Calling all hipsters: you may just have a new reason to feel better about your skinny jeans.
In an attempt to bolster its ethical credentials and meet the demands of increasingly fussy millennial consumers, Levi Strauss & Co is offering a new financial incentive to suppliers as far away as Bangladesh and China to meet environmental, labour and safety standards.
The San Francisco-based jeans maker said on Tuesday it would begin providing lower-cost working capital to those of its 550 suppliers who do best on those measures.
The financing, which is being arranged with the World Bank’s private sector arm, the International Finance Corporation, will operate on a sliding scale. As suppliers improve conditions for employees and their environmental performance they will be rewarded with lower interest rates on working capital provided through a special IFC facility.
The project sprang out of conversations started at the IFC following the 2013 Rana Plaza factory collapse in Bangladesh, which left more than 1,100 dead and prompted new scrutiny of international fashion brands’ supply chains.
After the disaster, the IFC started offering low-interest loans to improve safety conditions in factories in Bangladesh, the world’s second-largest supplier to the garment industry behind China.
The latest initiative is intended to provide even greater incentives to improve conditions by offering better-performing contractors the chance to reduce their cost of capital.
Through the IFC, Levi Strauss suppliers will have access to cheaper capital than they would otherwise in their home countries. But Olaf Schmidt, who heads the IFC’s global retail practice, said those suppliers that did best on labour, safety and environmental standards would get a further discount of up to 50 basis points on the interest charged.
The move reflects two important trends in globalisation. As consumers – and particularly millennials – increasingly fret about the conditions under which their clothes are made, fashion brands are facing greater pressure to ensure their suppliers in places like Bangladesh, Cambodia and Vietnam abide by higher standards.
In some cases that, together with rising wages and costs in China and other production centres, is leading to brands “reshoring” production closer to home.
But the combination of those pressures and the way global supply chains are becoming ever more intricate is also leading multinational companies to build tighter bonds with suppliers and to use new tools to manage them.
The Levi Strauss scheme will be administered in part through GT Nexus, a cloud-based supply chain management system, which allows companies to arrange everything from working capital for suppliers to the shipping of goods from distant factories.
Michael Kobori, Levi Strauss’s vice-president of sustainability, said the company now relied on “fewer, more capable” vendors and that it had relationships going back an average of 10 years with its top contractors.
The company told contractors about the scheme last week and has already received expressions of interest, he said. If the pilot with the IFC worked, Mr Kobori said, Levi Strauss was committed to helping to expand it to the rest of the garment industry as part of a “global race to the top” in standards.
Rachel Wilshaw, ethical trade manager for Oxfam, said offering incentives to suppliers to improve their practices was a good idea. But whether the scheme worked would depend on how Levi Strauss and the IFC monitored suppliers.
“The devil will be in the process rather than in the incentive,” she said.
Privately owned Levi Strauss claims to require its suppliers to abide by some of the strictest labour standards in the garment industry and employs full-time inspectors to visit factories around the world. It also is rare among fashion brands in publishing a full list of the factories and suppliers it uses around the world.
It has, however, had dark chapters in its past. In the early 1990s Levi Strauss was accused of using Chinese prison labour to make clothes. It withdrew production from China on human rights grounds for five years shortly after, becoming an example decades before Google of the potential pitfalls of doing business in China.
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