Brands and Traders Have a Task on Their Hands

Hunkemöller is a global retailer specialising in lingerie, nightwear and sportswear products. Founded in 1886 in Amsterdam, it is today a brand with more than 800 stores in 19 countries, mostly in Europe. Till recently, it had been primarily sourcing synthetic materials, but is now increasing its share of natural fibres. Cotton is the dominant nature fibre for Hunkemöller. In 2021, about 70% of the material sourced was cotton.

Rebecka Sancho, Head of Sustainability at Hunkemöller, says that because the share of cotton has increased and because of the inherent controversies when it comes to cotton, Hunkemoller has ensured that all suppliers lived up to its code of conduct. The company also has a materials policy which refers to environmental compliance, human rights and also the processes that must be followed by suppliers (like certifications). Every year the company carries out a risk assessment project. “Last year, we did a survey with all suppliers so as to better understand their cotton sourcing. Working directly with suppliers is the key to our due diligence. By creating and maintaining a good relationship, we can work together and build a better programme.”

In 2021, the company updated its approach to supply chain mapping. Now, there is in place a new system that gains more information even before a product is produced. Explains Sancho: “If you find a risk after something has been made, then your hands are tied and you can’t do much else than just prevent it from happening in the future. But now, when we know things beforehand, we can take decisions before materials and components go into the products. The ideal (situation) is to have a future with a range of approved lower tiers that our suppliers can source from. Unfortunately, it is very difficult, however, to go as far as to the farms, and more so during the pandemic.”

Due diligence, says Sancho, is a challenge for brands. There are reasons for this.

First, there is a widespread lack of understanding about the cotton supply chain and how cotton is indeed traded—how cotton is sorted by quality, sold as a commodity, and harvested seasonally. “We are also then quite likely to miss the risk—the risk is much more complicated than just the country of origin which we often focus on.”

Elaborates Sancho: “We talk about the ‘complicated’ supply chain. I would say that our supply chain today will not be the same tomorrow. Cotton in one product from one supplier differs per week, per month, per year; and for lower tiers, the lower you go the less impact we often have. We can’t do much because it is more brands in those factories and then we also need a collaboration. I also put the cultural context as one of the challenges. If governments and countries are not enforcing their own laws, it will be very difficult for us to do something. Yes, that should not be the reason not to do anything or take any action. A ban, which many of us carry out, never solves any problem and I even think that sometimes it even creates a bigger problem which is related to corruption. We also need to understand that there is not one solution. We all work differently, and we need different types of support with different measures for different brands, different retailers for different suppliers, and also in different countries. No one solution can fit all. Plus, the costs are also high.”

The insights that Sancho has gained at Hunkemöller enables her to offer advice to others.

“Any brand that’s trying to do this—to base your work on the OECD due diligence guidelines—should know your risks, have strong policies, and build implementations for great impact from the risk and opportunities that you have identified. Map your supply chain before production.”

Knowledge is key. “Gain better understanding of the cotton supply chain, and also get better understanding of your supply chain by simply asking your suppliers (about details), having conversations, creating surveys, implementing a project, and visiting your lower tiers to see things for yourself. To get successful outcomes, you need to include your supplier in your digital dance. There is no point working top down; it is always preferable to work bottom up. Related to this is also understanding your role as someone who can educate, guide and support suppliers rather than someone going there and telling them what’s wrong.”

One needs to go beyond the scope of the direct supply chain. Points out Sancho: “The risk is broader than your scope, and needs to be dealt with on a larger scale with bigger structures. Therefore, do find others to collaborate with or the risk will still remain.”

No one does enough, but everyone needs to start doing what they can: combine smaller pro-active preventative measurements with bigger changes in your due diligence. Moreover, finding non-compliance or a risk often means that one has done a good job and not the other way round.

The last word from Sancho: “Don’t punish your suppliers for being honest. Embrace the fact that the supplier is honest and find a way to deal with the risk. Provide support as necessary and implement preventative measurements together.

Paul Reinhart AG is vintage stuff. Founded centuries ago--in 1788, it is by far the oldest and one of the leading cotton merchants in the world, sourcing from all exporting countries and marketing it into more than 50 countries. Based in Winterthur in Switzerland, Paul Reinhart AG is a family business, now run by 8th generation owners. The global cotton supply chain is virtually as old as this company, and its network is a microcosm of the global cotton ecosystem.

Marco Banninger, Head Trader Handpicked & Sustainable Cotton at Paul Reinhart AG, starts by hitting the nail on the head: “The cotton business is built on mutual trust and very long-term partnerships with suppliers and customers. We link cotton supply and demand. Our suppliers are the ginneries and our customers are the spinning mills.”

There are big differences in the way sustainably produced cotton is grown and harvested. “There are smallholders in large parts of Africa or India, and large commercial farmers in the United States or Brazil. Without delivering a judgment on which farm produces a higher quality of cotton, it can simply be said that cotton companies compete against each other in the international markets. This means that besides the sustainability standard which can be affected for the price, it is mainly the quality of the cotton and technical parameters that decide whether the spinning mill will pay a better price for the cotton,” says Banninger.

Due diligence in the cotton trade, he says, means being involved at source. “This can be through our own projects in the countries of origin or through participation with cotton companies (in our case, mostly in east and west Africa).

Since 2009, Paul Reinhart has been licensed to trade in organic cotton. “One focus for us is Sub-Saharan Africa. We also source organic cotton out of Africa. To strengthen our footprint in the region, we are a founding member of the African Cotton Foundation which was founded in 2018.”

Paul Reinhart sees a growing need in the supply chain (especially from retailers and brands) for information about the source and the origin of the cotton—where it is being grown, how it is being cultivated. “We helped Bestseller establish a transparent supply chain for Tanzanian organic cotton. The cotton was produced in a project together with our partners of Alliance Ginneries (based in Zambia) and processed for Bestseller via spinning mills in Bangladesh and Pakistan.”

To outline the company’s approach to responsible business conduct, Phillipe Saner, Head of Business Development and ICT at Paul Reinhart, refers to a quote from the OECD guidelines for multinational enterprises. [The Guidelines refer to the likelihood of adverse impacts on people, the environment and society enterprises cause, contribute to, or to which they are directly linked.” He explains: “We see key terminologies like likelihood, adverse impact, enterprises that cause, contribute or have a direct link. I think these trigger further thoughts on what our role as a cotton merchant can be, and also contribute to further questions if you have to set up your own due diligence.”

Saner continues: “The first thing is to understand the risk at stake in the context of cotton cultivation. What we have experienced is that we always have to ask ourselves what the source of data is—if it’s trustworthy and been independently verified. If someone approaches you with a claim about an adverse impact, it will aways be severe and very negative in the sense that someone tries to get your understanding and an external stakeholder tries to raise your attention to a certain given issue. It is your role then to really understand what is at stake and that’s something we can support. Our approach is to not build assumptions on wrong data. So, we will always challenge the source of data and better understand how it was independently assessed.”

The second one is to ensure business continuity in the supply chain. “It’s important to understand impact in its societal context and in the context of local legislations. The question is: did you mobilise all measures to ensure continuity. Our understanding of a certain adverse impact may be fundamentally different than that of someone in a local context. For instance, in Sub-Saharan Africa our approach is that forcing a cotton farmer out of business is to be seen as the very last resort, and it is even to the point where one could put entire economies of least developed countries at risk. So, we should always try to understand an adverse impact in the local context with regard to the respective laws before we consider taking a sort of immediate step.”

The third contention from Saner is about communication. “This one is also a recommendation: have you disclosed your values and business conduct in the right format and the right wording to address the local business culture? If you talk to suppliers, and the way of addressing your understanding of things may be totally misunderstood. It could even be rude. It is important to understand that the farmers are not employees of a company. They are independent entrepreneurs in a competitive global economy.  This is important if you try to bring responsible business conduct all the way into your upstream supply chain. And cotton farmers are at the very beginning of that supply chain.”