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08 Jun 2021

Ethical Sourcing in Luxury Goods

The rise of the 'conscientious consumer' has created an increasing business need for ethical self-scrutiny and, for many companies, this has become a central part of their branding.

Some businesses are turning to re-wilding agricultural lands (such as Charles Burrell of the Knepp Estate) to tackle climate change and others’ whole business models turn on sustainability. A good example of this is THE RE-PETE PROJECT, which transforms re-cycled plastics into high quality, environmentally-conscious fashion. Given this trend, there is a growing focus on ‘ethical sourcing’ in supply chains and a developing regulatory regime.

Ethical sourcing refers to products being manufactured in a responsible and sustainable (or ‘circular’) way. Beyond marketing catch phrases, though, what are the legal obligations for luxury retailers and businesses when it comes to ethical sourcing and what are the steps companies should take to scrutinise their supply chains?

The Modern Slavery Act 2015 is one of the key pieces of legislation which companies need to be aware of when it comes to considering ethical sourcing.

The Modern Slavery Act 2015

Companies with an annual turnover of at least £36 million pounds must prepare a yearly statement setting out organisational structure, slavery and human trafficking policies, risk assessments and training. Such large-scale exercises are expensive and not legally necessary for smaller businesses, but all organisations (whether or not they meet the turnover requirements) are encouraged to be as open and transparent about their supply chains as possible. THE RE-PETE PROJECT, for example, works directly with UK and European mills, designers and manufacturers to ensure a circular and ethical process for garment production.

For any luxury company seeking an ethical platform as part of its branding, supply chain engagement offers an opportunity to underscore its core values. Given the growing movement for social and worker equality, particularly highlighted by the treatment of workers in the COVID-19 pandemic, supply chain regulation will only become stricter and more widespread over time. At a minimum, it is likely that future legislation will widen the scope and application of the Modern Slavery Act to specific industries or companies with suppliers in certain countries where modern slavery and labour abuses are more prevalent.

UK-led Efforts

In 2016, the UK government was one of 42 countries to ratify the International Labour Organization’s 2014 Forced Labour Protocol. This means the UK has committed to eliminating the worst forms of child labour by 2025 and taking immediate measures to eradicate forced labour.

Further progress seemed imminent following the publishing of the UK’s 2020 Annual Report on Modern Slavery. This refers to a plan to “establish a single enforcement body for employment rights to better protect vulnerable workers and create a level playing-field for the majority of employers complying with the law” and a desire to build on the “world-leading progress” that has been made so far.

The UK’s Competition and Market’s Authority has also recently launched a consultation on so-called ‘greenwashing’ practices, whereby businesses use clever marketing to pretend they are more ethical and sustainable than in reality.

Still, reductions in the UK’s international aid budget and the omission of the much-discussed Employment Bill in this year’s Queen’s Speech have left many UK campaigners concerned for the future of government-led efforts to tackle supply chain abuses and lead by example.

The existing modern slavery legislation alone is also insufficient to guarantee workers’ rights across supply chains. Following the 2013 Rana Plaza factory collapse in Bangladesh which killed over 1,100 garment workers, over 200 brands (many based in the UK) signed up to the ‘Bangladesh accord’ which guaranteed certain minimum rights to garment factory workers in the country. The original accord was set to expire in May 2021 but has been extended by three months as suggested replacements do not create a legally binding obligation on signatories. Without state-level leadership on this matter, companies are required to self-regulate on an inconsistent and uneven basis.

Conclusion

While the post-Brexit UK wants to be seen as “world-leading”, the current legislative and regulatory regime is insufficient to tackle modern slavery and other supply chain abuses.

UK companies reviewing their production lines and supply chains would be wise to engage with business partners and prepare for an inevitable expansion of reporting obligations (including by issuing statements on supply chain due diligence where possible). This will put them in good stead to comply with future regulations and improve consumer perception as they actively engage with ethical and sustainable practices, a market estimated to be worth £41bn in 2019.

The UK government is said to be reviewing its reduced aid budget and recently announced that the Employment Bill would come before Parliament when time allows. The Department for BEIS also announced that a new combined enforcement body will have the right to ban from sale the goods of companies which break minimum wage rules. Nevertheless, a vacuum of national leadership is putting the onus on COVID-strained businesses to volunteer already limited time and money. What is required is legally binding obligations that balance the burden placed on companies, particularly SMEs without large compliance teams, with the need for companies to engage with their supply chain. By striking this balance and cooperating with businesses, the UK can ensure the momentum in truly ethical sourcing continues.