Our Indicators
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third

Ethical code?

Does this company have an ethical code of conduct based on International Labour Organisation (ILO) standards.

First things first: has the company at least put together a set of principles when it comes to ethics? 

The ILO is ‘the international organization responsible for drawing up and overseeing international labour standards’.  It is a United Nations agency and has developed a set of labour standards covering key issues for workers such as wages, health and safety at work and child labour.  You can find out more on the ILO’s website, although the information provided there is very detailed and can be hard to navigate.  A simple summary of the ILO’s standards can be found in the Base Code on the UK’s Ethical Trading Initiative’s website.  The Ethical Trading Initiative Base Code is a good example of the type of code of conduct we would expect a company to have in order to meet our first indicator. 

A code of conduct is a list of rules that a company expects each of the clothing factories it uses to abide by.  Just having a code of conduct doesn’t mean that a company always sticks to these standards, but it is a start.  At least it means the company has started to think about ethical issues and has made some basic commitments.

Code applies to supply chain?

Is the full supply chain governed by the company’s code of conduct?

Tracking the source of the clothes we wear is complicated.  A fashion company may have a direct relationship with its supplier factories where the clothes it sells are actually sewn together, but there are numerous steps in the chain before that.  For example, the supplier factory must buy the fabric and accessories it uses from somewhere.  It may also contract out some parts of the manufacturing process – such as intricate embroidery – to other factories or to home workers. 

It’s obviously very difficult for a clothing company to keep track of what’s going on during all these steps, but that doesn’t mean it shouldn’t try.  We think the minimum a company can do is demand of its supplier factories that any suppliers they themselves use will also adhere to the same code of conduct described under Indicator 1.  That means that when the clothing company is performing audits of its factories – something we’ll come on to in later indicators – these checks will include an assessment of whether the factory is applying the same standards to its suppliers as it is expected to meet.  

You’ll see that we haven’t penalised a company twice if it has a code of conduct (as many companies do) which is based International Labour Organisation (ILO) standards but excludes a commitment to pay living wages.  So if a company has not committed to living wages but, apart from that, has an ILO-based code of conduct which it applies to its supply chain, then we have given it a tick in response to this indicator.  


Living wages?

Does the company have evidence that suppliers are paid enough for workers to be given a living wage?

Within their ethical code commitments on wages, many companies include a commitment to pay living wages.  This is a start, but unfortunately too many companies make this pledge without actually providing any evidence that they are doing anything to make it a reality.  To meet this indicator we expect companies to go beyond words and provide evidence of action. 

A living wage is usually defined as enough to meet basic needs and to provide some discretionary income.   This is, for example, how the UK’s Ethical Trading Initiative defines it.  You might have heard that certain companies have suggested that they can’t commit to a living wage, because no-one’s sure what a living wage actually is in different countries.  We recognise that there are still problems around calculating living wages.  But, at the same time, there are internationally agreed calculation methods which provide a good starting point.  The Fair Trade Initiative is one example.  So we don’t think companies should be able to hide behind this argument to avoid making commitments to pay living wages.  Enough for basic needs and some discretionary income is not a particularly high standard after all.  . 

Some companies are now facing up to the reality that, although they might like to think their workers are being paid a living wage, they do not have any evidence or data to back up this claim.  Although they have a code of conduct which commits to paying living wages, some companies have not been ashamed to admit that their workers may not currently be receiving a living wage.  As a result, they are starting to conduct studies to work out what a living wage is in the countries were they produce and to work towards a goal of ensuring that their suppliers are paid enough for this wage to be paid to workers.  This is a really positive step and – if companies are doing it – we’ve said they are ‘making progress’ on this indicator.  They are no longer hiding behind the argument that defining a living wage is too difficult.  Nor are they pretending things are fine when they are not.  We hope this indicator will encourage more companies to implement similar programmes. 

We have deliberately said that we want the evidence to be around whether suppliers are paid enough for workers to be given a living wage, because this focuses on the part of the process which is directly within the company’s control.  It is more difficult for them to work out whether their suppliers are actually passing the wage on to workers – something we will come on to in later indicators when we look at auditing. 

Meeting this third indicator requires two things of a clothing company.  Firstly, it requires them to know how much a living wage is in the countries concerned.  Secondly, it requires that they pay their supplier factories enough to cover their costs and pass this wage on to workers.  If they are paying their factories less than even the living wage in the first place, there is no way the factory will be able to do this. 

Factory address list?

Is a full list of the locations of the company’s supplier factories publicly available?

One of the best things clothing companies could do to help us learn more about conditions for their workers is to be more open about where their clothes are produced.  If a company provides the locations of all its supplier factories it means that journalists, NGOs or anyone else with an interest in the issues can make connections to the companies involved when they hear about poor conditions in these factories.  It also makes it easier for such people to visit the factories and see for themselves. 

Many companies say they cannot provide this information because it is commercially confidential.  We're not convinced by this!  We have examples of both large and small companies disclosing all their factory locations.  Nike, for example, has published a complete list on its website since 2005.  And small, fair trade company, People Tree also provides a complete list of the producers they work with.  If these companies can do it, then anyone can.  

Factories audited every 2 years?

Does the company ensure that each of its supplier factories receives a social audit at least every two years?

Social auditing has come to prominence in the past decade.  It is a way of helping companies keep tabs on their supply chain in the wake of scandals over issues like child labour.  A social audit should be conducted against the company’s code of conduct, described in indicator 1. 

Like financial auditors, social auditors spend time at a factory –usually a couple of days – and review the company’s records and procedures.  They will then give the company a score, identifying any failures against the code of conduct. 

Different companies conduct social audits in different ways.  Some of these methods are better than others – something we will come on to in later indicators.  The same factory often makes clothes for a number of different companies so often companies will share audit results to avoid the factory having to undergo an excessive number of audits.  

This indicator requires as a minimum that the company ensures some sort of social audit has taken place at each of its supplier factories.  We weren’t sure what a reasonable timeframe was so initially we asked companies how often they audit their factories as a minimum.  We found that two years was a number that often came up.  It seemed to us to be a happy medium between ensuring factories are checked fairly often but not overburdening good factories with unnecessary controls (most companies would audit poorly performing factories more often). 

The auditing system is not perfect.  We have heard that in many countries it is not uncommon for auditors to accept bribes in return for a good score.  We have also heard of factories falsifying their records and coaching their staff to say the right things to auditors. Despite these problems, at present, social auditing seems to be one of the most feasible ways for companies to monitor their supply chain. 

At the same time as conducting social audits, some companies are working on ‘beyond auditing’ programmes.  They are experimenting with ways to work more closely with factories, avoiding the need for spot checks with all their pitfalls.  In time, it may be that these schemes overtake the social auditing programmes – in which case we’ll need to come up with some new indicators!

Company staff visit factories?

Do the company’s own staff routinely visit factories to carry out checks or audits?

Not all companies have a regular, direct relationship with their suppliers.  Some only really use external auditing companies to check up on factories and assess how things are going.  We were impressed, however, that some companies have their own ethical trading teams that regularly visit suppliers and maintain a relationship with them.  We think this is something that all companies should look to emulate – although the size of such a team will obviously depend on the size of the company. 

Having staff who have been to factories and worked with them directly on ethical issues can give a company a much better understanding of the challenges and pitfalls that can arise in its supply chain.   It also helps to guard against one of the problems with social auditing that we mentioned under indicator 5: that of auditors accepting bribes in return for good audit results.  A company should be able to have more confidence in the integrity of staff it has recruited itself.  And the fact that it would have to take responsibility for any corruption amongst its own staff should be a powerful incentive for it to crack down heavily on any such practices.  

Unannounced factory checks?

Are unannounced checks or audits routinely carried out at factories?

One of the main difficulties with social audits is the danger that factories simply make sure everything looks perfect on the day.  That might mean they get rid of any child workers, coach their staff on what to say to the auditors or hide their real records of working hours and replace them with false ones. 

One of the ways these problems can be avoided is if factories are subjected to unannounced checks or audits.  This means they have no chance to prepare and it gives auditors a higher chance of seeing conditions in the factory as they really are. 

Ideally all audits would be unannounced but the industry is very far from that standard at present.  So under this indicator we’ve chosen to reward companies that are at least starting to make unannounced audits a routine part of their ethical policies.  By routine, we mean that they have started to make unannounced checks on all their factories, not just those that they suspect are performing poorly. We’ve given them a tick if they have provided evidence that this is the case, even if they haven’t yet ensured that all their audits are fully unannounced.  

Confidential audit interviews?

Do audits include confidential interviews with workers selected by the auditor (not, for example, management)?

As we’ve mentioned in relation to Indicator 7 above, there is a danger that a factory may put forward workers who have been coached to give the ‘right’ answers in audit interviews.  Allowing the auditor, rather than the factory management, to select interviewees helps to get around this problem.

We have also heard stories of workers being bullied by factory management after giving negative feedback to auditors.  Ensuring that any audit interviews are confidential and ideally take place off site helps to ensure that this does not happen.

Published audit results?

Are the company’s social audit results publicly available?

One of the key things we want our indicators to do is encourage companies to improve.  We are really impressed that some companies are now publishing detailed information on their social audit results on their websites.  That means they are stating openly things like the number of cases of child labour they have found in their factories and the number of breaches of health and safety procedures.

Making this information public is a brave decision on their part.  It puts them at risk or criticism for admitting to such problems.  And it means they will take flak from journalists and NGOs if they can’t demonstrate that they are improving.  There are many companies who currently refuse to publish their audit resultsv – presumably for just such reasons. 

We could, of course, take the information from companies that do publish their audit results and use it to tell you which ones appear to have the most breaches of their codes of conduct.   But that would penalise those firms who have chosen to be open and honest.   There are still many companies that do not publish any audit results at all so we think the first step is to encourage the openness and honesty that some firms are showing.

If a firm makes its results public you can read them for yourself and make your own decision as to whether they are good enough. Hopefully at some point it will become routine for all companies to publish their social audit results – then, at that point, we can use the results to start to differentiate between them.   

Worker complaint procedure?

Has the company put in place a mechanism by which factory workers can confidentially get in contact to raise issues of concern?

We have heard that some companies have recently put in place mechanisms (usually a telephone hotline or internet mailbox) for workers in their supplier factories to contact them directly and in confidence if they are experiencing problems.   We think this is a really positive step.  It gives factory workers a way to make their voice heard if they are facing difficulties with their management or in their day-to-day working conditions.  It also helps to give they buying company greater insight into what really goes on in factories.  Although we realise that it is not a panacea and that (for example) workers may be actively discouraged from raising complaints, we do think a mechanism of this sort is a very easy thing for a company to put in place and it is something we would like to see all companies doing.