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Three questions investors need to ask about the Alliance for Bangladesh Worker Safety

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The announcement on November 20, 2013 that the Alliance for Bangladesh Worker Safety (the “Alliance”) had reached an agreement with the Accord on Fire and Building Safety in Bangladesh (the “Accord”) on the specific fire safety and structural standards that will be used in factory inspections under both programs was seen by some as a reassurance that the two programs were not really so different and that a company’s involvement in the Alliance was more or less equivalent to signing the Bangladesh Accord.

Despite agreement on a set of building standards, a closer look at the Alliance finds substantial and important gaps remain between the programs set out under the Bangladesh Accord and the Alliance. 

  1. Worker participation: The Accord program involves workers directly in the delivery of worker health and safety training and in the governance of the overall program. The prevailing literature and experience in occupational health and safety (OHS) emphasizes the need for strong worker participation in OHS programs to ensure success. Although the Alliance program requires the establishment of joint management-worker participation committees (already a requirement under Bangladeshi law) it does not appear to involve workers or their representatives in the governance of the program or establishment of policy. And while there may be instances in which trade unions are consulted in a particular factory, there is no requirement that they play an ongoing role in the planning or delivery of worker training. Question for investors: If a company has not joined the Accord, how is it going to ensure that workers and their representatives play a meaningful role in developing sustainable and successful OHS programs in their Bangladesh supplier factories?
  2. Independent inspections: The Accord program recognizes buyer factory inspection programs that meet or exceed the inspection standards of the Accord, but also ensures that at least one truly independent inspection is carried out by the Accord’s Safety Inspector. Given that buyer auditing programs have been widely criticized for failing to identify fire and building safety risks in Bangladesh over the course of almost a decade, the assurance of at least one independent inspection of the factories provides strong and credible reassurance for investors and customers that there is sufficiently thorough oversight of fire and building safety risks at factories used by a company. The Alliance program appears to offer recognition of existing company-procured auditing but does not guarantee independent factory inspections. Questions for investors: If a company has not joined the Accord, how is it going to provide reassurance that an independent body has fully inspected the factories it uses in Bangladesh?
  3. Remediation: The Accord program assures suppliers that buyers will continue sourcing from Bangladesh suppliers at comparable order volumes during the first two years of the program, providing that such business is commercially viable. Relative stability in order volumes allows suppliers that invest in substantial improvements in building safety to spread out the cost of those investments and make them more affordable. Some members of the Alliance program have announced efforts to help suppliers access loans to invest in improvements (although media stories have raised questions about the availability of those loans). However the availability of financing is not necessarily sufficient if buyers are not placing orders that allow a supplier to pay back the loans and interest over time. Questions for investors: If a company has not joined the Accord, how is it going to ensure that suppliers are able to afford substantial investments in building safety?

The Accord and the Alliance have both been put forward by publicly-traded companies as evidence that they are taking appropriate and sufficient steps to reduce the risks of serious catastrophes like the Rana Plaza disaster. The solutions to the problems of worker safety in Bangladesh proposed by the Bangladesh Accord, however, appear to be more comprehensive than those of the Alliance, and address known impediments to progress based on past experience.

Signing the Accord demonstrates a clear commitment to addressing the problem of worker safety in Bangladesh. Investors in companies that are or are considering becoming members of the Alliance should be asking how those companies intend to fill the gaps outlined above.

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