From Social Washing to Enhanced Due Diligence

In a recent complaint to the Autoriteit Consument & Markt (ACM), civil society groups allege that several fashion brands engage in ‘social washing’. The companies, some of which are Dutch or Netherlands-based, would claim that their clothes are produced 100% socially responsibly, while investigations from independent organisations exposed connections to foreign suppliers where signals of forced labour have been uncovered. Bangladeshi migrant workers at Mauritian suppliers, for example, reported that they faced extremely high costs just for gaining employment — up to the equivalent of 17 months’ wages when including interest. They were made false promises about their wages and working and living conditions — conditions that upon arrival turned out to be very poor. If they would speak to others — researchers or auditors, for example — about their situation, they would be sent back to their home country, the managers told them.

These are well-known tactics aimed at controlling often already vulnerable (migrant) workers, and can amount to forced labour. The main thrust of the brands’ reactions when confronted with the findings: we didn’t know. It is a familiar refrain from (garment) companies facing allegations of abuses in their often long, complex international supply chains. It seems that the tools these businesses currently rely on still fail to detect —and thus prevent — such serious human rights abuses in time. While they do have the responsibility to do so.

The Case for Better Detection

For the garment sector, these can hardly be called incidents. The steady flow of similar cases suggests structural, sector-wide deficiencies in companies’ efforts to detect and prevent exploitation in their supply chains. Exploitation, moreover, that is also enabled by these companies’ own contracting practices that shift human-rights risks and responsibility onto less resourceful suppliers, incentivising them to conceal problems for fear of losing business, while at the same time demanding very low prices. This first and foremost impacts the direct victims: the workers whose fundamental rights are violated in a context of dependency, poverty wages, and weak collective bargaining power. But when such exploitation becomes structural, its effects reach further. It generates immense profits that are channelled into the regular economy, distorts crucial free market forces and increases socio-economic inequalities. The public can lose trust in the institutions meant to protect victims and uphold the rule of law. Consumers cannot really know the circumstances in which their clothes are made, making it difficult for them to make informed and conscious choices. It also harms the companies involved themselves: once links to exploitation become known, they face operational, reputational and, increasingly, legal risks. In the Mauritius example, the latter materialised when U.S. authorities ordered the detention of goods from one of the suppliers over forced-labour concerns. From 2027, companies placing products on the EU market may face similar measures under the EU Forced Labour Regulation, which prohibits products made with forced labour from being placed or made available on the EU market or exported from it. This sits alongside broader EU sustainability frameworks, including the Corporate Sustainability Due Diligence Directive and the Corporate Sustainability Reporting Directive. These frameworks will require the largest companies within scope to conduct human rights and environmental due diligence across their chains of activities and, where applicable, to publicly report on sustainability-related impacts, risks and due-diligence measures.

All the more reason for them to look for improved, complementary methods to identify and prevent exploitative practices in their supply chains. Methods that overcome some of the most pressing shortcomings of existing identification systems, like the deception of auditors and internal complaint mechanisms that workers cannot easily access, do not trust or do not feel safe using. Methods, for instance, that build on unique data from third parties that also have an interest in improved identification. Data from banks, for instance.

Banks and Their Data

Banks, too, have a responsibility to identify, prevent, and address actual and potential harms to human rights, including forced labour, that they may be linked to through their relationships with corporate clients. This is not because banks usually carry out the exploitation themselves, or purchase the products made under such conditions, but because, as providers of financial services, they may enable or sustain the economic structures within which such exploitation does take place. For them too, that is not only morally the right thing to do, but also from a business perspective. They too may face reputational risks when their corporate customers are linked to serious human rights abuses. This raises the question what role banks, and the data they hold, could play in supporting their corporate clients in the timely identification of risk indicators of exploitation in international supply chains.

As central economic facilitators, banks have a unique data position. Not only in terms of transactions, money flows and individual customer information, but also in relation to broader sectoral trends and patterns, country-level information, poverty levels, wages, import and export flows, supply chains, group structures, and many other types of data that could be relevant for a (garment) company assessing the risk of exploitation in its supply chain. Such data may in some cases be less easily accessible to the company itself. Furthermore, much of the infrastructure required to make such collaboration possible is arguably already there: a business relationship already exists and information is already exchanged within that relationship.

Moreover, through their anti-money laundering obligations, banks are long familiar with data collection and processing for risk identification purposes, also in relation to (the crime of human trafficking for) labour exploitation. These efforts, however, are traditionally focused mainly on national contexts and crimes -and much less on international supply chains- and on crimes -and much less on and human rights abuses.

Enhanced Detection

Building on these observations, I aim to examine whether new indicators can be developed or existing ones can be refined that support improved identification of labour exploitation risks in the supply chains of Dutch businesses active in high-risk sectors, like the garment industry. The goal is to do so in a way that results in practically feasible and meaningful indicators, accounting for the complex data landscape in which such efforts take place, as well as the uncertain and fragmented emerging European legal frameworks. I do not do so alone: the research is conducted as part of a broader multidisciplinary project involving academic and societal partners, including banks, NGOs and the Dutch Ministry of Foreign Affairs. 

I am under no illusion that this approach will, by itself, offer a groundbreaking solution to the deep-rooted power imbalances and structural dynamics that enable labour exploitation in supply chains. But the convergence of persistent business-related abuses, increasingly binding legal obligations, and the expanding gatekeeper role of banks, makes this the right time for companies to explore novel ways of giving shape to their human rights responsibilities. Only then can we truly move towards a society where no one is left behind. Where business can flourish for the benefit — and not at the expense — of its workers. And where we can buy our clothes with full confidence that they are indeed 100% socially responsibly produced.