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Report: Higg Index, Without Transparency and Incentives, is a ‘Scale Without a Diet’

For the apparel sector, which has traditionally struggled to measure, let alone manage its burgeoning environmental footprint, the Higg Index has been nothing short of transformational.

Certainly this was the case in 2011, when the Walmart- and Patagonia-founded Sustainable Apparel Coalition (SAC) rolled out the suite of assessment tools to allow brands, retailers and facilities of all sizes to measure and score a company or product’s sustainable performance in an aggregated, harmonized way that had hitherto proved elusive.

Now deployed by SAC spinoff Higg Co, the Higg Index continues to be framed as an industry-wide route to promote sustainable improvements in the fashion supply chain at scale.

“The Higg Index is helping us to identify the exact saving results of our impacts,” Andy Zhong, marketing director of China’s Prosperity Textiles, said in one of many endorsements on the SAC and Higg Co websites. “By using the Higg Index, and with our peers joining forces, we can do better benchmarks to keep improving continuously.”

But praise has not been universal. A four-year study by researchers at the University of California, Berkeley, funded by the Laudes Foundation and published Monday, described the Higg Index in general—and the Higg Facility Environmental Module (FEM) in particular—as a “scale without a diet.”

Though thousands of factories worldwide conduct self-assessments of the FEM, which measures an apparel facility’s environmental management capabilities, procedures and plans, every year, the potential for such tools to transform the industry remain throttled by the dearth of meaningful action from the industry around transparency and incentives, argue Dara O’ Rourke, associate professor of environmental and labor policy, and PhD candidate Niklas Lollo, now a consultant for Higg Co.

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“The Higg Index has established a very strong foundation to measure environmental performance at apparel factories, so factories and brands now know how these factories perform,” O’Rourke told Sourcing Journal. “But what they still need to do is create mechanisms to incentivize the factories to get better. To continue the metaphor, it’s not enough to know how much you weigh, you also need to say, ‘Alright, I’m going to work out, I’m going to eat differently.’ There needs to be a feedback loop where the factories actually benefit from getting better right now.”

O’Rourke and Lollo, who were granted unimpeded access by the SAC, combed through three years of FEM data from 12,000 factories across 80 countries, surveyed 500 of these facilities and conducted in-depth case reviews of eight high performers in Bangladesh and China with the goal of sussing what role governance schemes such as the Higg Index, if any, played in their efforts to improve their sustainable performance.

They concluded that while many factories made improvements after using the FEM, the FEM in and of itself was rarely the primary driver of those changes.

“In very few cases were we able to show that just the act of measuring a factory’s performance led directly to improvements,” O’Rourke said. “It may be step one, but then you needed a brand to come in and do more work with the factory to incentivize them to improve or ask them to look at what their neighbors are doing or bring them to training.”

The measurement alone is necessary, he said, but it’s “not sufficient to get the change that is needed in the improvement on environmental performance.”

While the proponents of environmental improvement programs frequently laud the financial rewards that investments in water, energy and chemical reductions can deliver to bottom lines, factory owners, facing chronic cashflow crunches, particularly amid the current COVID-19-induced economic tumult, typically favor short-term growth over long-term savings, O’Rourke said. It’s one thing for factories to measure their performance, he added, it’s another to get them to invest real capital in a new boiler or LED light.

As the threat of climate change grows more dire and urgent, brands and retailers are feeling increasing public heat to clean up their supply chains and rein in their carbon footprints. But despite the preponderance of multi-stakeholder initiatives, pacts and commitments, few measures are legally binding, which means that progress can only go so far without some sort of enforcement with regulatory teeth. Instead, upstream facilities are saddled with the bulk of the responsibility—and most of the bill, though some schemes, like the Apparel Impact Institute’s mill-improvement program, another SAC offshoot, are working to make financing more of a team effort.

“Very rarely do brands actually send real incentives down supply chains for factories to improve,” he said. “They’re basically adding an additional requirement to these factories, ‘You have to meet our quality standards or price standards or delivery standards and also these environmental standards’ without giving them better or longer orders or building in margin into those orders to invest.”

O’Rourke and Lollo also see an opportunity for FEM data to be made more transparent among factories.

“Right now only the brand and the factory see it,” O’Rourke said. But I think it’d be very useful for factories within a region to see who’s performing the best in their region. That establishes a real grounded best practice, not just some aspirational ‘what a factory could be.’” It also creates a kind of peer pressure—think factory FOMO. When one factory sees that another down the road has a better environmental profile, it’s going to worry about losing orders.

The SAC agrees that incentives are key to driving improvements, but it says it prefers to leave its brand members, which include boldface names like H&M, Zara owner Inditex, Kering, Nike, Puma and PVH Corp., to determine what those incentives should be and how they are structured.

“Higg FEM was designed specifically as a measurement tool,” executive director Amina Razvi told Sourcing Journal. “Some Higg FEM users have already developed incentives that support facility performance or are used to determine order volumes. We’ve also seen retail executives leverage Higg Index scores to determine internal compensation.”

Accountability is just as important, Razvi added, though she did not elaborate what form that accountability should take. “We all have a role to play in driving more sustainable practices, and we believe the best facilities should be rewarded for these practices,” she said. “Brands and retailers should integrate robust incentives into their purchasing practices so we can further integrate sustainability efforts into how we do business.”

Higg Co CEO Jason Kibbey concedes that the FEM has room for improvement. It was designed, he said, to “continuously evolve,” and indeed a third permutation of the tool was unveiled while the study was underway, though O’Rourke and Lollo say it has yet to solve the underpinning issues of transparency and incentives.

“We absolutely agree that factory scores should be transparent and have opened up transparency pathways to SAC manufacturer members to communicate scores this summer, and over the next months, transparency will be enabled for all Higg FEM assessments,” he told Sourcing Journal. “We’re working diligently to release different versions of factory and consumer transparency which includes public benchmarking and deeper information at the product, factory and brand level.”

For O’Rourke, who saw the best FEM outcomes from buyers and factories with the most collaborative, long-term relationships, the problem lies deeper: Brands need to start thinking less in terms of how they can skew numbers to their advantage and more about how they can build the sustainable capabilities of the factories they’re sourcing from.

“It’s not just about one more audit tool to see whether factories are good or bad,” he said. “It’s really about using the measurement system as a starting point to go build the capabilities and the incentives for these factories to get better.”