13 February, 2025At this week’s OECD Forum on Due Diligence in the Garment and Footwear Sector in Paris, IndustriALL and the Labour Rights Investor Network (LRIN) launched Investor Guidance and Expectations: Supply Chain Due Diligence and Binding Agreements. The document lays out investor expectations for companies to respect workers' rights in global supply chains. Specifically, it addresses how binding agreements between trade unions or worker representatives and companies can uphold fundamental labour rights and mitigate related risks for companies and their investors.
The guidance emerged from investor concerns about the weakness of the prevailing voluntary, for-profit “social auditing” model of supply chain due diligence, and growing interest in the alternative model of binding agreements, such as the International Accord for Health and Safety in the Textile and Garment Sector.
Binding agreements have shown promise on multiple levels, from legal accountability to transparency, independent monitoring, and remedy for rights violations. In 2023-2024 IndustriALL organized a series of investor round tables on the topic. Out of this work, a number of investors decided to form a working group under the umbrella of the LRIN, a global investor network focusing on the rights to freedom of association and collective bargaining. Over the past year, the working group – comprising asset managers, asset owners and investment service providers along with IndustriALL and the Committe on Workers' Capital LRIN staff – produced a set of expectations and guidance on supply chain due diligence. The document contains a deep dive on binding agreements and why they show promise not only in addressing labour rights violations in global supply chains but how they may also reduce risks for corporations and their investors.
“We joined the investor working group for reasons of alignment and simplification: it’s important for all investors to be asking the same questions of companies, especially in the area of human rights, which is vast and can cause investors to shy away.
“As investors we can apply a top-down or bottom-up approach on investee companies regarding human rights and payment of living wages, where strengthening freedom of association and collective bargaining through binding agreements is a part of the bottom-up approach. We believe that the best and fastest results can be achieved when we align and simplify the different approaches as much as possible without losing granularity,”
says Petter Forslund of Swedish pension fund AP2.
The guidance aligned well with a key focus of this year’s Forum: making mandatory due diligence legislation work in the sector. Throughout the conference, representatives from multiple sectors – labour, corporations, investors, NGOs and government – spoke of the importance of mandatory human rights due diligence to “level the playing field” for companies, ensure access to remedy for workers and encourage cooperation and coherence in addressing environmental and human rights risks in supply chains.
IndustriALL textile and garment director Christina Hajagos-Clausen says:
“Binding agreements are increasingly important for showing positive change in supply chains. The International Accord, for example, has over 250 signatories and has brought verifiable improvements in building safety, occupational safety and health and grievance mechanisms for workers.”
During the Forum, speakers underscored the importance of binding agreements between labour and corporations: for holding parties accountable on human rights standards, providing robust grievance mechanisms; bringing transparency to supply chain operations; and ensuring meaningful engagement between companies and workers.
“As long-term investors, pension funds engage with companies on their due diligence processes, and we want to use our leverage most effectively. Recent research shows that binding agreements can lead to better due diligence results that in turn can have financially material returns for our investments,”
says Fransje Puts of MN, an asset manager for Dutch pension funds.
The guidance and expectations document is a practical tool to guide investors on supply chain due diligence, particularly in the garment and textile sector, where binding agreements are most developed. It outlines evidence and arguments for why binding agreements – which are designed to address sectoral problems – bring benefits to workers, companies and investors that voluntary initiatives such as social audits are not designed to generate. The document’s engagement guide provides investors with key questions to ask companies, as well as a section on “anticipating company responses.” Investors will now road-test the guidance, with a plan to reconvene later this year to share their experiences.
Photo credit: Garment factory in the Philippines. ©ILO