IFC’s appraisal considered the environmental and social management planning process and documentation for the Project and gaps, if any, between these and IFC’s requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable period of time, are summarized in the paragraphs that follow and (if applicable) in an agreed Environmental and Social Action Plan (ESAP). Through implementation of these measures, the Project is expected to be designed and operated in accordance with Performance Standards objectives.
PS1: Assessment and Management of Environmental and Social Risks and Impacts:
Environmental and Social Assessment and Management System and Policy
HB has established an E&S and Sustainability Policy to ensure its long-term success through continuous improvement and anticipatory management of environmental, social and economic opportunities and risks. The Environmental Policy lists its requirements with regards to environmental topics such as energy and water consumption, greenhouse gas emissions and waste management.
HB's supply chain management is addressed by the Supplier Code of Conduct which establishes general standards and commitments that apply to suppliers, including: respecting and complying with ethical business practices, human rights, labor and social standards, and environmental protection.
HB has committed formally to uphold the Fair Labor Association's Workplace Code of Conduct and compliance benchmarks (the FLA Code - https://www.fairlabor.org) and the FLA's Principle of Fair Labor and Responsible Sourcing and Production and to integrate them into business practices over time. FLA is a collaborative effort of universities, civil society organizations and socially responsible companies dedicated to protecting workers' rights around the world. As a FLA member, HB requires suppliers that manufacture its products to comply with the Fair Labor Association's Code and meet its associated compliance benchmarks, which are based on ILO standards and internationally accepted good labor practices. The Code sets requirements for supply chain partners, which are based on human rights, labor, environment and local laws. It states that Suppliers shall collaborate with Hugo Boss and their subcontractors to assess current practices against the Code, identify opportunities for improvement, and implement improvement plans. Any violation of the law or the Code may be viewed as a breach of the Manufacturing Agreement and could lead to the termination of the business relationship between HB and the supplier.
Hugo Boss' social compliance programs were accredited by the FLA in 2018, which demonstrates that it has the systems and procedures in place needed to successfully uphold fair labor standards throughout its supply chain. IFC has reviewed Hugo Boss's supplier compliance framework and found that it is largely aligned with the principles of IFC's Performance Standards. The Code of Conduct has provisions consistent with internationally recognized labor standards. All documents establishing HB's supplier compliance framework can be found at https://group.hugoboss.com/en/sustainability.
In regard to the HB's supplier due diligence process, new partners run through a standardized, multi-stage process before they are added to the HB supplier portfolio. Potential partners must approve contracts regarding the general purchasing and production conditions. Among other elements, this includes a self-commitment to the HB Supplier Code of Conduct and the Restricted Substances List as well as the Manufacturing Restricted Substances List (MRSL) of the Zero Discharge of Hazardous Chemicals (ZDHC). Potential suppliers are required to successfully complete of environmental and social responsibility trainings – including chemical management. Further, suppliers may also be audited before entering into an active business relationship. As part of the Social Compliance Check, a social compliance assessment is carried out between one and twelve months after the start of the business relationship, depending on the country contextual risk.
HUGO BOSS uses the Social Compliance Management module to check to what extent the standards set out in its Supplier Code of Conduct, which applies to all suppliers to the same extent, are being complied with. Social audits are carried out especially for finished goods suppliers. In 2022, for 82 percent of suppliers Social Compliance have been conducted by external auditors, and the remaining were conducted by internal auditors.
Identification of Risks and Impacts
In order to manage the sustainability risks that occur in the individual process stages of its textile supply chain, the Company divides its suppliers into clearly defined clusters. To do this, the Company considers the existing country contextual risk, the volume of the supplier, as well as the processes implemented at the supplier, namely: dry processes without the use of chemicals such as cutting or sewing, dry processes with the use of chemicals such as the gluing of shoe soles, and wet processes such as dyeing or bleaching. Depending on which cluster a supplier is assigned to, different (basic or extended) E&S risk management requirements apply to it. There are differences, above all, with regard to the environmental standards defined by HB (depending on inherent risks of activities), while the social standards apply to all suppliers to the same extent.
HB has a corporate risk management system in place identifying risks as early as possible, evaluating them adequately, limiting or avoiding them through suitable measures, as well as monitoring and documenting them. Environmental and social risks are part of the Company's overall risks management strategy and are rated to have the highest potential impact to its operations. The company regularly conducts materiality analysis related to its own and supplier's production activities to determine the focal points of its sustainability strategy and reporting. Hugo Boss identifies the following as its most relevant risks in production: OHS, human rights and labor standards, climate action, sustainable materials and responsible raw material extraction.
In regard to its supply chain, risks are associated with the following activities: (i) production of raw materials (e.g. cotton, wool, leather); (ii) fabrics and trimmings (weaving and knitting of fabrics, trimming productions e.g. buttons, labels), finishing of fabrics through wet processes; and (iii) finished goods (assembly of products). HB classifies its suppliers into two groups: finished goods suppliers, and fabrics and trimmings suppliers. On sourcing volume, 86% is from products manufactured by independent suppliers of contract manufacturing or that are purchased as full merchandise.
The company conducts a clearly defined due diligence process of suppliers as part of its risk management. In addition, it creates special country scorecards to evaluate and manage country-specific social and environmental risks in its supply chain. The country's human rights situation is also assessed; if scorecards show a very high human rights risk, countries are excluded as procurement markets for the Company. Risks identified include child and forced labor; discrimination, sexual harassment, gender-specific violence, working time violations, pollution of drinking and wastewater, air and soil pollution, among others.
Management Programs
HB has established corporate E&S Management system, grouped into several areas: (i) General commitments are laid out on the Code of Conduct, Stakeholder Engagement and Corporate Citizenship Policy; (ii) Commitments on social issues are included on the following documents: Human Rights Policy, Health & Safety Commitment, Anti-discrimination and Anti-Harassment Commitment and Policy, Supplier Code of Conduct, Child Labor Policy and whistleblowing Policy, among others; (iii) Environment commitments: Environmental Policy, Energy Policy and Chemical Management Policy; and (iv) Commitments on the topic of product: Animal Welfare Policy, Responsible Product Policy, Cotton and Other Plant-based Fiber Commitment, Restricted substance list, among others. These documents provide the basis of the company's commitment and strategy to address E&S risks of its activities. Overall, HB's ESMS is consistent with the principles of the Performance Standards and commensurate with the scale and E&S impacts of its operations and management of suppliers.
HB established the Supply Chain Sustainability Program (SCS) to monitor supplier's compliance with its environmental and social standards and consists of three modules: social compliance management, environmental management, and governance, each of which contains different components. Supplier's compliance to HB requirements is monitored through regular audits and assessments, conducted by HB and/or its third-party auditors. The scope of the audits cover assessment of implementation of Social and Environmental Modules of the SCS.
Organizational Capacity
HB's managing board has overall responsibility for all sustainability issues, especially sustainable procurement, sustainable materials, as well as circularity and climate change. The Group Strategy & Corporate Development division is now responsible for the strategic accountability in the area of sustainability and reports directly to the Chief Executive Officer (CEO). Operational responsibility along the supply chain lies with Business Operations, while Investor Relations is responsible for sustainability reporting. Both departments report to the Chief Financial Officer (CFO). The central body responsible for guiding HUGO BOSS' sustainability strategy is the Sustainability Committee, comprises representatives from the relevant functions.
Supply Chain E&S risks management responsibilities is overseen by the Head of Sust. Supply Chain Management, Business Operations Excellence. It oversees a team of internal auditors in China, as well as various external specialized consulting firms (such as Elevate) that undertake audits across the rest of HB countries of sourcing and operations.
Monitoring and Review
HB measures its sustainability management performance on the results of ratings, rankings and standardized surveys. The Sustainability Program also reports on the goals set, the status of their achievement and the measures implemented.
HB uses the Social Compliance Management module to check to what extent the standards set out in its Supplier Code of Conduct, which applies to all suppliers to the same extent, are being complied with. As part of this module, the Company conducts regular social audits or collects SAQs for review. The Environmental Management module has general environmental requirements, specific requirements for chemical and wastewater management as well as climate impact management.
The company has goal of sourcing all of its goods by volume from finished goods suppliers with one of the top two performance levels (“good” or “satisfying”) in the most recent audit. Nevertheless, the figure was 97% for 2022. Thus, the goal was added by 80% from the top performance level by 2025.
For 2022, Hugo Boss undertook 224 social compliance checks from 213 suppliers. Audit frequency depends on the supplier's previous performance, and for low-risk suppliers audits may be valid for up to 36 months. In 2022, no cases were known for specific topics such as child and forced labor, for which HB pursues a zero-tolerance policy – including cases relating to subcontractors.
Since 2018, the Company's Social Compliance Management module has been accredited by the Fair Labor Association (FLA) multi-stakeholder initiative. The FLA also checks compliance with its standards through independent audits, and the results of this are also used by HB to manage its supply chain management.
Emergency Response
As part of its requirement that HB's suppliers shall create a safe and healthy working environment for their workers, audit scope includes revision of emergency preparedness, response requirements, including: posting evacuation plans, installation and maintenance of fire alarms, installation and maintenance of emergency lighting, ensuring aisles exits are not blocked, employee education and drills and evacuation procedures and fire drills. Additionally, Emergency evacuation procedures include procedures for notifying local community authorities in case of accidental discharges or other events.
PS2: Labor and Working Conditions
HB's supplier compliance framework considers core elements of IFC's Performance Standard 2. The Supplier Code of Conduct requirements are based on the Universal Declaration of Human Rights of the UN, the UN Guiding Principles on Business and Huma Rights, the Fundamental conventions of the ILO, among others. Suppliers are obligated to inform their employees of their rights and obligations under the requirements formulated by Hugo Boss, as well under applicable national law. Moreover, it recently updated its human rights risk analysis in order to comply with the requirements of the German Supply Chain Act on Corporate Due Diligence Obligations.
The Supplier CoC expectations on Human Rights and Labor standards, layout particular requirements for vulnerable groups, child labor, indigenous peoples, forced labor and modern slavery, third party recruitment, discrimination and harassment, humane working conditions, fair compensation, work hours, occupational health and safety, freedom of association and collective bargaining.
In regard to Freedom of Association and collective bargaining, HB recognizes that all employees have the right to freedom of association (FOA) and collective bargaining. Moreover, suppliers must recognize and respect of FOA and collective bargaining and not discriminate against, harass, intimidate, terminate or disadvantage employees who take advantage of these rights.
The company is aware of human rights risks of its international sourcing activities. As part of their due diligence, it undertakes a thorough assessment of the country context and includes external stakeholders, to prioritize risk areas. The scope of the due diligence includes the entire value chain (from the production of raw materials to the manufacture of fabrics and apparel, including administration and transportation. Additionally, it takes into account vulnerable groups, which have an increased risk of human rights violations. To mitigate these risks, HB focuses on: training its suppliers on human rights risks, obtaining representations that suppliers are not sourcing from areas known to have risks, it checks proof of origin when concerns arise, and has phased out sourcing raw materials from areas with high risks, such as for forced labor.
As described earlier, HB relies on both in-house and third-party auditors, allowing the company to monitor labor and working conditions at its supplier factories. Audits are performed regularly depending on risks and results are translated into a scorecard and HB tracks suppliers' performance, updating scores as appropriate and taking into consideration progress of closing corrective action plans.
Grievance Mechanism
Suppliers are obligated to establish a confidential or anonymous complaint mechanism in order to allow employees to report violations. If any violations of human rights or labor standards are reported, staff members of suppliers have recourse to a defined grievance mechanism through which they can contact the responsible contact person at HB directly, or an independent external ombudsman. Employees of all suppliers along the supply chain are entitled to use the free and independent whistleblower system, provided by HB which keeps identities of users confidential. All suppliers are required to inform their employees their entitlement to use the system. The whistle blower policy ( https://group.hugoboss.com/fileadmin/user_upload/HUGO_BOSS_Whistleblowing_Policy.pdf ) clarifies how the Company receives, reviews and processes complaints and other information. HB works together with the affected supplier to develop a corrective action plan to remedy the deficiencies.
The Supplier Code of Conduct states that no employee shall be subject to physical, mental, sexual, or verbal abuse, and punishments, assaults or intimidation. Any concern by employees on these issues can be reported through the established grievance mechanism described above. Employers are checked during compliance audits that employees are aware of grievance procedures and its applicable rules.
Occupational Health & Safety
Occupational health and safety are a top priority for the Company. The Supplier Code of Conduct require that suppliers must ensure physical and mental health and safety of employees and must take preventive measures against accidents and occupational illnesses. The code includes commitment on establishing OHS management systems to define, evaluate avoid and counteract health and safety hazards, including: workplace lightning, noise emissions levels, sanitary facilities. Implementation of OHS management systems are monitored during compliance audits. Instances of non-compliances are addressed through timebound corrective action plans (CAPs) and are part of the supplier's assessment. HB has been member of the Bangladesh Accord since 2016 and joined its successor organization, The International Accord for Health and Safety in the Garment and Textile Industry Accord is a legally binding agreement between 200 garment brands and global trade unions. The agreement promotes worker safety through independent inspections, remediation, and training programs and recognizes the rights of workers to organize, refuse unsafe work and raise health and safety concerns.
HB ensures through regular audits that manufacturing facilities established and maintained life and fire safety risk assessment and management systems in line with national fire safety, buildings codes and GIIP. HB as part of suppliers audits monitor the design of emergency routes and safety exits, emergency exits marking, passive and active fire-fighting equipment and measures and alarms existence of evacuation exercises for employees.
PS3: Resource Efficiency and Pollution Prevention
HB's Environmental Policy contains its standards and requirements for issues such as energy and water consumption, greenhouse gas emissions and waste management. It also has specific rules for the handling of chemicals in the production process in its Chemical Management Policy. Additionally, the Supplier Code of Conduct commits suppliers to adopt a continuous improvement approach in areas including energy consumption, greenhouse gas emissions, chemical management and wastewater.
One of the three modules on the SCS Program is the Environmental Management Module, which focuses on measures to reduce emissions, protect water and soil and prevent air pollution. This module has the following components: general environmental requirements, wastewater management, chemical management, and energy and GHG management. Requirements on these components vary depending on process and inherent environmental risks of the supplier, and are verified through audits.
General environmental requirements ask suppliers to comply with comprehensive general environmental requirements in their operations and supply chain, covering environmental and energy management systems, embedding responsibility for environmental issues and setting goals and monitoring environmental performance. The chemical and wastewater management covers risks related to managing chemicals used to produce fabrics, leather and trimmings or in washing and dyeing processes.
For suppliers with wet processing producing industrial wastewater, HB requires them to have a functioning wastewater treatment plant and comply with local requirements. In regard to hazardous chemicals management, HB requires its suppliers to handle chemicals responsibly as part of its environmental program, and helps them to reduce their use and replace hazardous substances. Additionally, HB works with other companies in the apparel industry as part of the initiative Zero Discharge of Hazardous Chemicals (ZDHC). HB uses ZDHC's standardized assessment of a supplier's chemical management, which means that all suppliers are obligated to verify their respective chemicals inventory and management for conformity with the ZDHC Manufacturing Restricted Substances List (MRSL) and to avoid or limit the use of harmful substances accordingly. Furthermore, all suppliers agree to require the implementation of the ZDHC MRSL from their suppliers.
HB is a signatory of the UNFCCC Fashion industry Charter for Climate Action in 2018, which aims to achieve “net zero” greenhouse gas emissions by the year 2050 together with other companies in the fashion industry. To meet this commitment, HB strives to increase transparency on GHG emission on its supply chain, focusing on those with higher energy requirements (suppliers using heated water, coating, steaming or ironing).
HB supports its partners in the supply chain with making their contribution to climate action and developed the Resource Efficiency Module (REM) where suppliers can, in particular, record their energy consumption, set goals, start and manage their own resource efficiency projects, and report on their progress. In 2022, greenhouse gas emissions were 29,878 tCO2eq for Scope 1 and 2 and 1,064, 461 tCO2eq for Scope3. In total, Co2eq emissions for Scope 1 to3 was 1,094,339 tonnes.
PS4: Community Health, Safety and Security.
Risks to community health and safety, arising from HB suppliers activities relate to security providers arrangements. Contractor management at factories, including security service providers, is part of the scope of audit assessment of legal compliance, as well as applicable Supplier Code of Conduct. Nevertheless, HB will work with relevant stakeholders and provide guidance to suppliers so that its security arrangements are in line with the Voluntary Principles on Security and Human Rights. Additionally, HB will support factories to conduct security risk assessments to ascertain the risks posed by its security arrangements to those within and outside its facilities and to determine whether security personnel are being hired, equipped, and trained adequately, including on: human rights issues, proper use of force, and appropriate conduct toward workers, and other stakeholders
