The retail industry and Xinjiang cotton

The retail industry and its supply chain are not without controversies and challenges for sustainable investors and consumers alike. As with other industries, retailers are facing increasing pressure to take responsibility for their footprints and what happens in their supply chains: the environmental impacts of their materials, the human rights and labour standards in the workhouses of their suppliers, and how the concept of fast fashion fits into a circular economy.

A controversy in the industry that has been gaining a lot of attention in recent weeks is the movement to stop sourcing cotton from China’s Xinjiang region. In recent years the allegations and reports about the treatment of Uighurs and other minority Muslims in Xinjiang have drawn a dark picture. The United Nations says at least 1 million Uighurs and other Muslims have been detained in the region in a network of internment camps. Reports from the region show that alongside deeply concerning allegations of extra-judicial disappearances and torture, forced separation and compulsory sterilisation of Uighur women, one of the developments that has emerged more fully is the highly organised and extensive use of forced labour.

Source: NBC News

Last month the US announced a ban on imports of cotton products and tomatoes produced in Xinjiang over forced labour concerns. The US Customers and Border Protection (CBP) agency said the ban was ‘based on information that reasonably indicates the use of detainee or prison labour and situations of forced labour’ saying it had found examples of debt bondage, restriction of movement, isolation, intimidation and threats, withholding of wages, and abusive living and working conditions. A day earlier the UK government announced that companies with revenue over $36m will be obliged to publish a supply chain transparency report or will face fines. Public sector procurement will also be banned from the region.

This is no small change. China is the second largest producer of cotton providing 22% of global supply, and 85% of the cotton produced in China comes from Xinjiang, alongside many other raw materials such as tomatoes, sugar, coal and polysilicon, a component in solar panels. There is also extensive yarn spinning, as well as textile and garment production.  A report from July 2020 by a coalition of Human Rights groups including Human Rights Watch, estimated that it is ‘virtually certain’ that as many as one in five cotton products sold across the world are tainted with forced labour from Xinjiang. The Workers Rights Consortium estimates that American brands and retailers import more than 1.5 billion garments that use Xinjiang materials every year, representing more than $20bn in retail sales. Most brands, including large retailers such as Nike, H&M and Zara, are expected to have exposure.

For retailers the challenge to ensure a sustainable and forced labour-free supply chain is not a simple one. Few retailers have full visibility on their supply chain, with many suppliers out-sourcing to third party suppliers without providing transparency to the retailer. At least this is what happens some of the time; industry insiders and newspaper reports suggest many buying teams from large retailers simply turn a blind eye to the realities of their supply chain, as long as the price charged is sufficiently low.

This ban should serve as a wake-up call to those retailers that they must start to take responsibility for the working conditions across all of their supply chain. This is an issue likely to affect many retailers, large and small. Over the last year some retailers have already made such commitments, such as Marks & Spencer in the UK who publicly announced its formal commitment to cut all ties with implicated suppliers last week. Patagonia, a leader in sustainable retail, announced last July that they would be exiting the Xinjiang region entirely. Their press release highlighted the complexity of identifying those relationships, noting ‘Patagonia has done the painstaking and important work of mapping the source of our products to the farm level’, and have communicated to suppliers that both fiber and manufacturing in Xinjiang is prohibited.

These steps will put economic pressure on those retailers that are heavily exposed, requiring quick reorganisation of supply chains, as well as potentially driving up cotton prices as demand for ‘clean’ cotton increases. The question is being asked how it is that retailers continue to purchase cotton and other produce from the region despite these deeply concerning reports of forced labour, and this is a very typical example of the evolution of corporate responsibility. As we see in these announcements, whether intertwined with political and economic motivations or not, responsibility for the way in which your products are made across the full supply chain is being pushed up to the top of the supply chain by governments and regulators. Retailers will be held accountable, and how well they manage this transition will affect their outlook.