When a fashion industry sustainability group called out China over its treatment of Uighur Muslims, the idea was to nudge Beijing toward human rights reforms while cleaning up a troubled corner of the US$60 billion global cotton business. Western brands have learned the hard way that things do not work that way in China.
In the 12 months since the Better Cotton Initiative (BCI), whose members range from Uniqlo owner Fast Retailing Co to Nike Inc to Walmart Inc, published a statement on allegations of forced labor in the cotton-growing Xinjiang region, several brands have suffered major setbacks in China, one of the world’s biggest producers and consumers of the fabric.
The organization missed production targets last year and firms including Levi Strauss & Co and Chinese sneaker maker Anta Sports Products Ltd have scaled back their involvement. Others have gone quiet, pulling statements of concern about the situation in Xinjiang from their Web sites.
Illustration: Mountain People
Hennes & Mauritz AB’s revenue in China, once its fourth-largest market, fell 40 percent in the most recent quarter.
Although the Better Cotton Initiative statement has long vanished from the group’s Web site, there is little sign of a truce. Instead, China, which says that claims of human rights violations are unfounded, is escalating its response. Late last month it launched a recruitment drive for a sustainability certification program that would undercut the Better Cotton Initiative.
The escalating conflict shows how difficult it can be for brands to satisfy demands from Western consumers and human rights groups for greater sustainability without risking open war with China, which has become more willing to wield its clout to defend its policies. It is also a potential setback for the broader environmental, social and corporate governance (ESG) movement that is rallying institutional investors around the banner of improved targets.
“It’s really terrible if companies start feeling they can’t speak out against atrocities because of a fear of backlash,” said Therese Kieve, stewardship analyst at Sarasin & Partners, which holds shares of Asos PLC and Associated British Foods PLC, owner of the Primark chain. “Then nothing’s going to change.”
The Geneva-based Better Cotton Initiative declined to comment on China for this article.
Comfort, convenience and relatively low cost have made cotton the world’s most widely used textile fiber. More than 23 million tonnes is plucked from shrubs annually and spun into yarn. That is enough to provide at least two dozen T-shirts for everyone on the planet.
Prices of the commodity have been rising sharply, hovering near the highest levels in a decade this month amid surging demand from China and poor prospects for the US harvest now under way.
However, there is an ugly side to that success. Growing cotton can often require vast amounts of water and pesticides. Labor practices are hard to police in the remote fields where much of it is grown.
The Better Cotton Initiative was created in 2009, pooling industry efforts to clean up the supply chain. The group tries to help farmers transition to greener methods, while making sure cotton remains affordably priced. The organization also says it refuses to operate in regions where forced labor is “orchestrated by the government.”
The confrontation that erupted in October last year followed the US government’s decision to ban some imports from Xinjiang, where it says Chinese authorities are detaining more than 1 million Uighurs and other ethnic and religious minorities in “re-education” camps in what constitutes an ongoing genocide.
China has denied these claims.
While the Better Cotton Initiative did not withdraw altogether from China, it said it would focus on other regions of the country. Beijing responded with fierce criticism of Western fashion brands, prompting calls for boycotts. Landlords closed some Hennes & Mauritz stores in retaliation for an undated statement on its Web site that expressed concern about reports of forced labor in Xinjiang.
Dozens of Chinese celebrities ended their contracts with Better Cotton Initiative member firms including Hennes & Mauritz, Adidas AG and Nike, with former Burberry Group PLC brand ambassador and actress Zhou Dongyu (周冬雨) saying that the trenchcoat maker had not “clearly and publicly” stated its stance on cotton from Xinjiang.
The flap highlighted a quandary for the foreign labels, said Veronica Bates Kassatly, independent analyst of sustainability claims in the global apparel sector and a former World Bank economist.
“They cannot afford to upset Chinese consumers and they cannot afford to upset Chinese manufacturers, either,” she said.
The Better Cotton Initiative has expanded so quickly — it now has more than 2,100 members — and become so prevalent that its production represents almost one-quarter of global cotton output, with 2.4 million farmers licensed to sell cotton certified by the organization. It is funded through membership dues and a levy on sales.
There is also an incentive to becoming a member, as cotton it certifies helps fashion giants burnish their sustainability credentials. New members continue to join — nearly 190 in the first half of this year. Among them is Boohoo Group PLC, a British online fast-fashion retailer that is seeking to clean up its own supply chain.
Few big brands will talk openly about their discussions with the Better Cotton Initiative on how to police Xinjiang cotton. Burberry, for example, scrubbed references to the group in its annual report published in June after citing the organization a year earlier. The Better Cotton Initiative lists Burberry as a member on its Web site.
The company declined to comment.
“Companies are doing everything they can to avoid these types of public conversations,” Bertille Knuckey, co-head of ESG research at Sycomore Asset Management. “Now they are just avoiding really engaging on the topic.”
Once the Better Cotton Initiative published the statement on alleged human rights violations, some members expressed frustration that it had gone beyond its primary mission of environmental sustainability and strayed into areas where it did not have adequate knowledge or expertise, people familiar with the situation said.
Levi Strauss chief sustainability officer Jeff Hogue, who joined last year, did not to take up a seat on the Better Cotton Initiative council even though the retailer, which backed the formation of the program, was due to hold that position until next year. Levi’s, which remains a member of the organization, said that Hogue is focused on the upcoming release of the company’s first sustainability report and ESG disclosure.
At the height of the boycott crisis, the Better Cotton Initiative said the decision to suspend licensing would prevent nearly 500,000 tonnes of Xinjiang cotton from entering the global supply chain.
The provenance of cotton is hard to trace because of the many stages in the production process. It starts with raw cotton produced in remote villages in countries such as China, India or Mozambique. Seeds are extracted, bolls are removed and the fiber is spun into yards. They are transported to mills that produce and dye the fabric — often with toxic products and little environmental oversight. The textiles are sold to clothing manufacturers, which ship finished products to stores worldwide.
The fashion and apparel industry was shaken to its core in 2013 when a garment factory collapsed in Bangladesh. The tragedy resulted in more than 1,000 deaths, putting the spotlight on an industry that long pushed profit at the expense of the well-being of those at the bottom of the production chain.
Following the incident, brands vowed to improve labor standards, including an increase in the number of labels and certifications meant to show that the industry is tackling abusive working practices.
Authorities from France to the US are carrying out investigations that might shed more light on what is happening in Xinjiang.
Several French campaign groups in April lodged a legal complaint against two Better Cotton Initiative members: Japan’s Uniqlo and Spain’s Inditex SA, the parent of Zara. Also named were French fashion group SMCP SA, which owns brands such as Maje and Sandro, as well as Skechers USA Inc.
The complaint accused the four companies of profiting from forced labor of China’s Uighur minority, as well as crimes against humanity.
French prosecutors started an investigation in June.
SMCP and Inditex both denied the accusations and said they would fully cooperate with the probe.
Inditex said that traceability controls are carried out “rigorously” on its clothing.
Fast Retailing said that there is no forced labor in its supply chain and it intends to cooperate with authorities if contacted.
Skechers declined to comment on pending litigation, but said previous supplier audits found no use of forced labor.
A criminal complaint was filed last month against the C&A fashion chain and other retailers by the European Center for Constitutional and Human Rights, accusing them of “directly or indirectly abetting and profiting from alleged forced labor of the Uighurs in Xinjiang,” and being “involved in crimes against humanity.”
C&A, a Better Cotton Initiative member, says it does not have supplier contracts in the region and does not tolerate forced labor or unauthorized subcontracting in its supply chain.
The association uses so-called “mass balance,” a widely employed volume-tracking system, that allows farmers and manufacturers to mix Better Cotton with conventionally grown fabric while benefiting from the label. The system has allowed the Better Cotton Initiative to dramatically increase the volume of its cotton sold worldwide.
However, the lack of transparency and full traceability has raised concerns.
“Due to the mass-balance approach, there is a potential risk that cotton from the Xinjiang region may be included within BCI cotton,” a spokesperson for British apparel chain Next PLC said.
To try to avoid that, the company has explicitly banned the use of cotton from the area.
The Better Cotton Initiative has said it is moving toward a better traceability program in the next few months.
C&A is calling for changes in the program.
“It is also time to open up the debate about what are the steps needed to increase the traceability of cotton and what are the opportunities that will arise from it,” C&A spokeswoman Betty Kiess said.
C&A will continue to collaborate with the organization, she said.
Incremental progress on environmental goals is better than nothing, some brand owners say.
Tendam, the Spanish owner of the Women’secret lingerie label, joined the Better Cotton Initiative this summer.
The initiative is encouraging growers to adopt “better behaviors,” including reduced water usage, Tendam corporate general manager Ignacio Sierra said.
Whether global brands embrace China’s own sustainable cotton certification program is an open question.
They might need to if they wish to keep selling in that market, and some clothes could even be manufactured solely for the Chinese market based on this label, a person familiar with the Better Cotton Initiative’s work said.
“The standards of BCI are too general and may not be suitable for cotton grown in China,” China Cotton Industry Alliance executive Wang Wenkui (王文魁) told the Global Times.
The Chinese guidelines are to set out specific growing practices, including temperature and regulation of pesticides.
“I’m quite confident that our cotton growing standards will replace the BCI standards in the future,” Wang said.
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