Six months ago, the eight-story Rana Plaza garment factory collapsed in Dhaka, Bangladesh. More than 1,100 people were killed and 2,500 were injured in the deadliest garment factory accident in history.
The collapse has spawned a new international accord on building safety. The agreement won’t solve the sweatshop problem overnight, but it is a first step in a long process to clean up the industry.
The socially responsible investment industry joined with religious investors to support the building safety agreement as well as tough new standards for the global garment sector.
What’s missing from the outcry over Rana Plaza is a response from the institutional investment industry – the pension funds, insurance companies, mutual funds and asset managers that make the day-to-day decisions on billions of dollars of savings.
Investment means responsibility
This includes major investors in Walmart and the Gap, two companies that have refused to sign the new building safety accord. The Vanguard Group, BlackRock, State Street and Berkshire Hathaway – all major investors in Walmart – have stayed silent on the issue. When asked specifically on their plans, many simply replied that it is their business to make money. Period.
Like other economic sectors, institutional investment provides the financial lifeblood of the garment industry. It soaks up the capital from large and small players, supporting their stock price and providing the equity capital necessary to maintain their operations.
All of this means that institutional investors share some responsibility for the action or lack of action of the retail companies and their suppliers.
As Kristin Alm of the Norwegian Business School argues in a new paper, the massive financial backing provided to companies by their institutional investors means that these investors share in the complicity of these companies in human rights or other abuses. It’s simply not good enough for such investors to claim – as they regularly do – that they have no say in the actions of their investee companies. It’s time for the institutional investment industry to own up to its responsibilities.
What to do about sweatshops
But what does that mean? What can the institutional investment industry do to address the awful conditions of sweatshop workers?
Well, for starters, institutional investors could sign on to the Investor Statement on Bangladesh, sponsored by the Interfaith Centre on Corporate Responsibility. The statement is a strong call for action on fire and building standards, strengthening of garment worker unions, transparency on supplier information and the establishment of appropriate grievance and compensation for victims.
But more than that, it’s time for institutional investors to start thinking about alternatives to sweatshops. It’s time to start thinking how the billions in investment capital now supporting sweatshops could be put to use in creating responsible production that is fair to workers, suppliers and consumers.
Investments and social performance
These are issues that the organization I work for – Oikocredit – are beginning to explore.
Oikocredit is a global investment fund that provides credit and equity to microfinance institutions across the developing world and directly to trade co-operatives, fair trade organizations and small to medium sized enterprises. With 35 years of experience and more than €560 million in development capital, Oikocredit is one of the largest private investors in microfinance in the world.
Oikocredit has always treated the social responsibility of its loans and investments seriously, but it is now beginning to look comprehensively at its social performance measurement. In particular, Oikocredit is looking at four pillars of community-based economic development: microfinance, co-operatives, fair trade and small scale agriculture.
Oikocredit has successfully identified hundreds of microfinance institutions that provide decent, fair loans to borrowers, 80 per cent of whom are women, and most of whom live in rural communities. These institutions are bringing savings and loans to many parts of the world that are not now covered by financial services. Through this, they help to support women, families and children who lack viable economic alternatives.
Co-operatives are another area of development. Trade co-operatives bring producers together in collaborative economic structures that provide producers with community and collective power that is lacking in traditional entrepreneurial markets. In North America, co-operatives have been very successful in building alternative financial structures through credit unions and caisse populaires; in the developing world, they hold huge potential to create collectively-owned production companies.
An example of this is the very successful Kuapa Kokoo co-operative in Ghana, which is owned by 62,000 cocoa producers. They produce cocoa for Divine Chocolate, which is sold in Europe and North America.
In many cases, co-operatives work hand-in-hand with fair trade organizations. By establishing fair returns for producers, fair trade works to create equitable profits and working conditions in many sectors.
Call for stronger fair trade alternatives
The Rana Plaza collapse has created a groundswell of demand for stronger fair trade alternatives to cheap supply chains. The abuses heaped on Bangladeshi and other workers by global production models are prompting consumers to demand fair trade labels on the goods they buy.
This has been a long-standing feature in the food and beverage industry, with fair trade coffee, tea, chocolate and fruit. Now clothing appears to be the next wave of fair trade expansion. An example of this is Manos del Uruguay, which turns co-operatively produced wool from Uruguay into fair trade garments for local use and international trade. More of these fair trade value chains are expected as consumers look for alternatives to sweatshop production.
And finally, there is agriculture. The recent increase in food prices generated by ethanol and other energy-intensive agriculture have caused people to ask questions about the security of our global food system. Bolstering small-scale agriculture is an alternative that holds potential to feed millions of people while creating economic opportunity in rural villages throughout the developing world. An example of this is Les Saveurs du Sud (Flavours of the South), an enterprise in Senegal that is processing mangoes for new markets in Europe.
It’s time the institutional investment industry started working hand in hand with organizations like Oikocredit to start funneling some of their billions in investment capital to sustainable and responsible social enterprises aimed at meeting the needs of developing communities.
This blog also appeared on socialfinance.ca. It is available here.
No mention is made of how to change the predatory mindset of business owners in these countries.