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PRAGUE UNIVERSITY OF ECONOMICS AND BUSINESS

BACHELOR THESIS

2020 Yuliya Piatachkova

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Prague University of Economics and Business International Business

The Implementation of Corporate Social Responsibility in Clothing-retail Industry

Author: Yuliya Piatachkova

Thesis instructor: Ing. Aleš Lisa, Ph.D.

Scholar year: 2020/2021

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Declaration:

I hereby declare that I am the sole author of the thesis entitled “The Implementation of Corporate Social Responsibility in Clothing-retail Industry “. I duly marked out all quotations. The used literature and sources are stated in the attached list of references.

In Prague on 28.04.2021 Signature

Yuliya Piatachkova

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Acknowledgement

I hereby wish to express my appreciation and gratitude to the supervisor of my thesis, Ing. Aleš Lisa, Ph.D., for his continuous support, valuable guidance, practical and sensitive advice.

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Introduction

Although rudiments of the term Corporate Social Responsibility have existed for a long time, it is gaining popularity worldwide only recently. Starting from the early 2000s, more and more companies have started to pay attention to the needs of society, and it has become an important issue nowadays. Each company has an option of either participating in CSR or standing aside from these activities. But whatever it chooses, it will definitely have a huge impact on firm’s performance and reputation.

Not too long ago, the main emphasis of the companies was addressing shareholders with their interest in improvement companies’ financial performance and maximizing the profits. But now, the focus seems to have moved away from that kind of thinking, and the priorities of the companies have experienced a certain transformation. Even though it is still crucial to take into consideration the bottom line of the business, companies today should as well approach the needs and wants of their stakeholders (R. E. Freeman, 1984). While doing its regular business activities, the company is obviously aiming to maximize the profits and minimize the costs. However, it should not neglect what influence it has on its stakeholders.

It is in the best interest of companies to take into account the concerns of society in order to perform well on the market and to enhance the company’s image (Davis, 1973). People are increasingly concerned with the environmental and social topics, and, in addition, people have never had so much information as nowadays. So, they do care about these issues and take them into account when choosing what product to buy or looking at what company to work for.Implementing CSR can be a voluntary action driven by a certain interest of the company, or whether it also can be demanded by government to meet regulations. Although, companies complying with the needs and wants of all groups of their stakeholders will obviously reach positive long-term outcomes and benefits.

Apparel industry is a huge contributor to global economy. And, Corporate Social Responsibility forms an essential part of clothing-retail industry mainly because of its labor- intensive production and buyer-driven value chains (Laudal, 2010). Moreover, the global fashion industry is one of the major polluting industries in the world (European Parliament, 2020). Therefore, given these characteristics of the industry, apparel companies have to pay paramount attention to such aspects as respecting human rights, advancing responsible labor practices, lowering carbon emissions and providing waste management. In the recent decades an increased focus is being placed on application of the above stated measures, and some of the big clothing companies have been seriously criticized for non-compliance or

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even negligence of these measures. Also, one of the determining factor of clothing-retail industry is outsourcing their production in third world countries with low awareness of CSR practices for the reason of cutting the costs using low-cost labor force (Baden, 2002).

Thereby, employees working for these companies are subject to numerous violations involving unsafe working conditions and unfair wages well below the living wage. Not to mention the topic about the compliance with environment issues in such circumstances. So as the global market for clothing and apparel is only growing year by year, and CSR is receiving more attention - no company can afford to ignore CSR nowadays.

The relevance of this topic is determined primarily by the rising attention to the level of applying of CSR activities within the multinational clothing-retail companies. This is attributable to the fact that apparel industry is one of the fast growing industries in the world, and its annual market increase has reached an estimated 5.89% in 2019 (Statista, 2017).

Furthermore, nowadays, various groups of stakeholders have become more conscious about CSR issues. Customers are more concerned in which conditions the product has been produced and what materials have been used, and the employees are increasingly choosing to work for sustainable companies. The importance of this study lies in analyzing apparel industry in terms of CSR application on the example of one of the major global apparel manufacturer and retailer, H&M Group, and in identifying opportunities for improvement (Fast Retailing, 2020).

The goal of this bachelor thesis is to reveal distinctive features of clothing-retail industry that emphasize the need for apparel companies to pay considerable attention to CSR issues and, taking these features into account, analyze the implementation of CSR in one of the leading companies in clothing-retail industry in order to identify weak points and propose a roadmap for future improvement.

The first part of this thesis is going to cover the theoretical background of CSR by describing it from various perspectives, comparing it with the related concepts of business ethics and creating shared value along with the defining stakeholder theory and triple bottom line concept. The second part aims to overview distinctive features of apparel industry, and to analyze the implementation of CSR within H&M Group using its Sustainability Performance Report 2019 with subsequent proposed recommendations on future improvement based on the identified weak points.

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Literature Review

There are numerous definitions of the term Corporate Social Responsibility that are proposed by the experts in this area. One of the initial identifications of the CSR could be found in the book “Social Responsibilities of the Businessman” (1953) and belongs to Howard Bowen, who is known as the father of the modern conception of CSR. Subsequently, R. Edward Freeman elaborated on the determination of the term “stakeholders” and its importance as crucial part of CSR concept by defining Stakeholder Theory in his study named “Strategic Management: A Stakeholder Approach” (1984). A possible distinction between primary and secondary stakeholder groups is well represented in the research done by Clarkson (1995). The study gives a detailed interpretation of each of the group with comprehensive examples and their degree of influence on business. However, there are the opponents of the above stated approach regarding business responsibility to its stakeholders.

They are adhering to Shareholder Theory following Milton Friedman’s believes that the prime objective of the businesses is to maximize its profits. In his book called “Capitalism and freedom” (1962), Milton Friedman argues that the only responsibility of the business is to its shareholders, and it lies in increasing economic value for them.

Giddings, B., Hopwood, B., & O’Brien, G. (2002) defines three sectors of sustainable development: economy, environment and society. They as well can be presented as three equal size rings that intersect to achieve sustainable development. All three sectors are mutually interconnected and interdependent, and should not be separated from each other.

Uddin, M., Tarique, K. M., & Hassan, M. R. (2008) give a broader interpretation of each of three aspects of Corporate Social Responsibility. The study provides a detailed examination of economic, social, environmental and ecological aspects, and represents explicit description of each of the components of these aspects.

Laudal, T. (2010) aims to identify a CSR potential of the international clothing business, and formulates six main characteristics of the industry that result in the increase of CSR potential. He highlights the importance of Corporate Social Responsibility specifically in the clothing-retail industry mainly due to its labor-intensive production and traditional technology. These factors, in addition to low capital requirements, allow apparel companies to use a low skilled labor force and establish production facilities mostly in developing countries quite often with poor working conditions. Furthermore, with the development of transport networks, clothing-retail companies can allow to fragment their production in developing countries to cut the costs. One more feature of the apparel industry named “a

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buyer’s market” enables companies to take advantage of great number of alternatives that can be easily replaced, for example, for price advantages. Another two factors contributing to a high CSR potential are related to low transparency regarding suppliers of clothing companies, and communication barriers because of language gap between the retailers and the workers of the manufacturing site. And the last one is connected with the possible overexploitation of the resources of manufacturers due to the fact of short deadlines for orders and low predictability in ordering procedures. All stated above characteristics indicate a high potential of CSR in clothing-retail industry, thus meaning that apparel companies have a positive influence by adhering to international CSR standards. The study done by Dickson, M. A., & Eckman, M. (2006) aims to identify the determination of socially responsible apparel and textile business by proposing three major dimensions: orientation (environment, people, products), philosophy (business decision making in accordance with morality) and outcomes (striving to have a positive impact).

Arrigo, E. (2013) highlights the importance of applying CSR practices within the manufacturing sites of global fast fashion companies as there is a high risk of different kinds of violations (setting lower than the minimum wages, providing unsafe working conditions, forcing to work overtime). The study as well describes distinctive features of fast fashion industry that are contributing to the critical need for companies to demonstrate their commitment to CSR and to implement corresponding activities.

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Methodology

A research goal of this thesis is to analyze the level of CSR implementation of H&M Group given the distinctive characteristics of the apparel industry, in order to propose corresponding recommendations for the improvement. To meet the aim of this study, a qualitative case study research in conjunction with a content analysis methodology is conducted. The distinctive features are identified based on the existing literature concerning the apparel industry in relation to Corporate Social Responsibility. The data is primarily collected from the official website of the selected company by analyzing it for any information related to corporate social responsibility information. The major analysis is done on the basis of the latest H&M Group Sustainability Report (2019) at the time of writing this study. Such an analysis is undertaken in order to identify current CSR practices adopted in the selected company and overview the progress achieved during the past years. In order to define the level of compliance of CSR activities implemented in H&M Group with the internationally accepted standards, Sustainability Reporting Guidelines prepared by Global Reporting Initiative are taken into consideration and applied to H&M Group’s GRI Index.

The identification of the weak points and further proposing recommendations for future development are done based on author’s personal ideas.

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1. Corporate Social Responsibility

1.1. Definition CSR

Companies and organizations have always had a certain influence on their stakeholders as well as environmental, social and economic impact to some extent. Over time, everything is changing, including people and their values and attitudes. In view of that fact, companies have to adapt to the new environment and act accordingly trying to satisfy new needs and wants of the society.

The term Corporate Social Responsibility (CSR) could be interpreted differently, and it could be approached from various perspectives (Marrewijk, 2003). There is no uniform and precise definition of CSR. It is a relatively new and extensive concept, which is still evolving. And the fact that the term CSR is not clearly defined allow companies to set their own frameworks according to the needs and wants of their stakeholders (Votaw & Sethi, 1973). Companies decide by themselves how they will behave in terms of CSR and what CSR activities will be implemented in order to satisfy their stakeholders. As demonstrated in the study prepared byDonna J. Wood (1991), the companies’ actions related to CSR may take various forms in different companies according to their nature, and “firms examine their own unique positions and roles in the environment to ascertain their social responsibilities”

(p.10). And even these companies’ practices are being transformed with the continuously changing interests and demands of society.

As it was already mentioned, there is a great number of versions of the interpretation of Corporate Social Responsibility created by various experts in this field. Furthermore, they are still developing. Starting with the determination of social responsibility given by Howard Bowen (1953) that is considered to be the first, and is defined as “the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society” (p.6). In that way, he tries to convey that businesses must not ignore society’s interests and place their own values above the values of the society. Then, a similar approach has been adopted by Joseph McGuire (1963) who states that “the idea of social responsibilities supposes that the corporation has not only economic and legal obligations, but also certain responsibilities to society which extend beyond these obligations” (p.144). One more important definition concerning social responsibility was given by Jules Backman (1975), and it refers to “the

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objectives or motives that should be given weight by business in addition to those dealing with economic performance” (p.2).

In addition to already existing definitions of CSR, Archie Carroll (1979) developed a four-part framework of social responsibility categories, and it is explained as follows: “The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time” (p.4). Later, Donna J.

Wood (1991) in her study introduced a more holistic model of corporate social performance (CSP) dimensions. Her variation of the term CSP reads as follows: “A business organization's configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm's societal relationships” (Wood, 1991, p.3).

As can be noted, nearly every interpretation of Corporate Social Responsibility identifies the existence of a particular relationship between a corporation and society, and underlines the fact that companies need to be responsible to their stakeholders. Stakeholders, according toEdward Freeman (1984), are “any group or individual who is affected by or can affect the achievement of an organization’s objectives” (p.46). Correspondingly, this kind of understanding of CSR states that corporations’ primary goal includes not only a concern to maximize their profits and please shareholders, but also to address their stakeholders’ values and expectations. This view is called a broad view (or stakeholder view). It also highlights the point that all groups of stakeholders of the company should be approached equally, without prioritizing and placing one’s interests above all others. Charles Handy, one of the best known representative of broad understanding of CSR, states that moral obligation of corporations goes beyond simply improving their economic performance to involving the interests of their stakeholders. And, the idea that money is the only thing for which the corporation is operating and the only stakeholders are shareholders is mistaken. Charles Handy (2002) expresses his position through the following statement: “A good business is a community with a purpose, and a community is not something to be 'owned” (p.5) . But on the other side, a broad view is criticized by people arguing that the only goal of each company is profit maximization, and the only moral obligation that each company has is related to its owners and shareholders (Quazi & O’Brien, 2000). This type of perspective represents another look at CSR called a narrow view (or economic view). One of the arguments supporting economic view of CSR asserts that corporations are not human beings, and they cannot have any moral obligation towards society. Companies are business entities aimed at maximizing shareholder value by generating as much profit as possible.Milton

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Friedman (1962) is one of the typical representative of such view claiming that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud” (p.133).

1.2. Related concepts

In addition to the number of given above definitions from the “gurus” of CSR and a review about two opposing understanding of corporate social responsibility, it also seems appropriate to mention some related concepts that represent an analogous idea. It will provide a better understanding of CSR itself as well as valuable insight into the relationships, similarities and differences between these concepts.

1.2.1. Business Ethics and CSR

The concepts of Corporate Social Responsibility and Business Ethics are closely linked, and are often used interchangeably. But still, there is a difference between these two terms. As it can be summarized from the above mentioned statements, CSR is a concept according to which it is in the companies’ responsibility to be socially accountable, meaning to take into consideration the economic, social and environmental impact they are having from its business operations. Whereas, in order to clarify the term Business Ethics, it is useful to firstly define what ethics is in general. Ethics is a set of behavioral practices that determines what is morally right or wrong. It follows that business ethics establishes the appropriate behavior within the organization. It is a guideline for business agents that helps to modify their behavior in the course of doing business (Dimmock & Fisher, 2017). Based on business ethics, corporate leaders analyze given situation and choose how to behave in a right way. But, it is prudent to specify that business ethics is not the same as law. Law is a series of rules that is binding to follow and set by governments, and it serves as a minimum standard of behavior. However, legal not always means ethical because law does not reflect any moral standards of behavior. Ethics is established by individuals themselves, and acts as an identifier for what is right or wrong and how to behave accordingly. That is why business ethics represents a significant importance within business environment that provides a roadmap for managerial decisions in addition to complying with law obligations. Nowadays, it is not enough for companies to just uphold the law. As there is an increasing interest in business ethics, it is also vital to practice ethical decision making. So, while CSR is more

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related to companies and what impact they have on society, business ethics can be explained as some kind of code of conduct for business agents in order to behave appropriately in the process of doing business (Arthur, 1984). With the maintaining ethical behavior businesses are more profitable, and, in addition, are more likely to implement corporate social responsibility (Bowern et al., 2013). There is a close connection between these two terms.

Companies that consider ethics in their everyday activities and decision making are more likely to be more responsible to society and environment in which it operates. Therefore, business ethics serves as a fundamental part of CSR, and a base for its implementation (Garriga & Melé, 2004).

1.2.2. Creating Shared Value and CSR

The concept of Creating Shared Value (CSV) was first introduced in one of the articles of Harvard Business Review that was written by Michael E. Porter and Mark R. Kramer.

The central premise of this term is that there is a direct linkage between economic and societal progress. In this way, creating shared value is about creating economic value for companies’ shareholders while simultaneously addressing needs and concerns of society (Porter & Kramer, 2011). Therefore, by adopting CSV strategies, companies create value not only for themselves, but also – and most important – for its society. It brings benefits for both sides: improving competitive advantage and increasing profits of the companies as well as enhancing positive change for surrounding society. It is a win-win strategy. Moreover, companies applying CSV are also contributing to its long term success. By tackling societal issues of surrounding communities, people can clearly see and understand the gains that a company is providing to them meaning that there is no need for this company to prove its good intentions. Thereby, the company is acquiring strong supporters and increasing its brand loyalty through creating shared value.

According to Michael E. Porter and Mark R. Kramer, there are three ways of how businesses can create shared value. Firstly, by reconceiving products and markets. It means that companies need to apply a better approach in order to address the needs of society by means of developing new effective products and services for already existing markets as well as for the new ones. The second method consisted in increasing the productivity by means of a different way of using its resources, employees and suppliers. Thus, improving the quality of companies’ inputs for a successful solving of societal issues. This method is called redefining productivity in the value chain. And the last one states that the success of

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the company directly depends on the local community, on the company’s surroundings named “clusters”. So, in order to enhance its productivity, the company needs to contribute to its community by knowledge sharing and development of local environment (including suppliers, competitors, infrastructure). This way of creating shared value is known as enabling local cluster development.

To sum it up, it can be noticed that CSR and CSV have a certain consistency. They have a similar direction assuming that companies are not operating in isolation, and there is a close connection between businesses and society (Lapiņa et al., 2012). Hence, companies have a particular responsibility to address the needs and challenges of society. And in turn, business benefit from solving societal issues. But, there are fundamental differences that make a significant distinction between these concepts. Initially, according to the definitions, CSR is a concept founded on the responsibility of businesses to society and taking into consideration the impact that they have from its operating, while CSV is based on the creating a value through pursuing economic as well as societal progress (Angelova, 2019).

In addition, CSR is more about taking resources from the business in order to benefit society.

So, it is more about costs, whereas CSV strategies are aimed at increasing the profits of the company by meeting societal concerns. CSV is about benefiting both sides by driving economic and societal progress. Furthermore, CSR perceives complying with interests of society as outside activity separate from the needs of the organization itself. Whereas, according to CSV, solving societal needs is regarded as a part of the core business that also enables creating economic value for shareholders (Angelova, 2019).

1.3. Stakeholder Theory

Corporate Social Responsibility is closely linked to the term “stakeholders”, and almost each definition of CSR stresses how important it is for companies to satisfy their stakeholders’ needs and wants. Stakeholders could be defined as people or organizations who express a relevant interest or have a stake in the business. They affect or are affected by business activities and outcomes (R. E. Freeman, 1984). Moreover, they serve as a certain inducement for companies to implement CSR activities as the success of the company can be measured on its relationship with stakeholders (R. Freeman & Phillips, 2002).

Initially, the single most important stakeholders of the company were shareholders.

However, this approach has been changing in recent times, and new groups of stakeholders has been taking into account acquiring greater significance. The new vision assumes that not

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only financial aspect should be considered when company is making the decisions, but also the interests of all groups of the stakeholders of this organization (Phillips, 1997).

Eventually, it will improve the company’s image and increase the value of the business, thereby contributing to the interests of the shareholders (Davis, 1973).

Each of the group of stakeholders has its particular impact on the business. That is why it is important for the company to determine for itself to whom it is responsible and who are its major stakeholders, namely in order to correctly understand how to interact with them and meet their expectations. There are many ways of categorizing stakeholders. One of them that will be used in this study is dividing stakeholders into primary and secondary ones.

Individuals or groups that are directly interested in business are known as primary stakeholders. The decisions adopted by a company have a direct impact on their primary stakeholders. They are an integral part of the company’s existence without which it cannot continue operating in future (Clarkson, 1995). Generally, primary stakeholders have a financial or/and non-financial connection with the business. Therefore, because of such great influence and considerable role of primary stakeholders in sustainable functioning of business, it is important for organizations to effectively identify the demands of their primary stakeholders in order to implement appropriate actions. Examples of primary stakeholders are employees, customers, suppliers, shareholders, investors. Another group of stakeholders is known as secondary stakeholders – people or organizations that are indirectly related to the business. Community groups, trade unions, state or local government bodies, competitors, media groups, pressure groups, regulators are some examples of secondary stakeholders. They do not have a direct stake in the business, and are not directly affected by its decisions. Furthermore, company’s survival does not depend on this type of stakeholders, and they are not as significant for business as the primary ones. But regardless of this fact, they have a particular influence on the business and may even affect its relationships with primary stakeholders either positively or negatively. In comparison with primary stakeholders, secondary stakeholders have a broad publicity that could be reached through the media, and influence a company’s reputation (Clarkson, 1995). Accordingly, influencing the company’s perception by the primary group of stakeholders. Whereas some concerns of primary stakeholders are usually solved within the organization at the internal level, and do not receive wide publicity. Thereby the role of the secondary stakeholders should not be underestimated, and their interests should not be disregarded. On the contrary, businesses need to make sure that the needs and wants of their major secondary stakeholders are kept satisfied. Moreover, because of the fact that primary stakeholders have close

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connection with the business makes it easy to clearly identify them. Whereas secondary stakeholders are not always well recognizable as long as they call attention and receive publicity for the need to express their view on certain actions made by the company. So as any concerns of secondary stakeholders are immediately become public, it is necessary to solve them at an early stage. Also, it is significant to understand that primary and secondary stakeholders may vary greatly depending on the nature of business. In this way, some representatives of primary stakeholders in one industry could belong to a secondary group of stakeholders in another industry.

Stakeholder Theory is based on the fact that there is a close relationship between business and its stakeholders. Furthermore, it states that there are different groups of stakeholders, and organizations should take into consideration interests of all of them and make efforts to balance them as they could be contradictory (Hill & Jones, 1992). So the point is that companies are responsible not only for their shareholders, but also for their customers, suppliers, employees, local communities, government bodies and all other available groups of stakeholders as they as well have a legitimate interest in business.

Initially and obviously, shareholders have a legitimate interest because they invest their money in the company by buying shares (and thus receive ownership interest in the company). In this way, business have a certain obligation towards its shareholders and it should accommodate their shareholders’ interests which consists in maximizing the value of the share. But, according to stakeholder theory, an organization should focus not only on their shareholders’ demands, but also on other groups needs and wants as they also have a vested interest in business.

 Customers: as stated above, customers are one of the primary stakeholders of the company, and they have a stake in business. They buy products of the company and thereby generate revenue for this company. In this way, customers have a legitimate interest, and business should address their demands. Basically, customers want business to provide them with quality and safe products at reasonable prices, and in addition, they also want to be aware of any information related to these products including negative impacts that they may contain.

 Employees: they are directly involved in business operations of the company as they are working for the company and adding value to it. So, in return, employees want to have a job security, fair wages and safe working conditions. Businesses need to

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serve the needs and wants of their employees as they also have a legitimate interest in the company. Therefore, employees are as well should be involved in business decision making process that is related to impacts it may have on their stakes. In addition, it is important to include implementing of ethical behavior towards workers.

 Suppliers: they provide business with necessary resources for its functioning, and act as a source of goods and services. Companies to which suppliers are providing their materials are considered as their clients. So, suppliers rely on their clients because by this way they are generating profit. Suppliers are closely connected with the business, and they can influence its ability to successful operation in the market.

Given the fact that suppliers are vital for business, companies in their turns should address their concerns about safety of their business and maintaining long-term business cooperation.

 Local communities: they also have a legitimate interest in business as they are providing companies with the environment in which they are operating. It as well involves jobs that the local community ensures for the company based on which it builds economic activity. In return, local communities can benefit from the business activities of the company as they are creating wealth. But not all actions of business are related to positive outcomes. Some of the activities can negatively affect local communities. Thus, companies should take into account the demands of local communities that lie in protection of local environment and involvement in community life including sponsorships and donations.

 Government bodies: they create a legal framework for companies in which they are operating. Government bodies have a stake in collection of taxes and wealth creation by business. So, companies should be in compliance with regulations provided by government bodies.

As it can be concluded from the above mentioned points, business should strive not only to meet the interests of their shareholders, but also to serve the demands of other groups of stakeholders as they as well have a legitimate interest in business. Moreover, it can be inferred that there are a certain number of company’s stakeholders with their own concerns

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that should be met. However, the interests of stakeholders could be corresponded, not connected or in conflict with each other. And, the companies are accountable to balance these interests (Taran & Betts, 2015).

According to Donaldson and Preston (1995), there is a division to descriptive, instrumental and normative stakeholder theory (Donaldson & Preston, 1995). Each of the approaches represent a stakeholder theory from different perspectives.

1. Descriptive approach aimed at providing a better understanding of certain characteristics of the organization through the explaining of how the stakeholders, managers and corporations are interacting, and what are the relationships between them. Descriptive stakeholder theory is also used to describe the nature of the business and the way it works, what managers think about managing and how the companies are actually managed.

2. Instrumental approach states that there is a direct linkage between compliance with stakeholders’ demands and business performance. It describes a correlation between satisfying stakeholders’ needs and achieving main business objectives including profitability and growth. And on the contrary, ignoring companies’ stakeholders’

interests will lead to a greater risk for poor business performance. That is why the relationship with stakeholders are seen as instrumental: if a company wants to be successful and increase its profits, it needs to adopt practices aimed at accommodating the concerns of its stakeholders.

3. Normative approach assumes that stakeholders’ interests should be served not because it will lead to some positive outcomes for business, but because of the fact that stakeholders are crucial for business. They have a stake in business and pursue a legitimate interest. Accordingly, companies have an ethical obligation towards its stakeholders to address their concerns. Normative stakeholder theory serves as a guideline for right and moral behavior presented by business agents to stakeholders of the company.

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1.4. Triple Bottom Line

Corporate Social Responsibility is also going along with Triple Bottom Line (TBL) concept that has three pillars: environmental, social and economic. According to this concept, a company needs to take into account and balance all three dimensions in order to achieve sustainability. They are also known as Planet, People and Profit accordingly. Unlike traditional principle of bottom line that involves only economic pillar, Triple Bottom Line states that all three aspects are equally significant and should be considered. Environmental and social pillars are as important as economic pillar, and they are closely linked to each other (Księżak & Fischbach, 2018). Therefore, businesses should concentrate on all three areas and give them equal attention in order to ensure their sustainable development (Giddings et al., 2002).

Figure 1: Typical representation of sustainability as three intersecting circles

Source:B., Mao, Y., & Robinson, D. (2019)

Furthermore, the theory assumes that additional bottom lines should as well be measured to properly manage them (Norman & Macdonald, 2004). Companies need to evaluate not only their financial data, but also indicators about their performance related to environmental and social pillars. Collecting the estimates about companies’ additional bottom lines is necessary in order to be able to analyze them, and then improve them to have a better environmental and social performance. Finally, careful assessment and appropriate control of the above mentioned indicators will result in improved financial side of business and increased profits as they are interrelated. In addition, the concept of Triple Bottom Line

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proposes that companies have also an obligation to provide stakeholders with the reports of their environmental, social and economic performance. Thus, by measuring and reporting the estimates about how well a company is performing with regard to all three pillars of TBL, it will be to analyze its activities and enhance their indicators.

1.4.1. Environmental pillar (Planet)

Nowadays, environmental issues are getting more and more attention not only in our everyday life, but also in business. Everyone has a responsibility to the environment in which he is operating, and companies are not an exception in this regard. Moreover, being accountable to environment can bring advantages to companies.

The environmental pillar highlights the importance for firms to know what impact they have from their business activities on the environment. They need to estimate it in order to figure out how to effectively manage it (Uddin et al., 2008). The goal under the environmental dimension is to minimize the negative effect produced by regular business operations. The concept of Triple Bottom Line implies that the company will gain more success if it takes care of the environment and has a small negative impact on it. But, some companies just cannot fully avoid the negative effect they are producing because of the nature of their business. The prime example of such case is automotive industry. The products of this industry generate large amount of greenhouse gas emissions. However, it is still possible to significantly reduce these amount of emissions, and one of the solution is eco-friendly vehicles(Księżak & Fischbach, 2018). So, despite the fact that it is not possible to fully eliminate the negative impact, businesses still should strive for mitigating it as much as possible. There are a great number of possible environmental decisions for businesses that will help to lessen the extent of damage they are producing. They include such activities as reducing waste, recycling, decreasing carbon emissions, using eco-friendly materials, producing sustainable products, cutting the consumption of water and energy, managing natural resources efficiently, implementing green logistics and investing in green technologies. Moreover, applying efficient environmental solutions can yield positive financial results. Thus, businesses also benefit from being responsible to environment because of the decreased spending and costs.

So as being responsible to the environment is a topic of great significance today, companies as one of the major polluters should clearly understand what impact they are producing from their business activities. More importantly, they should also estimate and

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monitor this impact in order to identify what should be done to minimize it to the greatest extent possible. However, it is difficult to calculate a precise influence companies have on the environment for the reason that they are not the only “contributors”. That is why quite often businesses cannot take into consideration and measure all possible negative externalities from their operations.

1.4.2. Social pillar (People)

As it was already mentioned, there is a strong interconnection between business and society. Companies should be responsible to stakeholders, and adopt various practices to serve their demands. Social pillar of CSR assumes that people are a crucial element in the business, and companies cannot exist without them. That is why businesses need to make efforts to support them and invest in their well-being. According to social dimension, there are three categories to which business should contribute to. They are employees, customers and local communities (Uddin, 2008).

Figure 2: Aspects of social responsibility

Source:Księżak, P., & Fischbach, B. (2018)

Today, customers want to perceive companies as socially responsible members of society. So, they do care about social issues and how businesses deal with them. Moreover, customers take them into account when choosing what product to buy because they want to

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be associated with a company who is operating in socially responsible environment. As well, people have never had so much information as nowadays (Księżak & Fischbach, 2018). With the access to the Internet they can find whatever they want including any information about products and companies. Thus, if customers have a full confidence that a particular company operates in a socially responsible manner, they are more likely to purchase more products of this company and increase their loyalty towards this company. Furthermore, employees adopt a similar approach today. They prefer to choose to work for a company that acts as socially responsible. Therefore, businesses need to ensure that their employees are provided with fair wages and safe working conditions. Companies can also invest in the development of their employees’ skills by implementing various training courses, and provide them with better maternity and paternity leave. Generally, businesses should take care of their employees by ensuring their well-being and investing in their growth. All these activities as well increase employees’ productivity and motivation, and facilitate their desire to work for this particular organization (Koch et al., 2019). Besides, businesses should also remember to build reliable relationships with local communities in which they are operating.

Companies’ contribution to local communities can involve such actions as sponsoring, donating and investing in their development (Uddin et al., 2008).

Businesses cannot survive without employees, customers and local communities as these categories are vital for their functioning. Therefore, companies do not need to take them for granted and underestimate their importance. Social pillar of CSR proposes that companies need to make sure that they undertake all necessary actions to be recognized by their employees, customers and local communities as socially responsible. So that businesses should not exploit and merely take advantage of them. But on the contrary, it is necessary for companies to establish creditable relationships with their employees, customers and local communities, and do their best to maintain and enhance these relationships.

1.4.3. Economic pillar (Profit)

Economic growth serves as a primary goal of each business. Thus, each company is focused on achievement of profitability in a long term perspective by effective usage of assets. And, in order to achieve sustainability, companies need to be profitable. But, sustainability is a broader term that economic growth. Companies should also make sure that they are not influencing negatively the additional bottom lines while aiming at increase their profits (Uddin et al., 2008). All three dimensions should be balanced and given equal

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attention without any prioritizing. Environmental, social and economic pillars are all crucial in order to achieve sustainable development of the company.

Economic bottom line assumes that achieving stable economic growth will as well produce positive effects for People and Planet. And, it is not possible to be beneficial for the environment and community, if the company is not profitable. Hence, the main idea of economic bottom line is that profit is defined not only from the economic point of view, but also from the benefits it can bring to the society. A profitable business takes care of their shareholders as well as environment and community. Companies that are able not only to generate profit, but also to properly manage it by creating wealth for Planet and People are on their way to sustainability. And in return, such a responsible behavior of business will lead for certain advantages. It can involve decreased spending and costs, increased sales, improved brand image and brand recognition, employees’ and customers’ loyalty (Davis, 1973; Porter & Kramer, 2011).

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2. CSR in apparel industry on the example of H&M Group

2.1. Overview of Apparel industry

Apparel industry is one of the fast growing industries within the world, and yet it leaves much space for implementing Corporate Social Responsibility practices due to its certain distinctive features. Initially, apparel industry has a labor-intensive production that requires large number of labor (Laudal, 2010). Also, labor-intensive industries mainly employ semi- skilled or unskilled workforce(Nordås, 2004). All these factors make it logical and efficient to place the manufacturing at developing countries as they are labor-abundant with a considerable deficit of workplaces. With the development of globalization, apparel companies started to relocate their production from industrial centers to developing countries. That was done for the purpose to reduce production and labor costs (Baden, 2002).

However, that as well creates a high risk for human rights and labor policy violations because there is a low awareness of CSR in developing countries (Laudal, 2010). It allows apparel companies to take advantage of given resources by neglecting and exploiting them (Arrigo, 2013). It often involves applying such actions as paying less than minimum wages, providing unsafe working conditions, imposing extremely long working hours or even using child labor. On the other hand, developing countries are benefiting to some extent from locating manufacturing of apparel products in their economies as it provides new employment opportunities and generates revenue. But still, it certainly does not mean that apparel companies are allowed to treat their employees in the way it can harm them. On the contrary, it is their responsibility to take care of workers and respect their rights.

In recent times, companies’ compliance with CSR activities is getting more and more attention especially in apparel industry as it is often disregarded. But unfortunately, most of the times required measures are being taken only after serious accidents have occurred - when it is already too late. One of the prime example of such case is Dhaka garment factory collapse that happened in Bangladesh in 2013 (Biswas et al., 2015). It is one of the most notable illustration of non-compliance and even severe violation in terms of providing safe working conditions for workers. The factory was producing garment products for a number of wide spread global clothing companies. Nevertheless, the building containing factory was constructed with no respect to necessary measures and in addition was used for invalid purposes. Thus, employees of these companies were provided with hazardous working conditions failing to respect basic human rights. Ultimately, it led to a collapse that resulted

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in many injuries and deaths. This accident drew considerable attention to the working conditions presented at garment factories in developing countries. A new Accord on Fire and Building Safety in Bangladesh was adopted in order to achieve the improvement of factories to make them a safe place for working and provide employees with decent working conditions (The Bangladesh Accord on Fire and Building Safety, 2013). This situation highlighted the importance of implementing Corporate Social Responsibility practices within the clothing industry. Apparel companies should be aware of what is going on at their manufacturing sites, and in addition apply all necessary actions to ensure and foster the compliance with basic human and labor rights.

The same responsible approach should be applied by clothing companies towards the environment as apparel industry is one of the major world polluters. The process of production of apparel products significantly contributes to emission of greenhouse gases, water pollution and landfill. In recent decades, the number of clothes bought per person is only increasing because of the current trend of “fast fashion”. It consists in mass production of considerable number of clothes in accordance with the latest global fashion trends at a low and affordable prices. Accordingly, the production of textile is also growing that is resulting in utilizing huge amount of water, energy and increasing of carbon footprint. In the same manner, people also rapidly get rid of them as fashion trends are changing quickly, and there is a demand for more recent clothes that lead to landfill. Moreover, apparel industry is responsible for the release of microfibers and microplastics into the water. According to European Parliament, an estimated 20% of global clean water pollution comes from textile production (European Parliament, 2020). Also, apparel industry accounts for 10% of global greenhouse gas emissions that is even more than impact caused by international flights and maritime shipping combined (European Parliament, 2020). As it can be concluded, apparel industry is producing tremendous negative impact on the environment, and that is why there appears a necessity to be responsible for it and undertake appropriate measures. Apparel companies should strive to minimize their negative environmental effect to the greatest extent possible by implementing related CSR activities. In response to the above mentioned outcomes, apparel companies can promote circular economy that involves reusing, repairing and recycling of products in order to reduce the amount of production of new clothing. In addition, they can implement certain activities that will encourage people to as well participate in the promotion of circular economy. For instance, apparel companies can increase the incentive to recycle clothes by providing their customers with certain discounts for donating old clothes. Also, companies can seek for various methods to decrease the

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amount of greenhouse gas emissions that involve such activities as choosing organic fabrics for clothing production, investing in renewable energy, increasing usage of sustainable transport modes, minimizing production and manufacturing waste.

2.2. About Hennes & Mauritz Group

H&M Group is a multinational clothing-retail company. Hennes & Mauritz is the second major global apparel retailer and manufacturer after Inditex according to Industry Ranking prepared by Fast Retailing (by 23 October 2020). It was founded in 1947 by a Swedish entrepreneur Erling Persson. The first store was opened in Västerås, Sweden under the name “Hennes”, which means “Hers” in Swedish. Initially, Hennes involved only women’s assortment clothing as it was aimed to reach a female segment of customers. Later on, Erling Persson acquired a retail companyMauritz Widforss, after which point Hennes was renamed to Hennes & Mauritz, and started to sell men’s as well as children’s clothing.

Subsequently, Hennes & Mauritz also launched underwear, accessories and cosmetics lines (H&M Group, 2021).

The year 1974 was a turning point for the company as it was listed on Stockholm Stock Exchange, and as well it transformed its name to a shortened version “H&M”. The company was expanding at a quite fast pace as it begins to open its stores not only in Sweden, but also in the rest of Scandinavian countries. Then, the expansion continued to other European markets, and it even went beyond to North and South America, Asia, Middle East, Africa, Australia continents. Today, H&M Group is operating in 74 markets by 28 February 2021.

USA, China, Germany, UK and France are top 5 largest markets of H&M Group.

Furthermore, in 1998, H&M introduced online shopping through digital channels. The first online store was located in a country of origin of the company, in Sweden. Nevertheless, the amount of online markets has been growing very quickly reaching 53 markets by 28 February 2021. Thus, H&M Group is operating through physical as well as online stores, and the overall amount of its stores accounts for 4.949 by 28 February 2021. Nowadays, H&M Group consists of 8 brands that include H&M, H&M Home, COS, Weekday, Monki,

& Other Stories, ARKET, Afound. The biggest brand according to the number of stores presented is H&M, which involves 4.372 stores by 28 February 2021 (H&M Group, 2021).

Furthermore, H&M Group has around 180.000 employees, and in addition approximately 1.6 million textile workers employed by its suppliers (H&M Group Sustainability Performance Report, 2019).

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Source: H&M Group Three-month report (2021), own construction

2.2.1 Its Vision, Strategy and Goals

Vision of H&M Group is “to lead the change towards circular and climate positive fashion while being a fair and equal company” (H&M Group, 2021). H&M Group defines 3 main aspects for working on towards sustainability. They are Leading the Change, Circular

& Climate Positive and Fair & Equal. Each of them assumes certain actions that should be done to achieve sustainability.

1. Leading the Change promotes to be transparent and innovative company. In this way H&M Group believes that it needs to encourage a positive change in fashion industry, and thanks to its scale and size it can become a lead organization for driving innovations. Thereby, it should transfer transparency of business operations and products, strive for creating innovations and as well foster sustainable actions by rewarding (H&M Group, 2021).

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2. Circular & Climate Positive addresses environmental issues and involves actions aimed to reduce negative effect caused by H&M Group to the greatest extent possible. Thereby, this aspect includes such activities as upcycling and recycling, reducing greenhouse emissions, promotion of circularity in value chains, sustainable sourcing of materials and improving animal welfare (H&M Group, 2021).

3. Fair & Equal deals with social issues and takes into account providing H&M Group’s workers with fair living wages, safe and decent working conditions. As well, this aspect assumes respecting and complying with human rights, treating everyone equally, promoting and appreciating diversity as well as inclusion (H&M Group, 2021).

Furthermore, Anna Gedda, previous Head of Sustainability at H&M Group that held this position from 2015 till 2021, highlighted the importance of collaboration with the stakeholders of the company to facilitate a positive change in fashion industry. Involvement of stakeholders is an issue of great importance as a company is not able to act alone and meet today’s challenges. The problems are too big and complicated for one company, and that is why it is significant to combine efforts and work towards a more sustainable future together (H&M Group, 2021). For instance, in order to address the problem of greenhouse emissions it is not enough to interact only with factories. H&M Group also cooperates with governments and regulations to implement a comprehensive approach and move towards green energy. As well, involvement of customers is useful in order to promote a circular economy in fashion industry. Garment collecting is one of the methods to be more sustainable, and customers can be a great help to apply it. As Anna Gedda mentioned, H&M Group collected approximately 29.000 tons of products through collecting initiatives in 2019. In addition, H&M Group has recently begun to publish more detailed information about its products on the websites of some of its brands. It includes such aspects as where the product has been produced (country and factory) and what materials have been used.

Thanks to this system, H&M Group has become a more transparent company, and it as well believes that publishing the background information about products will help its customers to make more sustainable and informed decisions. Also, the website of H&M Group provides a list of its global partnerships, memberships and collaborations that are aimed to seek the solutions for global challenges together. There are mentioned 52 collaborations including above stated Accord on Fire and Building Safety in Bangladesh.

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H&M Group also talks publicly about its ambitious goals that are designed to move closer to sustainable fashion industry and build the future it wants to see. They are clear and measurable goals that are set up to the year 2040, and divided into 5 main topics including climate, chemicals, materials, packaging and water (H&M Group, 2021). For instance, one of the goals for 2020 is to collect 25,000 tonnes of garments a year through its collection initiatives, and as it can be already concluded from the previous Head of Sustainability, H&M Group has managed to even exceed the established amount by approximately 4.000 tonnes.

“We want to use our size and scale to lead the change towards circular and climate positive fashion while being a fair and equal company.” - Leyla Ertur, current Head of Sustainability (H&M Group, 2021).

2.3. Implementation of CSR in H&M Group

2.3.1. Leading the Change

H&M Group strongly believes that it can accelerate a positive change in fashion industry and play a role model in implementing innovative and sustainable solutions to today’s global challenges. Besides, it is not only looking for new ways how to achieve sustainability, but also highlights the importance of satisfying the needs of their stakeholders by applying new strategies. As well, it believes that long-term progress could be achieved much faster and much more efficient through the use of collaboration and partnerships. Thus, H&M Group is doing its utmost to become “fully circular and climate positive while being a fair and equal company” (H&M Group, 2021).

As it was already mentioned, there are 3 major areas of Leading the Change:

Innovation, Transparency, Rewarding sustainable actions.

Innovation in H&M Group is driven by the problems the fashion world is facing today. The negative impact from apparel industry is huge and there is lack of time to find sustainable solutions. Innovation is all about acceleration of identifying new ways to today’s challenges by generating new ideas and testing them right away. H&M Group defines circularity, fairness and equality, applications of artificial intelligence as key weak spots requiring further development and improvement. Circularity assumes finding new, more eco-friendly materials and processes as well as applying new business models aimed to maximize the life of products and minimize the waste. Fairness and equality involves

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looking for new ways how to improve working conditions within the organization and its supply chains. Whereas, application of AI includes new possibilities for decision-making through H&M Group’s value chain as well as intentions for development of more ethical AI (H&M Group Sustainability Performance Report, 2019).

Overview of 2019 progress related to Innovation:

 Circular Innovation Lab was launched. It is a space where new, more sustainable materials and new business processes are tested for their further implementation in the process of creating products. For instance, there were introduced such materials as cellulosic fibre (made from recycled cotton textiles) and board material (made from recycled office paper). This is a place where sustainable innovations are created and put to the test (mainly in terms of recycled materials)

 Treadler was created. It is a business-to-business service that aimed to facilitate a positive change through sharing useful knowledge with others. It allows apparel retailers to have an access to information about H&M Group’s supply chain. Thus, other retailers can benefit from long experience of H&M Group and quickly obtain reliable connections

 Testing of new ways and projects focused on prolonging products life (involves re- commerce, repair and rental of products). In addition, H&M Group is cooperating with and investing in a corresponding Swedish platform called Sellpy

 Piloting a new project aimed to drive positive influence on local communities through the cooperation with social entrepreneurs

 Working on Responsible AI. It includes already existing Responsible AI Checklist and implementing of new Ethical AI Debate Club aimed to encourage discussions related to any dilemmas in this field (H&M Group Sustainability Performance Report, 2019).

Transparency from the H&M Group’s perspective is an issue of great importance, and thus H&M Group is participating in various activities aimed to develop common transparency standards and measurements of transparency in order to stimulate other apparel companies to share their information about products and supply chain with others. It as well believes that it would encourage them to apply more sustainable practices in their business operations. Accordingly, H&M Group is a founder member of the Sustainable Apparel

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Coalition (SAC) as it is striving to be a lead company in driving positive change in fashion industry. H&M Group in its turn is also involved in different activities aimed to increase transparency of its business operations. For instance, it was one of the first fashion retailers that disclosed its supplier list, and it even stimulates other fashion retailers to do the same as it is a member of Transparency Pledge. H&M Group assumes that by being transparent and sharing its performance, plans and even challenges with others will only help to better understand today’s problems and accelerate finding optimal solutions. Another branch of transparency is related to customers. H&M Group highlights that with the help of providing detailed background information of products, customers will be able to make more sustainable and conscious decisions. And, it is its mission to give customers a possibility to make informed choices while shopping (H&M Group Sustainability Performance Report, 2019) .

Overview of 2019 progress related to Transparency:

 Introduction of Product Transparency Solution. Websites of H&M and H&M Home is now sharing information about where the product has been produced and what materials have been used. As well, ARKET’s website also shares the same information and even accord customers’ attention to products made from sustainable materials

 Increasing of disclosure activities. Disclosure of viscose and other man-made cellulosic fibre suppliers. As well, ARKET brand is intended to provide more detailed information about organic cotton sourcing

 Working on new Transparency Policy with the purpose to identify clear and precise strategies for disclosure, and further encourage other fashion retailers to follow suit

 Joining projects aimed to explore and develop such topics as connection between transparency and customer trust, and environmental impact from fashion industry (H&M Group Sustainability Performance Report, 2019).

Rewarding Sustainable Actions are applied in order to stimulate H&M Group’s stakeholders to participate in becoming more sustainable together. H&M Group’s assumes that it is its responsibility to encourage people involved in its value chain as well take sustainable actions as it will only accelerate progress towards sustainability in fashion industry. Thus, it has developed various incentives and reward systems to foster more

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sustainable behavior. H&M Group defines three key groups which are subject to incentives towards implementing sustainable activities. The first group is employees that are stimulated through established sustainable goals within their working environment. Customers are the second branch, and H&M Group is applying various incentives to reward them for sustainable behavior. For instance, garment collecting is one of the prime examples that is conducted through customers’ actions thanks to H&M Group’s incentives. And the last group is suppliers. H&M Group is working with suppliers who have signed its Sustainability Commitment that has been established to create more sustainable supply chain. It is as well using Sustainable Impact Partnership Program (SIPP) to evaluate suppliers’ compliance with this commitment, and reward those suppliers who demonstrate great results and strong desire to be more sustainable. The rewarding includes providing different training programs and establishing long-term contracts (H&M Group Sustainability Performance Report, 2019).

Overview of 2019 progress related to Rewarding Sustainable Actions:

 Improving opportunities for garment collecting services for H&M Group’s customers

 Sustainable Impact Partnership Program (SIPP) was expanded to include more categories of suppliers within H&M Group’s supply chain

 Working on the improvement of Hello Member system (a loyalty program) that was created to stimulate and reward customers for sustainable behavior (H&M Group Sustainability Performance Report, 2019).

2.3.2. Circular & Climate Positive

H&M Group defines resources scarcity and depletion as well as global warming as two biggest environmental challenges in today’s world. Thus, a lot of attention is put on specific approaches and future goals aimed to reduce negative impact from its business operations to the greatest extent possible, and ideally develop solutions to generate an overall positive impact on the environment. Circular & Climate Positive section in CSR Report is fully dedicated to H&M Group’s subsequent objectives and corresponding steps that are already taken and should be taken to achieve full circularity and become climate positive.

Correspondingly, H&M Group signed Fashion Pact that brings together fashion and textiles companies with a common goal to become more environmentally friendly. This pact