Meeting of the Brand Caucus 20 January 2015 Accord on Fire and Building Safety in Bangladesh | Brand Caucus Meeting |20 January 2015 Amsterdam

Agenda Introduction Remediation (Mel, Jochen, Santi) Tier 3 – legal situation and options De-listed & 30 day rule Wage payments Resources Financial communication to factories S. 23 issue OHS Committees (Phil, Mel) Caucus Governance (Jochen) Update on Arbitration – time permitting (Mel) Accord-Alliance Update – time permitting (Mel, Phil, Roger) Appendix Worker Participation

Introduction New Steering Committee: Roger Hubert, H&M Uwe Hilker, Tchibo Santiago Martinez-Lage, Inditex Jochen Overmeyer, Otto Phil Chamberlain, C&A Melanie Steiner, PVH

Remediation – Tier 3 and Delisted Issue

Tier 3 Issue Scope Section of Accord, s. 3: Tier 3 factories are subject only to “limited initial inspections to identify high risks” Can represent no more than 35% of a signatory’s production Meant to include facilities with occasional orders and where the buyer has limited leverage with the factory S. 3 includes a caveat that if a facility is determined, as a result of the initial inspection, to be “high risk”, then it “shall be subject to the same treatment as if it were Tier 2.”

De-listed issue – Disclosure Protocol After the initial disclosure list is provided, it will be updated in the following manner: 1) Any factory which meets the definition of a covered factory will be added by that company to its disclosure list within one month of the date on which the factory first meets the relevant criteria (e.g., one month after the first order is placed), with the understanding, however, that the factory becomes a covered factory as soon as it meets the definition, whether or not it has been disclosed. 2) Any factory that ceases to meet the definition of a covered factory will be removed from the list within one month of the date on which it ceases to meet the definition, with the understanding that the factory remains a covered factory until it has been properly removed from the list. Note: 30 day rule is not in the Accord but was agreed the SC. Currently 120 factories have been inspected with no active brands. ◦ 92 have 1 or more brands under 30 day rule ◦ 28 have no brands responsible under 30 day rule ◦ 16 were tier 1 or 2 ◦ 104 have no CAP approved yet

Wage Issue During the first 1,103 inspections, 26 factories had ‘critical closures’ and were submitted to the Review Panel. 6 of these factories did not provide wage payments as required under s. 12 of the accord, which we are told is approx. 2.5MUSD (Section 13: Brands shall require suppliers to pay all outstanding wages if the factory closes for renovations) We are being asked our opinion on the setting up of a Factory Fund where all Accord signatory companies would participate based on an agreed level. A proposal is being put to the SC tomorrow.

Tier 3 Issue, cont. At least 40% of Accord factory base is purely Tier 3 (currently 781 factories are Tier 3 only) At our last SC meeting, we were advised that the CSI declared ALL factories under the Accord to be high risk, and therefore, all factories are subject to “the same treatment as if tier 2” The definition of high risk has not been agreed, and there is ambiguity around what “the same treatment” means in the scope section.

Tier 3 and de-listed issue, cont. There are 2 key issues: ◦ The legal interpretation of s. 3 of the Accord.  Definition of high risk  Tier 2 “same treatment as” Tier 3 issue, including whether ss. 22 and 23 apply ◦ The practical issue. Regardless of the legal interpretation, we are in a situation where over 700 Tier 3, plus delisted factories have no remediation support and therefore it is unlikely that the CAPs will be fulfilled. The question is: what is our response to this?

Tier 3, cont. Options: Labor proposal: that all Tier 3 are now “converted to” Tier 2 Brand legal interpretation – that ss. 22 and 23 do not apply to Tier 3 regardless of being defined as high risk Agree to disagree on the legal interpretation, but come up with a practical solution, e.g.: ◦ International institutional funding (e.g. IFC) ◦ Assist with remediation (e.g., set up lead brands for Tier 3), but falling short of s. 22 possible payment obligations

For discussion 1. Brands’ proposal on how to deal with Tier 3 issue? (Jochen to discuss in next slides) 2. Discussion of relief fund proposal 3. Position on de-listed factories?

Remediation – Tier 3 Options

Structure GLA

Proposed Tier 3 Structure. Escrow Gov. Buyer/Accord Agent Bank IFC Tier 3 Supplier Guarantee Credit IFC Account Loan Compliance Info

Alternative DEG Approach

Main Requirements creditor  General feasibility  Sovereign Role as Guarantors (Escrow body)  Credit Volume  Remediation Guidance  System of operational and financial compliance  Due Diligence Criteria  Fall-Out Consequences

Main Requirements Sovereign  Involvement of Governments (3-5-1 Group)  Financial Capacity, ODA Funds  Escrow Body  Due Diligence Level  Regress procedures  WTO Competition Rules

Main Requirements Accord  Auditing  Support remediation  Compliance  Workers Education  Corruption Prevention

Main requirements Suppliers  Audit Results  CAP Remediation Plan  Providing trustable Financial data, Transparancy  Supporting Due Diligence  Comply to disbursement requirements  Provide additional individual sureties  Ensure repayment

OHS Committees

S. 17 of the Accord states that OHS committees shall be required by signatory companies in all Bangla factories that supply them, which shall function in accordance with Bangla law. Bangladesh passed a new labor law which requires an OHS committee at every workplace with more than 50 employees: ◦ 90(A) Formation of the Safety Committee: “Where In a factory, 50 or more workers are employed, there shall be a Safety Committee formed and functioned in the manner as prescribed by the Rule” Problem is that the GoB has not issued the implementation rules which detail how this will happen e.g., how to elect/form the committee.

OHS Committees, cont. SC has put forward a proposal for discussion as follows: ◦ Intensify efforts with GoB-MoLE including a letter from Accord SC. ◦ Involve Ambassadors, High Commissioners and ILO ◦ Start with the 45 factories that have a registered union ◦ Continue with the nomination of ‘high performing’ factories ◦ Brands to support outreach and prep work Points for consideration: ◦ Are we ok to proceed before the Bangla implementation laws are passed? ◦ Likely to be claims that we are violating the sovereignty of Bangla and imposing rules ahead of the law ◦ Possible stand-alone position as the Alliance has indicated they may wait for the implementation rules to be passed

Caucus Governance Roles and Responsibilities in information and decison- making process between Signatories and Company SC Representatives

Situation today  196 company signatories to the Accord in more than 20 countries in Europe, North America, Asia and Australia  3+3 brand representatives in the Steering Committee  Only 4 caucus meetings p.a.  5 regional brand meetings only with management  One joint -address to directly address SC Comp. Members  No structures for “brand only” information sharing, discussion and decision building process

Objective  Clear, and structured process and platform for information and decison building process between brands and brands and SC representatives.  Pragmatic structure and short reaction times  Easy to access intermediate level for exchange of information, questions and feed back between brands prior to involving SC Reps.  Structuring and Summarizing of opinion forming process

Structure  Clustering of Signatories in area groups  Appointment of liason colleagues  Communications matrix for opinion forming process  Possible Cluster Criteria:  - countries ?  - size and type of signatory ?  - common language ?

Structure proposal countries Cluster 1Austria, Germany31 Cluster 2Austria Germany31 Cluster 3UK, USA, Canada,21 Cluster 4UK, USA, Canada22 Cluster 5Belgium, Netherlands30 Cluster 6France, Switzerland10 Cluster 7Spain, Italy10 Cluster 8 Australia, Sri Lanka, Hong Kong, Japan, Turkey16 Cluster 9 Poland, Norway, Sweden, Finland, Denmark,25

Coordination Each area group with an own cluster liason colleague Vice-versa communication Information and requests from companies via liason colleaque to SC Corp. Reps (Caucus Coordinator) and reverse Opinion finding, discussions and information sharing among area group, Aggregated transfer by liason colleaque to Comp.Reps.

Further ideas?

APPENDIX

Results of the Working Group on Worker Participation (published February 21 st, 2014) 4 main topics: The right to refuse unsafe work Joint Occupational Health & Safety Committees A complaint mechanism Training programmes

The Right to Refuse unsafe work Builds on the Accord commitment to ensure that workers have the right to refuse unsafe work by providing a clear definition of the term "unsafe work", together with a detailed process for both factory management and workers to follow Allows for both individual and collective refusals Makes a link to the complaint mechanism in cases where reprisals are alleged to have been taken against workers for using this right

Joint Occupational Health & Safety Committees + Complaint Mechanism Outlines the composition of the committees including the election of worker members, the selection of management members, recognising the need for a gender component Establishes the mandate of the committees Sets rules for the effective functioning of the committees Establishes clear links between these committees, the training programme and the inspectorate The complaint mechanism establishes a process for filing, evaluating, investigating and resolving complaints by workers which conforms to the Ruggie Principle for grievance handling

Next Steps The introduction of the Complaints Mechanism and the Right to Refuse Dangerous Work are being put into operation A pocket guide for workers on the same 2 elements is being prepared A complaints form has been developed and shared with the IBC RMG federations Rob Wayss will provide a more comprehensive update this afternoon

The goal of the training programme is to empower factory managers and workers to take ownership over the implementation of key Accord provisions, including remediation of inspection findings, running H&S Committees, making use of the complaint mechanism, and exercising the right to refuse unsafe work, where necessary The training programme applies a dialogue and empowerment orientated methodology, which is derived from classic change management approaches The core principles of the training programme include action learning, change orientation, integration and peer learning, dialogue and trust building, participation in decision-making, trade union involvement, transparency and quality The main target groups are factory managers and workers, with an emphasis on H&S committee members who will receive training on rights and responsibilities, the election of worker representatives, the right to refuse unsafe work, the complaint mechanism and issues linked to discrimination ( including social, gender, cultural) plus Freedom of Association Trainers to be selected according to quality standards and to be evaluated through a practical assessment A Comprehensive Training Programme