Respect Human Rights in the Supply Chain

Monitoring Production Partner Factories

Considering respect for human rights, compliance with labor-related laws, improvement in the working environment, and environmental consideration in the supply chain our top priority issues, we are actively working to monitor our business partner factories in accordance with the "Code of Conduct for Production Partners of Ryohin Keikaku."

Monitoring of the Working Environment

Working Environment Monitoring at Business Partner Factories

Ryohin Keikaku regularly conducts onsite inspections at contract production factories through a third-party organization on items such as human rights infringement, working environment, and environmental preservation in accordance with the "Code of Conduct for Production Partners" and discloses the evaluation results. The audit results are sent to the partner factories, and factory management is requested to make improvements in any non-compliant items, and we provide support for improvements. On the basis of the improvement report prepared by factories, we not only simply correct non-compliant items but also identify the root cause of non-compliance, such as a specific activity/procedure or lack of an activity/procedure, and then check with our business partner factories whether it is necessary to change the system to prevent its recurrence.

Since 2016, we have also conducted audits through the Better Work Programme, a joint activity program between the International Labour Organization (ILO) and the International Finance Corporation (IFC). Thanks to audits through the Better Work Programme, which is widely adopted in the apparel industry, factories can reduce the duplication of audits and focus more on working environment improvement.

Figure:Working Environment Monitoring System

Working Environment Monitoring System

Ryohin Keikaku regularly conducts onsite audit through a specialized third-party organization for the purpose of realizing a sustainable society through coexistence and co-prosperity with its business partners, while promoting the "Code of Conduct for Production Partners" and verifying its effectiveness. The audit results are shared with the partner factories, and factory management is requested to make improvements in any non-compliant items, and we provide support for improvements while checking with our business partner factories whether it is necessary to change the system to prevent recurrence.

Onsite audits are conducted according to the prescribed procedure, consisting of interviews with factory employees, labor unions, employee representatives, and management; reviews of collective agreements and various records; and checks on occupational safety and health conditions, through site visits.

Business partner factories that comply with the "Code of Conduct for Production Partners" and have no matters pointed out are rated A. Factories with relatively low-risk violations are rated B. If any occupational safety and health issue that violates local laws and regulations is discovered in factories, those factories are rated C. If a serious violation concerning safety and health, wages, or welfare benefits is identified in factories, those factories are rated D. If factories are found to commit serious human rights infringement, such as child labor or forced labor, of in cases that factories refuse to participate in the audit, those factories are rated E. If the violation leading to a D rating is not resolved, or in cases of an E rating, the information will be submitted to the Compliance & Risk Management Committee. The Compliance & Risk Management Committee will conduct an internal deliberation to suspend or review business transactions with that factory.

Risk Evaluation

Based on the regional human rights vulnerabilities in the countries or regions where our business partner factories are located, and the business partner factory evaluation and factory visits by employees of Ryohin Keikaku, we identify factories with concerns about lack of transparency (such as false reports), labor disputes, human rights infringement and environmental issues as factories with high risk. For factories with high risk, we are working on understanding and resolving fundamental problems by conducting onsite audits through a third-party organization, or by cooperating with international organizations such as the Better Work Program.

We share the process of implementing improvement measures, the timeline for improvement after auditing, etc. with our business partner factories. The overall audit results and, in particular, matters that are frequently pointed out are not only disclosed on the website but also shared with procurement-related departments and business partners.

Working Environment Monitoring at Subcontract Factories

Under the "Code of Conduct for Production Partners," Ryohin Keikaku prohibits outsourcing of production to factories that have not obtained prior approval of Ryohin Keikaku. We conduct pre-audits on subcontractor factories to which we outsource part of the production process, and we oblige them to obtain approval from Ryohin Keikaku. Like our business partners, our subcontractor factories are obliged to comply with the Code of Conduct, and if any serious violation of the "Code of Conduct for Production Partners" is discovered, they are required to take corrective actions and then undergo and pass another audit.

Monitoring Results of Business Partner Factories

Evaluation of Business Partner Factories

Graph:Monitoring Results of Business Partner Factories(Evaluation of Business Partner Factories)
Evaluation Content
A There are no issues.
B There is a relatively low-risk violation.
C There is a risk of infringement of human rights, or there is a violation of local laws and regulations on safety and health.
D There is a serious violation of safety and health, wages, human rights, or welfare benefits.
E Serious human rights infringement, such as audit refusal or child labor/forced labor, is discovered.
Graph:Non-Compliant Issues
Health and Safety:53%, Environment:10%, Chemical Substance Management:9%, Working Hours:8%, Traceability:7%, Wages and Compensation:6%, Anti-Corruption:3%, Child Labor and Young Labor:1%, Freedom of association:1%, Employment Contract:1%, Disciplinary Action:0%, Monitoring and Compliance:0%, Forced Labor:0%, Discrimination:0%

Some of the contract manufacturing factories are located in countries with a high risk of modern slavery due to poor governance and weak rule of law, according to reports from international organizations and NGOs. Recognizing that there are risks of labor exploitation, a poor working environment, illegal labor, etc. in the case of an inadequate governance structure of a factory and inappropriate treatment of workers, we are working to reduce and prevent such risks by preferentially conducting onsite inspections. We make sure that factories not only comply with national and regional laws and regulations concerning the environment but also do the following: formulating an environmental policy, conducting environmental impact analysis, and introducing a system to minimize adverse effects on the environment.

We conducted onsite audits of 76 factories in the FY 2019 and 23 factories in the FY 2020/08.

In the audits conducted in the FY 2020/08, many issues were identified regarding health and safety and working hours of the items covered in the "Code of Conduct for Production Partners." Ryohin Keikaku will reinforce its initiatives to prevent and address the identified issues.

Health and Safety

Among health and safety issues, many non-compliant items were discovered regarding fire safety, machine safety, and occupational safety and health. We explain to business partner factories the local laws and regulations, occupational safety and health standards of Ryohin Keikaku, and best practices. For example, we explain to them that employee lives may be put at risk in the unlikely event of a fire if an evacuation route is blocked or if locations of fire extinguishers and emergency exits are unknown, and we instruct them to teach employees how to properly wear personal protective equipment in factory training programs.

Environment

Some of our business partner factories did not undergo surveys, including energy surveys/evaluations (such as electricity, heat, and water) and emission surveys on wastewater/gas/noise. We have appointed environmental policy officers at these factories and instructed them to introduce a system of minimizing adverse impacts on the environment by conducting an environmental impact analysis.

Chemical Management

Regarding chemical management, we found some cases in which containers of harmful substances were not properly labeled in the local language and in which two-stage containers were not installed.

We explain local laws and regulations, occupational safety and health standards of Ryohin Keikaku, best practices, etc., for example, by gathering personnel who deal with chemical substances and conducting training sessions on a regular basis so that such measures will not be a temporary response.

In addition, although we found some cases in which an emergency eyewash station was not installed in the chemical storage/work area, the installation of emergency eyewash stations was completed for all of these cases within 3 months.

Working Hours

Ryohin Keikaku focuses on improving the transparency of the supply chain and prohibits false reports by business partner factories.

To reduce working hours, our business partner factories are working to improve production efficiency by adjusting work systems, implementing training to improve employees' skills, and adopting compensation systems linked with productivity while reviewing methods of formulating the production plan. Furthermore, in cases where employees in our business partner factories are expected to have long working hours, we request the factories to contact Ryohin Keikaku in advance, and Ryohin Keikaku will respond as much as possible, for example, by adjusting the production plan.

In addition, if details of contracts with our company such as costs and delivery dates are inappropriate, this may cause excessive overtime work and a risk of fair wages not being paid; therefore, "Ryohin Keikaku: Compliance Conduct Guidelines" stipulate that all employees shall have business transactions for appropriate costs and delivery dates.

Response of Our Company

Ryohin Keikaku's management reviews twice a year the results of onsite audits conducted by a third-party organization and, where necessary, discusses whether it is appropriate to continue doing business with specific factories. As a result of the reviews conducted in FY 2019 and the FY 2020/08, no factory was found to have serious human rights infringement issues that would make it necessary to a review the business relationship with them.

In-house Training

To promote initiatives for human rights and the environment, we have been holding sustainability study sessions since FY 2019 for managers and staff who are in charge of procurement, production management, product planning, and quality control that are related to the supply chain.

In FY 2019, a total of approximately 100 employees participated in the study sessions, and they learned about the following topics while looking at specific cases at factories of their own and other companies: what circumstances are referred to as serious human rights infringement in addition to modern slavery, which points to pay attention to when visiting a factory for checking, problems arising in the supply chain, and measures required of companies.

Moreover, for in-house training, we are working on educating our employees by confirming their awareness of current issues while providing questionnaires to participants to grasp the level of their understanding of social compliance.

Internal Facilitation System

Human rights initiatives in Ryohin Keikaku Group are overseen by the Compliance and Risk Management Committee, which includes members of the Board of Directors.
In the event that instructions are issued by the Risk Management Committee in accordance with the Group Compliance Code of Conduct or the Production Partner Code of Conduct, the Committee will respond to the issue in consultation with related departments.

Division/Committe in Charge Main duties (related to human rights)
Compliance and Risk Management Committee Overall issues related to human rights
(Supervision of Group Compliance Code of Conduct and the Code of Conduct for for Producton Partners)
HR & General Affairs Division Elimination of discrimination and harassment for employees; point of contact for internal reporting and consultation concerning wages, working hours, etc.
Occupational Safety & Health Committee Occupational safety and health
Information System Division Privacy policy (including privacy protection policies)
Merchandising divisions, PR & ESG Division Human rights in the supply chain