Is Safety In Bangladesh's Factories Realistic?
In 2012, an apparel manufacturing facility at Rana Plaza collapsed in Bangladesh killing 1,129 people and leaving 2,515 injured. This tragedy was followed shortly thereafter by the Tazreen Fashions Ltd. factory fire in the capital of Dhaka, where at least 117 people were confirmed killed and over 200 injured. These tragedies catalyzed multinational apparel brands and retailers to action. In 2013, these multinationals formed two coalitions, the Accord on Fire and Building Safety in Bangladesh ("Accord"), whose members are largely European apparel retailers, and the Alliance for Bangladesh Worker Safety ("Alliance"), whose members are primarily North American apparel retailers. The purpose of the Accord and Alliance is to address employee safety issues in a socially responsible global supply chain that is focused on Bangladesh. At the time the Accord and Alliance formed, however, the cost of comprehensive industry safety remediation in Bangladesh was speculative.
The Accord is a five-year legally binding agreement among apparel brands, retailers and trade unions. The Accord is designed to build a safe and healthy apparel industry in Bangladesh, and is a legal commitment by signatories ensuring sufficient funds are available for remediation. Similarly, the Alliance is a five year initiative whose core mission is to dramatically improve workplace safety in Bangladesh's garment factories. A requirement of the Alliance agreement includes a voluntary commitment of substantial financial resources to help fund their subcontractor's factory safety remediation. To that end, several members of the Alliance have committed to providing a combined total of more than $100 million to their respective supply chains in order to fund necessary factory safety improvements.
Both the Accord and the Alliance completed inspections of their members' apparel and textile factories in late 2014. The Alliance inspected 1,106 factories, uncovered some 80,000 safety issues and finalized over 400 Corrective Action Plans with factories and company signatories. Likewise, the Accord has inspected 587 member factories and reported that it would take $150 million to repair safety issues found as a result of its inspections. In 33 factories, safety issues are serious enough that both the Accord and Alliance have recommended that manufacturing operations be suspended because of the safety risk to employees.
In a 2014 study, Business as Usual is not an Option: Supply Chains and Sourcing after Rana Plaza, co-authors Sarah Labowitz and Dorothee Baumann-Pauly (both scholars with the Center for Business and Human Rights at New York University's Stern School of Business) estimate that the total number of factories and facilities manufacturing for the export apparel sector in Bangladesh at between 5,000 and 6,000 - far more than the combined 1,693 accounted for in the Accord and Alliance inspections. Recently updating her estimate, Labowitz identifies some 1,800 subcontractor factories working for Accord and Alliance members, leaving between 3,200 and 4,200 such factories and facilities not covered by either of these coalitions. Utilizing an Alliance estimate of an average cost of $250,000 per factory for safety remediation, these 1,800 apparel factories and facilities will cost $450 million for the Accord and Alliance membership to finance.
One financing option for Accord and Alliance members to consider, and recommended by Motoko Aizawara, managing director USA for the Institute for Human Rights and Business, is the issuance of "social impact bonds" (SIBs). Aizawara calls for the development of new, innovative financing instruments to address social problems that are "neither exclusively public nor private", and that are beyond the capacity to be solved exclusively by the public sector and the social sector - or in the case of the Bangladesh apparel manufacturing industry - the multinational apparel brands themselves. According to Aizawara:
The way forward for Bangladesh building and fire safety is to come up with an innovative structure involving public actors (e.g., the brands, service delivery or implementation organizations) with help from development finance experts and an intermediary organization. Naturally, the Accord and the Alliance member companies will be expected to demonstrate their accountability and commitment by investing in the bond.
Best suited for addressing the remediation of building and fire safety issues in Bangladesh is the Development Investment Bond (DIB), a performance-based, financing instrument variation of the SIB, where the outcome payers may include foreign governments, donors, investors, corporations, foundations and international agencies, rather than the domestic governments of developing countries found in an SIB. A DIB developed to finance the building and fire safety issues in Bangladesh will confront a unique situation, as it will address financing performance oriented outcomes by for-profit entities, rather than social service oriented issues traditionally serviced by government or non-profit social service agencies, thus adding new complexity to the scope of this financing instrument.
The DIB bond to finance building and fire safety will consist of five distinct stakeholders: outcome payers, service providers, investors, independent evaluator, and an initiative manager. These outcome payers, or donor groups, will need to include major apparel brands, multinational retailers, corporate and individual foundations, and foreign governments. The estimated $1.5 billion in remediation expenses across the Bangladesh garment industry can only be realistically met by a combination of such outcome payers.
But other perplexing questions remain. For the bulk of the Bangladesh apparel and textile industry, who is responsible for up to $1 billion in remediation expenses for the remaining 3,200 to 4,200 export garment factories not covered by the Accord and Alliance membership? Furthermore, both the Accord and the Alliance are established for a five-year period. Who pays for (and monitors) the maintenance of fire safety and building structural integrity in these export apparel factories after 2018? Will the national government be able to effectively partner with the Accord and Alliance, or another organization, to effectively monitor future company operations? These are unresolved questions faced not only by Accord and Alliance members, but other global stakeholders who are vested in a socially responsible supply chain in Bangladesh.
