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Inditex: CSR piece by piece

By Elaine Cohen (BeyondBusiness) on December 14, 2009 at 10:09am.


Content: 

The first thing you notice about Inditex SA's Annual Report (which includes a ‘GRI A+ Level’ Sustainability Report) is its sheer size. It’s a 383 page PDF. The first 227 pages relate to social, environmental, and governance issues and the remainder is a full financial annual report. Perhaps this is not by chance, Inditex has a lot to tell and, it seems, are on a roll. In 2008 all of the Company's financial performance indicators improved, as is reported by Amancio Artega Guana, Chairman of the Group, in his opening statement. 573 new stores opened in 2008, that’s a store and a half every single day of the year, including entry into 5 new countries and nearly 10,000 new jobs. 697 million garments were distributed, that’s one garment every 45 seconds all the year round.

Inditex is the self-claimed world's largest fashion retailer, with brands such as Zara, Zara Home, Pull and Bear, Bershka, Oysho and more. The Group employs close to 90,000 people and has a turnover of 10 million Euros, with  over 4,200 stores in 73 countries. You really only appreciate the scale of this business when you acknowledge the numbers presented in this document.

In a report which recognizes employees, whose hundreds of thumbnail photos decorate several of the many, many pages, Inditex are riding the wave. This integrated report walks us through, in Part One, Inditex's 5-point customer-centric, vertically-integrated business model, 8 commercial formats (brands – of which Zara represents 65.6% of total revenue) and the regional spread of the group by brand and location. Part Two describes the Inditex commitment, starting with customer care and continuing with the corporate structure.  Inditex calls this "biodiversity", referencing the ecosystem of customers of which Inditex is a part and which it tries to mimic in its CSR model.

The Inditex commitment was developed in 2001 with the establishment of an internal code of conduct and the formation of a CSR department. Seven  years and seven phases later, Inditex appear to have gained a place as one of the quiet leaders of the CSR revolution, collaborating on the development of compliance standards in supply chains and establishing " multilateral framework agreements between suppliers, local trade unions, the ITGLWF and Inditex, to solve conflicts and, ultimately, to develop mature industrial relations, by fostering and respecting two key principles: freedom of association and collective bargaining." This is done with a global network of internal Managers (14) and external enforcement, development and compliance people (781). This has to be one of the largest corporate CSR management networks in the world.

As one might expect, the supply chain aspects of Inditex's business are covered comprehensively. There is data about suppliers, audits, findings, supplier ratings and everything that a responsible apparel supply chain reports these days. As far as I can tell, this relates only to the outsourced manufacturing suppliers, and I wondered what Inditex does to advance responsible practices with what I expect is a much broader supply base of products and services. However, what is especially interesting in the supplier dimension is the detail of the ways in which Inditex works with Trades Unions in different countries to advance dialogue and labour standards, including dispute resolution activity. Inditex has a "Social Council" comprised of independent civil society representatives, to review all forms of proposals and dialogue from external sources. This does seem both impressive and progressive.

Thirty-six pages are devoted to the Environmental Dimension of Inditex's activity, with a focus on the development of eco-efficient stores including a new flagship Zara store in Athens, operating with 30% lower energy consumption than regular stores. Data is meticulously tracked and disclosed. However, I couldn’t discern one number for overall global direct emissions, and how this has evolved against Inditex's rapidly expanding infrastructure. Great trees, no forest.

Communication:

Despite its size and integration aspects, the Inditex report does a great job of presenting both CSR and financial data clearly, logically, and creatively. Many of the key concepts, such as the CSR model,  the CSR phases, the Safe to Wear Management process are beautifully presented. There is wonderful design work throughout the report.

The PDF is nicely bookmarked so you can navigate it well enough. The GRI Index right at the front serves as an expanded contents list for the report and is a good guide - though the page numbers often refer to multi-page sections so you have to wade through several pages to get to the indicator. A glance at the GRI index also shows how Inditex have managed to integrate GRI clauses in both the CSR Section and the financial section of the report, with indicators being reported in early and late pages, wherever fits best. 

Credibility:

Inditex's report is a celebration of methodology, systems and frameworks. Everything has formats, phases and categories that things fit into. Kind of like garment patterns. And Inditex's CSR appears to have the same growth momentum as the business itself. The achievements are outstanding in a relatively short time.

Inditex proudly states that the percentage of women in Management is equal to the percentage of women in the workforce at a staggeringly positive 80%. However, the Board has 2 women out of 9 members and the team of key subsidiary Senior Managers has 4 women out of 21 Managers – showing the now familiar glass ceiling issues are apparent also in Inditex.

 Once again we see an Assurance statement which does not do its job. The Verification Statement confirms that the  “GRI A+” application Level is "appropriate" but I don't agree with this conclusion. There are several GRI indicators which have not been fully addressed eg: 4.5, EN23, EN27, EN22, LA4, HR3 - I didn’t check every single one, but even a limited check against the GRI guidelines reveals discrepancies. The most significant omission is against 4.17 which requires the reporting of material issues raised through stakeholder engagement.  The material issues in this report refer to fabrics, raw materials, flammable materials, training materials –there’s nothing on the overall materiality of sustainability issues.

Which brings me back to the Inditex piece-rate approach to CSR – the mechanics of their program are great, but it's about quantity rather than quality, direct impacts rather than indirect impacts, practices rather than outcomes. For example, the very detailed descriptions of the community investment programs are impressive and record levels of goals achievements, but they are about what Inditex did (build a classroom, refurbish a school, train 16 people) and not the benefits that resulted from these activities. 

The next phase of Inditex 's CSR must take them onto a higher plane of strategic thinking about CSR. Inditex has clearly mastered the practice of planning, doing and counting. Now Inditex must master the practice of assessing the impacts.  And here there is no discussion of impacts on consumers - the extent to which Inditex can make an attempt to involve or engage consumers in environmental awareness. For example, it would be interesting to read about life-cycle practices of garments, the extent to which employees are engaged in dialogue (no evidence of employee survey or interactive dialogue reported) and other Human Resources  impacts. Or about the impacts on body-image and use of models in advertizing, the sustainability considerations related to the  rapidly growing Zara Home brand which takes Inditex out of the garment business and into a whole new home-care sector. How many of the 697 million garments sold by Inditex every year get thrown away, and what happens to them? What is Inditex doing to educate consumers in this respect? To what extent is the growth of Inditex creating unsustainable cycles of demand and waste which are not part of the direct impacts reported? There are one or two minor references to consumer education but these are of marginal material importance.

There is much more that I would like to comment on about Inditex's report, but the limitations of this short review prevent me from going further. Despite my criticisms, I like Inditex's methodological approach and believe they are doing a good, credible, job, piece by piece. But sooner or later, you have consider Total Look. And this is the challenge for Inditex as they move forward.

Recommendations:

1. Add a materiality matrix
2. Greater depth in assessment of indirect impacts and life-cycle thinking
3. More attention to internal process in the Human Resources function and better data

 elaine cohen is the Joint CEO of BeyondBusiness Ltd, www.b-yond.biz/en , a leading CSR reporting and consulting firm, specializing in a wide range of consulting services for the development of social and environmental responsibility of businesses.