In order to better evaluate any supply chain risks, investors want Inditex, the company that owns Zara, to follow competitors H&M and Primark in disclosing the whole list of its suppliers.

Among the major apparel retailers, Inditex stands out for not disclosing the manufacturers it sources from. Investors and regulators desire improved disclosure and increased openness from businesses.

Particularly apparel retailers are under pressure to demonstrate that their supply chains are free of forced slavery and that salaries for garment workers are fair.

Before preparations for a U.S. IPO, Chinese fashion company Shein has drawn attention from U.S. lawmakers due to supplier chain vulnerabilities.

Proposed regulations in the European Union that would force all large corporations to reveal whether their supply chains involve child exploitation or cause environmental harm have been postponed due to conflicts. Fines equivalent to 5% of revenue are among the suggested penalties for noncompliance.

Numerous fashion brands and retailers have already published comprehensive supplier lists that include factory names and addresses, such as Adidas, H&M, Hugo Boss, M&S, Nike, Primark, and Puma.

Every year, Inditex releases a list of its suppliers and adds a new page listing the 12 main nations from which it sources, but it withholds information about specific companies.

Reuters inquired about what the company’s shareholders desired to see increased disclosure from Inditex.

In response, Dutch asset manager MN said: “In our engagement with Inditex one of the things we ask is if they could disclose a list of their suppliers and the geographical location.”

“Even though Inditex assures us that they have this data available, up until now Inditex is not willing to disclose this information unlike some industry peers who publish extensive supplier lists.”

MN, which oversees the assets of Dutch pension funds, stated that it was critical to get this knowledge in order to demonstrate whether Inditex has access to it and for its own investigation.

For Platform Living Wage Financials (PLWF), a consortium of 20 institutional investors with a total of 6.58 trillion euros ($7.16 trillion) in assets under management, MN is the leader of the Inditex conversation. It aims to support increased pay for those employed in the clothing and shoe industries.

Inditex failed to respond to requests from investors that it release its complete supplier list. Inditex is scheduled to release its annual results on March 13.

“Inditex has a deep commitment to maintaining high standards in its supply chain, and believe that our industry-leading traceability system, which gives us maximum visibility of the supply chain, is key to this,” an Inditex spokesperson said.

Sandra Ortega, Amancio Ortega’s daughter, owns 5% of the company. Amancio Ortega founded Inditex. Their combined value is approximately $69 billion.

The five Inditex investors that answered queries from Reuters have a combined stake in the business valued at approximately $2 billion; at present, the company is valued at nearly $140 billion.

Reuters met with investors, and none of them are thinking about pulling out of Inditex.

As of January 1, MN indicated that it had urged its customers to remove their investments from TJX, the discount retailer that owns Homesense and TK Maxx, back in December.

“Over the more than three years of engagement we have seen very little improvement on human rights due diligence in their global supply chain,” MN said..

TJX reported that in recent years, it has increased its factory auditing programme and improved its code of conduct for vendors.

Under the terms of their agreement, Inditex gives the worldwide trade union organisation IndustriALL access to its entire supplier list. However, IndustriALL stated that it wanted more disclosures from all businesses, including Inditex.

Inditex had a poorer overall score in its 2023 assessment from Know The Chain, a benchmarking programme for businesses and investors to address forced labour in supply chains, than it did in its 2021 assessment.

“The company is encouraged to strengthen its supply chain transparency by disclosing a full, rather than partial, list of its direct suppliers,” said Know The Chain.

Investors believe that by disclosing its factories, Inditex’s competitors may increase their competitiveness for the same suppliers.

The London-based portfolio manager at Artemis Investment Management, Swetha Ramachandran, is curious about the percentage of Inditex’s revenue that comes from manufacturing in each of its several supplier nations. “It would help us determine their supply chain resilience,” she stated.

According to supply chain data released by Inditex since 2019, the company has more suppliers in Bangladesh and Morocco and fewer in China. However, it withholds information regarding the quantity of goods it purchases from certain vendors.

The portfolio manager of Clearbridge Investments, which owns shares of Inditex, Grace Su, stated that she has requested greater transparency on the supply chain.

“It’s very important because of all the scrutiny around ESG, and labour, and inputs. They claim to be a leader in this so it’s really important for them to actually have that level of disclosure.”

Schroders, an Inditex stakeholder, keeps tabs on businesses’ knowledge of manufacturing locations and pushes clothing retailers, like Inditex, to be open and honest, according to Hannah Shoesmith, head of engagement at the company.

Marie Payne, responsible investment officer of Inditex shareholder Cardano, stated that enhanced disclosure may have an impact on investment choices in addition to other environmental, sustainable, and governance considerations.

The $1.4 billion sovereign wealth fund of Norway said it regularly interacts with Inditex on supply chain risk management, human rights, and transparency.

It declined to provide specifics on those conversations. The fund stated that “there are continued challenges, including when it comes to traceability and reporting” with relation to businesses’ supply chain procedures generally.

(Adapted from Reuters.com)