Cambodia Investment Review

Balancing sustainability and profits in Cambodia’s garment sector

Balancing sustainability and profits in Cambodia’s garment sector

Brian Badzmierowski

As global brands increasingly look towards Cambodia for textile products, a balancing act is taking place between sustainability and profit. While pressure from consumers and overseas governments is compelling more Cambodian businesses and factories to become more sustainable, there are several barriers standing in the way of a total transformation.

Sustainability in the textile industry was the topic for the latest European Chamber of Commerce (EuroCham) Breakfast Talk held at the Factory Phnom Penh on Saturday, with experts from development agencies and the business sector discussing the opportunities and challenges facing business owners in the industry.

In his opening remarks, EuroCham Deputy Director Tom Hesketh said European and American consumers are prioritizing products that are sustainably and ethically produced and are willing to pay more for them.

Hesketh cited a Deloitte UK study in 2021 that stated one-third of consumers had stopped buying certain brands or products because of ethical or sustainability concerns. Another 2019 McKinsey study from the United States found that 31 percent of Gen Z consumers would pay more for products that have little negative impact on the environment.

Cambodian textile and niche products have started to garner more attention in Europe and could fill some of this demand.

“Buyers are slowly but surely starting to take notice of Cambodia’s niche products. These include high-quality agricultural products, handicrafts, jewelry, cosmetics, and food. They are also increasingly asking for the sustainability profiles of the company they work with,” he said.

New German supply act will push the industry forward

The German Supply Act will come into effect in January 2023 and will mark Cambodia’s first true sustainability test on a large scale. 

At first, companies with 3,000 or more employees with a head office in Germany will have to ensure that their entire supply chain adheres to internationally recognized human rights standards. In January 2024, companies with 1,000 or more companies will need to comply.

To read more about the Cambodian garment maker’s response click here.

This will affect German companies like Adidas and Puma, both of which have suppliers in Cambodia.

Cambodias garment sector
A panel discussion was held during the event.

Massimiliano Tropeano, a senior integrated GIZ garment sector advisor at EuroCham, moderated the panel discussion Saturday morning and said consumer demand will ultimately drive the trend towards sustainability. However, the German Supply Act leaves the door open for smaller importers to continue to perform business as usual.

For sustainability to truly take over, it will need to become the consumer norm, not just a trend.

“Therefore, it’s important when we ask for a cup of coffee, when we ask to buy a garment, even when we buy bricks for our home, we need to ask where are they are coming from and how they are made,” he said.

Tropeano said the Cambodian garment industry has been trending toward implementing sustainable and socially responsible principles since it started growing rapidly in the late 19900s. Better Factories Cambodia was established in 2001 and is the largest organization of its kind in the world, he said.

The program, a partnership between the UN’s International Labour Organization (ILO) and the International Finance Corporation (IFC), currently works with 557 factories in Cambodia to ensure fair working environments for its workers and increase the competitiveness of the industry.

Compared to countries like Bangladesh or India, where markets were established without corporate social responsibility (CSR) goals in mind, Cambodia will have an easier time adhering to the new due diligence requirements, he said. 

SMEs leading the sustainability charge

Currently, small and medium-sized enterprises are leading the charge towards sustainability, although for many of them, profits have been slim since the start of COVID.

Dhikra Yagoubi, the founder of local athletic wear company Yekowave, said during the panel discussion that running a sustainable business has its challenges, especially concerning sourcing materials and attracting investment.

Unable to find the raw materials she needs for her athletic wear in Cambodia, Yagoubi imports certified organic materials from China and has to wait around three months to receive them. Since she orders small quantities, it makes it hard to find reliable suppliers.

She said for sustainable business practices to take on a larger role, big brands would need to work together and share common goals while supply chains could be optimized to reduce costs and allow sustainable products to be affordable for everyone.

“It’s really hard to find an investor who is interested in sustainability because they are looking at the profits you are making,” she said.

Consumer awareness around sustainability in Cambodia is still lacking, she said, and it’s been difficult to find a balance between sustainability and expanding her market to other countries.

Attendees of the event look at the selection of Cambodian creations on display.

“Sustainability has a cost, that’s why eco-friendly products are expensive. What makes it high-priced is the raw materials. The materials require certification and the whole process is costly. Unfortunately, we cannot find local resources in Cambodia so it makes it even higher.”

She continued: “In my opinion, we could effectively manage the cost in the supply chain by optimizing the whole production process from spinning, fabric production, manufacturing of the finished products.”

Villageworks CEO Norm Bunnak also presented at the panel discussion and said she was investing in research to use local banana fiber as source material for her handicrafts and accessories. Villageworks employs disabled and marginalized people and produces a variety of sustainable accessories.

While Cambodia isn’t a cotton producer and doesn’t currently have the resources to become a producer of polyester, there are some opportunities to take advantage of locally sourced raw materials, including banana fiber, silk, and upcycled fabrics. 

CULT pop-up market showcases local products

After the workshop, dozens of small enterprises showcased their products – from necklaces made from old zippers discarded by factories to dog collars made out of recycled tires. 

The pop-up event was organized by CULT, a socially conscious marketplace for sustainable businesses, and gave the small businesses a chance to share their stories. 

Many of the business owners said they’ve been struggling since the pandemic and have had to rely on digital sales to make up for lost tourist traffic and dampened retail sales. 

Daughters of Cambodia, a social enterprise that provides jobs for former sex workers, had to close its restaurant in Riverside during the pandemic and Villageworks had to close its retail shop as well. Other business owners reported workers returning to their provinces because of the pandemic.

To read more about UNDP Cambodia SDG goals in 2022 click here.

With the assistance of organizations like CULT and German development agency GIZ, which co-hosted the breakfast talk, the hope is that smaller sustainable enterprises will be enabled to grow as the economy slowly recovers.

Marc Beckmann, head of program at GIZ Fabric, said the Fabric initiative is designed to support the sustainability of the textile and garment sector.

Among other programs, Fabric opened WE House, a women’s empowerment center where garment workers can meet informally and receive advice and help with problems they face in the workplace. 

The program also released an app for smartphones that allows workers to understand their rights and offers virtual training for factory owners to help them cut down on emissions.

Beckman said the German Supply Act, along with a similar EU Draft Directive that has been proposed, will help drive the industry towards a more sustainable path. 

“This will really be a development that will further push this question of a sustainable garment industry and help to slowly transform it so that we see a different kind of fashion industry in the future,” he said.

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