Levi Strauss to Provide Financial Incentives to Encourage Better Practices in Social Compliance

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Levi Strauss, a global manufacturer of brand-name clothing, announced today that it plans to provide financial incentives for garment suppliers in developing countries to upgrade environmental, health, safety and labor standards. Specifically, if a vendor scores higher on  Levi Strauss’s Terms of Engagement (TOE) assessment, which measures labor, health and safety, and environmental performances, it will receive lower cost rates on working-capital financing from the International Finance Corporation (member of the World Bank) Global Trade Supplier Finance program (GTSF). Established in 2010, GTSF is a $500 million multicurrency investment and advisory program that provides short-term finance to emerging-market suppliers and small and midsized exporters. Lower financing cost will help a garment manufacturer reduce its operation cost and potentially result in increased profits.

As we learned in TMD433, corporate social responsibility is a critical and long-time issue facing the global textile and apparel industry. Despite many great efforts, the phenomenon of “race to the bottom” still widely exists because of the intensive competition among suppliers. Levi Strauss is the first major international buyer that partners with a financial institution to offer its suppliers a direct financial incentive to improve social compliance. Levi’s program also reminds us that to improve the corporate social responsibility practices in the fashion apparel industry requires joint efforts and creativity among all stakeholders.

Discussion: What do you think of Levi’s program? Will it work well? Can it become a “model” and gradually involve more retailers or fashion brands? Any challenges will the program face in its implementation? Feel free to share your thoughts. Related reading: Levi’s Sourcing VP Talks Supply Chain Strategies (from Sourcing journal Online, May 2014)

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