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A New Day for Sustainability

February 19, 2015



The world of sustainability is changing dramatically, and management accountants need to be prepared.


On April 24, 2013, the catastrophic collapse of the Rana Plaza building on the outskirts of Dhaka, Bangladesh, killed more than 1,100 garment workers who were producing apparel for some of the world’s largest retailers. The deadliest disaster in the history of the garment industry triggered a chain of actions that may result in a major shift in corporate liability in terms of global supply chain safety. Until then, retailers used factory inspections and audits to claim their global supply chains were safe and in line with their business codes. Now they may also become accountable for building safety where their contractors have factories. The world’s largest apparel companies, including Hennes & Mauritz (H&M), Marks and Spencer, Inditex (the parent of Zara), and others have already signed a far-reaching and legally binding safety agreement. The plan requires retailers to have rigorous independent inspections and to help pay for fire safety upgrades and some other building improvements.


Even though the companies rated highest in sustainability performance generally evaluate labor standards and examine environmental performance, few look at the safety standards of the buildings their suppliers lease. Yet sustainability issues have become more complex. For example, consumers want to know why facilities such as the Rana Plaza building are used to produce their garments. Multinational corporations that are using such suppliers but are failing to supervise and manage their safety appropriately can experience disruption, consumer displeasure, and harm to their brand, as well as additional out-of-pocket costs related to facilities they don’t own or lease, such as mandatory repairs and renovations. The Rana Plaza catastrophe has forced companies to rethink their social and financial liabilities. What should companies do as part of this process? Financial professionals in particular are increasingly being asked to assist in measuring and improving performance for external reporting and for improved management decision making, so they need to be fully aware of the latest information about sustainability practices.


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By Marc J. Epstein and Adriana Rejc Buhovac

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