Supply Chain: Going Beyond Compliance

In fiscal year 2021, we sourced apparel, accessories and footwear from more than 500 supplier facilities located in approximately 40 countries around the world. Since 2005, LS&Co. has publicly disclosed our Tier 1 suppliers. Today we publish Tier 1 and 2 suppliers and partner with the Open Apparel Registry (OAR) to open source our list and unique factory identifiers for better stakeholder engagement.* We believe that this degree of transparency leads to accountability and a better-performing supply chain, and we are conducting traceability pilots to get greater visibility into Tier 3 and Tier 4 — those suppliers providing raw materials to Tier 3 facilities.
*The list covers 99.5% of Tier 1 supplier factories (those providing sundries are not included) and 94% of Tier 2 factories. Beyond Yoga® data is excluded. The list represents all sourcing countries, including those where we source from just one or two factories.

In 2021, approximately 428,000 people worked in our suppliers’ Tier 1 facilities, while another 81,000 worked in Tier 2 facilities supporting LS&Co. products for our brands. Continued partnership with our suppliers with a focus on worker well-being has been at the heart of our historical success. To make sure we have the most resilient approach to our supply chain, we continually evaluate where and with whom we partner to produce our products based on a variety of factors, including supplier performance, country level risk, quality, capacity and time to market. Through regular factory assessments, supplier training and our Worker Well-being initiative, we collaborate with suppliers to drive improvement on the key social and environmental issues common to the apparel supply chain.

We have renewed our focus on overall program governance through a series of improvements started in 2021, including new country-level risk-based assessments, human rights due diligence and gap analysis, continued migration to converged industry-wide supplier monitoring programs, evolving our data management platform, and nearly doubling our Sustainability Team in six countries to work even more closely with suppliers on capacity building, with the aim of resolving common and systemic issues in the apparel supply chain.

Note that supplier assessment data throughout this section corresponds to the 2021 calendar year, not to the LS&Co. 2021 fiscal year.

Supplier Code of Conduct and Supplier Sustainability Guidebook

In 1991, we pioneered a comprehensive workplace code of conduct for our suppliers, known as the Global Terms of Engagement (TOE). Based on international standards, such as the UN Universal Declaration of Human Rights and International Labour Organization (ILO) core conventions, the TOE was designed to help us improve the lives of the people manufacturing our products by requiring they be treated with dignity, respect and fairness within safe and environmentally responsible factories. While the TOE was innovative and pioneering 30 years ago, supplier codes of conduct have since become standard for responsible sourcing across the industry.

Today, the supply chain social and environmental requirements codified in the LS&Co. TOE have been migrated to a new Supplier Code of Conduct, and have been incorporated into our comprehensive Supplier Sustainability Guidebook. The Guidebook is updated regularly, following internal review and input from external stakeholders. For instance, in 2020 we updated the Supplier Sustainability Guidebook to incorporate more comprehensive guidance on pandemic safety, gender equity, migrant worker protections, digital wage payments, freedom of association and collective bargaining, and more robust health and safety guidance to address multi-story building risks. Suppliers were assessed against these new provisions beginning in April 2021.

Overall, our approach emphasizes the need for workers to be treated fairly and equitably by managing compliance as a foundational element. The Supplier Code of Conduct requirements are applicable to every factory, subcontractor, licensee, agent or affiliate that manufactures or finishes products for LS&Co., including our company-operated factories. In 2021, following our acquisition of Beyond Yoga®, their suppliers became subject to regular assessments for compliance with our Supplier Code of Conduct.

Assessments for Risk Management, Improvement, Transparency

Companies with strong supply chain standards, monitoring and engagement are better positioned to manage risks. The Supplier Code of Conduct assessments conducted at our suppliers’ factories annually help us identify any business, social or environmental risks that could be posed by non-compliance and enable us to work with suppliers to improve their performance. All initial, annual and follow-up Supplier Code of Conduct assessments take place unannounced to give monitors a realistic view of daily practices at assessed factories.

Supplier Code of Conduct Assessment Approach

Assessments are conducted by LS&Co.-approved third-party monitors when a new supplier is onboarded and annually thereafter, or more frequently if needed to evaluate corrective action compliance. To verify quality and integrity, we review and approve all third-party monitors and require them to go through training on our Supplier Code of Conduct requirements, assessment process, gathering information from workers’ process, procedures and legal requirements, followed by examinations to check a monitor’s level of competence and readiness to perform onsite assessments.

The last step in the approval process is a shadow assessment, where we review the monitor’s knowledge, skills, behavioral attributes and level of competences to perform an assessment. Every year approved third-party monitors are shadowed by LS&Co. Sustainability Responsible Sourcing team members to ensure that all approved monitors meet our assessment performance quality parameters.

Supplier violations found during the assessments are categorized by three levels of severity:

• Zero tolerance violation – a serious breach of the Supplier Code of Conduct that LS&Co. believes could result in severe impact to individual rights, safety, and/or LS&Co.’s corporate reputation. Zero tolerance violations must be remediated immediately.
• Immediate action item – a breach of the Supplier Code of Conduct that LS&Co. believes would result in negative impact to individual rights and safety and/or LS&Co.’s corporate reputation. Immediate action items must be remediated fully within two months.
• Continuous improvement item – a labor, health and safety, or environmental issue that LS&Co. believes the factory should address to enhance the well-being of its workers and/or improve the factory’s reputation or management practice.

In 2021, 98% of our Tier 1 supplier factories were audited and 100% of Tier 2 supplier factories were audited by LS&Co.-approved third-party monitors, Better Work monitors or SLCP-approved verifiers. A small number were done by LS&Co. Responsible Sourcing team members, such as when we identify critical non-compliance issues or do not have a network of approved external monitors in a given market.

Better Work Assessments

Better Work is an International Labour Organization (ILO) and International Finance Corporation (IFC) program bringing together various levels of the global garment industry to improve working conditions and respect labor rights for workers, while boosting the competitiveness of apparel businesses. We were one of the first to join Better Work when it was formed in 2001 and remain committed to its principles. By the close of 2021, 11% of our Tier 1 suppliers were covered under the Better Work program. In the countries where Better Work has a presence, LS&Co. suppliers are subject to assessments by Better Work. While this represented just 11% of Tier 1 supplier facilities in 2021, it accounted for 69% of our product volume.

Social & Labor Convergence Program

The Social & Labor Convergence Program (SLCP) is designed to help suppliers and brands move away from brand-specific factory assessments to a holistic industry approach through the Converged Assessment Framework. Under current protocols, many suppliers experience assessments from multiple brands. The SLCP approach is designed to reduce duplication, enhance industry-wide consistency and strengthen accountability. In addition, the assessment framework supports joint remediation and shared responsibilities among brands in the same supplier factories.

In 2021, we continued advancing the transition from our Supplier Code of Conduct assessments to the SLCP Assessment Framework. By the close of the calendar year, approximately 13% of Tier 1 factories and 38% of Tier 2 factories supporting LS&Co. were being assessed using the SLCP converged framework. We are committed to SLCP and believe in the value of consistency across supply chain assessments. SLCP is not yet active in many of the countries where our suppliers are located, however. In addition, while a converged approach is beneficial when a factory serves multiple brands, for small suppliers that work exclusively for LS&Co., the Supplier Code of Conduct-based assessment approach may continue to be most effective.

Read more about the Social & Labor Convergence Program.

Overcoming Assessment Challenges

Although factory assessments are commonplace in the apparel industry, the process comes with challenges and limits. The multi-year Worker Well-being Impact Study conducted by The Sustainability and Health Initiative (SHINE) at Harvard University’s T.H. Chan School of Public Health illustrated how the assessment mechanism is not a suitable tool for understanding issues related to worker satisfaction, health and engagement.

The partnership with SHINE, which was funded and developed by the Levi Strauss Foundation, underscores the value of hearing directly from workers about their experiences and perceptions of the workplace. Our updated Worker Well-being approach, which will be rolled out in 2022, intends to bring greater visibility to worker experiences. For instance, implementing worker voice programs and empowering workers to speak up, whether through committees, grievance mechanisms or other platforms, can be an effective way to uncover concerns and begin addressing them.

Supplier Code of Conduct Assessment Ratings

Every LS&Co. supplier is assigned a rating from 1 to 10, with 10 being the best rating, based on overall performance, past record and timeliness in completing corrective action plans when necessary. These ratings are used by our manufacturing operations team when considering which suppliers to use and how much production to allocate.

Top performers are those with no Supplier Code of Conduct violations, a good management system and consistently high performance meeting our requirements. Poor performing suppliers are those with zero tolerance violations and/or repeat violations, slow follow-up or lack of willingness to improve. These suppliers will be given formal warning that they are in danger of having their production orders reduced unless they improve by the required timeframe. In most cases, such notification motivates the supplier to quickly improve.

Suppliers can enhance their ratings by establishing a strong record on compliance and systemic issues. Our expectations are high — we do not increase scores until issues have been resolved. If a supplier receives a rating of 6 or below, we work with them and in collaboration with other brands sourcing from the same facility to improve performance. The hope is always that the issues can be addressed because pulling out of a factory can have long-term impacts on the workers in those facilities, potentially leading to job loss. Being part of the solution is the preferred way forward whenever feasible.

The COVID-19 pandemic affected supplier performance in 2021 to some degree. Delays in remittance of social security benefits, severance payments to workers, delays in permits renewal and other issues associated with the pandemic were reported during the assessments. We worked with suppliers during 2020 and 2021 to make sure they met their legal obligations to pay their workers during the pandemic as part of our continued efforts to minimize negative impacts on workers in the face of supply chain disruptions and uncertainty.

Zero tolerance violations, continuous improvement findings and immediate action findings all require the supplier to implement a corrective action plan. Our Supplier Code of Conduct requires compliance on more immediate action issues than any other compliance categories and includes detailed safety requirements for laundering and finishing garments. For these reasons, our assessments find more immediate action issues, most of which have to do with health and safety. Our suppliers are also expected to fully adhere to applicable health and safety management laws, industry best practices and international standards.

In 2021, we returned to visiting factories more often after the impact of pandemic-related closures and limited travel in 2020. Many apparel and footwear suppliers’ cash flows were impacted by the pandemic, which resulted in higher violations related to issues such as making timely wage payments. In addition to the pandemic-related issues, the 2021 assessments identified cases where suppliers had not yet met the new requirements of our adoption of an industry tool, the Social & Labor Convergence Program’s (SLCP) Converged Assessment Framework, and those introduced in our Supplier Sustainability Guidebook — which had been updated and expanded with new requirements in 2020.

We also noted an increase in zero tolerance violations in calendar year 2021. We terminated two supplier relationships for non-compliance, another is undergoing verification in September 2022 and the remaining zero tolerance violations have been successfully remediated.

Closing Corrective Action Plans (CAPs)

In 2021, we doubled down on closing CAPs by providing training, resources and capacity building to suppliers to help them address systemic issues in the supply chain. This included a special focus on licensees — many of whom were harder hit by the COVID-19 pandemic than our direct suppliers — to help make sure they have the necessary knowledge, capacity and resources to meet our Supplier Code of Conduct requirements. We are also adjusting our scoring methodology and rating system to more closely align them with industry practices and to fast-track remediation and closure of CAPs.

We are aware that our practice of offering suppliers six to eight months to demonstrate substantial improvement — longer than some other brands — can make CAPs appear incomplete in our reporting data, particularly with respect to health and safety and environmental findings. However, we remain dedicated to driving our suppliers to resolve systemic issues that affect the apparel industry even though this can take longer and keep some CAPs open over extended periods.

Addressing Priority Labor Issues

Our expectations and requirements of every supplier are detailed in the LS&Co. Supplier Sustainability Guidebook, which incorporates the principles and high-level requirements of our Supplier Code of Conduct. We update these requirements as needed to address any new identified risks, such as health and safety concerns associated with the COVID-19 pandemic, and to align with new regulations. This includes providing suppliers with training and resources to make sure they understand and can comply. Although we provide a grace period before the new requirements are rated during assessments, we sometimes find that the addition of new requirements results in non-compliance assessment findings as suppliers work to adjust their procedures.

Like many apparel brands, our work with suppliers over the years has especially focused on three issues that appear in assessment findings:

1. Health and safety (detected in 57% of Tier 1 assessments and 55% of Tier 2 assessments in 2021)
2. Wages and benefits (detected in 11% of Tier 1 and Tier 2 assessments in 2021)
3. Working hours (detected in 10% of Tier 1 and Tier 2 assessments in 2021)

In 2021, as in previous years, we focused on helping our suppliers address these common issues. We terminated two supplier relationships for non-compliance.

Health and Safety

The ability to work in a factory that is clean and safe is a basic worker right. All LS&Co. suppliers are required to provide safe buildings, secure work environments and appropriate personal protective equipment. Our Supplier Code of Conduct includes detailed requirements in more than 20 categories for ensuring worker health and safety, including safety committees, training, hazard assessments and controls, emergency preparedness, building integrity, aisles and exits, lighting, electrical safety, machine guarding, product finishing, and many others. Notably, the Supplier Code of Conduct and Supplier Sustainability Guidebook provide extensive guidance on safety while finishing garments. This includes hand scraping, laser engraving, screen printing, abrasive blasting and other finishing activities.

Because our health and safety requirements are so extensive, it is not uncommon for assessments to uncover a violation, sometimes due to workplace conditions or procedures, and sometimes due to worker non-compliance, such as removal of gloves or a mask. Frequently, health and safety assessment findings are related to paperwork management non-conformances, rather than issues that could threaten worker safety. We regularly remind suppliers how important it is to provide ongoing safety training so workers understand and abide by requirements designed to protect them from harm.

Building Integrity and Electrical Safety

In 2013, when the Rana Plaza garment factory in Dhaka, Bangladesh, collapsed, the tragedy highlighted the unsafe conditions present at some apparel factories in the country. LS&Co. products were not made at Rana Plaza and the number of factories producing our products in Bangladesh remains low. Even so, we took stronger action in the aftermath of the Rana Plaza collapse to assess health and safety practices and building integrity of our suppliers and to publicly disclose this information. This led to continued supply chain health and safety improvements.

Factories supplying to LS&Co. in Bangladesh are assessed annually with additional emphasis on fire safety and electrical and building stability. When new suppliers are brought on board in Bangladesh, we have a building assessment conducted to make sure supplier building safety requirements are in place. Any findings not compliant with our Supplier Code of Conduct leads to a corrective action plan and follow-up assessment.

In 2021, we completed a detailed assessment of seismic risk for 105 facilities in the LS&Co. supply chain across 12 countries. The assessment, which included relative seismic hazards and local building codes and construction quality, helps us to better understand earthquake risk at these locations, with the aim of informing suppliers so they can take steps to better protect their workers. We have begun publishing building integrity information based on our assessments in Bangladesh, Cambodia and Pakistan, including the names of suppliers we assessed and their locations. We plan to extend these assessments to other key suppliers globally and expand the hazard factors assessed to include not only seismic vulnerabilities, but also general building and electrical integrity.

Read our commitment to building integrity and fire safety.

Read our 2021 building integrity and electrical safety assessment findings.

Fair Compensation

We will do business only with supply partners that provide wages and benefits that comply with applicable law and match the prevailing local manufacturing or finishing industry practices. Non-compliance triggers immediate corrective action, usually including a demand for payment to workers in arrears and according to legal requirements.

Requiring Digital Payments

Digital payments to workers provide greater transparency, ensuring workers are paid the right amount and on time. Electronic payments are also better for families by protecting funds from being stolen or spent impulsively. Our Supplier Code of Conduct stipulates that suppliers must pay their workers electronically and that workers be allowed to open bank accounts. The Worker Well-being initiative has played a key role in providing financial literacy training to assist with this process. In FY21, about 94% of workers in our supply chain were covered by digital payments.

Prohibiting Homework

Homeworkers are those workers, usually women, who do jobs that need to be finished by hand, such as cutting off threads, sewing on buttons or doing embroidery. They generally receive extremely low pay, are not covered by benefits and are often paid irregularly or late. Homework is expressly prohibited in the LS&Co. supply chain and if found, is an issue on which a supplier must take immediate action.

Compensation During the Pandemic

The impact of market fluctuations, changing government health regulations, and unpredictable conditions during the pandemic has in some cases affected the ability of suppliers to retain and pay workers. We have been in continual communication with suppliers to make sure they compensated employees in accordance with local legal regulations, making it extremely clear that a condition for continuing to work for LS&Co. was complying with all our requirements.

In 2020 and 2021, to provide additional assistance to workers, the Levi Strauss Foundation committed $2.2 million in grants to support organizations providing critical community services and direct relief in the form of food, cash and housing assistance, personal protective equipment and medical care. During the 2020-2021 and 2021-2022 grant periods, funds were distributed to a variety of grantees, who aimed to assist over 650,000 apparel workers and family members. Additionally, grantees trained at least 3,400 healthcare and frontline workers on hygiene and safety practices to help protect workers, families and communities.

Toward Compensation Benchmarks

We have subscribed to the Fair Labor Association’s (FLA’s) Fair Compensation Toolkit as a common methodology for measuring and driving industry-wide progress on fair compensation. LS&Co. aims to understand our supplier’s current situations within the context of various wage benchmarks, including the Global Living Wage Coalition estimates, and evaluate opportunities for impact in our source base. As part of our initial work, 30 factoriesin our supply chain have completed the comprehensive wage data collection tool.

Promoting fair compensation among our suppliers supports our commitments to worker well-being since economic well-being is central to worker health, satisfaction and engagement — tenets of our Worker Well-being program. Together, our wage analysis and Worker Well-being program will inform our strategy to help ensure that supply chain workers are fairly compensated according to country-level and industry-wide benchmarks.

Working Hours

Excessive overtime is a prevalent issue in the apparel industry due to fluctuations in product orders and seasonal demands, delays receiving raw materials, inconsistent government enforcement of working hours laws and other factors. We understand that suppliers find it difficult to deal with these challenges without resorting to overtime. However, excessive overtime hours affect worker well-being and productivity. Our Supplier Code of Conduct makes it clear that we favor partners who use fewer than 60-hour work weeks and that we will not use suppliers who regularly require more than a 60-hour week. Employees also must be allowed at least one day off in seven. Where a country’s legal code requirements are more stringent on overtime hours, suppliers must meet the legal requirements.

The discovery of working hour non-compliance during an LS&Co. assessment is cause for immediate action and requires a corrective action plan. We are aware that this remains a systemic issue in the apparel industry and needs constant attention by our teams and monitors. The impacts of the COVID-19 pandemic exacerbated the issue, as factories closed and reopened intermittently in response to changing government mandates, demand fluctuation, and unpredictable timetables. As a result, the factory-level corrective action plans we mandate tend to remain open, reflecting the ongoing nature of the issue, and affecting the annual percentage of closed corrective action plans.

Protecting Foreign Migrant Workers

In 2020, we updated our Supplier Sustainability Guidebook’s section on foreign migrant workers to address areas for improvement identified through our assessment process. We have defined supplier requirements regarding foreign migrant workers, from hiring through the end of employment. The Guidebook also includes best practices in the employment of foreign migrant workers and requirements for suppliers to make sure these workers are aware of their rights. Approximately 1,250 foreign migrant workers were employed in factories and mills in the LS&Co. supply chain during 2021, less than 1% of all workers in the factories and mills supporting our products.

Our 2021 assessments uncovered a small number of compliance issues with respect to foreign migrant workers. These included issues associated with the payment of recruitment and documentation fees, expired work permits, and use of unapproved agents for recruitment. We make clear our expectations for protecting these workers, who are vulnerable to exploitation by unscrupulous recruiters and others.

Preserving Freedom of Movement

We prohibit suppliers from controlling their workers’ legal documents — including passports or other documents that could restrict their movement. Any finding that a supplier is holding or otherwise controlling an employee’s legal paperwork against their will constitutes an immediate action finding, with specific corrective action steps required immediately.

Prohibiting Forced Labor and Child Labor

LS&Co. is committed to human rights and labor rights wherever we operate and throughout our supply chain. Consistent with international labor conventions and the Universal Declaration of Human Rights, our Supplier Code of Conduct governs the conduct of the vendors and suppliers we work with around the globe and expressly forbids any forced, prison, indentured, bonded or trafficked labor in the supply chain. These requirements are clearly detailed in our Supplier Code of Conduct, as well as our U.K. Modern Slavery Statement and Australia Modern Slavery Statement.

As a partner in the multi-stakeholder Better Work program, we contribute to industry-wide efforts focused on eradicating forced labor and human trafficking. Before entering into a contract with a new supplier, we evaluate the risk of forced labor and other issues through initial assessment, and suppliers are required to pledge their adherence to our Supplier Code of Conduct requirements as part of their Master Supply Agreements with us.

We will not contract with any entity that uses forced labor, whether prison, indentured, bonded or trafficked, nor will we utilize or purchase materials from a business partner using prison, indentured, bonded or trafficked labor. These forms of forced labor are defined as follows:

• Prison Labor: Work performed by individuals incarcerated by either the state or military that is a requirement of their sentence and usually without compensation.
• Indentured Labor: Work performed by an individual contractually bound to an employer for a specific time period, which is usually in return for payment of travel and living expenses.
• Bonded Labor: An illegal practice in which employers give high-interest loans to workers who either individually or as an entire family then work at low wages to pay off the debt.
• Trafficked Labor: A practice where a person is recruited, harbored, obtained, transported, or transferred with a view to that person being exploited.

All forms of prison or forced labor are considered zero tolerance violations of our Supplier Code of Conduct requirements. Likewise, all use of trafficked labor — whether the contractor is using labor that has been trafficked or facilitating the trafficking of individuals for the purposes of their exploitation by another party — constitutes a zero-tolerance violation. Subcontracting with prisons is also a prohibited zero tolerance violation. Our assessments did not find any such zero tolerance violations in calendar year 2021.

The use of child labor is not permissible at any facility in the LS&Co. supply chain. Workers can be no less than 15 years of age and not younger than the compulsory age to be in school.* We will not use any suppliers that have child labor in any of their facilities. These are considered zero tolerance violations that result in immediate corrective action and the potential termination of the supplier relationship. Our assessments did not find any such zero tolerance violations in calendar year 2021.
*LS&Co. defines a child as anyone under the age of 15, and a juvenile as anyone between the ages of 15 and 18. In regions or countries where the legal definition of a child includes persons older than 15, the local definition will apply.

Preventing Sexual Harassment and Abuse

Sexual abuse and harassment are zero tolerance violations of our Supplier Code of Conduct and our company values. To comply with our standards, our suppliers’ factories must have clear employment policies on harassment, abuse and coercion that are uniformly applied and made available to all workers in their local languages. If we learn of issues of abuse and harassment, it is incumbent on us to respond quickly and thoughtfully. Our assessment identified one incident of sexual harassment in calendar year 2021 that has been remediated.

In 2018, after we received the Worker Rights Consortium (WRC) report on harassment and abuse in supplier facilities in Lesotho, we took immediate action. We informed the CEO of the supplier that the abuse alleged in the report would not be tolerated and required remediation regarding employment contracts, reporting systems and grievances raised by workers. To support the remediation process, we collaborated with local and international labor rights NGOs and unions to design a program to address the issues that were found and provide greater protection for women working in these facilities.

We recognize these issues are difficult to detect and remediate through assessments alone. We have enhanced our assessment program to conduct off-site interviews and now require that assessment teams have female monitors to help create a safe environment, free of the possibility of retaliation.

As we have learned by listening to workers, a culture of trust and respect is essential to any workplace. Often, harassment and abuse are symptoms of underlying gender inequities that can be mitigated by creating more gender-equal environments. These were among the primary themes of the Gender Equality Report published by the Levi Strauss Foundation, which outlined practices for enhancing gender equity at factories and building cultures in which workers feel safe. We have been working to put these learnings into practice throughout our operations. We also believe it is crucial that we seek to understand the root causes of sexual harassment and identify policies and partnerships that can address it at a systemic level. We will continue striving to ensure safe, productive working environments across our supply chain and to improve worker well-being.

Prohibiting the Sumangali Scheme

LS&Co. condemns and prohibits the Sumangali scheme, an illegal bonded or forced labor scenario involving girls and young women workers in the textile industry in the Indian state of Tamil Nadu. Under Sumangali, young women accept multi-year work contracts to earn money for a wedding dowry. However, their employers hold back a significant portion of their wages and do not pay them until after the contract term is completed — if at all. The women are not allowed to leave or change jobs and are forced to accept all work and conditions, which are generally exploitative and even abusive.

Both national and global efforts have attempted to address the issue, and apparel companies, including LS&Co., have taken steps to eradicate the Sumangali scheme. Some of our actions over the years have included participating in the Tirupur Stakeholders Forum guidelines development, making grants to local NGOs focused on community intervention and women’s empowerment, consolidating the supplier base, implementing additional due diligence measures, establishing a grievance management system, and advocating for a minimum wage on behalf of spinning mill workers in Tamil Nadu.

We continue to monitor our supply chain to determine whether any supplier has links to forced, prison, indentured, or bonded labor, or to human trafficking. Based on what we find, we are prepared to take appropriate actions to address the situation in accordance with our values, our code of conduct and international human rights standards to ensure our supply chain is free of forced labor. We continue to work with industry peers and partners to engage stakeholders on collective solutions to protect human rights and ensure the integrity of global supply chains.

Capacity and Capability Building

We expect a lot of suppliers and understand that many of them simultaneously try to meet our expectations as well as those of other brands. That’s why our capacity building support is specific and based on need. It follows the Better Work approach to needs assessment and draws from factory assessment findings, worker voice initiatives and our own Worker Well-being initiative. The LS&Co. sourcing team is key to the needs assessment and to helping suppliers implement and improve their social and environmental performance, whether for compliance or to begin using innovative sustainable materials and new technologies. We are leveraging four primary ways to share learning and develop skills among suppliers:

Engagement – We engage directly with our suppliers through focused webinars to discuss and align on shared objectives. A total of 186 direct suppliers and fabric mills, as well as 19 licensees, engaged in these valuable dialogues with us in early fiscal year 2022 and we aim to meet with additional suppliers in the future.

Holistic workforce investments – In addition to complying with our requirements, suppliers must go beyond, investing in their workforce and ensuring the safety and holistic well-being of their employees. Through collaboration, training and initiatives like our Worker Well-being initiative, we support suppliers in making the transition from a strictly compliance-based approach to one that embraces comprehensive well-being for the people who make our products.

Digital tools – We are developing video-based training tools to educate suppliers on key compliance concepts and our approach to the Worker Well-being program.

Better Work – This program also provides training to suppliers on key issues like the worker-management relationship, worker dialogue, communication for supervisors and other soft skills that can make a difference in the workplace experience. All LS&Co. suppliers in Better Work countries participate in this training. During calendar year 2021, 31 factories with more than 92,000 workers participated in on-site and virtual training sessions. The trainings covered a wide array of topics, including:

• Occupational safety and health
• Compensation and benefits
• Workplace communication
• Gender equity
• Productivity skills
• Leadership skills for middle managers
• Sexual harassment prevention
• HIV and AIDS awareness
• Financial literacy
• Chemical management

We are also exploring use of a ZDHC Academy module offered by the Zero Discharge of Hazardous Chemicals (ZDHC) Foundation on sustainable chemical management. We offer suppliers ZDHC tokens they can use to participate in the ZDHC Supplier to Zero program for certification and for ZDHC Academy training free of charge. Through calendar year 2021, more than 100 factories in our supply chain have achieved the ZDHC foundational certificate and others have used tokens for ZDHC Academy training.

Enabling Worker Voice

We are striving to improve worker voice and grievance programs in the supply chain. We have developed guidelines for gathering information from workers during the assessment process, which helps to make worker interviews central to our assessments. While some suppliers are implementing worker voice channels, we do not yet have a unified program to help make sure workers have dialogue with factory management. We will continue encouraging suppliers to evolve their existing grievance approaches into more unified systems.

One of our first steps in this direction was the recent Harvard SHINE study, which provided valuable input from apparel workers about their mental, emotional and physical health. The newest version of our Worker Well-being initiative builds on this research and provides guidance to factories on ways to improve workplace culture and communication channels between workers and managers. To gain further insight, we will administer an adapted version of the Harvard SHINE survey in select sourcing locations in 2022 and beyond.

The responsible sourcing assessment we completed in 2021, as well as learnings from the gender-based violence and harassment remediation project in Lesotho, pointed to the need for more worker voice channels where workers can report their grievances or share their needs and suggestions. As a result, we are implementing independent workers’ grievance hotlines at selected supplier facilities in three major sourcing countries — Bangladesh, Pakistan and India — in partnership with Ulula, a worker engagement service provider. An initial worker survey is being conducted at every site to define a baseline and identify any current systemic issues. The new grievance management platforms enable workers to share concerns 24/7 in multiple languages and through multiple online and offline channels. The intent is to support systems development and build capacity for suppliers to gradually take ownership of the platforms and case management after the first year, and we plan to scale the program in more markets.

Worker Well-being Initiative

The Worker Well-being initiative, introduced by LS&Co. in partnership with the Levi Strauss Foundation in 2011, is designed to go beyond compliance to improve the lives of the people who make our products. It reflects our understanding that what is good for workers is good for business, and that when we elevate trust, respect and fairness in partnership with suppliers, we are all more innovative and resilient. The Worker Well-being initiative operates on the premise that if workers are healthy, satisfied and engaged, then business performance also improves. Our suppliers believe in this premise, and we have launched well-being programs in 113 supplier factories over the past decade.

At each participating factory, the Worker Well-being initiative surveys workers about their well-being needs, rolls out responsive empowerment programs and builds the capability of factory management to sustain progress through lasting improvements that improve worker experience — training, worker communication channels, cooperation between managers and employees, gender equity, and a comfortable physical workspace, among others.

The original 2011 Worker Well-being Guidebook outlines the criteria for supplier selection into the initiative, implementation standards and requirements for validating supplier programs. Then, nonprofit grantees of the Foundation partner with factories, providing guidance, resources and training to help address worker needs in economic empowerment and financial literacy, good health and family well-being, and gender equity.

Evolving the Initiative for Worker Health, Satisfaction, Engagement

To more closely examine the status of worker well-being throughout our broad supply chain, in 2017 we set up a multi-year partnership with Harvard SHINE. Their research — which initially reflected data from more than 13,300 workers in 15 factories concentrated in five countries collected over several years — has demonstrated that high levels of well-being at work require trust, respect and fairness. In line with our commitment to sharing our learnings with the field, the Harvard SHINE study results are publicly available to others in the industry.

In 2021, with a decade of implementation experience and learnings from our partnership with Harvard SHINE, we identified opportunities to deepen the impact of the Worker Well-being initiative. We updated our strategy and set new goals for even greater reach and impact, emphasizing improvements to the worker experience in health, satisfaction and engagement. LS&Co.’s refreshed Worker Well-being strategy, outlined in the 2022 Worker Well-being Guidebook, offers suppliers a self-directed, collaborative approach designed to help them identify locally relevant improvements to well-being and business performance. Our updated strategy focuses on:

• Well-being in the workplace. The way work is planned and distributed and how employees feel on the production floor not only affects well-being, but can also have ripple effects in households and communities as well. Data shows the industry has a long way to go to build caring workplaces where workers and managers share a sense of trust, respect and fairness.
• Worker-manager cooperation and communication. Understanding and elevating worker well-being requires collecting their perceptions. Listening to workers’ insights and concerns goes deeper than compliance audits and highlights opportunities over risks.
• Programs and investments within gender equity, workplace environment, and policies and systems. Evidence and experience show that these three areas contribute most directly to well-being at work.

Improving the work experiences and lives of the women and men who make our products is a continuous process, so we established several principles and milestones we will strive to achieve along the way:

• LS&Co.: Review, re-assess and improve our purchasing practices because we know these can impact worker health and well-being.
• LS&Co.: Support suppliers in improving worker compensation. While laws that determine wages vary by country, financial security is critical to worker well-being.
• Suppliers: Improve cooperation between workers and managers by enabling collaborative teams that identify needs and develop solutions for well-being at work.
• Suppliers: Make investments in gender equity, the workplace environment, and factory policies and systems, and will monitor and measure progress.

Measuring Progress and Impact

Thanks to the Harvard SHINE partnership, we know the key indicators for well-being and have created the tools to measure them. The Levi Strauss Foundation led the development of a streamlined version of Harvard SHINE’s worker survey, which provides a tool for LS&Co. and suppliers to assess the long-term impact of Worker Well-being initiative investments, including measures of health, job satisfaction, engagement and financial well-being.

In addition to the survey, the Levi Strauss Foundation also developed an accompanying tool for factory management teams to assess incremental progress against key milestones in the Worker Well-being roadmap, known as the Operational Framework. It represents a process of communication and collaboration where team members come together to diagnose challenges, design solutions and drive continuous workplace improvement. While many industry tools focus on traditional communication mechanisms like worker-management committees, the Operational Framework Tool explores other channels to assess whether suppliers are “building the muscle” for decision-making.

Reaching Apparel Workers with the Support They Need

In 2019, the Worker Well-being initiative surpassed our 2020 goal of reaching 200,000 workers — almost a year ahead of schedule. What’s more, 60% of suppliers now self-fund their own Worker Well-being initiatives, rather than relying on the Levi Strauss Foundation for support. Three quarters of participating factories reported improvements in worker engagement, and over half reported improved satisfaction and lower absenteeism.

Some Worker Well-being factory initiatives were temporarily halted in 2020 and 2021 due to lockdowns, business disruptions and safety concerns, reducing the number of workers we could reach through these initiatives. And although the pandemic continued to negatively affect the supply chain in 2021, with some suppliers going out of business, we added more than 6,500 workers to the initiative in 2021. By the end of the year, LS&Co. suppliers had active Worker Well-being offerings at 104 sites covering more than 180,000 workers. Going forward, all LS&Co. suppliers are expected to adopt the renewed Worker Well-being approach and start making progress immediately. We will assist them as they adopt the new approach and set achievable timelines.

Gender Equity and Women’s Empowerment

Women are the driving force of the LS&Co. supply chain. In fact, at the factories participating in the Harvard SHINE study, women represent 60% to 80% of the workforce. Women in the apparel industry have both different lived and work experiences than their male counterparts. Women are more likely to work in sewing areas, which tend to offer lower wages than the areas dominated by men, such as cutting, laundry and finishing. Women also have fewer opportunities to move out of their initial jobs, while men are more likely to receive promotions. As a result, women’s well-being at work is often less that of men.

We are committed to changing this. Already, the Worker Well-being initiative and the Levi Strauss Foundation focus on gender equity through a variety of initiatives. The Worker Well-being initiative has also demonstrated to many of our suppliers that an empowered workforce is essential to their success, giving them footing they can build on to implement the systemic changes needed for gender equity. The new version of our Worker Well-being strategy puts even greater focus on gender equity. Among other tactics, it aims to establish gender promotion targets and hiring ratios in supplier facilities and make progress toward mixed-gender, diverse departments.

Supplier Inclusion

We are developing an inclusion program to increase our engagement with a diverse cohort of indirect suppliers — those providing the goods and services we use in everyday operations, such as office furniture, computers, cleaning services and many others — and to ensure we work with those that not only have high environmental and ethical standards, but also prioritize inclusion in their businesses.

In the U.S., our first step was to get a better understanding of our indirect suppliers, including determining whether they are owned by underrepresented groups and the value of the contracts in place. This helped us establish a 2021 base year for assessing ongoing progress. Globally, we are developing a broader program to provide transparency around the inclusion practices of our indirect suppliers because inclusion is how we can drive overall improvement for the communities where we operate.

In 2021, we accelerated our efforts in four key areas:

• We engaged some of our largest suppliers in completing a full EcoVadis assessment to evaluate their performance in areas like gender equity, anti-bullying programs and inclusive business practices. Going forward, we plan to require the EcoVadis assessment of all new indirect suppliers over a certain financial threshold to begin measuring inclusion in our supply network.
• We began updating our Supplier Code of Conduct to include requirements relevant not only to suppliers making fabrics and sewing garments, but also to our indirect business partners.
• We began taking a close look at our contracting process to see how we can make our contracts and insurance requirements more accessible to small businesses and streamline their onboarding and break down barriers to doing business with us.
• We set internal targets to drive progress and accountability toward increased engagements with under-represented, inclusive suppliers.

Our efforts also include collaborating with the National Minority Supplier Diversity Council, the Women’s Business Enterprise National Council, the National LGBT Chamber of Commerce and other organizations to build out our supplier inclusion program. We will start rolling out the program more broadly in 2022.

Supplier Support During the Pandemic

Our suppliers faced unprecedented challenges in 2020, continuing through 2021, given the volatility and unpredictability in the industry. In line with our history of collaborative supplier relationships and commitments to worker well-being, we worked closely with suppliers to find the best way through the global COVID-19 pandemic.

We updated our Supplier Sustainability Guidebook with pandemic-specific health and safety guidelines. This ensured the additional health and safety procedures were in place then and in the future, should they be needed. We continue to use these practices in all LS&Co. sourcing countries through the different stages of the pandemic, including the emergence of new Coronavirus variants.

Additionally, when the pandemic first hit, we took full responsibility for all outstanding finished, ready-to-ship and in-progress orders. While we extended our payment terms, we believe our current terms are consistent with industry practice, and we have not asked for any discounts on payments. We made sure suppliers have access to working capital financing through programs like our ongoing partnership with the International Finance Corporation (IFC), which provides suppliers with early payments at discounted rates through its Global Trade Supplier Finance (GTSF) program.

Supply Chain Financing Program

In 2021, we expanded our supply chain financing program with IFC GTSF to provide discounted financing rates to suppliers that have already begun implementing low-carbon investment plans and have conducted Partnership for Cleaner Textile (PaCT) cleaner production assessments. The suppliers receive early payment for their LS&Co invoices, up to a maximum outstanding $145 million for the program (as of first quarter 2022). As of the end of FY21, 33 LS&Co. suppliers have participated in the IFC program. Collectively in 2020 and 2021, these suppliers have received in aggregate approximately $893 million in earlier payments to support their working capital and business operations needs. On average, participating LS&Co. suppliers in 2021 received payment approximately 60 days earlier than they would have without the program.

We have also launched new early payment, low-cost financing programs to support suppliers in locations not covered by the IFC GTSF and to provide additional funding when GTSF reaches its limit, especially during peak shipment seasons. For instance, in 2021 we began a global collaboration with HSBC on the Sustainability Supply Chain Finance (SSCF) program. In FY21, 21 of our participating suppliers received $142.4 million in early payments — out of an available $150 million — made on average about 71 days earlier than our customary schedule.

Supplier interest rates for both the IFC and HSBC payments can be linked to their performance against our Supplier Code of Conduct, providing incentives for suppliers to improve social and environmental performance. In 2021, 16 of the 21 LS&Co. suppliers participating in the HSBC Sustainability Supply Chain Finance program received competitively priced financing based on their strong sustainability performance.

What’s Next – Supply Chain

As we look to the remainder of 2022 and beyond, capacity building — both among our suppliers and our own team members — will remain a priority. We are forming a new internal team focused on worker well-being and supplier capacity building, which we plan to expand as our business grows. Our refreshed Worker Well-being program also includes robust provisions for supplier training.

We also remain committed to fostering a supply chain ecosystem that drives improvements in both environmental and social priority areas, including purchasing practices and wages. We plan to complete a comprehensive review of our purchasing practices, with the understanding that purchasing practices are key to strong relationships with our suppliers, and that good relationships contribute to better worker health and well-being. We will also continue examining wage practices in the supply chain with the aim of ensuring that the people making our products receive fair and equitable wages.

Going forward, we will continue to update our compliance and assessment systems in line with changes in our operating environment, the nature of the pandemic, evolving industry best practice and convergence tools. We will work in partnership with our supply partners, many of which have been with us for more than a decade, to address shared environmental, social and operational challenges. And where possible, we will refine and offer access to financing mechanisms that can help our suppliers get the capital they need to fulfill their obligations under our Supplier Code of Conduct and make investments to improve sustainability performance.

We will share the updated Worker Well-being Guidebook with suppliers and other stakeholders so they can begin shifting toward programming focused on these better work experiences and impact-driven metrics of success. And just as we did with our original Worker Well-being Guidebook, we plan to make the updated guidelines and tools publicly available.