New Report Links Supply Chain Transparency with Higher Profits, Access to Capital & Employee Retention

What do Nike, Patagonia and Esprit have in common? They have all signed the International Corporate Accountability Roundtable’s (ICAR) Apparel and Footwear Supply Chain Transparency Pledge.

In a new report, ICAR argues that brands that make supply chain transparency a priority — and sign its pledge — can expect to see improvements in their bottom lines. In this way, an organization can protect worker’s rights and become more profitable, thanks to improvements in efficiency and compliance.

“Far from being a liability, we’ve seen that when businesses take steps to make their supply chains more transparent, members of the public, governments and investors respond positively,” Meg Roggensack, ICAR’s interim executive director, said in a statement. “Businesses that take their human rights obligations seriously are the ones that, increasingly, consumers want to buy from and investors want to invest in, meaning that they are better positioned — compared to those brands that opt for less disclosure — to compete and thrive in today’s global marketplace. Transparency is a net positive for companies’ bottom lines.”

ICAR’s transparency pledge requires companies to publish a complete list of their manufacturing sites on a regular basis, typically biannually, including the name of production units, site addresses, site parent companies, products produced and the number of workers on each site.

“The pledge aims for consistency in disclosures, which is sorely needed,” ICAR explained. “In the absence of standards, companies adopt different approaches to transparency, sometimes excluding important information that makes it effective.”

In support of this conclusion, the firm’s report found that there are four major components of a given business that experience increased profitability and efficiency when paired with greater supply chain disclosure: reputational factors, operational efficiency, legal compliance and access to capital.

Reputational factors are probably the easiest to understand for brands. A recent report found that one-third of all consumers have already switched to a more sustainable brand when given the opportunity. ICAR said transparency pledges like its own give brands an opportunity to make public their intentions and to give consumers the option of vetting the brand themselves.

What’s more, becoming publicly transparent can attract investors interested in ethical companies. Since 2016, ICAR found, socially responsible investments have grown by 38%.

According to Larry Fink, chairman and CEO of Blackrock, one of the world’s largest asset management firms, as cited in ICAR’s report, “a company’s ability to manage environmental, social and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process.”

Greater efficiency can also be expected under high levels of organizational transparency, ICAR argued. For one, the firm said employees are both more likely to be loyal to an ethical and transparent company, and more likely to trust in a grievance system that actually aids in workplace conflict resolution. Additionally, as more companies commit to transparency, brands will be able to put more pressure on uneven or unethical suppliers and limit risky practices, like unauthorized subcontracting.

Brands that have already made supply chain transparency a priority, like Nike, have since enjoyed an atmosphere of collaboration and compliance, according to ICAR.

“We believe that responsible manufacturing is a precompetitive space that requires partnership across our industry to make global change,” Jaycee Pribulsky, the VP of sustainable manufacturing and sourcing at Nike, told ICAR. “Collaboration starts with transparency, creating a foundation that holds both brands and suppliers accountable, while creating opportunities to effectively work together to advance change. That is why, in 2005, Nike was the first company in our industry to publicly disclose our Tier 1 supply base, and since that time, we’ve continued to push on transparency.”

Editor’s Note: This story was reported by FN’s sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

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