92261 SOUTH ASIA ENVIRONMENT AND WATER RESOURCES UNIT The Bangladesh Responsible Sourcing Initiative A NEW MODEL FOR GREEN GROWTH The Bangladesh Responsible Sourcing Initiative A NEW MODEL FOR GREEN GROWTH? April 2014 World Bank 1818 H Street, N.W. Washington DC 20433, USA Tel: 1-202-4731000 Fax: 1-202-477-66391 www.worldbank.org Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. The World Bank encourages dissemination of this work and will normally grant permission to reproduce portion of the work promptly. II This is a report by the World Bank in collaboration with the International Finance Corporation (IFC) & the Natural Resources Defense Council (NRDC). Sponsored by The South Asia Water Initiative (SAWI), the Bank-Netherlands Partnership Program (BNPP) & the Water Partnership Program (WPP) SAWI Donors consist of: III Photo credits PHOTOGRAPHER: RAJIV ASHRAFI Cover: Dirty Sunset: The sun sets over the dirty lake at Banani. PHOTOGRAPHER: BO KAGE CARLSON Page 44-45: Rice field in southern Bangladesh. PHOTOGRAPHER: SIET MEIJER Pages 16: Wastewater treatment plant in Bangladesh. Pages 22-23: Spools in Bangladesh factory. Page 31: Garment factory in Bangladesh. Page 34-35: Assembly line in a garment factory in Bangladesh. Page 58-59: Men working in a textile factory in Bangladesh. Page 74: Spools of thread in a textile factory in Bangladesh. PHOTOGRAPHER: SHEHZAD NOORANI Page 4: Woman block printing shirts and other materials for sale in local markets and for export to Pages 8-9: Colored thread used for embroidery of cloth in a TMSS supported workshop. Page 43: Woman spinning cotton thread using traditional spindle Page 65: Woman producing silk thread from cocoons of silk worms. Page 57: Portrait of a woman with cocoons of silk worms which are used to make silk thread. PHOTOGRAPHER: THOMAS SENNETT Page: 19: People crossing river in boat. Bangladesh. PHOTOGRAPHER: CATHERINE TOVEY Pages: X-XI: Waterway in Bangladesh. Page 15: Untreated effluent from a Dhaka textile mill flows into a waterway PHOTOGRAPHER: SCOTT WALLACE Page 66-67: Villagers bath in river in rural Bangladesh. IV Contents Abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX Foreword ............................................. XI Acknowledgments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIII Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XV Bangladesh Case Study:   A Major Emerging Textile Exporter. . . . . . . . . . . . . . . . . XV .. . . . . . . . . . . XV Textile Industry’s Environmental Footprint Limitations of Existing Approach to   Environmental Management. . . . . . . . . . . . . . . . . . . . . . XVI The Bangladesh RSI Model. . . . . . . . . . . . . . . . . . . . . . . . . . XVI Overcoming Barriers to Cleaner Production. . . . . . . . . XVII Recommendations for Scaling Up   Cleaner Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVII Lessons from the Bangladesh RSI Model.. . . . . . . . . . . XVII Chapter 1 | Introduction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Objectives of Report. . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Global Responsible Sourcing Initiative. . . . . . . . 1 Chapter 2 | Importance of the Garment Industry for Bangladesh’s Economy .. . . . . . . . . . . . . . . . . . 5 Chapter 3 | Environmental Challenges of Bangladesh Ready-Made Garment Industry. . . . . . . . . . . . 9 3.1 Environmental Footprint of Ready-Made Garment Sector in Bangladesh. . . . . . . . . . . . . . . . 9 3.2 Over-exploitation of Freshwater Resources. . . 11 3.3 Water Pollution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.4 Energy Use and Energy Footprint. . . . . . . . . . . . 14 V Chapter 4 | Addressing Environmental Impacts: Limits of Traditional Approach.. . . . . . . . . . . . . . 17 4.1 Government Interventions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.2 Development Partners and Previous Interventions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.3 Toward a New Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Chapter 5 | A New Approach: The Bangladesh Responsible Sourcing Initiative. . . . . . . . . . . . . . . . 23 5.1 Background to Bangladesh Responsible Sourcing Initiative.. . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.2 Cleaner Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.3 Establishing the Right Partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 5.4 Process and Methodology.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.5 Potential for Cleaner Production: Summary of Key Findings. . . . . . . . . . . . . . . . . . . . . . . . . . 32 Chapter 6 | Overcoming Barriers to Cleaner Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.1 Constraints on Cleaner Production Uptake. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.2 Proposed Approach for Scaling Up Cleaner Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Chapter 7 | Recommendations for Scaling Up Cleaner Production: Menu of Options. . . . . . . . . . . . 45 7.1 Part I: Cleaner Production Information and Awareness. . . . . . . . . . . . . . . . . . . . . . . . . . . 46 7.2 Part II: Market-Based Initiatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 7.3 Part III: Strengthening Environmental Regulation and Enforcement. . . . . . . . . . . . . . . . . 53 Chapter 8 |Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.1 Potential for Cleaner Production: Key Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.2 Recommendations for Scaling Up Cleaner Production.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.3 Strengthening Bangladesh RSI Multi-stakeholder Platform. . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 8.4 Lessons for Global Responsible Sourcing Initiative.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 8.5 Lessons for Work on Green Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Appendix A: Bangladesh RSI Cleaner Production Factory Audits. . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Appendix B: IFC Cleaner Production Initiative, Bangladesh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Appendix C: Comparison of Low-Cost Cleaner Production Best Practices: China and Bangladesh.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Appendix D: Bangladesh World Bank Responsible Sourcing Initiative (RSI) Non-Lending Technical Assistance (NLTA). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 VI FIGURES Figure 2.1 Bangladesh Merchandise Exports (% Share of Total Exports), 1995 and 2011. . . . . . . . . . . 7 Figure 3.1 Water, Energy, and Chemical Use in Textile Processing (% of Total Use). . . . . . . . . . . . . . . 10 Figure 3.2 Environmental Impacts of Read-Made Garment Supply Chain. . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 3.3 Groundwater in Dhaka City. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 5.1 Partner Linkages.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 MAPS Water Pollution Hotspots in Greater Dhaka .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Map of Bangladesh.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 BOXES Box 5.1 The Race to the Bottom—and Back to the Top?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Box 5.2 Summary of Key Findings from NRDC’s Cleaner Production Best-Practice Methodology in China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Box 7.1 National Cleaner Production Centers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Box 7.2 The Apparel Industry’s Zero Discharge of Hazardous Chemicals Roadmap .. . . . . . . . . . . . 50 Box 7.3 China’s Cleaner Production Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Box 7.4 Load-Based Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Box 7.5 Public Disclosure Programs: International Best Practice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Box 8.1 Spin-off Activities from RSI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 TABLES Table 3.1 WDF Sector’s Contribution to Water Pollution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Table 4.1 Concentration-Based Effluent Standards for the Textile Sector (Maximum Concentration). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Table 6.1 Comparison of Different Approaches to Promoting Cleaner Production Uptake .. . . . . . . . 40 Table 6.2 Potential Role of Stakeholders in Overcoming Barriers to Cleaner Production. . . . . . . . . . 41 Table 8.1 Recommendations and Actor’s Roles in Overcoming Barriers to Cleaner Production.. . . 61 Table A.1 Recommended Best Practices (Assessment of Four Bangladesh Factories) .. . . . . . . . . . . . . 70 Table A.2 Potential Savings from Cleaner Production Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Table C.1 Comparison of Cleaner Production Best Practices: China and Bangladesh. . . . . . . . . . . . . 73 VII ABBREVIATIONS BGMEA Bangladesh Garment Manufacturers and Exporters Association BKMEA Bangladesh Knitwear Manufacturers and Exporters Association BTMA Bangladesh Textile Mills Association GIZ German Agency for International Cooperation (Gesellschaft für Internationale Zusammenarbeit) IFC International Finance Corporation ILO International Labour Organization IPE Institute for Public and Environmental Affairs NCPC national cleaner production center NGO non-governmental organization NLTA Non-Lending Technical Assistance NRDC Natural Resources Defense Council PaCT Partnership for Cleaner Textiles RSI Responsible Sourcing Initiative SEDF South Asia Enterprise Development Facility UNEP United Nations Environment Programme UNIDO United Nations Industrial Development Organization WDF washing, dyeing, and finishing ZDHC Zero Discharge of Hazardous Chemicals Currency Equivalents 2013 US$1 = 82 Bangladesh takas (Tk.) IX X FOREWORD T he last decade has witnessed a rapid increase in incomes in South Asia, but significant devel- opment challenges remain. Some challenges, such as industrial water pollution, have proved difficult to resolve. The case of Bangladesh is illustrative. Bangladesh’s economy has benefited from the growth of its garment sector, but the country faces considerable challenges managing industrial standards. Despite donor and Government involvement, pollution remains a growing problem. Tackling this issue necessitated the development of a large, strategic, multi-stakeholder program in collabora- tion with the private sector, drawing on the World Bank’s expertise as a provider of knowledge and convener, as well as a financier. This was not easy. The team had to think carefully about how the private sector could be brought in. The importance of the global textiles sector to many of the Bank’s client countries required identifying an appropriate entry point and bringing the right people to the table. Three actors were instrumental in supporting this process: The Natural Resources Defense Council (NRDC), who pioneered work with textile mills in China. The International Finance Corporation (IFC)—particularly the Bangladesh team—, who provided knowledge of the local apparel sector and their cleaner production program. And, several global apparel brands, which possess enormous sourcing power and influence to improve the environmen- tal performance of mills through their own supply-chain policies. The result of these efforts—the Responsible Sourcing Initiative in Bangladesh—is an innovative approach to address these problems. It demonstrates how collaboration between the Government, the World Bank, IFC and the private sector (global apparel brands, and textile mills) can XI improve the environment, people’s health, and the Government of Bangladesh, so that textile industry’s bottom line—all at once. The poten- firms are provided with the information, means, tial to make a difference by greening the supply and incentives to comply with basic environ- chain for textiles is enormous. mental regulations, adopt practices that make This work is timely and of prime impor- sense for their business, the environment and tance. The industrial disaster at Rana Plaza society. factory in Bangladesh in April 2013, one of the Looking forward, the Responsible Sourcing deadliest in its history, demonstrates the need Initiative has the potential to make a difference to improve industrial standards. The episode to textile industries in other countries, given the also serves to show the weight brands attach to replicability of the model. The goal should be to reputation across their supply chain and differ- ensure all textile mills adopt low-cost measures, ence multinational brands can make in improv- which cut down waste and reduce production ing standards in factories owned and managed costs, and encourage brands to support better by their suppliers. Since the disaster, over 100 environmental performance through their sup- multinational brands have joined a commitment ply chain guidelines. to improve health and safety measures in the country’s garment factories. John Henry Stein This report focuses on harnessing this Sector Director potential, identifying a number of practical, Sustainable Development achievable actions for multinational brands, and South Asia XII ACKNOWLEDGMENTS T he Responsible Sourcing Initiative (RSI) is a joint initiative between the World Bank, the Natural Resources Defense Council (NRDC), and the International Finance Corporation (IFC). This report was produced under the guidance of Catherine Tovey (Task Team Leader). The lead authors of this report are Catherine Tovey and Siet Meijer from the World Bank. Extensive contributions were also made by Shahpar Selim from the World Bank and Avinash Kar, Susan Keane, and Linda Greer from the NRDC. The report draws from in-depth technical analysis carried out by the consortium led by Ecopsis. The report also benefited from additional inputs from the World Bank team consisting of Khawaja M. Minnatullah, Jane Nishida, Klas Sander, Vansa Chatikavanij, Pratibha Mistry, Panneer Selvam, Susan Palmer, Swarna Kazi, and Angie Harney. In addition, the team was also grateful for the overall guidance from Jack Stein and Herbert Acquay in the South Asia Department at the World Bank, and contributions from the IFC, especially Monika Weber-Fahr, Naureen Chowdhury, Syed Nayeem Emran, Mirnal Sircar, and Mohandas Seneviratne, as well as NRDC’s representative in Dhaka, Syed Anwar Hossain. Excellent contributions were also received from the fol- lowing peer reviewers: Sanjay Srivastava, Paul Martin, Jostein Nygard, and Kulsum Ahmed from the World Bank, and Mohandas Seneviratne from the IFC. Finally, the team would like to thank John Dawson for his superb editing. Excellent collaboration was received from the brands and buyers that partnered with the RSI in Bangladesh: H&M, Levi’s, Marks & Spencer, Wal-Mart, Li & Fung, Target, Nike and Gap. Appreciation also goes out to the senior and technical staff at all the factories who par- ticipated in the project, especially DBL, Delta, Epyllion, Libas, Niagara, Partex, and Sinha. Thanks to the the staff XIII and management of the textile trade asso- This report was carried out as part of the ciations who took time to meet with us and South Asia Water Initiative, and would not have agreed to consider sharing the final results been possible without the generous support of with their membership: Bangladesh Garment the following donors:: Manufacturers and Exporters Association, • Department for International Development Bangladesh Knitwear Manufacturers and (DfID) Exporters Association, and the Bangladesh • Australian Government (AusAID) Textile Mills Association. Lastly, extensive thanks is extended to the Government of • Norwegian Ministry of Foreign Affairs Bangladesh, particularly senior officials in (through NORAD) the Ministry of Environment and Forests, • Bank-Netherlands Partnership Program the Ministry of Local Government, Rural (BNPP) Development, and Cooperatives, and the • Water Partnership Program (WPP). Department of Environment. XIV EXECUTIVE SUMMARY T he objective of this report is to document a new approach to tackle systemic industrial pollution in the textile industry. The Global Responsible Sourcing Initiative (RSI) was created in 2010 in response to this challenge. The initiative brings together the World Bank, the International Finance Corporation (IFC), the Natural Resources Defense Council (NRDC), and eight leading multinational brands. This platform allows non-traditional partners to explore a joint approach to address environmental concerns within the global apparel supply chain by collectively changing the “business as usual” mode of operation. BANGLADESH CASE STUDY: A MAJOR EMERGING TEXTILE EXPORTER Chapter 1 outlines why Bangladesh was selected as the first fully-fledged RSI pilot. There were a number of reasons. First, its ready-made garment industry is a major exporter, accounting for around 5 percent of the global ready-made garment sector, as well as being a major driver of Bangladesh’s economy. Second, its market is domi- nated by a handful of leading multinational brands, which therefore exert considerable influence. Third, Bangladesh’s rapidly growing textile industry is placing an increasing environmental footprint. Chapter 2 further expands on the importance and characteristics of Bangladesh’s dynamic and fast-evolving ready-made garment export sector. TEXTILE INDUSTRY’S ENVIRONMENTAL FOOTPRINT Chapter 3 explores the environmental footprint of Bangladesh’s ready-made garment sector in more detail. XV Most of the ready-made garment sector is incentives of multiple actors around incremen- manufacturing. Of the manufacturing processes, tal, achievable actions. the washing, dyeing, and finishing (WDF) of textiles—which relies on large quantities of THE BANGLADESH RSI MODEL water, chemicals, and energy—is the primary driver of environmental issues. Environmental Chapter 5 outlines in more detail the impacts are most felt around the capital city Bangladesh RSI approach to tackle these Dhaka, where much of the textile production is problems. This approach had a number of concentrated. Heavy water usage is contributing characteristics. First, it was based around a to groundwater over-exploitation, with yields non-controversial entry point that all stakehold- falling and the water table declining by 3 meters ers would buy into—the identification of cleaner a year. Initial estimates suggest the textile indus- production best practices that simultaneously try may be consuming almost as much ground- reduce waste and enhance productivity. Second, water as the capital city’s 12 million inhabitants. it focused on developing and nurturing multi- Heavy chemical usage, combined with water, stakeholder dialogue between the government, has resulted in large volumes of untreated efflu- the private sector from the full apparel supply ent being discharged, affecting potable drink- chain (textile mills, trade associations, and mul- ing water supplies, fisheries, and agricultural tinational brands), and development partners productivity, and citizen’s health and well- (World Bank, IFC, and NRDC). Over the course being. The sector’s heavy energy demands also of 2010–2011, these partners worked together in negatively impact the availability and cost of identifying cleaner production best practices and scarce energy supplies. understanding constraints for factory uptake. The use of cleaner production measures LIMITATIONS OF EXISTING APPROACH is a cornerstone of the RSI, since it provides a TO ENVIRONMENTAL MANAGEMENT useful, neutral entry point to engage the textile mills. Factory audits in Bangladesh confirmed Chapter 4 describes the Government’s limita- the large potential savings. The implementa- tions to address these environmental issues. tion of seven low-cost cleaner production best While Bangladesh’s existing legislative and practices could help reduce water and energy regulatory environment management framework consumption by 25 percent and chemicals by up is acceptable, it has been insufficient to address to 10 percent. At the same time, it would save growing industrial pollution concerns. Balancing the industry up to $200 million a year on effi- environmental needs with those of a valuable ciency savings and up to $90 million in avoided wealth-generating industry has so far proved wastewater treatment costs. problematic. Earlier efforts by development part- However, uptake of cleaner production ners to tackle industrial water pollution have measures by industry remains low. Tangible equally been mixed. environmental benefits will only be achieved if The Government and multinational brands a significant proportion of mills in Bangladesh are searching for more sustainable ways of nur- adopt cleaner production best practices. turing local textile industries, which are good for growth and the environment. Global best practice has shown that building broad-based demand for change is best initiated by aligning XVI OVERCOMING BARRIERS TO CLEANER • Exploring the potential for selective PRODUCTION reforms to environmental regulation and enforcement, including strengthened Chapter 6 explores the barriers to adopting groundwater licensing, zero discharge, and cleaner production. Three complementary mar- enhanced enforcement targeting critical ket failures are identified as inhibiting uptake of environmental hotspot areas, as such cleaner production best practices: (a) the failure reforms—while challenging—have the to internalize externalities associated with water potential to yield transformational change scarcity and pollution due to weaknesses in for both scaling up cleaner production and the broader enabling environment (including pollution abatement. environmental regulation and enforcement); (b) information asymmetry (getting the right LESSONS FROM THE BANGLADESH information to the right people at the right RSI MODEL time); and (c) missing markets (including access to cleaner production products and finance). Chapter 8 summarizes the key findings and reflects on the lessons from the RSI case study. RECOMMENDATIONS FOR SCALING The key lessons were that: UP CLEANER PRODUCTION • At present, this model has principally been applied at the diagnostic stage, to help Chapter 7 outlines the proposed incremental, better understand the potential benefits and multi-stakeholder approach needed to promote barriers of cleaner production; cleaner production uptake amongst selected tex- • The advantages of nurturing and tile mills. The suggested approach is structured maintaining such a multi-stakeholder in three phases according to cost, implementa- platform are likely to be even greater tion risk, and impact. Activities are intended to when discussing, formulating, and be implemented flexibly as stand-alone activities, implementing specific interventions to simultaneously or in sequence over a number scale up cleaner production measures. of years, depending on resource availability and Indeed, all the recommended actions emerging windows of opportunity for change. put forward in this report would greatly Proposed actions include: benefit, or even require, some form of consultative or collaborative work between • Initial support and advice on cleaner public and private parties for successful production through the establishment implementation; of environmental assistance centers as a building block for future interventions; • The country-level findings of the Bangladesh RSI are also being fed into • Complementary market-based actions to the global RSI platform, as these may be further strengthen incentives for uptake, applicable in other major textile-exporting including the harmonization of brand countries of interest to multinational brands, purchasing guidelines to promote cleaner including China, India, and Vietnam; production, the development of cleaner production products and services, and • The incubator function of the RSI multi- financial support for investments in clean stakeholder platform has already led to a technologies; number of spin-off activities including: XVII ◗◗ Gap Inc. is now partnering with NRDC The non-traditional partnerships developed to pilot supply chain policies in its fabric through the RSI at the global and country mills and dyehouses in China; level also present a useful model for greening ◗◗ Modifications to existing environmental supply chains with similarly large, dislocated, compliance databases produced by the environmental footprints, including sustainable Institute for Public and Environmental organic cotton production, mining, timber, Affairs (IPE) in China to make these agri-business, and fisheries. more brand user-friendly; ◗◗ Since 2013, NRDC started a city-track approach to scale up the RSI; XVIII Introduction CHAPTER 1 1.1 OBJECTIVES OF REPORT T he objective of this report is to reduce systemic industrial pollution in the textile industry in Bangladesh and other countries. The purpose of this report is to document and share the Bangladesh RSI pilot as a new model1 for green growth for governments, multinationals, and devel- opment partners interested in a more coordinated approach when tackling complex environmental issues. More specifi- cally, it documents the innovative collaboration between the World Bank, IFC, Government of Bangladesh, civil society, and private sector to tackle industrial pollution in the textile industry, under the auspices of the RSI. The report also provides a number of additional insights to support the Government of Bangladesh and its partners by: (a) showcasing the potential benefits of cleaner production for Bangladesh textile mills; and (b) providing a menu of options with recommendations for scaling up cleaner production uptake by leveraging non- traditional actors.2 1.2 GLOBAL RESPONSIBLE SOURCING INITIATIVE The global RSI Non-Lending Technical Assistance (NLTA) was initiated in 2010 in response to the increasing prob- lem of industrial pollution in the textile industry. The 1 Under this Initiative, Bangladesh was chosen as the pilot to carry out the RSI assessment. The RSI model refers to the results of the diagnostic/assessment. 2 Note that the purpose of this report is not to provide detailed or prescriptive recommendations. 1 objective of the NLTA was to promote envi- The Global RSI brings together a set ronment compliance in the textile industry to of actors who have the capacity to act both reduce industrial water pollution in the Dhaka globally and locally and are united around a watershed. To achieve this, the NLTA sought to common vision of a greener, more sustainable, identify best-practice, energy-efficient, and less apparel supply chain. While each partner has polluting cleaner production processes for the slightly different incentives for promoting green Bangladesh textile industry and encourage their growth, they also each have their own compara- adoption through market mechanisms and new tive advantage and leverage for effecting real partnerships between the suppliers of major change. multinational apparel retailers and brands, • The World Bank is an international Bangladesh textile industry trade associations, organization whose mission is to fight the Government of Bangladesh, the IFC, and the poverty and enhance shared prosperity World Bank. through financial and technical assistance The RSI brings together the World Bank, and policy advice to governments in over IFC, the Natural Resources Defense Council 100 countries. Its long-standing engagement (NRDC), and eight leading multinational brands with national governments to promote (Wal-Mart, Levi’s, Gap, H&M, Nike, Li & Fung, growth and protect the environment, Marks & Spencer, and Target). This platform combined with its global best-practice allows non-traditional partners to explore a joint knowledge, lends itself to a convening role approach to address environmental concerns as a facilitator for global and local, public within the global apparel supply chain by col- and private interests; lectively changing the business as usual mode • The IFC, the World Bank Group’s private of operation. sector arm, has a long-standing role as an Complex international supply chains pres- adviser and financier for the private sector ent particular challenges, which are difficult to under many guises. Its clients range from address through traditional environmental man- major multinationals to local small and agement approaches implemented by national medium enterprises, with many seeking governments. Supply chains run across a wide support on green growth issues; range of countries. Multi-tiered3 supply chains can profoundly impact local economies, envi- • The NRDC is a United States-based ronments, and communities—yet such impacts environmental non-governmental remain disconnected from global decision-mak- organization (NGO) with over 350 lawyers, ing processes. Greening supply chains requires scientists, and other professionals and over a holistic understanding of both supranational 1.3 million members. Priorities include interconnections and a deep knowledge of mul- protecting people’s health by preventing tiple, specific local contexts. pollution, ensuring safe and sufficient water, and creating a clean energy future. Through its Clean by Design initiative, it 3 In this report, first tier suppliers are defined as has established a network of relationships suppliers who have direct contractual engagements with exporters/retailers. Second and third tier suppliers with several large multinational firms in the are defined as providing inputs to suppliers further up textile and apparel industry; the supply chain, and therefore generally do not have a direct relationship with exporters and retailers. Most • There are eight multinational brands textile mills tend to be second or third tier suppliers, participating in the Bangladesh responsible except for large vertically integrated factories which include textile manufacturing as well as cutting and sourcing round table, bringing together sewing of final garments. 2 senior executives from purchasing and undertaken by RSI partners at the national level corporate social responsibility departments, provide incubators for testing out new ways of as well as local buyers with in-depth doing business, with the ultimate goal of influ- knowledge of supplier constraints. The encing how multinational brands incorporate strong concentration of buying power environmental concerns into their purchasing among just a handful of United States and decisions and global purchasing guidelines. European Union multinational brands Bangladesh was selected as the first fully makes this group highly influential. Wal- fledged RSI incubator, given its rapidly grow- Mart and Target alone accounted for 45 ing importance as a textile producer among percent or $384 billion of total retail sales several of the participating brands; strong in the United States in 2011 (Grannis 2012). interest from the Government of Bangladesh in identifying new ways to tackle industrial The RSI platform has been explicitly struc- pollution; and long-standing engagement tured to simultaneously explore opportunities by the World Bank and IFC on industrial for change at the global and local level. Pilots water pollution issues in Bangladesh. 3 4 Importance of the CHAPTER 2 Garment Industry for Bangladesh’s Economy T he ready-made garment sector in Bangladesh is an important driver in the economy, with annual growth rates of around 12 percent a year. The sector currently accounts for around a sixth of Bangladesh’s economy and employs 4 million workers, around 80 percent of whom are women. It remains a key export sector for Bangladesh, representing around three quarters of export earnings.4 Globally, Bangladesh accounts for 5 percent of the $376 billion ready-made garment mar- ket (Gereffi and Frederick 2010). The ready-made garment sector in Bangladesh is predominantly locally owned (Montfort and Yang 2004).5 Cutting and sewing of garments ready for export cur- rently dominates the sector, with over 5,000 factories. Moreover, the ready-made garment value chain is increas- ingly expanding its domestic back linkages into textile production, with 1,700 wet processing units now dedicated 4 Bangladesh Garment Manufacturers and Exporters Association (BGMEA) website: www.bgmea.com.bd. 5 Over 95 percent of factories were locally owned in 2004. However, this proportion may have reduced somewhat since. 5 to the washing, dyeing, and finishing (WDF) Bangladesh firms are increasingly doing of textiles.6 The ready-made garment industry business with a small number of leading mul- in Bangladesh was estimated to be worth $19 tinational brands (for example H&M, Levi’s, billion in 2010/11, accounting for almost 80 Gap, C&A). The higher value-added mid-market percent of total Bangladesh exports.7 Figure sector (with a greater emphasis on brand quality 2.1 shows the increasing share of Bangladesh and reliability) is predicted to outstrip the cur- exports taken up by garments. rently dominant value sector (Berg et al. 2011). The ready-made garment export market This is an era of great opportunity for the has been undergoing some profound changes: growth of the Bangladesh ready-made garment In just three years, the value of Bangladesh’s sector, but also of change, as multinational ready-made garment exports to the United brands look set to extend their influence and States and Europe has increased from close demands—and consolidate their supply chains. to $10 billion in 2008/09 to $15.5 billion in The rapid collective response of the 2010/11.8 This trend is set to continue (Berg et world’s largest retail brands to improve health al. 2011).9 and safety standards in garment factories in Bangladesh in the aftermath of the 2013 Rana Plaza disaster both highlights the strategic 6 Washing involves cleaning textiles or apparel with water importance Bangladesh now holds in the global and chemicals; dyeing involves coloring or printing substrates; finishing involves the superficial treatment RMG sector, as well as the challenges and risks of textiles or apparel at the wet or dry stage. WDF of operating in weak regulatory environments. is more popularly known in Bangladesh as dyeing, printing, and finishing. These are the final steps in the textile industry. Here textile materials undergo both mechanical and chemical treatment. Perfection in WDF operation determines the appearance and use of the fabric and thus its marketability. 7 Bangladesh Board of Investment data: http:// www.boi.gov.bd/index.php/potential-sector/ garments-and-textitles. 8 BGMEA trade data: http://www.bgmea.com.bd/home/ pages/TradeInformation#.UVn0AGE2WAg. 9 Bangladesh Board of Investment data: http:// www.boi.gov.bd/index.php/potential-sector/ garments-and-textitles. 6 FIGURE 2.1 BANGLADESH MERCHANDISE EXPORTS (% SHARE OF TOTAL EXPORTS), 1995 AND 2011 FY95 0% 1% FY11 Garments Garments 2% 1%3% Agriculture Jute 4% 21% 2% Jute Product Engineering Products Leather Pharmaceuticals 9% Frozen Food 53% Frozen Food Pharmaceuticals/ Engineering Products Leather 6% Agriculture 87% Jute Product 9% Jute 2% Source: Export Promotion Bureau, as cited in World Bank 2012. 7 Environmental CHAPTER 3 Challenges of Bangladesh Ready-Made Garment Industry 3.1 ENVIRONMENTAL FOOTPRINT OF READY- MADE GARMENT SECTOR IN BANGLADESH T he global ready-made garment supply chain can be categorized into four distinct phases: (a) the production of raw materials (such as cotton); (b) manufacturing; (c) transport; and (d) end-point consumer care. Each has its own distinct environmental impact, as presented in figure 3.1. Most of Bangladesh’s ready-made garment sector involves manufacturing. Typical manufacturing processes include yarn production, fabric production, wet processing, and garment production. As shown in figure 3.2, the degree of environmental externalities generated by each of these processes varies markedly. The WDF textile-processing units have the greatest environmental footprint, due to: • The intensive use of clean freshwater to wash, dye, and finish textiles; • The associated generation of large volumes of wastewater; • To a lesser extent, the use of energy to heat water and generate steam and associated emissions. 9 FIGURE 3.1 WATER, ENERGY, AND CHEMICAL USE IN TEXTILE PROCESSING (% OF TOTAL USE) 1. Raw Materials 2. Manufacturing Use of pesticides in cotton Textile dyeing and finishing is fields has an enormous a particularly high-volume negative environmental high-impact source of impact. Dust storms water pollution and C)2. are caused by Cashmere goat over-grazing. 4. Consumer Care 3. Goods Movement Washing clothes in Shipping long distance hot water has large by air emits more than environmental costs and 40 times the CO2 than using dry cleaning requires a toxic, a container ship. persistent solvent. Source: NRDC. FIGURE 3.2 ENVIRONMENTAL IMPACTS OF READ-MADE GARMENT SUPPLY CHAIN 90 85 80 80 70 65 Yarn Production 60 Fabric Production 50 Wet Processing 40 (Dying and Finishing) 30 22 Garment 20 12 Production 10 8 8 10 5 2 2 1 0 Water Energy Chemicals Source: adapted from Cotton Incorporated 2010. 10 This policy note will therefore exclu- over 300 cubic meters of water per tonne11 of sively focus on the environmental footprint textiles, depending on the nature and efficiency of the 1,700 WDF textile-processing units in levels of the manufacturing processes. Bangladesh, particularly those located in and The impact on water resources is signifi- around Dhaka.10 cant. It is estimated that the annual global pro- Over 95 percent of WDF units in duction of textiles is between 60 and 70 million Bangladesh are concentrated near rivers, canals, tonnes, requiring 9 billion cubic meters of water and water bodies in Bangladesh’s two major (enough to fill 3.6 million Olympic-sized swim- cities, Dhaka and Chittagong, primarily for good ming pools). Water usage by the textile industry access to services, infrastructure, and markets, in Bangladesh is estimated to be 1,500 million and to dispose of large volumes of wastewater cubic meters, principally of groundwater. 12 daily (ADSL 2009). Aside from a few dozen WDF units in the six export-processing zones, 3.2.2 Impact of Water Over-exploitation most mills tend to be concentrated in informal, The rapidly expanding textile industry’s demand heterogeneous, under-serviced industrial clus- for freshwater supplies is exacerbating pressures ters. These clusters comprise a mix of small and on scarce water supplies in large urban areas medium factory units from a range of industries with growing demand. in addition to WDF textile-processing units, The groundwater situation in Dhaka is par- often interspersed with some residential dwell- ticularly critical (figure 3.3). Although reliable ings. The most severe environmental impacts data is hard to obtain (as most groundwater generated by the WDF textile sector tend to abstraction is carried out through unmetered be highly localized. These impacts include the self-supply), initial calculations13 suggest that over-exploitation of freshwater resources and the textile mills in and around Dhaka may the pollution of water bodies, and, to a lesser consume as much groundwater as is supplied to extent, pressures on energy supplies and associ- the entire megacity of over 12 million inhabit- ated emissions. ants. Worse, at current growth rates, demand for The following sections will review the water from textile mills is expected to double impact of the WDF textile sector on each of within the next seven years if no efficiency these in turn. Much of the discussion will relate specifically to the impacts on the Greater Dhaka 11 Reports and data are often unclear what type of ton area, where the most severe environmental pol- they are referring to: metric, American, British, or other lution is concentrated. weight measurement. It should be noted that there may be up to 10 percent variance in weight depending on which unit of measurement is being used. This report 3.2 OVER-EXPLOITATION OF refers to the metric ton (tonne). FRESHWATER RESOURCES 12 This figure is based on the assumptions of average factory water consumption of 300 liters per day and 3.2.1 Water Footprint of WDF Industry annual textile production of 5 million tonnes (ADSL 2009). The washing, dyeing, and finishing of textiles 13 It is estimated that annual groundwater consumption by WDF units in Dhaka is currently around 880 requires large amounts of clean freshwater, million cubic meters a year, based on the following ranging from under 100 cubic meters to well assumptions: total annual fabric production of 5 million tonnes, average water efficiency of 250 cubic meters per tonne (conservative estimate), and around 70 percent of WDF units located in Greater Dhaka area (ADSL 2009). In comparison, the Dhaka Water Supply and Sewerage 10 The ADSL (2009) baseline survey found 35 clusters with Authority currently obtains around 16,500 million liters significant WDF presence, of which 24 were located in per day from groundwater, or 610 million cubic meters a Greater Dhaka (roughly 70 percent). year (Akther, Ahmed, and Rasheed 2009). 11 improvements are made. At present, over 80 economy (including the livelihoods of the percent of the city is reliant on groundwater poor) by pushing up the price of water for domestic consumption and industrial uses. (due to increased pumping costs or the Groundwater over-abstraction has dropped the need to develop alternative, more expensive water level more than 70 meters from the sur- sources) and reducing access to good- face in some locations (IWM 2007). Moreover, quality water. Second, falling water tables the productivity of new boreholes declined by can also lead to further environmental almost a third between 1970 and 2000 (UNEP degradation by putting the aquifer at 2003).14 Falling water tables and reduced yields greater risk from contamination by surface have potentially serious economic implications: water pollution. Once contaminated, • Costs of developing alternative water aquifers become prohibitively expensive to sources. First, the economic cost of reduced decontaminate, which could compromise water availability has a direct cost on the the entire resource base; • Costs to manufacturing sector, including 14 The productivity of new boreholes as measured by the WDF sector. Water-intensive industries specific capacity (yield per unit drawdown) has fallen from 6.3 liters per second per meter in 1970 to 4.5 liters such as textile mills that mostly rely on per second per meter in 2000 (UNEP and DFID 2003). the private self-supply of groundwater as FIGURE 3.3 GROUNDWATER IN DHAKA CITY 2.5 Supply 2.0 Demand 1.5 1.0 0.5 0.0 63 70 80 90 96 97 98 99 00 01 02 03 04 05 19 19 19 19 19 19 19 19 20 20 20 20 20 20 Fig A: Groundwater demand and supply in Dhaka City from 1963 to 2005 5 0 -5 -10 Teigoan DA13 -15 Muhammadpur DA111 -20 Lalbegh DA110 -25 Matijheel DA123 -30 -35 Mirpur DA15 -40 Gulshan DA112 -45 Sutapur DA13 -50 -55 1986 1988 1990 1992 1994 1996 1998 2000 2003 2005 Fig B: Groundwater hydrograph of seven observation wells of Dhaka City from 1986 to 2005 Source: Akther, Ahmed, and Rasheed 2009. 12 a virtually free input into their production organic materials, chemicals, and water are then costs are also at risk. Not only are textile discharged from mills as wastewater. In many mills significantly, and increasingly, textile-producing countries, a wide range of sub- contributing to groundwater over- stances from WDF mills are routinely discharged exploitation, but the industry as a whole directly into the adjoining water bodies due to may be vulnerable to its impact. Falling weak environmental standards and enforce- water tables can directly affect the mills’ ment. Some studies suggest that the treatment bottom line due to increased pumping and dyeing of textiles is responsible for up to costs or well failure, and, in extreme one fifth of industrial water pollution globally, cases, threaten the mills’ entire production including through the emission of some 72 toxic systems if no affordable alternative sources chemicals reaching the water supply from textile of freshwater can be found. dyeing (table 3.1).15 3.3 WATER POLLUTION 3.3.2 Impact of Water Pollution 3.3.1 Chemical Footprint Major urban and industrial areas over the past few years have shown increased evidence of the The WDF processes result in a range of chemi- cals being added to the water or steam used in these wet processes, and large volumes of 15 “Water Pollution.” ECO 360 Trust, Institute for Sustainable Communication: http://www. starch being washed out. The leftover combined sustainablecommunication.org/eco360/ what-is-eco360s-causes/water-pollution. TABLE 3.1 WDF SECTOR’S CONTRIBUTION TO WATER POLLUTION Process Wastewater Singeing Little or no wastewater is generated Desizing (removal of starch Organic waste (BOD) materials from fiber) Scouring (removal of fatty/oily Hydrogen peroxide, sodium silicate or organic stabilizer; and waxy substances) high pH Bleaching (whitening) Hydrogen peroxide, sodium silicate or organic stabilizer; high pH Dyeing and washing Cationic materials; color; BOD; sulfide; acid Printing Suspended solids; urea; solvents; color; metals; heat; BOD; foam Finishing BOD; COD; suspended solids; spent solvents Mercerizing (enhancing luster High pH; NaOH by treating with NaOH) Heat setting Little or no wastewater Dry finishing Little or no wastewater Source: Ramesh Babu et al. 2007. BOD = biological oxygen demand; COD = chemical oxygen demand; NaOH = sodium hydroxide. 13 degradation of both groundwater and surface that the incidence of disease (jaundice, skin water quality. A pollution assessment car- disease, and diarrhea) was around twice as ried out by IWM (2007) found that industrial high for villagers located close to industrial sources, notably the textile industry, tanner- areas (Ullah et al. 2006); ies, and the pharmaceutical industry, were the • Cost of safe urban drinking water largest contributors to pollution in the Dhaka supplies. The Dhaka Water Supply and watershed. Over 1.3 million cubic meters of Sewerage Authority relies on the treatment heavily polluted industrial wastewater entered of surface water sources to complement the drainage and river system without treat- groundwater supplies. However, during ment on a daily basis in Dhaka alone. There is the dry season, river water can become also evidence of heavy metals and dissolved so polluted that it cannot be effectively solids in shallow aquifers, while surface water treated to drinking water standards. If the bodies (such as rivers, canals, and ponds) have situation worsens, the Dhaka Water Supply low oxygen levels due to domestic sewage and and Sewerage Authority may have to obtain chemical residues from industry. Most surface water from the Padma and Meghna Rivers, water is unfit for human use and is likely to be with estimated investment costs of $430 dangerous for livestock. million and $285 million, respectively The environmental, health, and economic (IWM 2007); costs associated with pollution from untreated • Costs to manufacturing sector, including industrial effluent are significant. Although WDF establishments. Key industries, evaluation of costs is difficult, some studies including the ready-made garment sector, have estimated the costs of unmitigated indus- are highly dependent on large quantities trial wastewater for the Greater Dhaka area to of good-quality water. Surface water be around $150 million to $170 million annually pollution can affect competitiveness by (Ullah et al. 2006; Alam and Marinova 2006; compromising the mills’ groundwater Alam 2008).16 resource base both directly (contamination The most significant costs stemming from risk through infiltration) and indirectly industrial water pollution include: (increased over-exploitation of groundwater • Costs to environment and livelihoods in the absence of alternative sources). of the poor. In the Greater Dhaka area, a quarter of households, which are highly 3.4 ENERGY USE AND ENERGY dependent on agriculture and fisheries, FOOTPRINT have had their livelihoods affected by increased water pollution, leading to The textile sector is also relatively energy reduced productivity; intensive. In particular, the dyeing and finishing • Costs to citizens’ health and wellbeing. processes require extensive generation of hot Water pollution from industrial sources water and steam (Rupp 2008). As a result, the also has a significant bearing on living WDF sector’s energy demands negatively impact standards (particularly health) and the the availability and cost of scarce energy sup- economy. A recent household survey found plies. Moreover, the sector causes greenhouse gas emissions and local air pollution (though 16 The studies cited document the hypothetical restoration impact on air quality is fairly negligible com- of just one of the watersheds of the many rivers and pared to emissions from vehicular transport and khals (the Buriganga River) and assessed total annual brick kilns). costs at $18 million. See also World Bank 2008. 14 However, as this report is chiefly concerned the impact of energy use on the sector and the with addressing the water-related impacts of environment is beyond its scope. the textile industry, an extensive discussion on 15 16 Addressing CHAPTER 4 Environmental Impacts: Limits of Traditional Approach 4.1 GOVERNMENT INTERVENTIONS 4.1.1 Existing Regulatory and Institutional Framework T he Government of Bangladesh has developed a set of environmental policies and legislation that provide an acceptable regulatory framework for environmental management and industrial pol- lution control. The environmental standards for the textile industry in Bangladesh are regulated by the Environmental Conservation Act, 1995; the Environmental Conservation Rule, 1997; and the Forest Act, 1927. Specific effluent concentration-based standards exist for the discharge of treated wastewater directly into the natural environment (table 4.1).17 The Bangladesh Environmental Conservation Act (1995, amended in 2002) also places a strong emphasis on prevention of industrial pollution. The Department of Environment under the Ministry of Environment and Forests is the main environmental regulation and enforcement agency. It is responsible for 17 These standards do not apply to effluent discharged into the sewerage system. 17 TABLE 4.1 CONCENTRATION-BASED EFFLUENT STANDARDS FOR THE TEXTILE SECTOR (MAXIMUM CONCENTRATION) Parameter Standards/limit (mg/l) Total suspended solid 100 BOD 20C 150 Oil and grease 10 Total dissolved solid 2,100 Wastewater flow 100 l/kg of fabric processing pH 6.5–9 Special parameters based on classification of dyes used:   Total chromium 2 Sulfide 2 Phenolic compounds 5 Source: Schedule 12(B), Environmental Conservation Rules, 1997, Bangladesh. Note: BOD of 150 mg/l will be applicable only for physicochemical processing method. awarding factories with environmental clearance effective long-term planning. As a result, there certificates, undertaking factory inspections, is a systemic lack of oversight and inadequate and monitoring compliance and enforcement prioritization of actions required to improve of environmental standards (through fines and the environment. factory closures). In fact, no single institution is responsible for ensuring the overall sustainable development 4.1.2 Limitations of cities. Within Greater Dhaka, for instance, where most of the textile mills are concentrated, While the existing legislative and regulatory the Dhaka City Corporation, local pourasha- environmental management framework is vas (municipalities), the Dhaka Water Supply acceptable, it has not been sufficient to address and Sewerage Authority, and Dhaka’s Capital growing industrial pollution concerns, in part Development Authority all have a major role in due to institutional inefficiencies and limited addition to the Department of Environment. enforcement capacity. Weak Enforcement Institutional Inefficiencies The Government’s enforcement of environ- Achieving environmental sustainability of the mental compliance remains inadequate. The textile mills requires careful long-term plan- main mandate for environmental compliance ning, including land zoning, the provision of rests with the Department of Environment, appropriate infrastructure and services, and which faces significant internal limitations. Its environmental clearances, monitoring, and monitoring and enforcement functions are con- enforcement. However, the presence of multiple strained by the absence of clear implementation institutions, with overlapping roles and respon- guidelines and monitoring systems to effec- sibilities, severely curtails coordination and tively enforce environmental compliance. The 18 Department of Environment’s factory inspection chemical and biological effluent treatment program remains chronically under-resourced to plants fail to run them due to their significant fulfill this challenging role. Moreover, its person- operating costs—combined with a relatively nel lack capacity and incentives and remain low probability of getting caught. Other WDF vulnerable to powerful vested interests. The establishments remain unable to install effluent juxtaposition of distinct functions (notably certi- treatment plants due to lack of space, finance, fication and enforcement) within the institution and know-how, and the lack of alternatives further blurs lines of accountability and reduces to in situ treatment.18 In sum, while adequate operational efficiency. monitoring and enforcement remain critical, efforts to develop a more positive and collabora- Limits of Command and Control Approach tive engagement with industry, by providing Finally, there is a growing recognition that support and advice to non-compliant firms, can traditional sanctions-based approaches alone help develop a more pragmatic roadmap to bet- do not necessarily help develop incentives ter support sustainable environmental practices to reduce waste generation in the first place. while enhancing the robustness of an economi- Although the Department of Environment has cally important industry. made substantial efforts in recent years to staff up and strengthen its enforcement practices, the focus on ad hoc fines and closures alone remains a rather blunt instrument. Many WDF 18 For instance, ability for mills to pay a third party to establishments that have installed the mandated convey and treat wastewater off site through a common effluent treatment plant. 19 4.2 DEVELOPMENT PARTNERS 2010 remain limited to two or three AND PREVIOUS INTERVENTIONS factories, and lack a suitable framework for sustaining and scaling up these gains. Over the past decade, the pollution of water bod- The IFC cleaner production pilot project ies, especially around Dhaka, has been raised as and their forthcoming Partnership for a priority environmental issue for development Cleaner Textiles (PaCT) technical assistance partner assistance by the Government, stake- program, to be launched in 2013, have holders, citizens, and the media. since been filling an important gap (see On the domestic pollution side, the World appendix B for details). Bank has had a long-term program of engage- ment with the Dhaka Water Supply and 4.3 TOWARD A NEW APPROACH Sewerage Authority to expand its sewerage network and treatment (currently servicing less The Government of Bangladesh remains highly than a third of the city), including the develop- committed to addressing industrial pollution. ment of a long-term sewerage and drainage However, despite significant efforts to tackle master plan. the problem, the pollution of water bodies— On the industrial water pollution side, earlier including by textile mills—continues unabated. efforts have been somewhat more fragmented. Addressing industrial pollution remains a long- At the time of the launch of the Bangladesh RSI term, complex agenda, requiring extensive cross- NLTA in 2010, challenges remained: sectoral commitment and significant financing, including from the polluters themselves. • While the capacity of the Department Balancing environmental needs with of Environment has been successfully those of a valuable wealth-generating industry strengthened, it still requires further is never easy. Nevertheless, global best prac- support, including addressing systemic tice has shown that building this broad-based issues (better inter-institutional demand for sustainable change is essential. coordination and long-term planning, Such support can often be best initiated by separation of clearances and enforcement aligning incentives of multiple actors around functions, civil service reform); incremental, doable actions. As emphasized • New communal industrial wastewater in the World Bank’s new sourcebook on pol- treatment facilities have been successfully lution management Getting to Green (World financed within selected export-processing Bank 2012), different stakeholders can have zones. However, such facilities are very different incentives for managing pollu- significantly more challenging to locate, tion. These incentives range from maximizing finance, and operate within the large, public welfare from a government standpoint, informal, heterogeneous industrial clusters to improving competitiveness and securing around Greater Dhaka, where most of the markets for a private sector enterprise, to mini- textile mills are located;19 mizing environmental risks in a portfolio for • Promising early technical assistance a financial intermediary or an investor. When activities carried out between 2000 and different incentives for different stakeholders are aligned in applying several tools toward a 19 In fact, early attempts by the World Bank to finance common pollution management goal, these are common effluent treatment plants for textile mills in often termed “win-win” options. This was the Gazirpur were suspended due to a lack of appropriate available land to build the plants and institutional approach piloted by the Bangladesh RSI. complexities. 20 WATER POLLUTION HOTSPOTS IN GREATER DHAKA IBRD 40520 This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. POLLUTION HOTSPOTS INDUSTRIAL CLUSTERS URBAN AREAS MAIN ROADS SECONDARY ROADS RAILROADS DECEMBER 2013 21 22 A New Approach: CHAPTER 5 The Bangladesh Responsible Sourcing Initiative 5.1 BACKGROUND TO THE BANGLADESH RESPONSIBLE SOURCING INITIATIVE T he Bangladesh Responsible Sourcing Initiative (RSI) was established in 2010 as part of the broader RSI multi-stakeholder platform (see chapter 1). The purpose of this country-level incubator activity is to test how multiple non-traditional actors can be brought together to help the Government of Bangladesh achieve relatively simple quick wins as an additional, innovative way to shift the industrial pollution debate from a traditional command and control approach to one centered around green growth. The Bangladesh RSI is an incubator that seeks to test a new approach for greening supply chains at the country level. The initiative was built on two simple pillars: • Selection of a non-controversial entry point—the identification of cleaner production best practices for textile mills—that most stakeholders would buy into; • Development and nurturing of multi-stakeholder partnerships to work together in identifying cleaner production best practices and exploring options for their implementation. 23 The rationale, process, and main findings of stakeholders as part of the government’s overall this initiative are described below. environmental sustainability and green growth agenda, as outlined below: 5.2 CLEANER PRODUCTION • Cleaner production can simultaneously 5.2.1 What Is Cleaner Production? benefit both the environment and the industry bottom line, unlike most other According to the United Nations Environment interventions that are designed to protect Programme (UNEP),20 resource-efficient and the environment and usually impose a net cleaner production “continuously applies inte- cost on the industry. Cleaner production grated and preventive strategies to processes, that builds upon the “three R’s”—reduce, products and services. This increases efficiency reuse, recycle—can provide attractive and reduces risks to humans and the environ- financial win-win incentives for industry ment.” Cleaner production specifically works by considerably reducing energy, materials, to advance: and water inputs, encouraging recycling • Production efficiency through optimization and reuse, and thereby reducing costs, as of productive use of natural resources well as reducing waste and pollution loads. (materials, energy, water) at all stages of As a result, cleaner production can also the production cycle; significantly reduce the costs associated • Environmental management through with (mandatory) pollution abatement; minimization of the adverse impacts of • Cleaner production interventions can be industrial production systems on nature adapted to suit business and production and the environment; needs. These can range from basic • Human development through minimization interventions, with no investment of risks to people and communities, and costs (“good housekeeping”) to major support to their development. investments in new processes and high- technology machinery. Both small and large 5.2.2 Why Focus on Cleaner manufacturing units, of differing degrees Production? of sophistication, can potentially benefit, according to their needs. In particular, Encouraging industry to adopt cleaner produc- opportunities for extensive resource tion practices, and thereby reduce water, chemi- savings at little cost to mills are expected cal, and energy use, does not remove the need to be significant in Bangladesh, given the to treat the pollution generated by industrial relatively low levels of production efficiency processes. Indeed, the Ministry of Environment on average when compared with global and Forests and the Department of Environment best practice; remain committed to gradually encouraging • The benefits derived from cleaner polluters to pay for the pollution they have gen- production can be reaped throughout erated, as part of their overall vision for tackling the apparel supply chain (including polluted water bodies. reduced unit costs and enhanced quality Nevertheless, cleaner production provides control). They also provide an incentive an attractive initial entry point for addressing and mechanism for the multinational complex pollution problems involving multiple corporations and buyers to better acquaint themselves with their supply chain; 20 “Resource Efficient and Cleaner Production.” UNEP: http://www.unep.fr/scp/cp/. 24 • Cleaner production provides an opportunity well as the city corporations, pourashavas, and to align incentives from multiple diverse national utility service providers. actors. Cleaner production’s widespread The Ministry of Environment and Forests benefits, and absence of obvious drawbacks, and the Department of Environment play a par- can thus encourage the establishment of ticularly important role. The Ministry helps set a broad-based platform around a clear, the rules of the game, through environmental leg- common objective. This is particularly islation, which the Department of Environment important when seeking to bring together is then responsible for enforcing. In addition, a heterogeneous group of stakeholders in both institutions are interested in exploring new the textile supply chain, representing both complementary ways of encouraging better environmental and industrial interests at environmental management that go beyond tra- the local, national, and international levels, ditional sanctions-driven command and control to help jointly address a complex, multi- tools. Encouraging the adoption of cleaner pro- dimensional issue. duction practices can become an important entry point for establishing new modes of engagement 5.3 ESTABLISHING THE RIGHT between the government and polluters as part of PARTNERSHIPS this more holistic approach. Establishing the right partnerships is a critical 5.3.2 Private Sector Actors from the part of maximizing the potential for cleaner Full Supply Chain production in Bangladesh. A range of actors There are a number of different actors within have a vested interest in helping mills become the apparel supply chain that will play an more efficient and reduce the amount of pol- important role in identifying, advocating, lution generated, including the Government and promoting cleaner production and are of Bangladesh, private sector actors across the able to incentivize behavioral change. Within apparel supply chain, local communities and Bangladesh, these include the textile mills and civil society, and development partners. Many the major trade associations.21 In addition, the of these actors possess a specific comparative apparel supply chain includes a strong interna- advantage in helping mills achieve this goal. tional dimension brought by the buyers, includ- This section will look at the key national ing major multinational corporations. and international players that need to be engaged with in identifying and promoting cleaner pro- Textile Mills duction best practices at the country level. Individual mills have the strongest vested interests of all actors, as the operational deci- 5.3.1 Government of Bangladesh sions made on the factory processing floor, The Government of Bangladesh remains the including the extent to which cleaner production main driver for promoting sustained and processes are adopted, have a direct impact on enhanced environmental management practices their bottom line, environmental performance, by the textile industry across the country. Many and ultimate viability, and in the scenario of the departments within the Government have a power constraints, there is a drive from the mills strong vested interest in this agenda, includ- to explore opportunities to improve resource ing the Ministry of Commerce, the Board of management. The textile mills operating in Investment, the Ministry of Environment and 21 “Resource Efficient and Cleaner Production.” UNEP: Forests, and the Department of Environment, as http://www.unep.fr/scp/cp/. 25 Bangladesh are however very heterogeneous, practices of their members, and hence market ranging from large, sophisticated, technologically positioning with foreign buyers, is of clear advanced and export-oriented concerns to small, interest to these associations in a dynamic and highly inefficient mills supplying the domestic competitive sector. market. Therefore the awareness, market drivers, and capacity to implement cleaner production Auditors and Other Service Providers measures and the incentives for positioning A range of service providers (including auditors, themselves as market leaders vary greatly. consulting firms, effluent treatment plant provid- To maximize the impact of work on cleaner ers, dye and chemical suppliers, manufacturing production, initial outreach will therefore focus equipment indenters, and laboratory designers) on concerns in the higher-performing segment, also significantly contribute to value addition in given their interest in and ability to implement a the WDF sector and the promotion of cleaner wide range of cleaner production improvements, production measures. However, the concept of and strong export focus with large multinational cleaner production is at a very nascent stage in corporations. These higher-performing mills the market, and until recently there were hardly can also serve as a model that smaller factories any quality service providers offering cleaner can learn from. One of the key components will production services in a commercial manner. be to identify market leaders in key clusters, There is still a high degree of reliance on inter- and use them as a conduit for outreach to the national or regional service providers. smaller, less enlightened firms. 22 Third-party auditing companies (includ- ing Bureau Veritas, SGS, Moody International, Trade Associations Intertek Labtest Bangladesh, and Certification Several dedicated manufacturing and trade International Bangladesh) are used by buy- associations, notably the Bangladesh Garment ers throughout the manufacturing process to Manufacturers and Exporters Association provide quality assurance and enforce supply (BGMEA), the Bangladesh Knitwear chain regulations in areas such as workplace Manufacturers and Exporters Association safety, social accountability, and environmental (BKMEA), and the Bangladesh Textile Mills compliance. While these third-party auditors are Association (BTMA), have become influential accredited internationally for the standards they advocacy and capacity-building institutions certify, there are no government-based auditing with an extensive network of members from the authorities. Domestic technical audit capacity textile and apparel manufacturing and export remains weak, due in part to a chronic short- sector. These associations seek to enhance age of technically skilled human resources.23 the competitiveness of their members through Moreover, few auditors have established busi- training, activities, and programs, including ness lines in cleaner production and environ- establishing and nurturing relationships with mental compliance. Most services are limited to government, foreign buyers, businesses, and apparel and chemical testing services, inspec- other trade and research organizations, and tion services, and quality checks. to help facilitate global trade negotiations on behalf of Bangladesh industry interests. 23 The German Agency for International Cooperation (Gesellschaft für Internationale Zusammenarbeit, The potential for cleaner production to GIZ) has been building auditor capacity as part of its enhance the productivity and sustainability Promotion of Social and Environmental Standards in the Industry (PSES) initiative, targeting compliance inspectors at BGMEA, BKMEA, and the Ministry of 22 This is also one of the key features of the recently Labor and Employment, and compliance officials in initiated IFC PaCT program. selected factories. 26 Multinational Corporations and Retail Brands the Bangladesh Water Resources Country Multinational corporations have considerable Assistance Strategy. Subsequent analytical influence over the Bangladesh apparel supply work found that industry, and textile factories chain and hence over the decisions and opera- in particular, were major contributors to the tions of individual textile mills. While most overall surface water pollution, and recom- factories are locally owned, a large proportion of mended an incremental, targeted approach to the textile production is destined for the export address this issue in conjunction with multiple market. A highly concentrated buyer-driven actors, including the private sector. As part value chain is made up of a handful of large of a broader engagement with the Ministry of retailers or branded manufacturers that domi- Environment and Forests and the Department of nate the market (UNIDO 2008).24 Environment, it was agreed to look at alterna- In recent years there has been significant tive market-based approaches through the public pressure on multinational corporations to Bangladesh RSI NLTA.25 improve their environmental and social cor- In this context, the World Bank has a cru- porate responsibility throughout their supply cial role to play in the short term by providing chains. As described in box 5.1, while multi- knowledge to the Government of Bangladesh national corporations have clear incentives to and acting as a convener bringing multiple improve the environmental performance of their stakeholders to the table on behalf of the supply chain, it requires a new model of engage- Government. ment. In response, multinational corporations have shown a keen interest in collaborating with Natural Resources Defense Council other multinational corporations, governments, The Natural Resources Defense Council NRDC and other parties to pilot new ways of doing is a United States-based environmental NGO business (including the multinational corpora- with a long-standing national reputation within tion-led ZDHC initiative, see chapter 7). the United States’ government, private sec- tor, and civil society as a highly respected and 5.3.3 Development Partners independent leader in environmental protec- tion. Through its Clean by Design initiative, it Development partners can play an important has established a network of relationships with role in nurturing a broad-based multi-stake- several large United States multinational firms holder platform to address complex pollution in the textile and apparel industry, including patterns, especially as each institution brings its several that actively source in Bangladesh, for particular comparative advantage to the table. example Gap, H&M, Levi’s, Wal-Mart, and Li & Fung. NRDC was instrumental in identify- World Bank ing cleaner production as a useful entry point The World Bank has been working closely for greening the apparel supply chain, and had with the Government of Bangladesh to explore already successfully developed and tested the options for addressing industrial pollution since cleaner production best-practice methodology in the mid-2000s. The impact of pollution from China (box 5.2). Dhaka’s surface water bodies initially emerged as a priority issue during consultations around 24 In 2011, Wal-Mart and Target alone accounted for 45 25 The Better Work program is the product of a partnership percent of United States retail sales (Grannis 2012). In between the International Labour Organization (ILO) the United Kingdom, the top five retailers represent 35 and IFC. It unites the expertise of ILO in labor standards percent of all clothing sales (UNIDO 2008). with that of IFC in private sector development. 27 BOX 5.1 THE RACE TO THE BOTTOM—AND BACK TO THE TOP? The demands from consumers coupled with globalization have led multinational corporations to source production from the lowest-cost locations in the world: the so-called “race to the bottom.” These multinational corporations control global production networks and stipulate supply specifications. Multinational corporations have, however, recently become increasingly concerned with non-production factors in their supply chain, such as social compliance (see for example the Better Work program26) and—even more recently—environmental standards. The relatively new focus of multinational corporations on environmental standards in their supply chain, and their impact on water resources in particular, can be ascribed to four factors: • Reputational risk. Pressure is increasing from more demanding consumers; • Physical risk. Textile production is highly dependent on large volumes of clean freshwater. With areas of production often in highly water-stressed areas, degradation and over-exploi- tation of water resources is a major threat to production processes; • Regulatory risk. Sudden changes in legislation or enforcement may also pose threats to production if large numbers of suppliers are non-compliant; • Financial risk. All of the above risks represent significant potential financial losses to the bottom line of multinational corporations. There have been significant advancements made on so-called sweatshops (any working envi- ronment considered to be unacceptably difficult or dangerous) and child labor issues in the garment industry, largely due to public pressure and media involvement. Following the 2013 Rana Plaza disaster, over 100 global retailers have signed up to the Accord on Fire and Building Safety in Bangladesh, including agreeing on joint standards, monitoring, training and remedial programs to ensure worker safety in over 1500 of their direct suppliers. However, to date, efforts of multinational corporations to improve the environmental perfor- mance of textile mills remain far more mixed. This is partly because environmental impact is often more complex, harder to define and less controversial than the social dimension, since most pollution occurs further down the supply chain, where the less direct relationship and large number of mills make it difficult to apportion responsibility. In a highly competitive market, there is less incentive to push for pollution treat- ment, as this results in higher production costs, particularly where the playing field is uneven. In spite of various initiatives, multinational corporations are still grappling with defining new ways to meaningfully engage on the environmental front. Cleaner production thus offers multinational corporations a very attractive entry point, because: • It enhances efficiency and competitiveness; • It is a positive way to get to know and develop fruitful relationships with second- and third- tier suppliers; • It is a first step toward reducing four key risks (reputational, physical, regulatory, and finan- cial risks). 26 The Bangladesh RSI NLTA was carried out from 2010 to 2012, and includes the present report. 28 BOX 5.2 SUMMARY OF KEY FINDINGS FROM NRDC’S CLEANER PRODUCTION BEST- PRACTICE METHODOLOGY IN CHINA NRDC first collaborated with international brands on an RSI in China, the world’s largest cen- ter of manufacturing. Following a review of more than a dozen textile mills, NRDC identified 10 cleaner production best practices involving simple, cost-saving opportunities to reduce water, energy, and chemical use via improvements in manufacturing efficiency. The China pilot dem- onstrated significant savings: the practices identified could save approximately 25 percent of water and 30 percent of fuel use through initiatives that pay for themselves in less than eight months. A showcase mill, Redbud Textile Company in Changshu, China, adopted just three of these practices with a one-time cost of $72,000. The result was a 23 percent reduction in water use and an 11 percent reduction in coal consumption, with savings of nearly $840,000 per year accruing for Redbud (NRDC 2010). The 10 recommended best practices for China are illustrated below. 1a COST 1a PAYBACK 6a 6a COST PAYBACK 1a 1a 6a 6a 1a 1a 1. Leak detection, SMALL 6a 1 MONTH 6. Pre-screen 6a MODERATE 5 MONTHS maintenance, 1a 1a coal housekeeping OR LESS 6a 6a 1a 1a 6a 6a 2a 2a a7 a7 2a 2a 2. Reuse SMALL a7 1 MONTH 7. Fix/maintain a7 SMALL 1 MONTH cooling steam traps water 2a 2a OR LESS a7 a7 OR LESS 2a 2a a7 a7 2a 2a a7 a7 3 3 8 8 3. Reuse MODERATE 5 MONTHS 8 8. Recover 8 MODERATE 8 MONTHS condensate 3 3 heat from 8 smokestacks 8 3 3 3 3 8 8 3 3 8 8 4. Reuse 4 SMALL 4 TO 1 MONTH 9 9. Insulate 9 pipes/ SMALL 1 MONTH process valves/flanges water MODERATE OR LESS OR LESS 4 4 9 9 4 4 9 9 4 4 9 9 4 4 9 9 5. Recover MODERATE – 2-4 MONTHS 10. Optimize SMALL 1 MONTH heat from hot compressed water rinses HIGHEST air system OR LESS 5a 5a 10 10 5a 5a 10 10 International Finance Corporation (IFC) established links with a range of local The Dhaka-based IFC South Asia Enterprise private sector enterprises in Bangladesh, Development Facility (SEDF) has extensive including textile mills, trade associations, experience of working closely with the service providers, and national buyers from ready-made garment sector in Bangladesh. global multinational brands. The IFC Dhaka office has strong 29 IFC’s extensive network with a broad range discussions, the Ministry of Environment and of local private sector actors within the textile Forests expressed an interest in carrying out a industry thereby provided a highly comple- similar assessment in Bangladesh. mentary entry point to the Government of In 2010, the Bangladesh RSI NLTA Program Bangladesh and global multinational linkages was established by the World Bank to help the brought by the World Bank and NRDC. Government of Bangladesh and its partners (a) By adopting a collaborative approach, to determine the potential benefits of cleaner the World Bank, IFC, and NRDC were able to production for Bangladesh textile mills; and build a strong public-private sector platform (b) to provide recommendations for scaling up for knowledge sharing and policy delibera- cleaner production uptake by leveraging non- tion between the Government of Bangladesh, traditional actors. Bangladesh private sector interests, and global During initial discussions under the multinational brands (figure 5.1). Bangladesh RSI, it emerged that the IFC-SEDF was also in the process of designing a one- 5.4 PROCESS AND METHODOLOGY year project in partnership with the Dutch NGO Solidaridad entitled “Promoting cleaner NRDC was originally invited to showcase production in the textile washing/dyeing/ its cleaner production best-practice work in finishing sector in Bangladesh,” which piloted China, along with senior executives from Gap, the implementation of selected cleaner produc- Wal-Mart, and Li & Fung, to the Government tion measures in 12 WDF factory units.27 The of Bangladesh at a workshop held in Dhaka high degree of complementarity between the in October 2009. Following these initial 27 See appendix B for more details. FIGURE 5.1 RSI PARTNER LINKAGES RSI partner linkages NRDC- Brands Efficient Clean Mills WB IFC . 30 Bangladesh RSI and the IFC pilot, both in terms the brands’ Bangladesh supply chain segment. of substance (focus on identification of cleaner Following an initial audit of these 25 factories, production best practices and institutional three top-performing factories and five medium- constraints, and in-factory implementation) and performing factories were then selected for ability to leverage different partnerships (gov- in-depth assessments. ernment, global and local private sector), led The audit findings from the Bangladesh to close collaboration and synergies throughout RSI and the IFC cleaner production pilot were the process. then presented at a series of consultation The first series of textile mill audits was events throughout 2011, including a high- carried out under the Bangladesh RSI in early level round table co-chaired by the Ministries 2010 following preliminary consultations with of Environment and Forests and Local the Ministry of Environment and Forests, Government, the World Bank, and IFC in May Department of Environment, IFC, and multi- 2011. NRDC and senior executives from multina- national brands. The purpose of these factory tional brands also participated in these events, audits was to assess existing cleaner produc- including round tables with participating mills, tion measures under implementation and the trade associations, and development partners. potential scope and benefits for scaling up. Finally, the results from the Bangladesh RSI The methodology for the factory assessments were showcased at a senior round table event and formulation of the best-practice measures in Washington co-chaired by World Bank and was based on NRDC’s earlier China experience. IFC directors as part of the Global RSI, which After close consultation with leading global included senior executives from eight participat- brands, 25 textile mills were nominated from ing multinational brands. 31 5.5 POTENTIAL FOR CLEANER ◗◗ heat recovery; PRODUCTION: SUMMARY OF KEY ◗◗ first-time right dyeing/improved dye FINDINGS recipes.30 • By implementing the top seven low-cost The initial audits of textile mills demonstrated best practices together, factories would tremendous potential for cleaner production reduce their consumption of water and measures in improving performance and reduc- energy by up to 25 percent and chemicals ing environmental waste. Details of the study by up to 10 percent; findings and individual cleaner production prac- • Rolling out these seven low-cost cleaner tices are summarized in appendix A. In particu- production best practices to Bangladesh lar, the audits highlighted the following results: textile mills could result in overall resource • Comparative evidence from Bangladesh savings of up to 300 million cubic meters and China suggests that most cleaner of water per year and a reduction of up to production best practices are highly 350,000 tonnes of chemicals per year being replicable across the textile manufacturing discharged into the environment;31 industry in developing countries;28 • Implementing these seven low-cost cleaner • In Bangladesh, the audits highlighted seven production best practices could lead to low-cost cleaner production best practices savings for the industry as a whole of based upon the following criteria: low around $70 million to $200 million a year. up-front investments (usually less than In addition, by reducing the overall volume $15,000) and rapid payback time (less of wastewater to be treated, this would also than 15 months), resulting in significant reduce the cost of effluent treatment by reductions in both water and energy or up to $90 million per year (SWECO 2010; chemical use.29 Ecopsis 2011);32 These seven low-cost best practices are: ◗◗ water leakage elimination; ◗◗ cooling water reuse; 30 The range of potential cleaner production investments ◗◗ process water reuse; for first-time right dyeing, including improved dye recipes and dispensing equipment, is broad, making ◗◗ steam management; it both a low-cost and a more advanced cleaner production best practice. ◗◗ pipe insulation; 31 Estimates are based on the following assumptions: annual textile production of 5 million tonnes; for water, 20 percent reduction in usage, average (low- end) consumption 250 cubic meters per tonne; for chemicals, 10 percent reduction in overall chemical usage, assuming 650 kilograms of chemicals per tonne of textiles (Ecopsis 2011). 32 This estimate is based on the following data and 28 There are some differences between the China and assumptions: cost of chemical treatment by effluent Bangladesh best practices with regard to energy-related treatment plant at around $0.34 per cubic meter and cleaner production measures owing to the different 250 million cubic meters of water saved (based on sources of energy used by mills in both countries (coal 20 percent savings out of a total of 12.5 billion cubic in China, natural gas in Bangladesh). A more detailed meters of water used annually by the textile industry, technical comparison is included in appendix C. assuming a conservative 250 cubic meters per tonne 29 Due to the underpricing of water (which limits mill average water use and a total of 5 million tonnes textile incentives for adopting such a measure), best practices production). Biological treatment is somewhat cheaper were only selected if they simultaneously had significant at $0.21 per cubic meter, but is much less widespread. reductions in energy or chemical use Sources: SWECO 2010; Ecopsis 2011. 32 • For those factories interested in doing • In particular, metering of water and more, and able to invest in equipment, energy consumption (whether overall, improved dye recipes, low liquor ratio at the workshop level, or by particular dyeing machines, the reuse of caustic soda machinery), which is essential for in mercerizing operations, and salt recovery monitoring and benchmarking cleaner through membrane filtration can achieve production performance, was very low. even greater savings; The cleaner production best practices • While all of the cleaner production best mentioned above can only help achieve tangible practices mentioned above have already environmental benefits if they are adopted by been adopted by some of the top- a significant proportion of mills within certain performing factories in Bangladesh, uptake hotspot areas. The next chapter will consider has been uneven and remains generally low the current barriers to uptake and recommend among mills; a new incremental and more coordinated approach for tackling these. 33 34 Overcoming CHAPTER 6 Barriers to Cleaner Production 6.1 CONSTRAINTS ON CLEANER PRODUCTION UPTAKE A lthough the cleaner production best practices identified in chapter 5 (and detailed in appen- dix A) can yield significant savings in terms of water, energy, and chemical use and production costs, current uptake is low, even among top-performing factories. Tangible environmental benefits will therefore only be achieved if a significant proportion of mills in Bangladesh start to adopt these cleaner production best practices. The factory audits highlighted the complementary market failures that are inhibiting uptake of cleaner production best practices, namely: externalities, which mean that cleaner production uptake is lower where firms do not have to internalize their costs imposed on society and the environment; and information asymmetry and missing markets, which raise the costs for firms to adopt cleaner production. • Externalities. The relative benefits of, and incentives for, implementing cleaner production measures can be considerably lower when environmental externalities 35 are not consistently factored into mill • Weaknesses and inconsistencies around production costs; groundwater licensing; • Information asymmetries and missing • Discharge standards and lack of clear markets. Even when it makes business monitoring guidelines; sense for mills to enhance their • Low capacity of the regulator to enforce production efficiency and adopt cleaner compliance with the existing legislation. production measures, they may not find it economically viable to do so, due to However, as discussed in chapter 4, reform- insufficient access to information, and ing the broader enabling environment often missing markets in finance and cleaner remains challenging due to the large number production products and services. of stakeholders involved (with sometimes entrenched vested interests), complex imple- 6.1.1 Environmental Externalities mentation challenges, and the high costs associ- ated with effective monitoring and enforcement. Failure to incorporate the societal costs from externalities into production costs has a Groundwater Licensing and Metering systemic dampening effect on overall rates Most textile mills depend on private tubewells of cleaner production uptake across the for their water supply. In Dhaka and Chittagong, Bangladesh textile sector and beyond. The where most of the mills are located, the respec- benefit-cost ratio of implementing water-related tive water utility is responsible for managing cleaner production measures can be consid- these commercial wells. In Dhaka, the util- erably lower when the social costs of water ity currently licenses 1,640 private wells.33 scarcity and pollution are not factored into mill However, this figure greatly underestimates production costs. This results in smaller rela- the number of wells in existence and does not tive efficiency savings for mills implementing account for the large proportion of textile mills, cleaner production measures, which can there- which are located outside the administrative city fore act as a significant disincentive to overall limits. Even where commercial fees are levied, cleaner production uptake. consumption from private tubewells is gener- Environmental policy recommenda- ally not metered and flat rates do not account tions generally encourage the incorporation for increased water scarcity (Global Water of environmental externalities into the costs Intelligence 2011).34 As a result, the absence of production as a first best solution. Indeed, of an effective groundwater licensing regime incorporating environmental externalities into means that most factories are de facto neither production costs matters not only for getting measuring nor paying for freshwater they use. 35 polluters to pay for pollution treatment costs (the “polluter pays principle”), but also for minimizing resource use and pollution genera- 33 Dhaka Water Supply and Sewerage Authority 2012, tion via cleaner production. personal communication. Identification of the main legislative and 34 Unmetered rates in 2012 were less than $2 per month, regulatory constraints responsible for the failure and rates per cubic meter around $0.20, or 10 times less than the average 2011 global water tariff ($2.03) to internalize externalities associated with water (see Global Water Intelligence 2011; and International scarcity and pollution is relatively straightfor- Benchmarking Network for Water and Sanitation ward and is discussed below. The three main Utilities http://www.ib-net.org/). constraints are: 35 This was confirmed by the factory audits, where none of the mills reported either metering or paying the utility for their groundwater. 36 Failure to internalize the costs of ground- of water, as more concentrated wastewater is water over-exploitation remains closely linked cheaper to treat. 37In their most extreme form, to the water pollution agenda. First, it reduces “zero discharge” standards prohibit the dis- incentives to implement water-related cleaner charge into water bodies of specific pollutants production measures, as: (a) most of the partici- or liquid effluent. pating textile mills deemed their water inputs to be “free”;36 and, (b) lack of investment in Weak Enforcement of Effluent Treatment water meters severely constrains a mill’s abil- Weak enforcement of existing environmental ity to even measure its consumption, losses, standards is the most significant issue, with and costs. Second, the volume of water used most mills treating their wastewater at best throughout the production process is the main inconsistently, if at all. As a result, mills rarely driver of a mill’s wastewater treatment costs. incorporate the true costs of treating their Third, falling water tables can make aquifers wastewater—around $350,000 a year for a typi- more vulnerable to infiltration of surface water cal 20 tonnes of wastewater a day—within their pollution (and once aquifers are contaminated, operations. The ability of many textile mills to such contamination is prohibitively expensive to routinely pass the high costs of treating waste- reverse). And finally, a mill’s water footprint is water onto society and the environment is the a powerful marketing tool, and is arguably the single greatest factor driving water-related inef- foremost environmental concern among multi- ficiencies within the mills, as overall treatment national brands within their textile supply chain. costs are actually mostly driven by the volume of (waste) water to be treated rather than the Environmental Standards actual pollutant load. Although in recent years Environmental legislation and regulation in the number of mills installing a treatment Bangladesh is adequate. Environmental stan- plant has significantly increased in response to dards for effluents are based around maximum Department of Environment and buyer pressure, concentration of specific pollutants in waste- few mills have an incentive to consistently oper- water (see table 4.1). While such standards are ate their treatment plant on a daily basis, given widely used, they do have drawbacks for water the high running costs and the challenges for systems that are particularly water stressed external parties (even buyers) to monitor correct or degraded. Indeed, rather than encouraging usage on a daily basis. water reuse and minimization, concentration- In sum, there are clear distortions within based standards incentivize the consumption of the broader enabling environment due to failure even more groundwater to dilute wastewater to to internalize externalities associated with water acceptable standards. scarcity and water pollution. While addressing On the other hand, load-based standards these externalities may be the first best solu- (which measure the concentration of a pollut- tion to encourage greater cleaner production ant along with the average volume of discharge uptake (and pollution treatment) in terms of over a fixed period) encourage the reuse and transformative impact, it also poses a number minimization of chemicals and other pollutants, of implementation challenges. Reforms to the while promoting the reuse and minimization groundwater licensing regime, environmental 36 This notion of “free water” is actually incorrect, as energy (pumping) and water purification (softening) 37 Measuring the total amount of waste generated can also result in water input costs for textile mills of around provide textile mills with a baseline and tracking tool, $12–40 per tonne (still below the full costs of the which in turn supports the effective implementation of groundwater) (Ecopsis 2011). cleaner production processes. 37 standards, and enforcement remain costly and making optimal, informed, cleaner production complex, and carry an implementation risk. choices at the factory level requires getting the right information and support to the right 6.1.2 Addressing Information people and at the right time. Asymmetry and Missing Market Failures The “right” information. Factory owners and senior management were mostly unaware Even under present conditions, there are of the full merits of adopting cleaner production incentives for the private sector in Bangladesh practices within their business operations—and to adopt cleaner production measures, even the real impact on their bottom line. This was though the externalities associated with water particularly significant when looking at water- scarcity and pollution are not fully factored into related inputs. Indeed, the true cost of water as the mills’ production costs. While mills cur- an input tends to be systematically underesti- rently may have limited incentives to improve mated by factory owners and managers because water efficiency and water treatment practices, of its low nominal cost. Lack of metering further water is also a “carrier” for other hidden inputs, distorts the picture as there is no baseline and it such as energy (pumping water, steam produc- is difficult to measure performance and identify tion) and chemicals. Once these hidden costs losses. Factory-specific audits are therefore often are made explicit to mills, they can significantly necessary to measure and identify the true costs alter the benefit-cost ratio so that the apparent of water as a “carrier” of production inputs costs of not adopting cleaner production become and outputs (including energy-intensive water much clearer. This is why great care was taken pumping, heating, cooling, and chemical recov- when selecting low-cost and advanced water- ery) (Henderson, Somers, and Stuchtey 2013).38 related cleaner production best practices to The “right” people. Even mill owners make sure they simultaneously generated sav- convinced of the merits of cleaner production ings not only in terms of water consumption, can struggle to ensure appropriate measures but also in terms of the more costly energy and are implemented in practice. Weak factory chemical inputs. management, coupled with lack of information, However, this strong business case for tex- often means that factory floor managers have tile mills to adopt water-related cleaner produc- insufficient support, incentives, understanding, tion best practices today is hampered by two tools, means, and specific technical know-how key market failures: to effectively identify and implement individual • Information asymmetry; cleaner production practices. • Missing markets for cleaner production The “right” time. Even the low-cost cleaner products and ancillary services and access production measures that do not require signifi- to finance. cant financial investments often require man- agement and staff to dedicate valuable resources These serve to push up the price to the (including staff time) in order to set up the right private sector of adopting cleaner production systems and processes. Such opportunity costs practices. can be a deterrent in rapidly expanding sec- tors such as the textile industry in Bangladesh, INFORMATION ASYMMETRY where profits may be more readily generated by focusing on expanding operations rather than Access to information emerged as a major bar- rier for textile mills in adopting cleaner produc- 38 For water-intensive sectors, studies have shown that the true costs of water can be 100 times more than the tion measures. The factory audits revealed that nominal value. 38 achieving (relatively) marginal efficiency gains audits, and agents importing higher-performing within existing operations. Rapid expansion “greener” manufacturing equipment) is gener- also, however, presents a window of opportu- ally difficult. This is partly because the local nity to ensure that cleaner production best prac- market for add-on cleaner production services tices are rolled out from the inception within remains limited due to weak domestic demand the new units, as this is both easier and more and lack of competitiveness. High import duties cost-effective than making changes retroactively and lax standards further encourage the use of in older, existing units. low-quality dyes and chemicals and inefficient, out-of-date, secondhand machinery (gener- Missing Markets: Access to Finance ally imported from China and assembled in Access to finance was generally not a major Bangladesh). Half of WDF machinery is over barrier for the implementation of the low-cost eight years old, and there are limited incen- cleaner production measures highlighted in tives and advisory support for upgrading (ADSL this report. Indeed, significant environmen- 2009). Even energy and water meters (which tal benefits can be accrued even through the are essential for measuring performance of any implementation of these seven low-cost best cleaner production measure) were found to cost practices. Nevertheless, factories interested in up to twice as much in Bangladesh than “doing more” (by moving from low-cost to more in China.39 advanced cleaner production measures) may face difficulties in accessing affordable credit 6.2 PROPOSED APPROACH FOR options. Although there are around 15 private SCALING UP CLEANER PRODUCTION and public banks that do lend to WDF factories for purchasing machinery and financial work- A concerted approach for scaling up cleaner ing capital, credit is often not available to small production among textile mills in Bangladesh and medium enterprises. Where credit is avail- is required in order to effectively overcome able, interest rates are prohibitive. In particular, existing externalities and market failures. The access to concessional finance for green invest- proposed approach has been formulated based ments does not currently extend to most cleaner on the following considerations: production equipment. • Interventions need to be carefully It should however be noted that where prioritized (based on cost, implementation access to finance is not a limiting issue, factories risk, and impact), sequenced, and targeted; often prefer to opt for the advanced rather than • The overall approach is designed to help low-cost cleaner production options. Indeed, the Government of Bangladesh leverage investments in high-performing machinery the complementarities of different not only tend to provide greater financial gains stakeholders, including the private sector per transaction, but also provide extra “cachet” and development partners; in terms of market positioning with buyers and brands. • Recommendations are pragmatic, and based around an incremental menu of options Missing Markets: Cleaner Production Products that allow for flexibility, opportunism, and and Services potential synergies. Access to competitively priced and reliable ancillary cleaner production services and goods in Bangladesh (including cleaner production 39 See NRDC 2012a& b and Ecopsis 2011 for details. 39 6.2.1 Prioritizing Interventions • Environmental impact on water resources (water scarcity and pollution). Scaling up cleaner production can be achieved, in broad terms, either by increasing the costs The comparative assessment of proposed to mills of not adopting cleaner production interventions based on cost, implementation (by incorporating externalities into produc- risk, and impact shows that interventions seek- tion costs) or by reducing the costs of adopting ing to address immediate barriers to cleaner cleaner production (by removing critical barriers production should be considered in the first to entry) (table 6.1).40 Interventions will need to instance, as these are cheaper and easier to be carefully prioritized based on: implement, even though impacts will not be as • The costs of tackling each barrier; transformational as in the case of changes to the broader enabling environment. • Implementation risk (complexity or In the context of limited resources and ease of implementation and number of support, actions to overcome information asym- stakeholders involved); metries should be clearly prioritized. Access to 40 The assessment in table 6.1 is qualitative; data are information is important, both in and of itself, currently too limited to carry out a more quantitative and also because it is a critical building block analysis. TABLE 6.1 COMPARISON OF DIFFERENT APPROACHES TO PROMOTING CLEANER PRODUCTION UPTAKE Increase costs of not adopting cleaner Reduce costs of adopting cleaner production production (incorporate externalities) (remove barriers to entry) Proposed Groundwater Targeted Enforced Addressing Addressing Missing intervention licensing load-based wastewater information missing market standards treatment asymmetry market cleaner for critical finance production hotspots products Costs High (1) High (1) High (1) Low (2) Medium (3) Medium (4) Implementation High High High Low Medium Medium risk Impact on High Medium High Medium Low (unless Low (unless water scarcity information information Pollution Medium provided, n/a for also provided) low-cost ones) Notes: (1) Refers to the high costs of monitoring and enforcement for effective implementation. (2) Costs of information dissemination are low. Setting up an environmental assistance center can be achieved at modest costs. (3) This refers to the implementation of advanced cleaner production measures (as low-cost measures require very little capital investment). Offering interest-free credit to all 1,700 WDF units toward the implementation of one single cleaner production measure averaging $200,000 would require a subsidy41 of $68 million—assuming standard 20 percent interest rates for non-premium borrowers. (4) This may include the provision of incentives for firms to provide cleaner production services and develop networks. 41 Subsidies are listed here as a possible option, while acknowledging that many oppose their use. 40 TABLE 6.2 POTENTIAL ROLE OF STAKEHOLDERS IN OVERCOMING BARRIERS TO CLEANER PRODUCTION Externalities Market failures Missing Missing No Concentration- Weak enforcement market Lack of market Actors groundwater based of wastewater for cleaner information for licensing standards treatment production finance products Government ✔ ✔ ✔ ✔ ✔ ✔ Trade ✔ ✔ associations Local banking ✔ ✔ institutions Local civil ✔ ✔ society, NGOs Multinational ✔ ✔ ✔ ✔ brands for overcoming poor access to finance and mar- effective if carried out by a broad-based multi- ket linkages (and indeed for raising awareness stakeholder approach, bringing together govern- about any policy or regulatory changes). ment, national trade associations, multinational Nevertheless, while more challenging, the brands, and interested development partners. potential for reforms to the broader regulatory As highlighted in table 6.2, the effectiveness of environment should not be dismissed. The individual areas of intervention can be greatly scope for a more coordinated, multi-stakeholder enhanced if the proposed recommendations take approach, including government, trade asso- into account the differing roles, incentives, and ciations, and multinational brands, could help leverage of different actors.42 shift entrenched vested interests and open up new windows of opportunity—provided there is 6.2.3 Targeted Approach sustained, broad-based commitment. Targeting priority environmental hotspot areas, particularly around Greater Dhaka, where textile 6.2.2 Leveraging Complementarities factories are highly concentrated and stresses on As discussed in chapter 5, implementing the environment and water resources are great- selected interventions through a multi-stake- est, will enhance overall environmental benefits. holder approach can enhance environmental outcomes. Different stakeholders often have their own comparative advantages when it comes to promoting the uptake of cleaner production measures. Recommended strategies 42 Note that factories are not included in table 6.2 as they are not actors that should influence, but rather should for encouraging mills to adopt cleaner produc- be influenced by, the actors addressing the barriers tion practices are therefore likely to be more listed. 41 While some actions are broad based, 43 to improve their production efficiency cleaner production uptake is also likely to be and environmental footprint, as they need maximized if efforts initially focus on the top- to produce high-quality goods directly performing textile factories, due to the following for major brands in the demanding and factors: competitive European Union and United • There is still significant scope to improve States markets; production processes, even among better- • These larger, export-oriented mills also performing factories in Bangladesh; have a stronger culture of results- • The better-performing factories are mostly based decision making, and have large, export-oriented, and vertically greater managerial capacity to ensure integrated. They have stronger incentives desired changes at the top are actually implemented on the factory floor; 43 Broad-based interventions include changes to the • These mills can then act as champions or regulatory environment, while actions relating to access role models for less advanced mills. to finance (in particular) tend to be highly targeted. Actions seeking to overcome information barriers tend to be mixed, depending on dissemination channels and whether the provision of technical assistance is involved. 42 43 44 Recommendations CHAPTER 7 for Scaling Up Cleaner Production: Menu of Options T he following actions are recommended as part of a holistic, incremental, multi-stakeholder approach to promote cleaner production uptake among selected textile mills. Activities can be implemented as stand-alone activities, simultaneously or sequenced over a number of years, depending on resource availability and emerging windows of opportunity for change. The proposed plan of action is in three parts: • Part I. Immediate efforts should focus on enhancing access to cleaner production information and advisory support; • Part II. A number of complementary market-based actions should also be considered to further strengthen incentives for uptake; • Part III. Proposed changes to the regulatory framework for water use and disposal could yield transformational change, provided there are sufficient resources, demand for change, and broad-based multi-stakeholder support. 45 Part I: management issues, including cleaner production, through a one-stop shop; Cleaner Background Production Environmental assistance centers are a relatively straightforward and cost-effective way of offer- Information and ing information and services regarding a wide range of environmental issues. In addition to Awareness cleaner production best practices, these include environmental standards and regulation, permit clearances, and options for voluntary environ- mental compliance. Such a holistic approach enhances the viability and appeal of environ- The sharing of cleaner production best practices mental assistance centers, and ensures that identified during the RSI, and included in the cross-linkages and synergies are maximized.45 World Bank and NRDC cleaner production tech- International best practice suggests that semi- nical guides (NRDC 2012a, 2012b), is an impor- autonomous centers, which are not directly tant first step in helping raise awareness among administered by national or state governments, factory owners and managers, notably via trade and have strong business linkages, have been associations and local buyers for multinational found to provide a more up-to-date, high-quality brands. However, to maximize impact, this service (Box 7.1). knowledge needs to be institutionalized, so that The long-term viability of environmental the relevant information and support reaches assistance centers needs to be given careful con- the right people at the right time. One way of sideration. In addition to remaining financially institutionalizing cleaner production knowledge sustainable, such centers will need to continue is through the establishment of an environmen- to stimulate genuine demand for their services. tal assistance center. First, the services provided by the center will need to be continuously adapted and updated to ENVIRONMENTAL ASSISTANCE meet relevant and fast-changing business needs CENTER (through proactive engagement by the center Recommendation with users, trade associations, and buyers). Second, demand for cleaner production and • Establish an environmental assistance compliance assistance may be further stimu- center44 to provide the industry with lated in response to new regulatory and policy appropriate technological, legal, and incentives. administrative information and advisory Additional functions that may be car- support services on environmental ried out by environmental assistance centers include capacity building of engineering firms (through workshops and trainings) and the 44 UNEP has produced a series of reports on government strategies and policies for cleaner production, as well conduct of cleaner production assessments and as case studies on cleaner production worldwide, while the United Nations Industrial Development Organization 45 For instance, incentives to reduce the amount of (UNIDO) has also established a network of national water used through cleaner production are greatly cleaner production centers. See for example http:// enhanced for mills running a fully operational—that is, www.assistancecenters.net/about.cfm and http://www. expensive – effluent treatment plant in compliance with cleanproduction.org/Steps.Process.UN.php. environmental regulations. 46 BOX 7.1 NATIONAL CLEANER PRODUCTION CENTERS The international community has supported cleaner production initiatives in countries with developing and transitional economies since the early 1990s. UNIDO and UNEP have adopted a multi-pronged approach combining advocacy, training, industry demonstrations, policy advice, and facilitation of technology transfer and investment with institutional development through over 45 national cleaner production centers (NCPCs). NCPCs contribute to improved environmental performance and resource efficiency of enterprises and other organizations, which also increases productivity and competitiveness. Key services include: • Technical assistance and in-plant assessments; • Training; • Information dissemination and awareness creation; • Policy advice; • Cleaner production technology and investment promotion. A 2007 evaluation found that the program had been especially successful in: (a) putting cleaner production on the agenda of businesses and government; (b) training of professional cleaner production auditors; (c) implementation of, in particular, low- and intermediate-cost technology options in assisted companies; and (d) policy change and technology transfer in several countries. Key lessons learned included: • Cleaner production is of continued and rising relevance as a result of several trends, including worsening industrial pollution and high industrial resource use; multilateral environmental agreements entering into force; globalization and trade liberalization; and buyer pressure. • NCPCs are appropriate for cleaner production capacity building, but institutional devel- opment and positioning of NCPCs amid other business service providers in their home countries deserve greater attention. • There was a trade-off between the financial independence of NCPCs and the sustained impact of the program. The priority assigned to financial sustainability (independence) of the NCPC as a national institution (largely through income from services) can become counterproductive to achieving sustained effects and impacts as measured by the pro- gram’s objectives. • The NCPC program has great potential. The predominantly country-based funding strategy has, however, not been conducive to networking, knowledge management, and learning between NCPCs operating in different countries and regions. Moreover, the potential for cooperation and leverage with other initiatives was not fully exploited (UNIDO and UNEP 2008, 2010). 47 demonstration projects covering key processes Environment, or more usually, a semi- and product lines at different scales (thus autonomous entity;46 specifically targeting different users, including • Trade associations (such as BGMEA, high-end as well as small and medium enter- BKMEA, and BTMA) should be closely prises). IFC’s PaCT program is proposing to involved in the establishment and establish a textile technology business center operation of such a center, and form (see appendix B for details) that could provide part of the center’s governing body. a complementary (textile-specific) platform for Such close partnerships will ensure greener technologies and operations. that the center adequately responds to the often rapidly changing business Actors’ Roles needs or any members’ concerns, and raise awareness of the center’s services • The Government, particularly the Ministry among the associations’ members; of Environment and Forests and the Department of Environment, would • Multinational brands can play a useful have a key role to play in setting up the advisory role to ensure the center responds environmental assistance center’s legal to long-term business needs and anticipates statute, oversight, roles and responsibilities, future market demands. and financing mechanisms. Centers may be an integral part of the Department of 46 For instance, the environmental assistance center could be set up as a semi-autonomous institute such as the Bangladesh Institute for Water Modelling or the Center for Environment and GIS, which are able to hire staff outside civil service rules and raise their own funds. 48 Part II: It is important to note that factory owners’ drive to improve their bottom line is not always sufficient to adopt cleaner production prac- Market-Based tices. However, since top performers are indeed also keen to position themselves with brands, Initiatives investing in cleaner production is a good way for them to cement a stronger relationship with brands and enhance their bottom line in the lon- ger term. This is why getting brands to encour- A number of useful market-based activities can age the adoption of cleaner production through build on the new cleaner production informa- their supply chain guidelines (and make cleaner tion platform, including leveraging the power of production an explicit value proposition) is a the brands and the local private sector to help hugely important entry point. fill in the missing markets. Actors’ Roles BRAND PURCHASING GUIDELINES • Multinational brands to engage to the Recommendation extent possible with interested partners • Multinational brands incorporate cleaner (e.g. NRDC) to support the development of production incentives into a harmonized set harmonized purchasing guidelines. of purchasing guidelines.47 ZERO DISCHARGE OF HAZARDOUS Background CHEMICALS (PREFERRED SUPPLIER SCHEME) Multinational brands have considerable “soft power” in influencing the Bangladesh factories Recommendation via their prequalification inspection routines • Explore potential for Bangladesh to become and ongoing supplier-buyer relationships. a pilot of the brands’ Zero Discharge of The development of purchasing guidelines Hazardous Chemicals (ZDHC) initiative. offers an alternative, innovative way to enhance awareness and incentivize adoption among Background textile mills keen to position themselves with brands in a competitive market (for example, The concept of zero discharge has clear brand through the achievement of “preferred supplier appeal. Brands have already shown strong status”). As part of the Global RSI, brands leadership with regard to hazardous chemicals have been actively discussing how to incorpo- (box 7.2), and the promotion of zero discharge rate cleaner production incentives into their standards would help drive the implementa- procurement guidelines, including encouraging tion of cleaner production measures across the mills to systematically meter their water and entire production cycle. Efforts are however still energy consumption as a first step for bench- in their infancy. While the early adoption of marking performance. such standards could present some advantages in terms of enhanced competitiveness, associ- 47 Since chemical recipes (particularly dyes and ated risks and costs should also be carefully chemicals) are frequently provided or prescribed by the multinational brands, the implementation of these assessed. In any case, the successful implemen- measures will therefore require collaboration with the tation of zero discharge standards will need multinationals through their purchasing guidelines. 49 BOX 7.2 THE APPAREL INDUSTRY’S ZERO DISCHARGE OF HAZARDOUS CHEMICALS ROADMAP The Zero Discharge of Hazardous Chemicals (ZDHC) initiative was established by the apparel industry in 2011, largely as a response to the publication of a Greenpeace report Dirty Laundry, which highlighted the widespread discharge of untreated chemicals by textile companies into waterways in China. The objective of the ZDHC is to provide the industry with a roadmap for zero discharge of hazardous chemicals within their supply chain by 2020. Current members include Adidas Group, C&A, Esprit, G-Star Raw, H&M, Inditex, Jack Wolfskin, Levi Strauss & Co., Li Ning, NIKE, Inc., PUMA SE, and key influencers in the chemical industry. The founding group of brands developed a roadmap to detail specific projects and actions that can be taken collectively with other brands to drive the apparel and footwear industry toward the goal of ZDHC. Challenges ZDHC is trying to tackle include: • The contract manufacturing model; • The complexity of the supply chain (with thousands of direct contract partners and tens of thousands of material suppliers, in multiple tiers); • Hundreds of individual chemicals are used at each material supplier; • Limited visibility into the formulation of preparations (mixtures of chemicals) used by sup- pliers, in particular incomplete information on hazardous ingredients in material safety data sheets; • Chemical preparations of lower quality (often containing unwanted ingredients) are in direct competition with better alternatives; • Directly controlling chemical formulations deep into the supply chain (suppliers of suppli- ers to factories) has not previously been attempted by brands; • Large volumes of water used in dyeing/finishing and other processes; • Facility by facility wastewater treatment (rather than centralized wastewater treatment); • Import/export barriers for chemicals and technologies. The joint roadmap is highly ambitious, and it is a plan that sets a new standard of environ- mental performance for the global apparel and footwear industry. It includes specific commit- ments and timelines to realize this shared goal. Source: ZDHC: http://www.roadmaptozero.com/joint-roadmap.php. 50 to be either strongly incentivized by brands with significant water savings, treatment, or through enhanced market positioning or strin- other resource efficiency gains. gently enforced (by government or brands). An environmental management system, certified by an independent accrediting agency, Actors’ Roles creates a set of independent monitors and sets out a path for progressively improving environ- • Multinational brands to raise awareness mental performance among those who need among their suppliers and national trade consistent support. associations of current initiatives, including the ZDHC rationale, and the advantages Actors’ Roles and necessary changes associated with these standards. • The Government of Bangladesh’s Ministry of Finance and National Revenue Bureau CLEANER PRODUCTION PRODUCTS could consider waiving import duties AND SERVICES on water and energy meters, dyes and Recommendations chemicals, and selected “green equipment;” • The proposed environmental assistance center • Focus on quick wins and opportunistic and IFC’s proposed textile technology interventions by: business center could include cleaner ◗◗ Removing duties on select green production training specifically targeted equipment, eco-dyes and meters; to local environmental engineering firms ◗◗ Stimulating local technological (training of trainers) to help expand their innovation through dedicated grants; service base; ◗◗ Exploring the potential for independent • The Ministry of Environment and certification of environmental Forests and the Ministry of Industries, in management systems. consultation with a range of stakeholders, could explore the scope for setting up Background cleaner production standards to encourage the use of meters and more efficient Some countries (such as China, see box 7.3) manufacturing equipment. have sought to use cleaner production legisla- tion to ensure minimum efficiency standards CLEANER PRODUCTION FINANCING for manufacturing equipment, and stimulate the market for cleaner production products Recommendation and services from the supply side. However, • Expand and strengthen existing green credit there are rarely sufficient resources and sup- lines to cover specific water- and energy- port systems in place to ensure these standards efficient manufacturing equipment. are adequately applied and enforced. Rather, interventions should be opportunistic, identify- Background ing quick wins or taking advantage of existing or proposed structures. Most of the cleaner production best prac- An example of dedicated grants is IFC’s tices featured in this report have focused on proposed $500,000 Innovation Fund under its lower-cost options with rapid payback times. PaCT program, which has been designed to help Nevertheless, many mills are also keen to invest finance the development of new technologies in more advanced cleaner production measures, 51 BOX 7.3 CHINA’S CLEANER PRODUCTION LAW On January 1, 2003, the Cleaner Production Promotion Law came into effect in China. The law seeks to reduce pollution and promote resource recycling by regulating all stages of the produc- tion chain, including design, choice of energy resources and raw materials, type of technology, equipment maintenance, and waste recycling. It gives each local administration responsibility to initiate appropriate regulations on the basis of the level of economic development of the locality and the nature of its pollution problems. This is because the huge size and diverse eco- logical conditions of China’s different regions make it extremely difficult to develop a general and standardized policy applicable to all regional environmental problems (Geng et al. 2010). This new law is the most significant of a number of initiatives the Chinese government has taken to establish cleaner production nationwide as one of China’s key strategies for sustain- able development. The law seeks to raise the profile of cleaner production and raise aware- ness of its benefits, contributing to a change from downstream management to a more holistic supply chain approach. However, no comprehensive independent evaluations have yet been carried out to assess its full impact. Certainly, the results from NRDC’s RSI factory audits suggest there is still room for improvement, even among low-cost cleaner production measures. Clean production still remains mainly targeted toward particular manufacturing processes and business strategies within individual companies. In order to further enhance its success, governmental agencies should play a leading role by coordinating different initiatives, enacting appropriate regula- tions, stipulating feasible guidelines and standards, providing substantial financial support, and carrying out international collaboration. Source: “Cleaner Production in China.” http://www.chinacp.com/EN/PolicyDetail.aspx?id=38. with significant up-front capital investments, investments in technologies with significant but are unable to access credit facilities at water benefits for 100 textile mills. affordable interest rates.48 Bangladesh Bank has recently put in place credit lines for green Actors’ Roles investments, including a $25 million refinancing line at 5 percent interest earmarked for specific • Bangladesh Bank could extend credit items, including effluent treatment plants, solar lines for green investments to cover energy, and biogas, although uptake remains manufacturing equipment yielding limited. Another example is IFC’s proposed significant water and chemical savings, and Bangladesh PaCT program, which will facilitate work more closely with commercial banks to stimulate uptake.49 48 Commercial bank prime lending rate was 13.3 percent 49 Note that the Central Bank should in principle not be in December 2012 for Bangladesh (Central Intelligence providing directed credit. Such types of subsidy—if Agency World Factbook: https://www.cia.gov/library/ any—should come from the budget in a fiscally publications/the-world-factbook/fields/2208.html). transparent fashion. 52 Part III: Background The effective implementation, monitoring, Strengthening and enforcement of commercial groundwater licensing regimes is notoriously challeng- Environmental ing, but these are being considered by certain urban municipalities facing acute water stress Regulation and (such as Aurangabad Municipal Corporation in Maharashtra, India) (Garduño et al. 2011). Enforcement Given that WDF textile mills appear to be using a disproportionate share of rapidly depleting groundwater resources in Dhaka, a targeted approach focused on the monitoring of ground- water use by large commercial and industrial Strengthening environmental regulations and users such as WDF factories might be worth their enforcement remains necessary both to fully considering. There is also scope for potential incentivize cleaner production uptake and to synergies if implemented in conjunction with address the underlying need for polluters to pay more targeted environmental standards (see for the costs of treating pollution. Reforms have next recommendation). however proved difficult to successfully imple- The water footprint of factories is of ment, due to the considerable complexities, costs, particular interest to the multinational brands’ and implementation risks involved. Nevertheless, environmental corporate social responsibility. the multi-stakeholder approach adopted through- Any proposed interventions should be accom- out the RSIs hints at a new more collaborative panied by a careful communications campaign, model for supporting green growth reforms to: supported by a range of partners (including • Ensure the proposed changes support trade associations and brands), to raise aware- growth without compromising ness among industries of the economic costs of environmental sustainability; groundwater over-exploitation and the potential • Identify the reforms that have the greatest threats to their business. buy-in and catalytic effect; Metering of water usage, particularly groundwater, is an important basic step in • Leverage the particular complementarities attempting to track water consumption. of each stakeholder to catalyze incentives Currently, metering is almost nonexistent, for change and successful on-the-ground since it is not mandatory and metering equip- implementation. ment is expensive. STRENGTHENING COMMERCIAL GROUNDWATER LICENSING Actors’ Roles Recommendation • The Ministry of Water Resources may wish to consider provisions for groundwater • Review potential for strengthening licensing monitoring, licensing, and charging as part arrangements for tubewells privately of the forthcoming Bangladesh Water Act; installed by major industrial water users. • Municipal water utilities (Dhaka Water Supply and Sewerage Authority, Chittagong Water Supply and Sewerage Authority) 53 could review licensing arrangements for externalities; rolling out metering; and large commercial and industrial customers, developing effective bill collection systems; including scope for redrawing jurisdictional • Trade associations and multinational brands boundaries to include major industrial could then be consulted on any proposals clusters outside Dhaka city limits; revising and asked to support awareness campaigns volumetric tariffs to reflect environmental among industry members and suppliers. BOX 7.4 LOAD-BASED STANDARDS Load-based environmental standards are based on the total amount of a substance that passes through a particular point within a given amount of time. The standard is calculated by the con- centration times the total volume of water, and therefore requires both variables to be measured. Load-based standards have been increasingly used in Canada, Germany, India, and the United States to target critically impaired water bodies under situations of serious water stress or to promote a more integrated catchment-wide planning. TOTAL MAXIMUM DAILY LOAD In the United States, for example, total maximum daily load (TMDL) standards have been used extensively since the 1990s by the United States Environmental Protection Agency (EPA) and state environmental agencies under the United States Clean Water Act. A TMDL establishes the maximum amount of a pollutant that a water body can assimilate and still meet water quality standards. These load-based standards have been particularly useful in establishing maximum pollution limits for industrial wastewater dischargers around specific water bodies that are classified as impaired or threatened for beneficial uses. This process incorporates both point sources and nonpoint source pollutants, and has been increasingly applied at the watershed level.50 ZERO LIQUID DISCHARGE Zero liquid discharge legislation was enacted by the Indian state of Tamil Nadu in response to severe pollution of local freshwater sources from wastewater by textile mills in Tirupur, India’s leading knitwear hub. The renewed threat of permanent closure in 2011 led to radical changes in the way mills’ wastewater was treated, with Tirupur’s common effluent treatment plants becoming the first to implement zero liquid discharge technology in India, by recovering water and salts. However, it remains to be seen how the enforcement of zero liquid discharge standards will affect long-term competitiveness (Vishnu et al. 2008; Yew et al. 2012). 50 “TMDL.” Maryland Department of the Environment: http://www.mde.state.md.us/programs/Water/TMDL/ Pages/Programs/WaterPrograms/TMDL/index.aspx. 54 ENVIRONMENTAL LOAD-BASED the (1500 strong) publicly available factory STANDARDS data base—which includes some textile mills)—and inspection protocol under the Recommendation Accord on Fire and Building Safety. • Assess potential for targeted load-based or zero discharge standards in critical Background environmental hotspots. Improving environmental outcomes, and getting mills to treat their wastewater, is ultimately less Background about the nature of the environmental standards Load-based standards, including the more per se and more about developing effective extreme form of zero discharge standards, have monitoring and enforcement systems on the been most successfully applied in critical envi- ground. Given the huge transaction costs associ- ronmental hotspots where freshwater resources ated with monitoring, particularly in relation to are severely depleted or degraded (box 7.4). the regulator’s staffing and resource capacity, efforts over the past decade have increasingly Actors’ Roles turned to third-party monitoring and public disclosure programs (box 7.5). • Ministry of Environment and Forests and A multi-stakeholder platform can play a Department of Environment to review pivotal role in promoting greater public disclo- the scope for implementing load-based sure by encouraging the sharing and triangulat- standards (including zero discharge) in ing of information obtained by different parties. selected critical areas, in close consultation Multinational brands could help in two ways. with key stakeholders and brands; In the first instance, brands can seek to better • Department of Environment and Dhaka monitor environmental performance of suppli- Water Supply and Sewerage Authority ers by systematically mapping out their supply to explore synergies between reforms on chain, and through their prequalification inspec- groundwater licensing and environmental tion routines and ongoing supplier-buyer rela- standards, particularly if a targeted tionships (including monitoring requirements watershed, cluster-based approach is under the proposed supply chain guidelines). In adopted. the medium term, they can encourage mills to carry out peer-to-peer benchmarking of cleaner PUBLIC DISCLOSURE FOR production performance measures (such as ENVIRONMENTAL COMPLIANCE being part of a “preferred suppliers” scheme). Brands can also incentivize compliance Recommendation with standards, such as the Accord Initiative. At present, brands themselves face constraints in • Develop public database to strengthen monitoring the full extent of their supply chain monitoring of environmental compliance, in-country, particularly with second- or third- including data obtained through third-party tier suppliers with whom they have no direct monitoring; contact. By making even basic information on • Encourage the sharing and triangulating of mill compliance available publicly, and encour- information obtained by different parties aging brands to map out their supply chain, through the stakeholder platform. In the Department of Environment could help the particular, explore opportunities to leverage brands exert additional pressure more readily on 55 their extended supply chain. The online publica- its relationship with one of the suppliers (Lee, tion of basic data for over 1500 factories as part Plambeck, and Yatsko 2013). of the Accord on Fire and Building Safety is a major foundation to build on. Actors’ Roles The Beijing-based NGO the Institute for Public and Environmental Affairs (IPE) has been • The Department of Environment can particularly effective in bringing the environ- help set up a public database on industry mental violations of global firms and Chinese environmental compliance, which could suppliers into public view. IPE has a publicly draw information in from third parties, accessible database of tens of thousands of including from civil society, industry outstanding pollution infractions, which it col- peers (such as voluntary benchmarking lects from government environmental agencies schemes), and multinational brands; and other public sources. IPE, in coalition with • Multinational brands can build on a NGO partners, may contact multinationals number of key systems already put in whose Chinese suppliers are in the database place through the recent Accord Initiative and ask them to work with those suppliers (including factory mapping, factory on remediation. Motorola, Philips, Pepsi, and inspection protocols) as well as leveraging Cargill are among the thousands so far exposed, the 100 strong brand and retailer platform; in addition to Timberland. The latter worked • Multinational brands can continue to jointly with IPE to resolve problems and terminated take action on key issues such as the recent Accord Initiative that is addressing the fire and building safety problems in Bangladesh. BOX 7.5 PUBLIC DISCLOSURE PROGRAMS: INTERNATIONAL BEST PRACTICE Community-based instruments (including public disclosure programs) have been used for over two decades as a complementary tool in reducing pollution emissions. In 1995, Indonesia put in place a voluntary, pilot public disclosure scheme that encouraged firms to clean up their water pollution. The Program for Pollution Control, Evaluation and Rating (PROPER) required firms to self-report their water pollution levels, which were subsequently checked by the government’s environmental agency, and then assigned a color-coded rating (from black for the factories that made no effort at control, to gold for those that demonstrated adherence to international standards). The detailed findings were first shared with the companies, and, after a suitable period of time to allow for retesting, were made available to the public, thus bestowing either honor or shame on the rated factories and encouraging offenders to clean up their act. China followed suit with a similar program, Green Watch, in 2000, when two Chinese municipalities established pilot programs covering 150 factories. In 2005, 20 munici- palities adopted similar programs covering 8,500 factories. Research shows that the Green Watch program has significantly reduced pollution emissions in China. Today similar systems are also in place in several countries, including Ghana, India, Republic of Korea, Philippines, and Vietnam. Source: World Bank 2012. 56 57 Conclusions CHAPTER 8 C omplex global supply chains present particular challenges for promoting green growth. Textile manufacturing has become a major contributor to gross domestic product for many developing countries, including Bangladesh, but also has a significant environmental footprint due to overstretched environmen- tal regulation and enforcement capabilities. Both national governments and major multinational brands are searching for more sustainable ways of nurtur- ing local textile industries that are good for growth and for the environment. 8.1 POTENTIAL FOR CLEANER PRODUCTION: KEY FINDINGS Encouraging mills to adopt cleaner production measures offers a useful, non-controversial entry point. Factory audits in Bangladesh confirmed the large potential savings. The implementation of seven low-cost cleaner production best practices alone could help reduce water and energy consumption by 25 percent and chemical use by up to 10 percent. At the same time, it would save the industry up to $200 million a year in efficiency savings and up to $90 million in avoided wastewater treatment costs. However, uptake of cleaner production measures by industry remains low. Tangible environmental benefits will therefore only be achieved if a significant proportion of mills in Bangladesh start to adopt these cleaner production best practices. The factory audits highlighted three complemen- tary market failures that are inhibiting uptake of cleaner production best practices: (a) the failure to internalize externalities associated with water scarcity and pollution due to weaknesses in the broader enabling environment 59 (including environmental regulation and purchasing guidelines to promote cleaner enforcement); (b) information asymmetry (get- production, the development of cleaner ting the right information to the right people at production products and services, and the right time); and (c) missing markets (includ- financial support for investments in clean ing access to cleaner production products and technologies and zero discharge; finance). • Exploration of the potential for selective reforms to environmental 8.2 RECOMMENDATIONS FOR regulation and enforcement, including SCALING UP CLEANER PRODUCTION strengthened groundwater licensing and enhanced enforcement targeting critical In order to tackle these barriers, a holistic, incre- environmental hotspot areas, as such mental, multi-stakeholder approach is proposed reforms, while challenging, have the to promote cleaner production uptake among potential to yield transformational change selected textile mills. It is structured in three for both scaling up cleaner production and phases according to cost, implementation risk, pollution abatement; and impact. Activities can be implemented flex- • Public disclosure of environmental ibly as stand-alone activities, simultaneously or performance through a multi-stakeholder sequenced over a number of years, depending platform by encouraging the sharing and on resource availability and emerging windows triangulating of information obtained by of opportunity for change. Proposed actions different parties. In particular, opportunities include: for leveraging the 1500 strong publicly • Initial support for information and available factory data base (which includes cleaner production advice through the some textile mills) and inspection protocol establishment of environmental assistance under the Accord on Fire and Building centers as a building block for future Safety should be actively explored. interventions; Table 8.1 shows the potential roles for vari- • Complementary market-based actions to ous actors in implementing the recommendations further strengthen incentives for uptake, to overcome the barriers to clean production. including the harmonization of brand 60 TABLE 8.1 RECOMMENDATIONS AND ACTOR’S ROLES IN OVERCOMING BARRIERS TO CLEANER PRODUCTION CLEANER PRODUCTION INFORMATION & AWARENESS MARKET-BASED INCENTIVES ENVIRONMENTAL REGULATION & ENFORCEMENT Establish Multinational environmental corporation Zero discharge Cleaner assistance center purchasing of hazardous Cleaner production production Groundwater Load-based Actor (EAC) guidelines chemicals products & services financing licensing standards Public disclosure Government Play key role in Provide inputs, May engage Remove duties on Raise awareness Groundwater Implement Set up public setting up center in line with in discussion cleaner production- (eg via EAC) licensing, load-based database on (institutional environmental with brands related imports monitoring, standards environmental arrangements, legislative (monitoring impact volumetric compliance Training on cleaner Provision financial framework of intervention, pricing production, including of technical contributions) provision of TA and environmental Provision of support to support via EAC) assistance center technical support industry via EAC to industry via Cleaner production EAC standards (metering) Trade Closely involved Provide inputs Raise awareness, Cleaner production Raise awareness Raise awareness associations in setting up and technical training, including operation (including assistance to business technology potential financial members center contributions) Local banking Expand green institutions credit lines Local civil Provide inputs Raise awareness society, NGOs Multinational Play advisory role Develop guidelines Raise awareness & Raise awareness, Raise Map out supply brands and liaise with solutions on ZDHC include incentives awareness, chain (leverage partners to in guidelines include Health and Safety implement incentives in Accord factory guidelines database) Monitor performance 61 of supplier (third party) 8.3 STRENGTHENING systemic issues, including groundwater over- BANGLADESH RSI MULTI- exploitation and pollution abatement and lead STAKEHOLDER PLATFORM to spin-off activities (box 8.1). Most importantly, each of the above recom- 8.4 LESSONS FOR GLOBAL mended interventions provides an opportunity RESPONSIBLE SOURCING INITIATIVE for the Government of Bangladesh to work more closely with national and international private The experience of the Bangladesh RSI will also sector actors from across the textile supply inform the Global RSI dialogue in two ways: chain in the development of strategies to pro- First, a comparative assessment of the mote enhanced cleaner production uptake and findings from the cleaner production audits in better environmental management practices in China and Bangladesh has highlighted consider- general. Coordinated action will be particularly able similarities (and some local differences) important for achieving long-term transforma- in terms of the specific nature of the cleaner tive change through reforms to the enabling production best practices, the range of expected environment, where substantial resources and benefits (including productivity efficiency and long-term commitment, demand for change, resource savings), and challenges of scaling up and active support from a range of stakeholders cleaner production, even among high-perform- are critical. ing mills. This strengthens the case for multi- Development partners, including the World national brands to develop harmonized supply Bank, IFC, and NRDC, have started to facilitate chain guidelines promoting cleaner production the development of a multi-stakeholder platform for their entire global supply chain. as part of the Bangladesh RSI. This platform Second, this case study has highlighted was instrumental in bringing the Government the benefits of closer engagement and dialogue of Bangladesh together with national and between the private sector and government, multinational private sector actors (including as carried out through the Bangladesh RSI trade associations, major mills, local buyers, (compared to the original China RSI, which and senior executives of multinational apparel exclusively focused on the role of the private brands) to discuss the potential for cleaner sector). Recommendations for scaling up cleaner production in Bangladesh and potential barriers production in Bangladesh have highlighted to scaling up. the advantages of a more coordinated, holistic Moving forward, the Bangladesh RSI approach, where some actions are best led by the multi-stakeholder platform can continue to play Government (strengthening the enabling envi- a key role in supporting the Government of ronment, import duties, and green credit), others Bangladesh to implement the proposed recom- best led by the private sector (harmonization of mendations to scale up cleaner production by supply chain guidelines), and others best carried identifying areas of common interest and poten- out through close consultation by all parties tial synergies around specific actions in order (monitoring and information sharing, promotion to leverage complementarities from government of zero discharge standards). Some of the pro- and across the private sector (including link- posed recommendations for scaling up cleaner ages to the broader Accord on Fire and Building production in Bangladesh may also be applicable Safety Coalition). Such a forum may also be in other major textile-exporting countries of used to debate and formulate more complex, interest to multinational brands participating in long-term interventions to address underlying the RSI, including China, India, and Vietnam. 62 BOX 8.1 SPIN-OFF ACTIVITIES FROM RSI Gap Inc. is now partnering with NRDC to pilot supply chain policies in its fabric mills and dye- houses in China. The objective is to establish a set of policies that lay out clear expectations of suppliers’ environmental performance, and that integrate this performance into business decision-making. The pilot will have several phases: understanding mills’ current social and environmental compliance with the law; creating social and environmental performance stan- dards aligned with local law; communicating Gap Inc.’s expectations to mills; and integrating social and environmental performance metrics into business assessment considerations. The pilot, which will be carried out with selected mills in China, is now in its initial phases, focus- ing first on establishing compliance status and collecting baseline information on the mills’ performance. The Institute for Public and Environmental Affairs (IPE), a Chinese NGO, has developed the China Pollution Map Database, which compiles publically available records of environmen- tal violations by industrial polluters across China. The database is an invaluable resource to multinational companies who want information about the environmental compliance status of their suppliers, a first step in establishing supply chain policies. During the RSI World Bank led round tables, multinational apparel retailers and brands identified a number of improve- ments that would allow them to use the database more effectively. The NRDC RSI team is now working with IPE to implement a number of these recommended changes, including modifi- cations that will improve methods to search the database and make it easier for brands and retailers to identify new entries and other changes. City-track The RSI World Bank led round tables discussed the challenge of scaling up the pos- itive results of the RSI pilot projects to a larger number of suppliers, and suggested concen- trating on key geographies as one possible strategy. Starting in 2013, the NRDC RSI program plans to use a “city track” approach to scale up the Responsible Sourcing Initiative. Under this geographically based plan, the program will select cities that have a large concentration of textile mills as well as relatively progressive officials who are under pressure to reduce energy use, improve water quality, and showcase international partnership in their localities. Those cities with mills in the supply chains of the RSI partner retailers and brands will be of special focus to enable these partners to influence suppliers to take part in the program. Factories involved in the program will receive technical assistance and training in exchange for imple- menting environmental improvements in their facilities. 8.5 LESSONS FOR WORK ON and approaches. The non-traditional partner- GREEN GROWTH ships developed through the RSI, at the global and country level, present a useful model for The creation of a multi-stakeholder platform promoting green growth, particularly when also provides an incubator of innovative ideas tackling complex supply chains with large, often 63 dislocated, environmental footprints.51 Where manufacturing to sustainable mining, timber, there is a strong interest from multinationals to agri-business, and fisheries. engage on certification issues, supply chains can There are plenty of opportunities for the range from organic cotton production for textile World Bank and IFC to work closely together to green these supply chains. As the experience with the RSI has shown, the two sister institu- 51 Note that there is already a group called the Sustainable Apparel Coalition, which is an industry-wide group of tions are in a unique position to jointly leverage over 80 leading apparel and footwear brands, retailers, their role as neutral brokers and conveners, suppliers, civil society, and NGOs working to reduce the environmental and social impacts of apparel and working in tandem at both the global and footwear products around the world. The focus of the country level, bringing together multinationals, Sustainable Apparel Coalition is the Higg Index, which international civil society players, governments, measures the environmental performance of apparel products. Future versions will include footwear products and local private sector interests. and measure social performance. 64 65 66 Appendix A: APPENDICES Bangladesh RSI Cleaner Production Factory Audits T he Bangladesh RSI factory audits were carried out in Dhaka in 2010–2011, as part of the World Bank Bangladesh Responsible Sourcing Initiative Non-Lending Technical Assistance. The main results from the Bangladesh cleaner produc- tion factory audits are summarized here. Detailed over- views of the more promising cleaner production measures, of interest to textile mills, trade associations, and brands, are found in NRDC 2012a, and further information will be provided in a World Bank best practices technical guide (to be published). The complete findings of the audits are detailed in Ecopsis 2011 as part of their production efficiency and pollution prevention factory assessments for fabric mills and dye houses in Bangladesh (consultancy report), including Task A report: Showcase of three top- performing factories, and Task B report: Assessment of five medium-performing factories. The factory cleaner production audits focused on practical factory improvements that would improve the production of steam and water heating, recycle process water, and recover heat. The emphasis was on low-cost, or even no-cost, measures, although more advanced high-cost interventions were also identified. Methodology The methodology for the factory assessments and formula- tion of the best-practice measures were based on NRDC’s 67 earlier China experience. Over 25 Bangladesh RSI’s focus was on practical, low-cost (or factories were first long-listed. This initial selec- even no-cost) factory infrastructure improve- tion was done in close consultation with the ments that would improve the production of brands, who nominated their supplying firms steam and water heating, recycle process water, from their Bangladesh supply chain segment. and recover heat. Each potential improvement After an initial audit assessment was carried was assessed and ranked based on capital and out, a final selection was made. The short-listed operational costs (under $15,000 per initial factories included three top-performing factories investment for low-cost measures), payback and five medium-performing factories. time, and resource savings. Interventions Selection criteria included the implementa- with multiple resource savings (for example tion status of the best practices in each factory water and energy or water and chemicals) were (as defined in the China context), and status prioritized, particularly water-related interven- of other or new cleaner production opportuni- tions, given the initiative’s overall focus on ties. In addition, factory-level considerations water pollution. were taken into account. These included factory motivation, closeness of their relationships Low-Cost Cleaner Production with brands, the attractiveness of savings to the Best Practices factory, the relevance of savings in the factory’s The factory audits identified seven low-cost marketing strategy and future growth focus, cleaner production best practices for textile mills existing compliance with buyer environmental in Bangladesh. Three of the seven best practices standards, management capacity and commit- cost less than Tk 410,400 ($5,000) each; two of ment to environmental quality, willingness to these cost almost nothing (table A.1). The cost share with peers, financial capacity to undertake ranges for three other practices start at less than the exercise, factory size, value as a peer leader Tk 410,400 ($5,000). None requires more than for other similar factories, and factory size in 15 months to recoup costs. Note that the range relation to resource savings. of potential cleaner production investments for Following consultations with individual first-time right dyeing (including improved dye factories to make sure all the above criteria were recipes and dispensing equipment) is broad, met, a final shortlist of four medium-performing making it both a low-cost and a more advanced factories was drawn up. It is important to note cleaner production best practice. that these were all improvement-minded facto- In total, if implemented together at the ries, with much to demonstrate both in terms of same mill, these improvements could reduce resource savings and as peer leaders for the rest consumption of water and energy by up to 25 of the market and their brand buyers. percent, and also reduce chemical use signifi- The selection methodology was shared cantly. Most practices actually have a potential during regular workshops and communication impact on several inputs (water, energy, chemi- platforms with various stakeholders (includ- cals) simultaneously. ing the brand buyers and the government) for It is interesting to note that although many refinement and improvements. In particular, the factories do have housekeeping or maintenance IFC’s parallel initiative (see appendix B) was programs that incorporate some of the best extremely useful, as it provided valuable input practices identified in this report, they tend into the RSI selection criteria and calibrated the not to systematically take advantage of the full RSI findings in resource savings. range of low-cost cleaner production measures available to them. As a result, factories with 68 similar production systems had each adopted factories), the Epyllion Group, and Partex their own piecemeal selection of measures, and Denim. All three are leading garment manu- many owners and managers simply did not rec- facturers in Bangladesh who have found that ognize or appreciate the existing inefficiencies reducing pollution means significant savings associated with certain practices, and tended to to their bottom line, and are proof that textile value more expensive and sophisticated cleaner factories in Bangladesh can achieve a high level production measures over the cheaper ones. of resource efficiency (NRDC 2012b). Advanced cleaner production best practices Advanced Cleaner Production included improving dye recipes; improving Best Practices liquor ratio; minimizing washing and rinsing; using cogeneration plants; recovering heat from The Bangladesh textile mills audits also identi- the power generation vent; and reusing caustic fied a range of more advanced cleaner produc- soda in the denim mercerizing operation. Table tion measures that could generate even more A.2 highlights some of the potential savings. significant reductions in water, chemicals, and These practices may be especially suit- energy usage and yield greater financial savings. able for new factories being established and Initial up-front investments are higher than for for factories that are expanding or replacing low-cost measures, but payback remains attrac- equipment, and are thus especially relevant to tive, at two years or less. Bangladesh’s expanding textile sector. Measures These higher-end practices were based on may need to be adjusted to meet individual fac- audits in three factories that are top-performing tory requirements. in energy, water, and chemical efficiency, namely the DBL Group (Hamza and Mymun 69 70 TABLE A.1 RECOMMENDED BEST PRACTICES (ASSESSMENT OF FOUR BANGLADESH FACTORIES) % resource Savings (Tk/tonne Cost (Tk/tonne Payback period Investment cost (Tk) savings fabric) fabric) (months) Practice Low High Low High Low High Low High Low High Water Eliminate water leaks, 0.3 0.7 6.8 31.3 0.7 1.1 3,000 3,000 0.4 1.4 reduce hosepipe use Reuse cooling water 8.2 14.8 392 714 75 204 280,000 800,000 2.1 3.3 from dyeing machine Reuse process water 9.0 11.9 91 426 134 196 380,000 1,000,000 3.9 25.9 from rinsing Energy Steam management 1.1 5.3 81 349 — — — — now now Insulate pipes, valves, 0.4 23 22 60,000 11.2 flanges Recover heat from 20 20 527 1,769 267 368 1 million 1,5 million 2.5 8.4 drying operations Chemicals (dyes) Improved dye recipe 3 10 19 49 836, 000 3,4 million 15 Note: The costs and savings here are in Bangladesh taka (Tk). Conversions between taka and US dollars throughout the report reflect conversion rates in effect on May 9, 2012 at Tk 82 per US$1. TABLE A.2 POTENTIAL SAVINGS FROM CLEANER PRODUCTION PRACTICES % resource Savings (Tk / Investment cost Payback period Practice savings tonne fabric) (Tk) (months) Water and chemical Improved dye recipe 20–35% 21,000/year 16-30 million 15 water and energy Improved liquor ratio < 25% 16-41 million Reusing caustic soda 4–6% 790–1,188/year 30, 000-40, 000 now Minimizing washing 25–33% 10 l/kg 1,3 million < 12 & rinsing Energy Use cogeneration 30% 50–60million > 24 plants 71 Appendix B: implementing 150 recommendations out of a total of 185, the pilot factories saved $1 mil- lion in a year. While factories were expected IFC Cleaner to implement five to seven of the audit rec- ommendations, an evolving program has Production inspired the realization of almost 85 percent of all recommendations at their own cost. Initiative, Estimates shows that if 50 percent of the factories in the wet processing industry adopted Bangladesh similar measures the savings would include $75 million; 63 billion liters of water; 650 million cubic meters of gas; and 300 gigawatt-hours of electricity per year. Given this remarkable potential, IFC is currently envisaging scaling IFC’s Bangladesh Pilot: Promoting up its technical assistance to an additional Cleaner Production in Textile WDF Sector 200 wet processing factories, while promoting broader industry-wide uptake, ensuring contin- Between 2010 and 2012, IFC implemented a ued competitiveness of the sector by reducing resource efficiency technical assistance pilot its environmental footprint and accelerating a project. The objective of this pilot was to “green” agenda. identify and implement potential cost-saving measures for energy, chemical, and water usage IFC’s Bangladesh Partnership for Cleaner in 12 selected wet processing factories around Textiles (PaCT) Dhaka. IFC partnered with Solidaridad, a Dutch organization, and 10 buyers (H&M, Kappahl, IFC has initiated a technical assistance pro- Lindex, Mothercare, Levi’s, WE Fashions, New gram—the Bangladesh Partnership for Cleaner Look, Bestseller, Primark, Tesco) to implement Textiles (PaCT), which is due to start imple- the project. Results from cleaner production mentation mid-2013. The goals of the program measures in 12 wet processing factories demon- are to reduce water usage, reduce wastewater strated the potential for significant environmen- use, improve water quality, reduce energy tal benefits. consumption and greenhouse gas emis- By implementing low-cost measures, sions, and improve occupational health and the 12 participating factories saved on aggre- safety, including through improvements in gate 880 million liters of water, 9 million water, sanitation, and hygiene. PaCT will try cubic meters of gas, and 4.45 gigawatt-hours to achieve these goals through three compo- of electricity, and avoided 19,000 tonnes nents: buyer capacity building, factory sup- of greenhouse gas emissions annually. By port, and multi-stakeholder engagement. 72 Appendix C: a very high degree of transferability of best- practice measures across both textile-producing countries. As shown in table C.1, most cleaner Comparison of production practices are highly relevant: Low-Cost Cleaner • Only two practices identified in China were not at all applicable in Bangladesh (the prescreening of coal, and the recovery Production Best of heat from smokestacks). This is due to the fact that textile mills in China and Practices: China Bangladesh depend on very different energy sources, the former on coal and the latter and Bangladesh on natural gas; • Other practices, including the reuse of condensate, the optimization of air compression systems, and improved dye This appendix compares the results of NRDC’s recipes, were all highly relevant in both earlier cleaner production audits carried out in contexts, but differed slightly in terms textile mills in China with the results for the of their rankings as top or medium best low-cost options in Bangladesh. Overall, in spite practices, due largely to differences in the of the differences in country context, there is magnitude of anticipated savings. TABLE C.1 COMPARISON OF CLEANER PRODUCTION BEST PRACTICES: CHINA AND BANGLADESH No. Practice China Bangladesh 1 Leak detection, maintenance, housekeeping √ √ 2 Reuse cooling water √ √ 3 Reuse condensate √ o 4 Reuse process water √ √ 5 Recover heat from hot water rinses √ √ 6 Prescreen coal √ X 7 Steam management √ √ 8 Recover heat from smokestacks √ X 9 Insulate pipes, valves, flanges √ √ 10 Optimize compression air system √ o 11 Improved dye recipes o √ X Not applicable. √ Low-cost cleaner production best practice. o Useful cleaner production measure, but not classified as a low-cost best practice. 73 The principal factors driving these differ- Cost of water treatment. In China the ences in returns for individual cleaner produc- cost of both water and wastewater treatment tion measures are as follows: is significantly higher compared to Bangladesh Source of water. China uses river water (5–10 times higher for water costs and 2–3 times (which can include resource charges) and public higher for wastewater treatment). supply (less common), while Bangladesh mostly Chinese government policies. China has uses borewells (so costs are not explicit). energy reduction targets and cleaner produc- Fuel type. China uses coal to gener- tion goals in place as part of their Cleaner ate power, and Bangladesh uses natural gas. Production Law. As a result, some mills have Reliability of energy supply is a major issue for been forced to close older plants and move to Bangladesh mills and inefficient handling of this industrial parks. This also means the Chinese energy crisis may affect the whole value chain manufacturing equipment in use may be more of the ready-made garment export business, recent and efficient (although there are no clear causing negative export growth, unemploy- data to support this). ment, social unrest, and frustration in the whole Huge Chinese domestic market for economy (ADSL 2009). apparel. In China there is a significant number Metering. In China there is factory-level of mills that only serve the domestic market, water, steam, and electricity metering, and which means they are not sensitive to export- water meters are relatively inexpensive. Process- related and international measures. level metering is officially required but there is Labor costs. Bangladesh still has sig- low compliance. In Bangladesh, there is very nificantly lower labor costs: In Bangladesh the limited metering, it is not required, and meters hourly rate is $0.22–0.32, while in China it is are expensive (they need to be imported). $0.55–1.08. 74 Appendix D: The objective of this activity was to identify best-practice, energy-efficient, and less polluting cleaner production processes for the Bangladesh Bangladesh textile industry and to encourage their adoption through market mechanisms World Bank and new partnerships between the suppliers of major multinational apparel retailers and Responsible brands, Bangladesh textile industry trade associ- ations, the Government of Bangladesh, and IFC. Sourcing This objective was to be achieved through the following outcomes: Initiative (RSI) • The most promising clean production options for Bangladesh textile factories Non-Lending (which are simultaneously low cost and waste reducing) are identified through Technical factory audits and piloting of best practices; • Awareness is raised within industries, Assistance (NLTA) business associations, and the Government of Bangladesh on global environmental best practices through demonstration pilots, South-South exchange of lessons learned (mostly with other Asian counterparts), OBJECTIVES AND OUTPUTS and information sharing and knowledge building (through a series of dissemination RSI NLTA Objective events and workshops); As a process-based NLTA, this activity has been • Leading multinationals are encouraged based around (a) the identification and nurtur- to feed the lessons learned from the RSI ing of new collaborations with non-traditional into the development of their supply chain partners; and (b) the development and dissemi- policies and guidelines. nation of specific outputs each tailored to target specific stakeholders, including Bangladesh Overview of Key Outputs and Workshops factories, trade associations, regional buyers from the RSI NLTA (based in-country or at regional level), senior executives of multinational brands, and the Detailed audits were carried out for four Bangladesh Department of Environment. The medium-performing factories and three top- PCN review meeting was held in May 2011. performing factories. Implementation of a few The higher-level objective of this activity measures was carried out in one of the factories. was to promote environmental compliance in In addition, results were compared and con- the textile industry in order to reduce industrial trasted with IFC’s parallel initiative, which had water pollution in the Dhaka watershed. a greater implementation focus. 75 Ecopsis Reports Workshops and Consultations Ecopsis. 2011. Production Efficiency/Pollution • Round table co-chaired by World Bank, IFC, Prevention Factory Assessments for Fabric Mills Ministry of Environment and Forests, and and Dye Houses in Bangladesh. Ministry of Local Government, May 8, 2011: Task A: Showcase of three top-perform- Consultations with the local stakeholders— ing factories. factories and trade associations—to share Task B: Assessment of five medium- and to seek input on the draft best practice performing factories. and case study reports; Task B: Water, energy, chemicals, and • Workshop co-chaired by World Bank, transversals savings calculations spread- IFC, Ministry of Environment and Forests, sheet of the five medium-performing and Ministry of Local Government, May factories. 9, 2011: These national multi-stakeholder Task C: Implementation of the best prac- workshops purposefully included a tices at one of the five medium-perform- broad range of stakeholders, including ing factories, Libas. government, trade associations, local Task D: Consolidation for scaling up. buyers, and donors; NRDC Reports • India Water Week Paper, March 2012: India Water Week—shared lessons with NRDC (Natural Resources Defense Council). broad range of Indian and international 2012a. Best Practices for Textile Mills government officials, academics, donors; to Save Money and Reduce Pollution, • RSI round table with multinational Bangladesh. corporations, March 1, 2012: The round NRDC (Natural Resources Defense Council). table was held with senior executives from 2012b. 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Mowdok s ng an (957 m) d arb Ga Su n the BANDARBAN of COX’S ths BAZAR Mou Cox's Bazar 0 10 20 30 40 50 Kilometers Bay of Bengal 0 10 20 30 40 50 Miles MYANMAR This map was produced by the Map Design Unit of The World Bank. 21ºN The boundaries, colors, denominations and any other information 21ºN shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. To 89ºE 90ºE 91ºE 92ºE Sittwe MARCH 2008 80