Is H&M Using COVID-19 to Exploit Workers?


Stockholm (NordSIP) – Given the havoc wreaked by COVID-19 on everyone’s life, it is often difficult to look beyond our immediate concerns. When a pandemic threatens our immediate livelihood, it is natural to ignore how it is also destroying lives half-way across the world.

However, when famous European brands become embroiled in controversies about using the chaos of the pandemic for profit, we should all listen, if for no other reasons than to understand the complexity of the problem. H&M and the textile industry provide a telling tale of one such recurrent problem, how it is being addressed, and the power of investors and consumers to move the needle.

H&M and Allegations of Union-Busting during COVID19

At the beginning of January, H&M came under fire when reports reemerged in the Swedish press regarding textile workers’ struggles in emerging markets during the pandemic. The problems are not new. Already in August 2020, a Human Rights Resource Centre (HRRC) report warned that the crisis was being used as an excuse for union-busting and unfair dismissals in the industry, “suggesting that apparel factories are using the pandemic as a cover to attack workers’ freedom of association,” HRRC notes. Freedom of association and unionisation are crucial to manufacturing workers’ power in bargaining for higher wages and better working conditions. Undermining the unions that channel that freedom undermines workers’ quality of life.

In drafting its report, the NGO approached nine brands to inquire whether the pandemic was being used as “a cover to target and dismiss over 4,870 unionised workers and labour activists in nine factories across India, Bangladesh, Myanmar and Cambodia.” The relevant companies – H&M, Primark, Inditex (Zara), Levi Strauss & Co., MANGO, BESTSELLER, Michael Kors, Tory Burch and Kate Spade (Tapestry) – argued the dismissals were the result of understandably dire conditions. However, the NGO argues that the truth is more complex.

“Among the nine factory cases featured in this report, seven cited reductions in orders or economic impacts due to COVID-19 as the reason for the mass dismissals. However, in all seven cases, workers report that layoffs disproportionately targeted unionised workers, and in two cases workers report the factories made new hires of non-unionised workers shortly after. In one case, workers were dismissed just hours after union representatives had requested factory management increase protections for workers against COVID-19 infection; and in another, workers were dismissed three days after registering a new union,” says HRRC report.

An Industry Problem

Controversies regarding workers rights are not the only problem facing the textile industry. H&M’s recent decision to hold off on dividend payments despite higher than expected results is sure to raise concerns among the investor community. To disentangle this issue, we approached Robert Vicsai, Senior ESG Investment Specialist at SEB. He echoed the report’s concerns about the industry as a whole while noting that H&M is ahead of most.

“H&M is a company that has a very challenging business model from all sustainability ESG perspectives,” Vicsai explains. “All sustainability risks are also tightly interlinked and interdependent, creating an operating environment with a never-ending loop of sustainability risks stemming from the core of the business model. We have limited active exposure to H&M, mainly allocating to the company in our passive index-tracking portfolios.”

“With that being said, H&M is a very attentive company and works diligently with all aspects of the business model and has, during the years, made a great effort to manage these risks and is an industry leader in a challenging operating environment,” Vicsai adds.

Vicsai agrees that the repeated allegations against H&M are a concern, “but not specifically or solely from the H&M perspective, considering the company has put a lot of effort into raising the sector’s standard. This question is a broader sectoral problem where all companies within the industry need to do much more to at least be on the H&M level.”

A Supply Chain Problem

“Regarding H&M’s position, we have had continuous discussions directly with the company regarding their supply chain issues, living wages, climate impact, and diversity challenges being among the latest themes we discussed,” Vicsai says. “The company has implemented several measures to meet the investor community’s requirements. Still, these problems seem to be continuously popping even though the company demonstrates commitment, initiates programs and implements control mechanism mitigating issues.”

At its core, Vicsai’s argument is that there is a principal-agent problem within the textile industry. Even if the main brand is committed to addressing social concerns, it cannot control its suppliers. “The issues are a sectoral problem and are a consequence of the overall structure of the production and supply chain processes in combination with the socioeconomic challenges in producing countries.”

“Companies are not fully and directly in control of Tier 2 and Tier 3 supply chain/production levels. The business model and the embedded cultural and social aspects of the value chain will continue to be a systemic risk for the sector. Sector leaders, like H&M, need to continue demanding more from both peers as well as its value chain to meet the challenge,” Vicsai explains.

Engaging With the Problem

However, these problems are not insurmountable. Engaged investors and engaged consumers have the power to punish companies that repeatedly fail to meet the standards we deem necessary to our collective sustainable development.

“We actively discuss these topics with H&M from different channels within the bank,” Vicsai says. “For example, we have a continuous, direct dialogue with the company (the last one in November) from an investment management perspective to highlight our expectations. Lastly, we also participate in international collaborative forums supporting sustainable fashion initiatives.”

“We need to, without a doubt, be doing more as both investors but also consumers. One of the core aspects and requirements of long-term sustainable development is to have sustainable societies where all stakeholder interests and consequences are fully integrated when making economic decisions,” he adds.

“Without focusing on social issues, we will not achieve our common societal goals and subsequently, fail at long-term sustainable development,” Vicsai concludes.

Image © H&M

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