Government and other regulatory authorities’ influence on the sustainability agenda

Government and other regulatory authorities are setting the legal framework

The government and other regulatory authorities are setting the legal framework for approved operations. This means that the rules, rights and obligations of garment companies are dictated in this legal framework. The effect of this influence is that garment companies must obey these laws and regulations and develop products in accordance to the approved material or chemicals,

alternatively, phasing out disapproved materials or chemicals from the production. In addition, following the laws and regulations set up by the government and other regulatory authorities is the legal responsibility of any company according to Carroll (1991). This means that every garment company also has legal responsibilities in its sustainability agenda and only should conduct business and produce products that meet the legal requirements.

One example of how the government and other regulatory agencies have introduced a legal system, which forces garment companies to comply with these, is the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation. REACH is a regulation introduced by the European Union (EU) with the aim to improve the protection of human health and the environment from the dangers that can be caused by hazardous chemicals (European Chemical Agency, 2017). Three out of eight companies discussed this EU regulation in their interviews and the importance to adhere to this regulation. For example, a concrete response to this governmental influence is Björn Borg’s Chemical Management Program, which ensures that the garment company’s products do not contain dangerous substances. This program initiated by Björn Borg is based on the REACH regulation. (Back, 2017; Björn Borg AB, 2016) The result of this government and other regulatory agency influence is that the compliance to these regulations such as REACH allows garment companies to establish clear and transparent procedures.

As mentioned earlier, it is important for garment companies to obey the laws and regulations governed by the stakeholder group governments and other regulatory authorities. This stakeholder group possesses both power and legitimacy. In some cases, it could even be argued that the government and other regulatory authorities could acquire the last attribute urgency as well, for instance when new laws are being enforced. In that way, the claim of this stakeholder group is time sensitive, as the governments and regulatory agencies demand immediate response to this claim. As a result, governments and other regulatory agencies are dominant stakeholders and under some circumstances even considered as definitive stakeholders according to the work of Mitchell et al. (1997).

The data analysis showed that there is a tendency that all studied garment companies are working proactively with the law in order to create new sustainable solutions. This is also discussed in the

second stage of change in the model of Nidumolu et al. (2009). Houdini is one example amongst the studied garment companies, which goes beyond the law in order to identify new sustainable opportunities. For instance, Grankvist (2017) explained that Houdini has created its own restricted list of chemicals, which are not allowed to be used in the production process. Houdini’s restricted list is based on the framework of REACH, but it is stricter and has excluded several additional chemicals, which Houdini considers to be hazardous as well.

The legal framework also addresses the social aspect of sustainability. For instance, Code of Conducts, applied by the analyzed companies in this study, are based on different laws and regulations such as the International Labour Organization’s (ILO) core conventions, the UN declaration on human rights and the UN Convention on the Rights of the Child (BSCI, 2017a;

FWF, 2017b). The data analysis showed that the stakeholder group government and other regulatory authorities is closely correlated to the stakeholder group NGOs, which is also demonstrated in the example of the Code of Conducts.

Figure 7. NVivo comparison diagram between government and other regulatory authorities and NGOs.

In the graph above, this correlation is further strengthened by the qualitative analysis of the data in NVivo. The graph shows how the nodes of government and other regulatory authorities, and NGOs are connected due to the coding similarity in the data. This means that the government and other regulatory agencies are closely related to NGOs in the textile industry in terms of setting standards and regulations in order to improve the sustainability aspect.

The enforced law of reporting

In addition to the legal framework for approved operations, this stakeholder group can also establish new laws, which garment companies need to follow as well. One example of a newly enforced law is the EU-law of non-financial reporting. Global Reporting Initiative (GRI) (2017) stated that the EU decided to enter the recently adopted Directive on disclosure of non-financial

and diversity information by listed companies, amending the 2013 Accounting Directive, into force in 2014. Since this decision in December 2014, EU-member states have had two years to transpose this newly enforced law into national laws as well. Further, GRI reported that it is expected that the first reports will be published in 2018 covering the financial year 2017-2018.

The reason for this new EU-law of non-financial reporting is that the non-financial reporting creates transparency as it provides a company’s stakeholders with a structured and comprehensive standpoint of the current performance and the potential development areas of the company (European Commission, 2016).

This new EU-law of non-financial reporting only applies to one of the eight studied garment companies in this thesis. As Björn Borg is a public listed company (Back, 2017), the garment company is required to publish a report on its sustainability development in 2018 regarding the financial year 2017-2018. However, Björn Borg already published its first sustainability report in 2012 (Back, 2017). This shows that Björn Borg has been working proactively since 2012.

Since some of the studied garment companies are owned by corporate groups, this EU reporting law does not apply to the individual companies under the corporate group umbrella directly since the non-financial reporting is only mandatory for the corporate groups. However, Andersson (2017) stated that Peak Performance might implement the reporting system voluntarily in order to demonstrate its corporate social responsibility, even though IC Group is responsible for the sustainability report in Peak Performance’s case.

Furthermore, the EU-law of non-financial reporting does not apply to the privately owned garment companies. However, Houdini and Nudie Jeans have both decided to report voluntarily on their sustainability agenda. For instance, Houdini published its first sustainability report in 2013 but has not published another report since then. Instead, Grankvist (2017) explained that Houdini is currently working on the Planetary Boundaries Assessment, which provides a holistic understanding of the company’s impact and enables Houdini to analyze the current state of the planet. Turning to Nudie Jeans, it has published a sustainability report covering the financial year 2015-2016 and according to Brinkberg (2017), Nudie Jeans plans to continue reporting on its social, environmental and economical performance in the future as well.

In accordance to this new EU-law of non-financial reporting, different standards and metrics have been initiated to guide companies in reporting on their sustainability performance. As stated in the theoretical framework, there are different reporting systems, which garment companies can apply. Reporting systems like GRI or UN Global Compact were established in order to facilitate the compliance with this new law (Savitz, 2013). By using these standardized reporting systems, garment companies can provide transparent information about the whole supply chain to their other stakeholders. This also contributes to comparison possibilities since garment companies can easily measure their performance against other companies operating in the textile industry. As a result, this governmental influence is creating transparency in the garment companies’ operations.

Moreover, when considering the historical development of the sustainability concept, the 21st century is marked by the increased awareness and interest in sustainability (Carroll, 2008).

Consequently, emerging laws encouraging companies to engage in sustainability matters, seems to be a natural progress in the 2020s, due to the historical development of sustainability in the past.