The German Due Diligence Act: Are we ready?

Bangladesh's RMG industry has been investing hundreds of thousands of dollars to implement social compliance, maintain structural safety, install green buildings, and embrace the use of eco-friendly technology and techniques. 

In doing so, the sector is now considered as a role model for eliminating heavy pollutants and labour-intensive manufacturing industries globally.  

But on June 11, 2021, the German parliament passed the Supply Chain Due Diligence Act (LkSG) — also known as the Supply Chain Act — following the UN's guiding principles of business and human rights. 

The new law, which came into force on January 1 this year, primarily focuses on human rights issues, but also includes environmental considerations. It aims to make supply chains more transparent and bolster human rights and environmental protection. 

In other words, companies have to take responsibility for any labour or environmental abuses in their global supply chain. 

These companies will be held responsible in case of any violation of human rights from any activity across the supply chain, from raw material sourcing to finished products. 

Initially, in 2023, German companies having 3,000 or more employees will be subject to this law. From 2024 onwards, businesses with 1,000 or more employees will also be brought under this law.  

The law was proposed by former UN Special Rep,resentative on Business and Human Rights John Ruggie, and endorsed by the UN Human Rights Council, in June 2011.  In the same resolution, the UN Human Rights Council established the UN Working Group on Business and Human Rights.

As set out in the UN Guiding Principles, human rights due diligence is a process for identifying, preventing, mitigating, and accounting for human rights impacts. This includes both actual impacts occurring in the present and potential impacts.

Bangladesh is already ahead of other countries in many cases.

In keeping pace with SDG 8 and the UN Fashion Industry Charter for Climate 2018, the apparel sector entrepreneurs of our country have been proactive in embracing green or responsible business practices. 

For instance, when it comes to labour standards, Bangladesh's RMG sector has poured hundreds of thousands of dollars into implementing labour and social compliance issues. 

So, it can boldly say that RMG factories are following all possible sorts of labour right protection and welfare programs to increase the living standard of workers. 

When it comes to environmental compliance and protection, installing green buildings in manufacturing firms is considered as one of the strategic components of the green industrialisation process.

And the RMG entrepreneurs in Bangladesh have started adaptation of LEED certified green buildings voluntarily.   

The number of USGBC LEED certified green buildings in the RMG and textile sectors reached 173 as of October 2022.  At the same time, over 550 RMG and textile factories are undergoing the certification process. It is worth mentioning that globally, Bangladesh is home to the top seven green factories out of 10. 

A good number of apparel firms are also installing a number of cutting-edge technologies as a part of their efforts to mitigate environmental pollution, and thus bring water and energy efficiency in the production process.  

Some factories are also harvesting rainwater during monsoon season and later using it  for washing and cleaning purposes.

For energy efficiency, factories are using rotary screw air compressors and inverted air compressors instead of the traditional piston air compressors.

Few factories are installing rooftop solar power systems for powering their indoor lighting. Many factories have installed low-e (low-emissivity) windows to cut down energy costs.

Other sustainable practices include the introduction of a circular economy in the RMG industry. In the apparel industry, pre-discarded fabric material is used by others to produce pillows, mattresses, sanitary napkins, etc. We also export that fabric abroad, in particular European countries. 

Our factories are also shifting from natural cotton to man-made fibre raw material because of its eco-friendly properties, particularly in saving water. 

Few factories are also adopting blockchain technology in their operations. Through blockchain, we can ensure transparency and safety, protect confidentiality, proof of identity and privacy, and eliminate malicious transactions related to the garment industry. 

Challenges to implementing a greener supply chain

Despite the willingness, many small factories that are operating in rental buildings are not being able to embrace green production methods and social welfare practices to the fullest, such as installing ETPs, day care centres and so on.

Another challenge is that the cost of integrating best practices in production have not translated into prices of the products. 

A study conducted by the Fair Wear Foundation in 2012 found that Bangladeshi garment workers get only 0.6% of the retail price, or only $0.18 of the $32.51 retail price of a T-shirt sold in the Western markets.

Moreover, due to supply chain disruptions amid Covid-19 and the ongoing Ukraine-Russia war, the overall cost of raw materials, power and energy, and freight has increased substantially for producing RMG products. 

Against this backdrop, the low price or absence of fairness for RMG products,  let alone the reward price for the eco-manufacturing methods, is posing  a challenge for the Bangladeshi  RMG sector to fully ensure social and environmental standards in the supply chain process. 

In this case, buyers should provide fair prices for the products produced following social and environmental norms.

In accordance with the German Supply Chain Act and UN Guiding Principle on Human Rights, the Bangladeshi RMG sector has already taken many initiatives.

Our buyers have a great role to play in ensuring the whole concept of supply chain ranging from sourcing raw material to manufacturing, finishing, shipping and delivery to customers. These include providing fair prices for environmentally and socially compliant products, for more capacity building initiatives, and to support small and medium RMG factories so that they can take the same path to adopting a sustainable and holistic supply chain. 

The key component of human rights due diligence requires meaningful engagement with diverse stakeholders, including as backward and forward linkage industries, buyers, and retailers and consumers. 

More importantly, our affordability of maintaining social, labour, and environmental standards totally depend on the profit margin and cost effectiveness of our factories. 

The author is the vice president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA)