Diligence Across Their Value Chains

Alleged human rights abuses and environmental concerns are not just within the purview of fast fashion.

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And while the ultra fast-fashion brands appear to be the most egregious of violators, it appears luxury firms need to take a closer look at their own back yards, too. Last month, Italian judges placed subsidiaries of Dior and Armani under court administration for one year after raids by Italian police indicated alleged exploitation of workers. Labor production is generally outsourced to third parties.

Belén Satorre, associate director, ESG and human rights, at global corporate intelligence and cybersecurity consultancy S-RM, has monitored European fashion houses for human rights abuses and says that supplier vendor forms and codes of conduct are no longer enough. She believes that a governance policy prioritizing commitment to human rights is needed, and says there are steps fashion firms can take to implement a due diligence process across their value chains.

Sourcing Journal: Human rights abuses have long been a point of contention in the realm of ultra-fast fashion firms. But what about in the luxury fashion space? How pervasive is the problem?

Belén Satorre: We cannot assume that luxury brands are exempt of human rights abuses. Fast-fashion and luxury brands alike need to address human rights abuses looking back at their supply chain, increasing their visibility across their value chain and understanding where their limitations are to trace their materials back to source.

The problem is more pervasive that we think. Traditionally many brands associate human rights to child or forced labor. It is much more than that, it is about the existing lack of contracts and social security, safe working conditions and violation of freedom of association, just to name a few. Sometimes these issues do not make the public eye.

SJ: Fashion firms curtail risk to ensure that their suppliers follow certain human rights standards. And annual audits of factories typically are part of the accountability process. So where did these fashion firms go wrong when word surfaces that the brand is connected to allegations of human rights violations?

BS: There are many instances across fashion complex supply chains where human rights abuses could occur.

The supplier pre-selection process is key as many brands rely on vendors to confirm they have a human rights policy in place. As well as the lack of visibility and traceability to source, it’s possible for some brands to lack the internal resources to conduct enhanced supply chain due diligence, when priorities are placed elsewhere.

Most fashion brands, for example, source their materials directly from mills or tanneries, which makes it incredibly difficult to trace the origin of these fabrics or even understand the conditions under which they have been sourced. In addition, in some production hubs, sometimes the contractor must use model factories to pass certain audits while subcontracting the work to non-compliant factories to meet the buyer’s price or thigh lead times.

All firms should implement a third-party supplier verification process to understand where their risks are across their value chain. After, they can conduct enhanced due diligence for those suppliers identified as high risk through a Human Rights Impact Assessments and establish a monitoring system in place to mitigate or reduce human rights risks.

SJ: Why should brands bear the ultimate responsibility when violations might have been because a supplier failed to do due diligence on its third-party contractor? Should brands be penalized for violations as an incentive to do better?

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BS: Ultimately, if a brand enters into a commercial agreement with a supplier, their own due diligence process should have flagged where the supplier has fell short, either through the lack of evidence, or responses in the first place. Unfortunately, many brands including luxury brands just send suppliers their own Code of Conduct and vendor form and that’s as far as their due diligence goes. This is simply not enough to mitigate human rights or ESG risks. More important than being responsible, it is the accountability part that both parties, brands and suppliers alike, should have to offer remedy to those whose rights have been impacted.

SJ: What more can and should fashion firms do to restore brand reputation?

BS: Firms should take accountability, and take their customers through their own journey. It is about achieving higher standards, improving internal risk management systems and assuming accountability if anything occurs within their own value chain.

There isn’t a cookie cutter solution as human rights issues in supply chains are complex, contextual, and ever-evolving. ‍Companies must comply with expanding regulations that include a range of enforceable local and international laws if human rights issues are uncovered. By working closely with suppliers and implementing due diligence processes, companies will learn how they can reduce and prevent human rights risks before they become major issues, protecting the people within their supply chains, and demonstrating a commitment to ethics and compliance.

SJ: You’ve monitored European fashion houses for human rights abuses. What has been the most common problems? ? What are the steps that are needed to get them to enforce a governance policy that prioritizes a commitment to human rights? How can fashion firms make sure that there is no further recurrence of human rights abuses across their operations? Would a deep dive into upstream suppliers help with the problem? What would be a good “best practice” playbook for fashion firms to implement as they review their own value chains?

BS: To start, there are some basic best practices that I would recommend following, such as: establishing a human rights policy, conducting a pre-supplier qualification questionnaire, implementing enhanced due diligence for those suppliers that are considered high risk, establishing a human rights risk register, and a monitoring process in place, as well as implementing an access to remedy strategy if a human rights abuse occurs under their watch.

The recent EU due diligence laws like CSRD and CS3D may make a difference as brands will need to map their value chain and assess their production conditions.

( EDITOR’S NOTE: CSRD refers to the Corporate Sustainability Reporting Directive that requires companies to detail the impact of corporate activities on the environment and society; it also requires firms to provide an audit of the reported information.

While CSRD requires disclosure of corporate climate transition plans to meet the 1.5 ° C goal, CS3D, or CSDDD, is the Corporate Sustainabiity Due Diligence Directive that calls for the adoption of a responsible and sustainable policy to identify and assess adverse human rights risks and environmental impact in the global value chains. An alignment with the Paris Agreement would meet the corporate operations policy called for by CS3D. )

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