Three years on from Rana Plaza: taking stock

Neil Brown

This article was first published by Alliance Trust Investments on 21 April 2016.

As we approach the third anniversary of the collapse of the Rana Plaza factory in Bangladesh, it is important for us as investors in the apparel sector to reflect on what has changed in the industry since 2013. In particular, we need to understand how any changes have impacted our investments and to consider what remains to be done as we continue to strive to deliver superior investment performance for our clients.

A key holding we have in the sector is Spanish multinational clothing firm Inditex, which owns brands including Zara, Berksha and Massimo Dutti. We believe this company is encouraging change in the industry and drawing financial benefit from their management of social and environmental issues. Since we bought Inditex in February 2012, shares have risen by 151.6% compared to just 38% from the MCSI Europe index (Source: Google Finance).

Promising progress

The formation of the Accord on Fire and Building Safety in Bangladesh and Alliance for Bangladesh Worker Safety after the collapse of Rana Plaza in April 2013 were rapid and notable wins for an industry that had previously been slow to respond to these issues. Like many investors, we would have preferred the entire textile industry to come together behind the Accord; however we acknowledge the good work that has been done by both agreements, particularly their efforts to harmonise health and safety demands on local factory owners. In the ATI Sustainable Future Team we focused our engagement on those companies that committed to the Accord and engaged directly with those that did not.

In 2014, our investment team visited Bangladesh on a fact finding tour. We worked with Morgan Stanley's SRI equity research team and several European apparel brands to host eight global investors across a week of meetings and factory visits. We tried to meet with people from every aspect of the supply chain and we conducted three factory visits, accompanied by brand representatives on two occasions. We were encouraged by what we found and since then we have worked closely with the brands and research teams across financial markets to identify, support and invest in those companies that we believe will win this race to the top.

While serious issues remain around factories' ability to secure financing for their remediation plans, and what will happen at the scheduled end of these programmes in 2018, the identification and inspection of Accord and Alliance factories represents a significant achievement for the industry. Accord says it has inspected nearly 1,600 factories in Bangladesh to date and worked with over 1,400 owners to produce Corrective Action Plans, which set out clear timelines and financial provision for required changes. Alliance claims to have visited 677 factories, recommended 36 for closure and helped 24 to bring working conditions fully in line with recommendations. It is an achievement that we feel can and should now be replicated globally with the long term goal being the provision of transparent, factory-level data across the entire supply chain.

Building momentum

Although we have yet to see a significant change in consumer behaviour, we note that the consumer facing disclosure of some brands and the success of campaign group Fashion Revolution suggest that consumer interest is on the rise. Established in the wake of the Rana Plaza disaster, Fashion Revolution has organised a week of activities this year to raise awareness around production practices in the apparel industry. We believe the widespread consumer interest that is being created by groups like Fashion Revolution will begin to translate into revenue opportunities for the best companies.

In May we will host another meeting of global investors to debate these issues alongside leading experts so as to better understand the investment implications. This continues a process which began eight years ago with our work on Oxfam's Better Returns in a Better World project and has included hosting a range of investor education events. This week we will also renew our commitment to the Investor Statement on Bangladesh; a call to action from the Interfaith Centre on Corporate Responsibility (ICCR), which unites more than 200 investors with over $3 trillion in assets under management in clear calls for change.

Three years on from the collapse of Rana Plaza, is clear that a great deal has changed in the Bangladesh garment industry. It is equally clear, however, that these changes do not go far enough and that they need to be extended beyond Bangladesh and beyond Apparel. We continue to believe that unsafe and degrading working practices make no business, common or investment sense and we will continue to play our role in bringing them to an end. We do this to protect our clients’ capital from the risks inherent in the worst practices and to drive their investment returns. It is also clearly the right thing to do.


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Tuesday, April 5, 2016, 11:00 PM