Investors pressure Zara owner Inditex to publish full supply chain

Investors want Zara owner Inditex to follow the lead of rivals H&M and Primark by making its full list of suppliers public so it can better assess supply chain risks.

Inditex is an outlier among large clothing retailers in not publishing which factories it sources from. Regulators and investors want greater transparency and better disclosure from companies. Clothing retailers, in particular, are under pressure to demonstrate that there is no forced labor in their supply chains and that garment workers receive living wages.

Chinese fashion group Shein has come under scrutiny from US lawmakers over supply chain risks ahead of plans to go public in the US.

In the European Union, disagreements have stalled proposed rules that would require all large companies to disclose whether supply chains harm the environment or use child labor. Proposed penalties for non-compliance could include fines of 5% of revenue.

Fashion brands and retailers including Adidas, H&M, Hugo Boss, M&S, Nike, Primark and Puma already publish detailed lists of suppliers, including factory names and addresses.

Inditex annually publishes the number of suppliers it sources from in 12 major countries, but does not provide information on individual factories. Reuters asked Inditex shareholders what they wanted to see from the company in terms of improved disclosure. In response, Dutch asset manager MN said: “In our engagement with Inditex, one of the things we asked is whether they could disclose a list of their suppliers and their geographical location.”

“Although Inditex assures us that it has this data available, so far Inditex is not willing to disclose this information unlike some industry peers who publish extensive lists of suppliers.”

MN, which manages the assets of Dutch pension funds, said it was important to have this information to demonstrate whether Inditex has this information available, as well as for its own due diligence.

MN leads Inditex's dialogue for Platform Living Wage Financials (PLWF), a group of 20 institutional investors with combined assets under management of €6.58 trillion ($7.16 trillion). Works to promote higher incomes for workers in the garment and footwear industry.

Inditex, which will publish its annual results on March 13, declined to comment on investor demands that it publish its full list of suppliers.

“Inditex is deeply committed to maintaining high standards in its supply chain and we believe that our industry-leading traceability system, which gives us maximum supply chain visibility, is key to this,” a spokesperson said. from Inditex.

Inditex founder Amancio Ortega owns a 59% stake in the company, while his daughter Sandra Ortega owns 5%. Together they are worth around $69 billion.

The five Inditex investors who responded to Reuters questions have a combined stake worth about $2 billion in the company, which is currently valued at about $140 billion.

None of the investors Reuters spoke to are considering divesting from Inditex.

MN said it advised its customers in December to divest from discount retail chain TJX, which owns Homesense and TK Maxx, and divested from January 1.

“During more than three years of engagement we have seen very little improvement in human rights due diligence across its global supply chain,” MN told Reuters.

TJX said it has strengthened its supplier code of conduct and expanded its factory audit program in recent years.

More transparency

Inditex has an agreement with the global union federation IndustriALL by which it provides it with its complete list of suppliers. But IndustriALL wants broader disclosure from all companies, including Inditex, he said.

Know The Chain, a benchmarking initiative for companies and investors to address forced labor in supply chains, gave Inditex a lower overall score in its 2023 assessment than in its 2021 assessment.
“The company is encouraged to strengthen the transparency of its supply chain by disclosing a complete, rather than partial, list of its direct suppliers,” Know The Chain said.

Listing its factories could lead to more competition from Inditex's rivals for the same suppliers, investors say.

Swetha Ramachandran, a portfolio manager at Artemis Investment Management in London, wants to know what proportion of Inditex's revenue is manufactured in each supplier country. “It would help us determine the resilience of their supply chain,” she said.

Supply chain figures released by Inditex since 2019 show the company has cut suppliers in China and increased them in Bangladesh and Morocco. But it does not give details about the quantity of products it buys from those suppliers.

Grace Su, portfolio manager at Clearbridge Investments, which owns Inditex shares, said she has called for more clarity and disclosure of the supply chain. “It's very important because of all the scrutiny around ESG, labor and inputs. They claim to be leaders in this, so it's really important for them to have that level of disclosure.”

Inditex shareholder Schroders tracks companies' knowledge of manufacturing sites and encourages clothing retailers, including Inditex, to be transparent, said Hannah Shoesmith, the company's chief engagement officer.

Better disclosure, among other environmental, sustainability and governance factors, could influence investment decisions, said Marie Payne, head of investments at Inditex shareholder Cardano.

Norway's sovereign wealth fund, which has a $1.4 billion stake in Inditex, said it regularly collaborates with the company on supply chain risk management, human rights and transparency.

He declined to give details of those discussions. The fund said regarding companies' supply chain practices in general that “there are ongoing challenges, including with regard to traceability and reporting.”