Written by Olivia Chassot, Article No. 63 [UNCTAD Transport and Trade Facilitation Newsletter N°87 - Third Quarter 2020]
The COVID-19 crisis entailed major socio-economic impacts and disruptions on jobs and trade in global value chains. The apparel sector is among the most globalised industry involving millions of workers and production phases scattered across continents. According to the International Labour Organization (ILO), the pandemic could result in a raise in global unemployment for up to 24.7 million people. Small and medium-sized enterprises, which account for a vital source of employment and growth in the garment and footwear industry are likely to suffer the greatest impact of this global crisis (ILO). The Asian country most badly affected by the disease outbreak could be Bangladesh where circa 85% of its exports include fashion goods (UNCTAD). The Bangladesh Garment Manufacturers Exporters Association (BGMEA) states that by 26 April 1,149 companies reported suspended or cancelled export orders of 981 million pieces of garment, amounting to a value of $3.17 billion at manufacturing level, thereby affecting 2,27 million workers - most of them being women. Indeed, another survey from the International Textile Manufacturers Federation reported that textile sales were down 31% on average across various regions. Overall, McKinsey estimates that revenues for the global fashion industry will contract by 27% to 30% in 2020 year-on-year¹. Additionally, circular economy is increasingly getting attention as 71% of customers are expressing a greater interest in circular business models, such as rental, resale, and refurbishment, and many are showing interest in investing in higher quality apparel after the pandemic (Global Fashion Agenda and McKinsey & Company, 2020). Moreover, there are a lot of gains which could be saved from circular business models considering that more than USD 500 billion of value is lost annually due to clothing under-utilisation and lack of recycling (Ellen Mac Arthur Foundation, 2020).
Transparency and Traceability supporting tools for a responsible industry’s recovery post COVID-19
Although these figures are worrisome, the COVID-19 crisis can also be perceived as an opportunity for change. It is the right momentum to set up goals to scale up positive change towards an inclusive, responsible and resilient industry’s recovery in response to the pandemic. The crisis calls on companies to live up to their responsibilities in terms of decent work and climate emergency. Policymakers and industry actors can make an impactful contribution with the right tools at hand to meet their commitments to achieve the Sustainable Development Goals of the 2030 Agenda for Sustainable Development.
In regard to changing consumers’ behaviours, according to a McKinsey survey (April 2020), 15 percent of consumers in the US and Europe expect to buy more ecologically and socially sustainable clothing. Another survey of 6,000 consumers based in US, UK, Italy, Germany, and China from BCG-Vestiaire Collective reveals that brands which were able to mobilize and contribute positively to alleviating the situation were noticed by consumers during the crisis. It also found out that 37% consumers judged brands that were giving back to communities in need as significantly more attractive, and 20% of them judged brands that were environmentally sustainable as significantly more attractive.
Anchoring due diligence and sustainability considerations into COVID-19 crisis management is a chance to switch to more responsible business models and jobs. Traceability and transparency of value chains are essential to build trust and ensure that sustainability claims are based on reliable data from all actors intervening along the value chain. Moreover, they can sustain such efforts and translate into value that will support the industry’s recovery, bringing long-term benefits for their balance sheets and productivity, linked to factors such as:
Investors’ increasing interest in a company’s environmental, social performance and governance.
The need to manage legal risks, due to e.g. cancellation of orders, unilateral imposition of pay-cuts, and inadequate health and safety measures on the workplace.
The capacity to manage reputational risks vis a vis investors and consumers.
Access to emergency relief programs, remedy mechanisms and funding.
UNECE-UN/CEFACT Project Enhancing Transparency and Traceability of Sustainable Value Chains in Garment and Footwear
Since September 2019, UNECE through its intergovernmental working party UN/Centre for Trade Facilitation and Electronic Exchange (CEFACT) is implementing an three years EU-funded project to enhance transparency and traceability of sustainable value chains in garment and footwear with the following deliverables: a policy recommendation and guidelines, a technical standard for traceability of information exchange in textile and leather and capacity building activities.
The project benefits from a large participation and the support of more than 165 experts from the industry, government, NGOs, standard-setting bodies, academia and think tanks which are consulted on a monthly basis to advance the key project’s deliverables.
Experts are increasingly pointing out practical steps to take such as the definition of scorecard of actions and a minimum set of criteria for traceability and transparency of the value chain. Building the architecture of a single traceability system is a major need expressed from the industry, which would enable companies and key actors to exchange product information in a standardized format. Using a common language, building upon UN/CEFACT methodologies and standards for information exchange is at the core of this new architecture. As of now, the project team has identified the key basic data elements to achieve traceability, which are the party, product batch, product, facility, process, location and transport. As part of the technical standard for traceability of information exchange, the UN/CCL data model will be updated to support traceability for sustainable garment and footwear value chains.
Moreover, there is an increasing acceleration of policy and regulatory measures aiming at strengthening the apparel industry’s due diligence, sustainability and circularity whereby intergovernmental actors are deemed to play an important role for coordination and consistency purposes. As of September 2020, the UNECE draft policy recommendation has identified key action areas, including:
Harmonization of policies and regulations supporting the implementation of traceability and transparency for higher sustainability and circularity;
Promotion of standards promotion to reduce the implementation burden on business, and particularly on SMEs;
Adoption of minimum levels of traceability and transparency across the entire value chain, including on value chains actors and their location, products and the way they have been processed, the facilities in which they have been produced and transformed, and their transportation;
Implementation of financial and non-financial incentives, especially in support of SMEs small farmers and producers, and other vulnerable groups, including measures to facilitate access to markets, fast-track processes, public procurement criteria, specialized managerial and workforce training, public visibility, and non-financial reporting requirements;
Support to R&D in technology and innovative solutions, e.g. for tracing and verifying products’ authenticity and provenance;
Consumer awareness and education to allow them to make more responsible choices; and
Launch of multi-stakeholder and collaborative initiatives, such as a global and open-source knowledge platform, to make guidance available to all key industry actors.
The main objective of the project is to build global solutions, considering resources available to industry actors, through a differentiated and gradual approach. Indeed, the needs, expectations and means differ from large companies to smaller actors such as SMEs and smallholders, particularly in emerging economies. Currently, support to SMEs is a central pillar of the United Nations’ response to the current crisis.
Additionally, the enabling role of advanced technologies (Blockchain, Internet of Things, AI, physical markers) will be explored as a means to support sustainability and circularity. A first pilot project for transparency and due diligence in cotton value chains using blockchain technology is being implemented since January 2020 in order to test the approach being developed under the project, with industry partners from Egypt, Germany, Italy, Switzerland and the UK. The purpose is to take advantage of a technology that is immutable and allows for the data to be registered, distributed and accessed by several actors in a trust-worthy way. The pilot will be running until Spring 2021, and the team has been collecting user stories which draw upon the information entities to be exchanged through the blockchain system set-up by the project.
The key project deliverables will undergo a public review during the fall 2020 before submission and discussion for adoption during UN/CEFACT Plenary (19-20 April 2021).
To find out more information about the project’s activities, timeline and participation, kindly visit UNECE-UN/CEFACT project’s webpage
Maria Teresa Pisani ¦ Economic Affairs Officer ¦ Economic Cooperation and Trade Division, UNECE ¦ [email protected]
Olivia Chassot ¦ Consultant, Trade Facilitation Section, UNECE ¦ [email protected]