Ethical Product Labels as Effective Tools of Private Governance?

A discussion from the apparel industry

by Niklas Sowa (Author) Hannes Beer (Author)

Seminar Paper 2014 24 Pages

Business economics - Business Management, Corporate Governance


Table of Content

List of abbreviations

List of tables

1. Introduction

2. Privatization of Global Governance

3. Private Governance and ethical labelling initiatives
3.1. The Apparel Supply Chain
3.2. Ethical labelling in the Apparel Industry
3.2.1. Fair Wear Foundation (FWF)
3.2.2. Fairtrade Certified Cotton (FCC)
3.2.3. Global Organic Textile Standard (GOTS)

4. Discussion: How can labels function as effective tools of private governance?
4.1. The objective of labels
4.2. How to construct a good label
4.3. Examination of the current label industry
4.4. Recommendation and a small outlook for the “Deutsches Textilsiegel”

5. Conclusion

6. References

List of abbreviations

illustration not visible in this excerpt

List of tables

Table 1: Overview of presented ethical labels and their scope

1. Introduction

In recent years one could observe a trend in global norm-setting processes towards an increased participation and influence of non-governmental organizations and private enterprises (Cutler et al., 1999; Scherer et al., 2006). This increasing international, political influence of private organizations is caused by a decreasing political influence of territorially limited governmental law and intergovernmental organizations due to more complex and mobile business environments (Zürn, 1998; Scherer et al., 2006). The collaboration of private actors is oftentimes related to the development and implementation of social and environmental standards for business processes (Scherer/Smid, 2000). The apparel and textile industry with its complex and multi-branched supply-chain is one of the industries where non-governmental actors are comprehensively involved in the development of initiatives to improve working conditions and reduce environmental pollution. In this context especially ethical labelling initiatives, which certify participating producers and their products with a product label, are of relevance. In the present seminar paper we will present three ethical labelling initiatives from the apparel[1] sector, the Fair Wear Foundation (FWF), the Fairtrade Certified Cotton (FCC) and the Global Organic Textile Standard (GOTS) and study the effectiveness of these private governance initiatives.

More precisely, our paper is structured as follow. In chapter 2, we outline the general development in global governance towards a higher involvement and importance of private authority and name industries of special interest in this context. With chapter 3 we build links between the recent movement in global governance processes and standard-setting initiatives in the apparel industry. Firstly, we explain the basic principles of the apparel supply chain. Thereupon we present three ethical labelling initiatives which were founded by non-governmental organizations and explain in which sector of the supply chain these initiatives try to improve conditions for workers and environment. Based on these learnings, we will discuss in chapter 4 how ethical labelling initiatives, as exemplary private governance tools, have to be designed to be effective. In the end we will close with concluding remarks and an outlook by taking into account the recent development process of the labelling initiative “Deutsches Textilsiegel”.

2. Privatization of Global Governance

The increasing expectations of different stakeholder groups on responsible, ethically correct business behavior of the firm, gave rise to the significance of Corporate Social Responsibility initiatives (Bassen et al., 2005, S. 232). It was public pressure which brought up the challenge for companies and industries to formulate social and environmental principles for their own business activities in the beginning of the 1990s (Zadek, 2004; Scherer et al., 2006). These self-given ethical principles by companies are often criticized due to its weak formulation and nonexistent control of the formulated ethical commitments through independent bodies (Rondelli, 2002).

Next to this first self-regulatory movement and already existing binding governmental laws, new forms of global norm-building initiatives developed in the following years. In 1999, the former Secretary General of the United Nations, Kofi Annan, initiated the UN Global Compact, a strategic initiative on a voluntary basis between the UN and business companies to foster a more social and environment-friendly globalization (Global Compact, 2008). Every company can join this initiative as long as it strives to fulfill the ten formulated principles in the areas of human and labour rights, the environment and anti-corruption. The compliance of the principles is voluntary and violations are not punished. Instead of formulating mandatory rules, the Global compact was designed to offer a dialogue platform between the different involved actors, where collaborative learnings from the fields of social and environmental economic activities can be derived (Kell, 2003, p.39f.; Mückenberger/Jastram, 2010).

The idea of Annan behind this initiative was that in some countries it is difficult for the UN, or other supranational organizations, to exert an influence within these areas (Scherer, 2006). Transnational companies, on the other hand are equipped with economic power which they can utilize to change social and environmental conditions in countries of production (Young, 2004; Scherer 2006). Initiated by an inter-governmental organization and lacking direct participation of other civil society stakeholders like trade unions or human rights organizations during the formulation of the first nine fundamental principles, the UN Global Compact cannot be seen as a multi-stakeholder initiative from start (Mückenberger/Jastram, 2010). But public pressure resulted also here in a revision of participation rights after its creation (Kell, 2003). More private stakeholder participation and a broader dialogue was enabled to increase the “credibility and social legitimacy” (Kell, 2003, p. 38) of the compact. The result was the formulation of a tenth principle (“Anti-Corruption”-principle) for the UN Global Compact (Global Compact, 2004).

The development of the UN Global Compact represents exemplary the process of step-wise, increasing participation of non-governmental organizations on a global scale. This engagement of private actors in fields which were once solely controlled by governmental laws is a trend which is caused by factors of a globalized world (Zürn, 1998). Due to increasing dynamics in which society changes, social conflicts arise and economic actors move their production activities between countries, state regulation is often not in the position to react (Habermas, 2001; Scherer et al., 2006). In this context, transnational corporations and civil society organizations become more important for the formulation and implementation of global rules (Braithwaite and Drahos, 2000; Scherer et al., 2006). This “privatization” of governance (Cutler et al., 1999) can be seen as a movement towards more democracy since private actors are politically involved on a global level (Mückenberger, 2010). The self-regulation is not anymore done by the companies or industry associations in a closed process but driven by a broad participation of civil society actors and increasingly transparent feedback (Scherer et al., 2006; Zadek, 2004; Rondelli, 2002). But at the same time a legitimization issue arises because non-governmental bodies are neither elected or democratically controlled (Orts, 1995; Scherer 2006; Mückenberger/Jastram, 2010; Jastram, 2012). The norm-setting process of governance processes under participation (or even lead) of private actors has to be studied therefore carefully. One example in this context is the work of Jastram (2012) which studies the development of the ISO 26000 standard, with more than 1.500 representatives from different interest groups “the most inclusive international norm-setting process in the field of CSR” (Mückenberger/Jastram, 2010).

This new political role of business firms and civil society organizations (Scherer et al., 2006) can be generally observed in creation and implementation processes regarding social and environmental norms (Scherer/Smid, 2000; Young, 2004). In this context, many different non-governmental initiatives, founded by private organizations (e.g. International Organization of Standardization or Social Accountability International) which define environmental (e.g. ISO 14001) or social (e.g. SA 8000, ISO 26000) standards, evolved.

These market-oriented policy instruments are especially relevant for industries of complex, dynamic nature since their supply chain is expanded over many countries and involves many processing steps conducted by multiple agents (Seuring, 2004, p. 1063; Bhaduri et al., 2011, p. 136). In these cases it is, as already mentioned, often difficult for national or transnational governmental bodies to intervene (Zürn, 1998; Seuring, 2004). Private governance initiatives could be already established in several industries like forestry (Forest Stewardship Counsel), coffee (Fairtrade) or fishing (Marine Stewardship Counsel). Also the textile/apparel industry is characterized by an increasing number of non-governmental regulation initiatives which want to improve the working conditions and reduce the environmental pollution in the apparel supply chain. In the following chapter we will link the development of increasing “private international authority” (Cutler et al., 1999, p. 333ff.) with the formulation of social and environmental standards in the apparel industry.

3. Private Governance and ethical labelling initiatives

In the previous chapter, we outlined why the private form of governance becomes increasingly important in a globalized world and named industries in which market-based policy instruments are especially relevant. In this chapter we will further explore the role of private governance initiatives in the apparel industry. First of all, we will shortly present the apparel supply chain since this knowledge will be necessary to understand the value of the non-governmental driven initiatives, namely ethical apparel labels. There exist numerous ethical labels on t-shirts and pants but what do they really stand for and which organizations were involved in the norm-building process of the label? We will explain three different labelling initiatives before we come to our discussion in the next chapter about the value of these labels as effective tools of private governance.

3.1. The Apparel Supply Chain

The apparel supply chain includes all steps from the production of the raw material (cotton harvesting) on farms, the processing/manufacturing of the raw material in apparel plants (spinning, weaving, dying, printing, etc.) and the transport and sale of the final product by wholesalers and retailers to the consumer (see also Seuring, 2004 p. 1063f.). We speak thereby simplified of three general stages in the apparel supply chain: 1) production, 2) processing/manufacturing and 3) final product.

In all of these three stages, it is possible to name several critical aspects which explain the importance of defining social and ecological criteria to protect the environment and the people involved in the apparel supply chain. As a raw material based industry, the involved companies in the supply chain are highly dependent on this input factor. The production of this raw material requires a high input of resources (especially water), utilization of pesticides against crop failure as well as many manually executed production steps (Seuring, 2004, p.1064). The income of farmers is in addition highly volatile since cotton prices are contingent on the world market price fluctuations (Fairtrade, 2011). Also further steps of the apparel supply chain involve the use of cheap labor forces in the manufacturing plants and the broad utilization of chemicals in processing steps. This leads in many cases to considerable threats for the environment and people working in the apparel industry. Catastrophes like the Rana Plaza factory collapse in 2013 have uncovered tragically present working conditions in the production facilities. Since the apparel supply chain outstretches over national borders, even continents, it is difficult to control the circumstances in this industry entirely by national, governmental laws. Several multi-stakeholder initiatives try therefore to improve the conditions in the apparel industry by defining and enforcing standards for working conditions, environment-friendly production and trade guidelines to support local structures.

3.2. Ethical labelling in the Apparel Industry

The idea of a product label is that it enables consumers to discover if the present apparel product was produced under defined social and ecological criteria who exceed mandatory, legal regulation. In general, we can distinguish three types of labelling an ethical fashion product: Governmental, industry and NGO labels. Exemplary voluntary initiatives which were founded by governmental bodies like the EU commission or national governments are the EU Eco-label and the German environmental standard “Der Blaue Engel”. Whereas the motivation for the creation of these governmental initiatives was mainly to restrict environmental pollution and to improve human health and safety[2], product labels introduced by industrial associations or individual apparel companies formulate also commitments with regard to social and ethical business behavior.[3] Next to these self-regulatory industry initiatives, especially third-party labelling organizations are one of the main reasons for the mentioned “privatization” of governance (Cutler et al., 1999). These product labels are founded by non-governmental organizations, in collaboration with trade unions, human rights associations, environmental organizations and industry-oriented bodies. In the following we will explain three of these initiatives in more detail. All three are labels initiated by third parties (e.g. NGOs or multi-stakeholder initiative). The first one is a member initiative which assigns labels to production facilities/ companies directly whereas the other two are product labels. We just present labels from NGO initiatives since we are interested in the private form of governance and are convinced that the social and environmental criteria from multi-stakeholder initiatives are more detailed and ambitious than self-commitments of the apparel industry.

3.2.1. Fair Wear Foundation (FWF)

The Fair Wear Foundation consists of a group of NGOs, trade unions and company unions who collaborate to achieve common goals. The most important goal is to improve the labor conditions for workers in the apparel industry. The FWF initiative has around 80 members, which represent about 120 brands, and its focus is on apparel factories in mainly four countries: Turkey, India, China and Bangladesh.[4] If companies decide to join the FWF they do not try to label their products, but rather the whole company. They promise to enhance the labor conditions in their factories and to work towards this in collaboration with the other FWF members (Fair Wear Foundation, 2014).

The certification and verification process is divided into four areas: factory level, complaint procedure, brand performance and management system requirements. For the certification process of the sub-contractor factories in the producing countries, the members of the FWF (especially the trade unions and the NGOs) play an important role, as they are the examiner and contact persons for the factory workers. Particularly, they act as contact persons for the garment workers, if the complaint procedure is not effective or difficult to be established in a neutral way. For the brand performance check, the headquarters of the companies are visited once a year and their CSR strategy and management systems are checked. Concerning the management system requirements the companies are asked to improve their sourcing policy towards long term contracting, the code of labor practices, their complaints procedure and labor conditions in their own facilities, to name just some examples (Fair Wear Foundation, 2014).


[1] In the present paper we do not distinguish between the words “textile” and “apparel”. We use both words similarly and understand for both terminologies the same supply chain.

[2] http://www.blauer-engel.de/de/der-blaue-engel/was-steckt-dahinter (last access: 22.08.14); http://ec.europa.eu/environment/ecolabel/eu-ecolabel-for-consumers.html (last access: 22.08.14)

[3] An example of an industry product label is „H&M Conscious“. Next to environmental criteria, H&M also formulates measurements how to support local producers, the compliance of human rights and especially the rights of female workers. See http://about.hm.com/de/About/sustainability/hm-conscious/conscious.html (last access: 13.08.2014)

[4] http://www.fairwear.org/22/about/ (last access: 10.08.2014)


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ethical product labels effective tools private governance



Title: Ethical Product Labels as Effective Tools of Private Governance?