Corporate responsibility review 2016

FINLAYSON CORPORATE RESPONSIBILITY REVIEW 2016

CONTENTS

Jukka Kurttila: Responsibility has enriched the lives of the people of Finlayson 3 What did we do in 2016?? 5 More than 50% growth 7

1.

A company must have morals. 9

2. We promise to be good to everyone, except those who treat their environment poorly. 13 3. We love recycling. 19 4. Buy less, buy better. 23 5. We know who we buy from. 29 6. We don’t sell our products to bad people. 35 7. Love belongs to everyone. 39 Journey towards the 2020 responsibility targets 41 Tables

43-48

Contact information

45

LIST OF ATTACHED TABLES

Table 1. Financial indicators 2015 and 2016 (â‚Ź million) 43 Table 2. Personnel indicators 2015 and 2016 44 Table 3. Carbon footprint per operation 2015 and 2016 45 Table 4. Carbon footprint in proportion to turnover and per product 45 Table 5. Amount of packing material 2015 and 2016 (t) 46 Table 6. BSCI auditing results per topic, 12/2016 33 Table 7. Supplier auditing, 2015 and 2016 33

FOR ME PERSONALLY, 2016 HAS BEEN A YEAR OF SYSTEMATIC IMPLEMENTATION OF RESPONSIBILITY IN VARIOUS WAYS. We have stood up on our own feet and learned to

JUKKA KURTTILA: RESPONSIBILITY HAS ENRICHED THE LIVES OF THE PEOPLE OF FINLAYSON

take more responsible steps. Implementing responsibility in textile industry production has required a lot of work and effort. Deciding to become the most transparent textile industry company in the world is not exactly a walk in the park. We are dependent on various partners before a product has traveled to our store from the field. We aim to ensure responsible operation throughout our supply chain by selecting our partners carefully, with tight cooperation, and factory inspections. In 2016, 95% of our partners in risk countries were audited, compared to 65% in 2015. In 2016, we also determined the countries that our partners purchase cotton from. Our work continues and we strive to deepen our knowledge in 2017.

IN 2016, WE TOOK MANY FIRST STEPS TO INCREASE THE TRANSPARENCY OF OUR OPERATION. We published our first responsibility review and, for the first time, a list of our

partners. We also published a responsibility target program extending to 2020, in which we defined ambitious goals for our work, regarding more responsible materials, reducing environmental impact, and increasing factory inspections, among other things. Our work on responsibility is especially focused on recycled materials and certified cotton. In 2016, we launched our first product manufactured in accordance with circular economy principles: rag rug pieces. During 2016, we collected approximately 30,000 kilos of old bed linens that were used to produce rag rug pieces in Finland.

FOR US, ENTREPRENEURSHIP IS MORE THAN RESPONSIBLE PRODUCTION.

We also want to take a stand for better living and a better world. In 2016, to celebrate the centenary of Finland’s independence, we launched the 100 Lions for Finland initiative, where we asked the Finnish people to design new Lions to stand beside our heraldic lion. We feel that our magnificent and beloved Lion has fallen into the wrong hands in everyday use, making the use of the Lion symbol nearly impossible for ordinary people.

RESPONBILITY CAN ALSO CREATE ANIMOSITY. When we have tried to act in a respon-

sible manner, against racism, for example, we have been targeted by hate speech. This is of course disappointing, but also to be expected. We will not let hate speech discourage us. We have noticed that hate is surpassed by love, but hate can suppress love in speech. Luckily, love means action and people have rewarded our responsibility by buying our products. In 2016, our turnover grew by 53% and a large part of the growth is explained by people wanting to engage with more responsible business operations.

3

WHAT DID WE DO IN 2016?

The year 2016 was a significant year for our work on responsibility. We increased communication related to our responsibility work on our website. We created a dedicated site for responsibility, published our first responsibility review, a list of our suppliers, and our goals for 2020. We have also presented our responsibility work in various mediums and events.

IN 2016… … WE PUBLISHED OUR CORPORATE RESPONSIBILITY PROGRAM EXTENDING TO 2020

The program published in the summer of 2016 includes targets in each area of our responsibility.

For example, we intend to reduce our carbon dioxide emissions by 20% and increase the share of more responsible materials used in our products. Take a look at our target program and the first steps we have taken towards these targets within the last year from page 39. … WE WERE RECOGNIZED AS THE 6TH MOST RESPONSIBLE COMPANY IN FINLAND

Finlayson was chosen the 6th most responsible company in Finland and the most responsible company in retail in the Sustainable Brand Index 2016 survey. Sustainable Brand Index is the largest brand survey focused on sustainable development and responsibility in Scandinavia. It is based on 30,000 consumers’ assessment of 752 brands. Each brand has been evaluated by at least one thousand consumers over 16 years of age. The survey is performed annually in four Nordic countries. The survey is based on the ten principles of the UN Global Compact initiative. … WE RECYCLED OLD BED LINENS INTO RAG RUG PIECES

In 2016, we introduced rag rug pieces, which are our first product manufactured in accordance with the principles of circular economy. We collect old bedsheets and duvet covers in our stores and use them to produce rag rug pieces in Finland. Through these pieces of varying sizes that can be attached to each other we can find new uses for the fine culture of rags. During 2016, we collected approximately 30,000 kilos of old sheets. Read more about the rag rug pieces and our work regarding circular economy in chapter 3.

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… DETERMINED THE COUNTRIES OF ORIGIN FOR OUR COTTON

Cotton is our main material, but it is also a challenging textile fiber in many ways. The traceability of cotton is especially challenging to all textile industry operators. During the summer and fall of 2016, we determined the origins of the materials used in our products from all of our partners. As of yet, we cannot verify the origin of materials product-specifically, but we do know the countries of origin per producer. Based on the responses, the most prominent countries for cotton farming for our products are: India, Pakistan, Turkey, and USA. Read more about cotton and our other materials in chapter 4.

MORE THAN 50% GROWTH 2016 was a year of growth for us. Our turnover increased 53 percent compared to the previous year, rising to a total of 35.1 million euros. We expanded our store network and invested in export. In 2016, we opened five new stores in Finland and our first store in Sweden. By the end of 2016, we had a total of 17 stores in Finland and one in Stockholm. More detailed financial figures are included in the attached table 1.

EXPORT AND LICENSINGI We began to expand our retail store network into Sweden in

2016 by opening a Finlayson store in the Mall of Scandinavia shopping center alongside four pop up stores in different cities. We will continue to open stores in Sweden in the coming years.

At the end of 2016, we had 24 license partners in other countries (17: 2015) and 3 in Finland (3: 2015). In addition, we signed seven other licensing agreements in Japan and Korea in 2016. In Europe, we began cooperation with a new partner Creaciones Euromoda who manufacture bed linens. The most significant new licensing agreement was signed with A-Fontane in Hong Kong, which will lead to Finlayson opening 41 stores and 21 shop-in-shops in Hong Kong and mainland China. Finlayson has worked closely with 5th Wave Brands to develop export and this new agreement is a great example of the efficient licensing program.

Photo: Fancymaum (License partner in Korea)

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A COMPANY MUST HAVE CLEAR VALUES, ACCORDING TO WHICH EACH EMPLOYEE WORKS.

CORPORATE RESPONSIBILITY

Finlayson does not approve discrimination, harassment, or bullying in any form. Tolerance is one of our values. This means that no one is discriminated against due to their sexual orientation or the color of their skin, for example. This applies equally to our employees, partners, and customers.

Our values are: • We think independently.

• We are tolerant.

• We are courageous.

• We take interest in the world and in issues.

WE ARE EQUAL

In 2016, we created an equality plan for Finlayson personnel, which is statutory from the beginning of 2017.

The plan defines what constitutes discrimination, harassment, and bullying and how we act if these occur in the working community. It also lists concrete goals for promoting equality that were defined in a workshop in the summer of 2016 and which we will be monitoring. Commitment to the plan and implementing the measures in practice is extremely important.

OUR COMPANY HAS VALUES, according to which we do our work each day. We only cooper-

ate with partners that match our values. We act instead of shouting from the back of the room when necessary and for this we have been recognized as the 6th most responsible brand in Finland in the Sustainable Brand Index survey of 2016.

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The commitment is realized through supervisory work, performance appraisals, and personnel development and by following the laws on equality. Wage surveys required by the Act on Equality between Men and Women will be carried out in the spring of 2017 and during 2017 we will combine our equality plans to create an equality and non-discrimination plan.

89 %

Women

11 %

Men

PERSONNEL INCREASED BY NEARLY 50%

In 2016, we had 192 employees, compared to 130 in 2015.

Thus, the number of employees grew by nearly 50%. The proportion of men and women remained the same from 2015, meaning that 89% of our personnel are women and 11% men. More detailed personnel figures for 2015 and 2016 are available in the attached table 2.

56 %

Employees

28 %

Clerical personnel

14 %

Supervisors

2%

Management

JOB SATISFACTION AND EXERCISE

We provide our office personnel regular opportunities for working remotely, which helps reduce traffic emissions and has a positive effect on job satisfaction. In the spring of 2016, we participated in a pilot project on smart exercise, organized

by Helsinki Region Transport (HSL) and Valpastin Oy, the aim of which was to get Finlayson employees to try new ways of commuting to work, such as walking, cycling or public transport. The pilot project ran until the fall of 2016 and we received the “Työpaikka, joka liikuttaa” certificate shown here. In the summer of 2016, we also took part in the Kilometrikisa bike-a-thon with two teams. We racked up more than 15,000 kilometers in total and saved nearly 2,700 kilos of carbon dioxide.

The closing event of the Smart exercise pilot project at Finlayson offices (Photo: HSL/Mirella Mellonmaa)

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CARBON DIOXIDE EMISSIONS IN PROCESS PHASE, DURING 2015–2016 CORPORATE RESPONSIBILITY CO 2 tonnes

Materials

Production

Administration and retail

Packing materials

Transport to production sites

Transport to Finland

Outgoing logistics

Our direct environmental impact consists of our own operations, i.e. energy and water consumption, and waste produced by our offices, logistics center, and stores.

The manufacturing of our products is not in our own hands, which is why our environmental impact is mostly indirect. The indirect environmental impact of our manufacturing processes consists of the various phases of farming and processing cotton, sewing, dyeing, and transport.

CLIMATIC EFFECT

PROPORTION OF KG CO 2 EQ TO COMPANY TURNOVER IN EUROS, 2015–2016

TO US, RESPONSIBILITY MEANS that we want to act like any good person does with their

neighbors and the environment. All of our stores operate on EKOenergy. We only produce high-quality products with long service lives. We aim to reduce our carbon footprint and are always searching for new, more ecological materials

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The reduction of carbon dioxide emissions by 20 percent before 2020 is one of our responsibility targets. In 2016, the carbon footprint of our entire operation is 24,500 tonnes of CO 2 e, meaning that our emissions were 30% higher than in 2015.

The increase in emissions is explained by increased turnover and in proportion to turnover, our emissions were in fact 7% smaller than the previous year.

More detailed information about the changes in our emissions in 2015–2016 is available in the attached tables 4 and 5.

BIODIVERSITY

WASTE

We participated in the 2016 Biodiversity Master Class, organized by Fibs ry. From the perspective of biodiversity, cotton farming is the part of our operation whose environmental impact is the most negative. Even though cotton farming is an important means of livelihood in developing countries, it also requires many ecosystem services: clean water, pollination, and pest control. Cotton is also often genetically-modified, which in part depletes the existing biota and soil and may increase the use of pesticides as pests become immune to the used chemicals over time. We aim to increase the use of more sustainable materials in our products, such as recycled and wood-based fibers. Read more about cotton in chapter 4.

We aim to minimize the creation of unnecessary waste in our operation and recycle as much as possible.

We reduce textile waste by designing durable and recyclable products.

WATER

In 2016, we carried out a life cycle analysis for three main products in cooperation with Natural Interest Oy. The water impact of our operation is mostly indirect, consisting of irrigation of cotton and the dyeing and washing of fabrics. If the use of our products is included in the analysis, the environmental impact of textiles mostly consists of washing and maintenance with the reasonably long service life of domestic textiles. In 2017, we will carry out risk assessments with regard to water use and quality.

ELECTRICITY

In October of 2016, we switched all direct operations of Finlayson (the head office, stores in Finland and Sweden, and the logistics center in Forssa) to use EKOenergy. Switching to EKOenergy was an easy and logical step for us – it is the least we can do as a company. Even though electricity makes up only a small portion of our total emissions, switching to EKOenergy reduces our CO 2 emissions by a minimum of 120,000 kilos annually. EKOenergy is the only international environmental certificate for electricity and guarantees that the electricity we purchase fulfills the sustainability criteria. We purchase wind electricity that originates from Finland and Denmark. The electricity is sold and supplied by Nordic Green Energy.

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We strive to give new lives to recyclable materials. We inquire about the waste created by our partners’ production when negotiating deals, but at the moment we do not have concrete plans to develop waste sorting and processing locally. Cutting waste from our primary partners’ processes is delivered to be used by the furniture, automobile, and construction industries.

PACKING MATERIALS

During the latter part of 2016, we decided to move away from using plastic bags in our stores. Our

stores mainly use paper bags and the largest plastic bags. The plastic bags contain 45% of recycled plastic, which is the maximum amount of recycled plastic that can be used without compromising the construction of the bag. We also intend to replace these bags with a more ecological alternative in 2017.

In 2016, we also decided to replace all packaging used for online store deliveries with cardboard boxes. In addition, we offer a waste-free delivery option using RePack (see chapter 3.).

We have weighed all of our product packaging so we now know the exact amounts of plastic and cardboard we use annually. In the future, we intend to find more ecological packaging alternatives for all of our products. Replacing plastic is a particularly essential part of finding new packaging solutions. Our usage of all packaging materials has increased with increased turnover, but we have reduced our consumption of corrugated cardboard and plastic in proportion to turnover.

More detailed information about the use of packaging materials is available in the attached table 5.

LOGISTICS

The logistics’ share of our total emissions is very small, approximately 1%. Our products are mostly manufactured in Europe and Turkey. Transport from our partners’ factories to the logistics center in Forssa is carried out by land or sea. We only use airfreight in extremely urgent situations, which in part reduces our environmental impact. Our domestic deliveries are mainly handled by Kaukokiito Oy, who uses the ISO 14001 environmental management system. Orders from the logistics center are grouped into larger deliveries instead of several smaller ones, thus reducing transports and the related environmental impact.

Our logistics center is located in Finlayson’s old factory building in Forssa. The logistics center moved into new and more efficient facilities within the same building in September of 2016. The new facilities use LED lighting instead of halogen lamps and the utilization of space has been designed to be more efficient. With the new facilities, a new warehouse management system was also implemented to improve efficiency. Using the new management system, we have been able to optimize collection routes and amounts. Separate inventory transactions have also been eliminated as inventory is updated alongside daily collection operations.

All of this affects the amount of consumed electricity, as the same number of goods can be processed in a shorter time, thus reducing the electricity required for collection trucks and lighting.

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CLOSED-LOOP MATERIAL CYCLE – CASE RAG RUG PIECES CORPORATE RESPONSIBILITY

We collect sheets in our stores to be used to produce rag rug pieces in Finland. The rag rug pieces were introduced in the summer of 2016.

At the moment, we can only reclaim bedsheets and duvet covers, but in the future, it would be great if we could accept all household textiles.

A utility purpose must, however, be found for each obtained textile.

WE WANT TO TAKE RESPONSIBILITY for our products after they are no longer used.

We salvage our customers’ old sheets and use them to manufacture rag rug pieces in Finland.

In our online store, our customers can choose delivery using waste-free RePack bags that can be used again and again.

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TELAKETJU

REPACK – REUSABLE PACKAGING

Finlayson is part of the Telaketju initiative, bringing together several actors in order to build a nationwide sorting and collection network that is simple to the consumers, creates jobs, increases textile appreciation, and creates new opportunities for Finnish industry. Our role is at the tail end of the chain, i.e. we strive to utilize the recycled materials yielded from discarded textiles within our products.

In the summer of 2016, we began using reusable RePack packaging in our online store. RePack is a durable, waste-free alternative for disposable packaging. After delivery, the empty RePack bag can be returned via the nearest mail box to be used again and again. In 2016, we delivered 1330 orders using RePack bags instead of plastic bags. During the fall of 2016, we also tested recycling old sheets through our online store using RePack packaging and will be offering the option to return textiles via mail in 2017.

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CORPORATE RESPONSIBILITY

We want to create high-quality products that are better, safer, and provide joy to our customers for as long as possible. The life cycle of our products can be extended even further with the right care.

In 2016, we created a textile care instruction site, which includes information about materials and washing instructions, as well as tips for more ecological laundry. The website also includes a series of videos, in which our CEO Jukka and Creative Director Petu wander through the magical world of textile care, guided by Inkeri from the regional Martha Association of Uusimaa. Product reclamations from our customers amounted to 0.06% of our turnover in 2016, which was the same as in 2015. This shows that the quality of our products has not been compromised.

COTTON

Cotton is our primary material. We use cotton because it is strong, durable, and absorbent natural material that is extremely suitable for use in bed linens and bath textiles. However, the production of cotton consumes a lot of natural resources, especially water. Various chemicals are also used in cotton farming. Cotton certification systems are used in attempt to minimize the environmental impact of farming, which is why we aim to purchase more certified cotton and are constantly researching different materials to replace virgin cotton in our products. In 2016, 5% of cotton used in all of our products was certified Fairtrade cotton and we intend to increase this number.

Cotton farming may also be related to various social problems, such as child or forced labor. We do not buy cotton directly, which is why our influence on cotton farming practices is minimal. Cotton may pass through many intermediaries: farmers, further processors, wholesalers, thread spinners, weavers, and end-product manufacturers. Information of origin is usually lost, at the latest during the spinning phase, where different cotton varieties are mixed to achieve a certain grade of thread.

Tracing cotton product-specifically to the fields is therefore quite challenging.

In the fall of 2016, we did, however, improve the traceability of cotton for our products when we determined the origins of materials used in our products, such as cotton, linen, and wool, from our suppliers. Without clear tracing tools, we must rely on the information provided by the suppliers.

WE ONLY PRODUCE HIGH-QUALITY PRODUCTS, whose service life is as long as possible.

All of our products fulfill our precise quality criteria and most of them have the Ă–ko-Tex certificate to ensure that the products do not contain harmful chemicals and are safe to use.

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As of yet we are unable to verify the origin of materials product-specifically, but we do know the countries of origin per producer. based on the responses, the most prominent cotton-producing countries for our products are USA, India, Pakistan, and Turkey. Other countries mentioned in the responses include: China, Turkmenistan, Kazakhstan, Azerbaijan, Sudan, Egypt, Burkina Faso, and Indonesia. In the future, we will send a materials form to each new supplier before we begin cooperation and if we do not receive origin information, we will not go forward with the cooperation. Acquisition instruction have been added to the materials form, in which we further specify our principles, particularly regarding cotton and wool acquisition. We do not want to use materials grown or produced in Uzbekistan or Belarus and we prefer non-GMO cotton wherever possible.

FAIRTRADE COTTON

The Reilu towels (photo) and bathrobes included in our product range are made from high-quality, hand-picked Fairtrade cotton, that is farmed traditionally respecting people and nature. The farmers receive a fair and guaranteed compensation for their work and a Fairtrade premium that is intended for the producer cooperatives’ economic, social, and environmental projects. Fairtrade farming prohibits the use of genetically manipulated seeds. Since January 2016, all of our Fairtrade towels and bathrobes have also been manufactured using organically farmed cotton (with cotton originating from Burkina Faso and India). In 2016, the Reilu products consisted a total of 4.9% of all of our purchases. We intend to increase the share of cotton produced in accordance with Fairtrade principles in our production.

RECYCLED MATERIALS

In 2016, we introduced a new product category using recycled materials: rag rug pieces. We used duvet covers and bedsheets gathered from consumers to produce versatile rag rug pieces, instead of rag carpets. We have also used recycled fibers in other products, for example, recycled polyester and cotton as filler. We are particularly researching potential uses for recycled cotton and will increase the share of recycled materials used in our products.

LINEN

Linen is a natural fiber and the oldest of the textile fibers. Linen is considered to be environmentally friendly as it can be farmed without using a lot of fertilizers, pesticides or artificial irrigation. We use linen for kitchen towels and decorative pillow cases, for example. The linen used in our products originates from Europe, China, and Russia.

OTHER MATERIALS

Other materials used by us include wool, polyester, nylon, and acrylic. Our wool comes from New Zealand and Australia. We do not condone the use of the mulesing method in sheep farming. Polyester is used for shower curtains, decorative pillow cases, as filler for pillows and bed covers. Nylon and acrylic are used in some decorative pillows and blankets. We are also researching potential uses for regenerated fibers, such as the pulp-based lyocell (trade name TencelÂŽ), which are interesting and more ecological alternatives for cotton.

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CHEMICALS

PRODUCT LABELS AND CERTIFICATES

Chemicals are used in various stages of manufacturing household textiles: threads, fabrics, and end products are bleached and dyed, finished, and washed. Most of the chemicals used are completely harmless, while some may even be carcinogenic. Finlayson requires that all of our manufacturers are committed to follow the REACH regulation of the European Parliament and Council on the registration, evaluation, authorization, and restriction of chemicals. The REACH regulation is intended to secure consumer safety by prohibiting, for example, the use of chemicals that are known to be carcinogenic in production. REACH publishes and maintains a list of prohibited chemicals and a list of Substances of Very High Concern (SVHC) that can only be used under license or not at all. We require that our products cannot contain any chemicals prohibited by REACH or included in the SVHC list.

All of our products are marked with the country of manufacture, material composition, and care instructions that should be followed to ensure as long a service life as possible. Clearly marked product information also facilitates recycling after the product has been removed from use.

Product certificates can help consumers make more responsible choices with a quick glance, but they should also be easily understood. The following labels can be found on our products:

In chemical testing, we rely on the Öko-Tex Standard 100 certification which has been awarded to most of our products. The Öko-Tex certificate on a product ensures that all components of the product (fabric, threads, zippers, filler, etc.) fulfill the strict chemical requirements. The chemical contents of the products are tested by independent laboratories authorized by Öko-Tex. The testing criteria become stricter according to how close to the skin the product is used and the testing criteria for products intended for children are the strictest. Certificates are awarded by product group and renewed annually. Öko-Tex monitors its conformity with the REACH SVHC list with regard to substances used in the textile industry and annually reevaluates its testing criteria.

ÖKO-TEX STANDARD 100 label ensures that the textile products are

safe to the user and the amount of harmful chemicals does not exceed the standard limits. Öko-Tex tests chemicals in textiles in four categories – the closer to the skin the product is used, the stricter the test requirements. Certificates are renewed annually.

FAIRTRADE COTTON label denotes that the cotton used in our

Reilu bath textiles is produced in accordance with the Fairtrade principles.This means that the cotton farmers have, at minimum, received the guaranteed Fairtrade price that covers the cost of sustainable production and is not affected by swings in the market prices.

ALLERGY is a Finnish allergy label awarded by the Allergy and Asthma

Federation to products that have been tested to be suitable for people with sensitive skin and those suffering from allergies or asthma. All of our bed linens carry the Allergy label.

DESIGN FROM FINLAND label is awarded by the Association for

Finnish Work and denotes that our products have been designed in Finland and that design has an essential role in the value creation of our products.

THE KEY FLAG label denotes that the product has been manufactu-

red in Finland. In addition, the domestic content of the product must be at least 50 percent. The Key Flag label can be found in our rag products.

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CORPORATE RESPONSIBILITY

It is our dream to become the most transparent textile industry company in the world. We have promised to make our supply chain completely transparent and work to promote the traceability of cotton.

COUNTRIES OF PRODUCTION 2016

We are aware that this ambitious goal requires clear targets, long-term effort in cooperation with our producers and other interest groups, and constant monitoring and truthful reporting. Step by step, we move towards this goal. In 2016, we: • published our first responsibility review, in which we provided information about our countries of production and factory inspections • published a list of suppliers on our website • increased coverage of our factory inspections

ucts are manufactured in Europe. All of our partners must commit to BSCI’s Code of Conduct.

We monitor our partners through BSCI – in 2016, 95% of our purchases from risk countries were made from BSCI audited suppliers.

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Turkey

16 %

Belgium

11 %

Latvia

5%

Pakistan

4%

Portugal

ACQUISITION PRINCIPLES

3%

China

We have attempted to keep our supply chain as compact and manageable as possible. In 2016, we had 37 significant suppliers. We intend to increase cooperation with our supplier and thus improve the transparency of our supply chains step by step. All of our suppliers are committed to the ILO Declaration of Fundamental Principles and Rights at Work. Each new potential partner is analyzed from the perspective of responsibility and risks and if those risks are determined to be too great we will not move forward with the cooperation. The same also applies if we do not receive all of the information we have requested. Cases such as these are extremely rare. While we attempt to use many different methods to verify the responsibility of our suppliers, in the end we must rely on our partners as we cannot be physically present at each factory.

2%

Estonia

1%

India

1%

Japan

1%

Finland

1%

Others (Lithuania, Czech, Spain, Hong Kong)

• determined the origin countries of the materials used in our products and packaging materials from each of our partners

OUR MANUFACTURING MOSTLY TAKES PLACE in Europe and Turkey. 36% of our prod-

55 %

BUSINESS SOCIAL COMPLIANCE INITATIVE

During the drafting of agreements, we require that all of our partners are committed to adhere to the principles set out by BSCI (Business Social Compliance Initiative). BSCI is a European social responsibility initiative whose aim is to support importers and distributors in improving the working conditions within their supply chains. We have been a member of the BSCI since the summer of 2015. As a member of the BSCI, we are committed to following the BSCI Code of Conduct covering the below areas and also require our partners to do the same:

• • • • • •

The right to organize and negotiate Ban on discrimination Fair compensation Reasonable working hours Occupational health and safety Ban on child labor

• Special protection for young workers • Ban on fragile employment • Ban on forced labor • Environmental protection • Ethical business operations

LICENSING AGREEMENTS

FACTORY INSPECTIONS, I.E. AUDITING

Our agreement with license manufacturers includes operative principles that are based on the United Nations’ Universal Declaration of Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work, to which the licensed manufacturers commit. The agreement also widely covers issues related to safety, quality, product testing, packaging labels, and delivery as we do not monitor our license manufacturers with the same scope as we do our partners. In each country, license manufacturing is coordinated by a local agent, whose responsibility it is to ensure that manufacturing adheres to our agreement. As necessary, we perform inspections at factories in case of unclarity.

We personally visit three of our primary suppliers each year. We are also constantly developing our assessment practices for suppliers. We have carried out risk assessments for our suppliers based on BSCI risk country assessment and purchase volumes. 64% of the manufacturing of our products takes place in risk countries (Turkey, Pakistan, China, and India) and in 2016, 95% of our suppliers in risk countries were audited. Manufacturers located in risk countries are evaluated by BSCI inspections, i.e. auditing. The goal of the BSCI auditing is systematic and long-term monitoring and development in case of irregularities. A risk country related to legislation and infrastructure on each company operating in the country should,

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AUDITING RESULTS 12/2016

71 %

Needs improving (C/D)

29 %

Passed (A/B/SA8000)

0%

Failed (E)

BSCI AUDITING COVERAGE IN RISK COUNTRIES

2015

65 %

Audited (BSCI)

35 %

Not yet audited

however, be acknowledged. BSCI’s factory inspections are carried out by having BSCI authorized auditors regularly visit suppliers and report on the auditing results on a scale of A to E. Depending on the results of the auditing, the supplier must devise a remediation plan and carry out improvements before the next follow-up audit. If the supplier passes the follow-up audit (score of A or B), the audit is valid for two years. The auditing system is not intended to “punish” the suppliers, but instead to develop and improve working conditions in cooperation.

LIVING WAGE

Approximately one third of the BSCI audits carried out in 2016 received a passing score, while some room for improvement was found in the rest. Most irregularities found during the inspections were related to management systems at the factories, employee direction, and lack of documentation. In many cases, inclusion and protection of workers was also in need of improvement (reporting, education, overtime). There were no zero tolerance findings (such as child or forced labor) made regarding our partners, which would lead to immediate termination of cooperation. The other results of the 2016 BSCI audits are available by topic in the attached table 6.

Some of our partners pay wages that exceed the minimum wage agreements, while others pay the legally required minimum. So far, Finlayson has not had written requirements for paying a living wage.

In 2016, we have been able to increase the coverage of our third-party factory inspections significantly. 61% of all of our suppliers are now covered by the audits and 95% of our risk country purchases are made from BSCI or SA8000 audited factories

A living wage means a wage that an employee has earned within regular working hours and with which they are able obtain a locally satisfactory standard of living to themselves and their family, i.e. they can satisfy their and their family’s basic needs and have some savings.

In BSCI auditing, the amount of paid wage is calculated in proportion to a living wage and a country-specific minimum wage. The minimum wage amounts are specified by the governments and the amounts may be affected by various political factors, such as maintaining the country’s competitive ability. We have received information on the average wage paid by all of our audited suppliers and that they exceed the statutory minimum wage requirements.

DETERIORATION OF HUMAN RIGHTS SITUATION IN TURKEY IN THE FALL OF 2016

The human rights situation in Turkey deteriorated in the summer of 2016 on account of the “purges” carried out during the attempted coup and following it. Immediately after the events, we made inquiries to human rights organizations and the Ministry for Foreign Affairs and neither recommended boycotting the country.

We do not wish to end our cooperation with our Turkish partners as we do not believe that a boycott could influence human rights issues on a national level and terminating our business relationship would only harm our partners and their employees. According to our partners, the attempted coup and its aftermath have had no effect on their business operations. We have also been informed by our partners that they do not employ Syrian refugees.

Employing refugees as such is not problematic as long as the same rights and privileges apply to them as other workers.

ALL THREE OF OUR TURKISH PARTNERS WERE AUDITED IN 2016 IN ACCORDANCE WITH THE BSCI CRITERIA.

Two partner companies passed the auditing. The third partner was audited for the first time and a need for improvement was observed regarding management systems, instructions, documentation, and employee inclusion. The company will be re-audited in the spring of 2017 to see whether the situation has improved. No indications of forced refugee labor were found in any of the three audits.

95 % 5%

Audited (BSCI tai SA8000) Not yet audited

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STAKEHOLDER GROUP COOPERATION

CORPORATE RESPONSIBILITY

We have identified our most important stakeholders and intend to increase cooperation with our interest groups before 2020. In 2017, we will be organizing meetings with interest groups to discuss our work on responsibility and the themes that are important to our interest groups. We will develop our responsibility strategy based on these meetings. We will also provide information about our work on responsibility in various events and through organizations.

OUR MOST IMPORTANT STAKEHOLDERS AND WHAT WE HAVE DONE IN 2016:

CUSTOMERS

We have increased communication about responsibility and carried out market research in May 2016. It is very important to us to know what our customers think and what their needs are. In the research carried out by Taloustutkimus, Finlayson was perceived as the most responsible operator in the field of household textiles. 97% of participants considered responsibility to be important.

PERSONNEL

Healthy employees are the basis of business operations. In 2016, we devised an equality plan that provides operating principles and targets to prevent discrimination, harassment, and bullying. In 2017, we will be carrying out a job satisfaction survey.

We hold regular performance appraisals, support flexibility at work, and provide our employees opportunities to participate in training.

WE TERMINATED OUR COOPERATION with one of our distributors as its management had

connections to a Finnish online publication spreading racist and bigoted propaganda.

We could not continue cooperation with an operator whose values were so radically different from

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MANUFACTURING PARTNERS

We carry out reviews and maintain a dialog with our manufacturing partners regarding audits, environmental issues, and materials. As our latest review, we determined the origins of the materials used for our products and packaging, receiving responses from all of our partners.

We carry out factory inspections for our risk country partners and encourage them to improve and cooperate to find new materials.

MEDIA

In 2016, the media showed interest in us especially in relation to responsibility in textile industry supply chains and the origins of cotton. We are happy to answer inquiries as that is the only way to engage in the discussion and to work together to promote the development of responsibility in the textile industry. In 2016, the media also took interest in our recycling campaign and the resulting rag rug pieces, as well as our Lion campaign in December.

AUTHORITIES

In 2016, we cooperated with the office of the non-discrimination ombudsman and the occupational health and safety inspector, among others.

ORGANIZATIONS

Cooperating and networking with organizations is an important part of our work on responsibility. We carried out cooperative projects with the Martha organization and the Finnish Red Cross, among others.

We are members of the following organizations: Textile and Fashion Suppliers and Retailers Finland (TMA) Finnish Textile and Fashion ry (STJM) Finnish Business and Society (Fibs) Foreign Trade Association (FTA) and Business Social Compliance Initiative (BSCI)

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CORPORATE RESPONSIBILITY

Tolerance is one of our company values. In addition to the Tom of Finland products, tolerance is also shown in our actions as part of the society. We are not afraid to take a stand and we strongly feel that companies should participate in social discussions.

IN SUPPORT OF EQUALITY

Finlayson was proud to be the main sponsor of the EuroGames 2016 sporting event. The EuroGames is a sports and culture event for sexual and gender minorities that brought more than 1,400 magnificent athletes into Helsinki from 40 different countries around the world. Naturally, our Tom of Finland products were part of the celebrations.

AGAINST RACISM AND HATE SPEECH

In 2016, we took a stand against racism and hate speech. In April, we organized the Muksu Workshop at our offices, to which we invited our employees’ children and children from a nearby refugee center to enjoy goodies and create art. The workshop was organized by our Finlayson Lab designers, who participated in practical training with us during 2016.

In the fall of 2016, we launched the Tamminiemi sauna collection, which is an homage to the most famous sauna in Finland, used by Urho Kekkonen during his presidency. Decisions made in the Tamminiemi sauna probably secured peace and independence throughout Finland.

This is where the spiritual side of sauna, its most essential element, was fully embraced.

WE WORK TOWARDS tolerance and equality with concrete actions as part of our daily

business operations. Finlayson’s Tom of Finland collection was launched as an homage to the art of Touko Laaksonen (1920–1991). The highly masculinized male figures seen in the illustrations of Tom of Finland that were chosen for our products are a strong message in support

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With the 100 Lions for Finland project, launched in December of 2016, we wanted to celebrate 100 years of Finnish independence with the gift of a design project, where designers and the Finnish people come together to find at least 100 companions to our heraldic lion. In everyday use, our lion has unfortunately fallen into the wrong hands. It has been surrounded with an environment of discrimination and connotations that are hard to identify as patriotic. At the same time, patriotism has been linked with elements of intolerance. Patriotism can be a positive, uniting force, which is why we want to reclaim the lion for everyone.

Responsibility aspect

Target 2020

Situation 2015

Situation 2016

Economic responsibility

Increasing turnover sustainably

Turnover €22.9 million

Turnover €35.1 million

Societal responsibility

Including interest groups in developing responsibility

Identified most important interest groups

Cooperation with the non-discrimination ombudsman’s office, presenting Finlayson’s work on responsibility in various forums

Reducing CO 2 emissions 20% in proportion to turnover

17,200 CO₂e tonnes, in proportion to turnover: 0.75 kg/€

- 7%

Reducing packaging waste 20% in proportion to turnover

Plastic waste 61 t, corrugated cardboard 210 t, cardboard 57 t, wood pallets 50 t

Plastic waste 92 t*, corrugated cardboard 305 t*, cardboard 184 t*, wood pallets 246 t*

Designing, developing, and monitoring work for equality

An equality plan exists, not updated for the new organization

Equality plan finished 12/2016, Record number of participants in the Kilometrikisa bike-a-thon, “Työpaikka, joka liikuttaa” certificate received from HSL

Increasing transparency in supply chains

Review for material origin countries initiated

Supplier list published Videos published for primary partners Origin country review for materials finished

Increasing the share of BSCI audited suppliers to 80% and having all suppliers sign BSCI Code of Conduct

15% of suppliers audited

by BSCI, all partners have committed to the principles of ILO’s basic terms and conditions, approx. 1/3 has signed

61% of suppliers audited

by BSCI SA8000, 91% have signed BSCI’s Code of Conduct

Ensuring quality: keep reclamation share under 0.1% of turnover

BSCI’s Code of Conduct Share of reclamations 0.06% of turnover

Share of reclamations 0.06% of turnover

Increase the share of responsible materials (Fairtrade cotton, recycled materials) to 30%

Fairtrade cotton 4 %

5.1 % (Fairtrade cotton 4.8 %, recycled wadding 0.2%, recycled cotton 0.1 %) kierrätetty puuvilla 0,1 %)

JOURNEY TOWARDS THE 2020 RESPONSIBILITY TARGETS

In the summer of 2016, we published our responsibility target program. We still have ways to go with many of our goals, but we have made good progress on several of them.

Environmental responsibility

Social responsibility

Responsible acquisitions

Product responsibility

Status

Achieved

(24,500 CO₂e tonnes, In proportion to turnover: 0.70 kg/€)

Initiated

On schedule

Initiated

What will be done in 2017?

Continue the good work. Consider opening indirect financial indicators, such as tax footprint, further.

Organize interest-group-specific meetings to discuss Finlayson’s work on responsibility.

Recommend renewable energy to subcontractors, reduce cotton’s share of purchases, reduce packaging waste.

Revamp product packaging, develop internal logistics, increase the share of RePack deliveries in the online store.

On schedule

Carry out a personnel survey and the measures required by the equality plan, such as a wage survey, and combine the different plans into a single equality and non-discrimination plan.

On schedule

Devise acquisition instructions for materials, continue the work to further determine country-specific information, publish a map of the suppliers’ factories, increase the share of certified materials.

On schedule

Increase the coverage of auditing in risk countries to 100% (95% in 2016).

Ensure that all suppliers have signed BSCI’s Code of Conduct.

Continue the good work Achieved

Initiated

Increase the share of certified cotton (organic, Fairtrade, BCI) in new product categories, increase the acquisition of recycled materials and continue research on recycled materials in the Telaketju initiative

* The numbers from 2016 are not completely comparable with the numbers from 2015 as value calculation has been specified further in 2016.

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ATTACHED TABLES

TABLE 1 FINANCIAL INDICATORS 2015 AND 2016 (€ MILLIONS) 2016

Financial indicators

2015

Turnover

22.9 35.1 +53%

Number of personnel

Operating margin

1.9

Depreciation

0.76 1

Financial expenses

0.77

0.77

Men Women In total

Profit before taxes

0.3

1.4

Taxes paid

0

0.04

Wages paid

3.2

5

+56%

Social security contributions

1.8

2.9

+61%

Goods and services purchases

11.1

17

+53%

Paid dividends

0

0

Paid interest

0.6

0.5

Investments

0.8 1.8 +125%

3.1

Change

TABLE 2 PERSONNEL INDICATORS 2015 AND 2016

+63% +32% +367%

-17%

2015 2016 14 22 116 170 130 192

Duration of employment less than 2 years 2–5 years 5–10 years 10–20 years more than 20 years In total

44% 22% 13% 15% 7% 100%

Age of personnel under 25 years 25–35 years 35–45 years 45–55 years over 55 years In total

18% 32% 25% 16% 9% 100%

Type of employment Regular, full-time 43% Definite 17% Regular, part-time 28% Part-time (framework) 12% In total 100%

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57% 17% 8% 11% 7% 100% 17% 34% 28% 11% 9% 100%

TABLE 3 ARBON FOOTPRINT PER OPERATION 2015 AND 2016

2015

2016

Change %

Materials

54.9 %

58.0 %

+3.1 %

2015

2016

tonnes tonnes/MEUR tonnes tonnes/MEUR

Change in proportion turnover

Corrugated cardboard

210.1

9.17

304.5

8.68

-5%

Transport of materials to production sites

1.4 %

0.8 %

-0.6 %

Cardboard and paper

56.9

2.48

184.1

5.25

+112%

Production

23.0 %

21.7 %

-1.3 %

Plastic packaging

61.3

2.68

92

2.62

-2%

Transport to Finland

1.0 %

1.0 %

Wood pallets

95.6

4.17

245.5

6.99

+68%

Packaging materials

2.8 %

2.3 %

-0.5 %

Administration and retail

16.9 %

16.1 %

-0.8 %

Domestic logistics

0.1 %

0.1 %

TABLE 4 CARBON FOOTPRINT IN PROPORTION TO TURNOVER AND PER PRODUCT

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TABLE 5 AMOUNT OF PACKAGING MATERIALS 2015 AND 2016 (T)

2015 2016 Change

CO 2 e kg/€

0,75

0,70

-7 %

CO 2 e kg/product

6,96

7,03

+1%

Note! Reused materials are not included in the numbers. The numbers are not completely comparable as packaging was reviewed in 2016 to weigh all the materials used for packaging product-specifically for the first time, which should explain the differences between the two years. The numbers for 2016 and 2017 will be comparable.

TABLE 6 RESULTS OF BSCI AUDITING PER TOPIC, 12/2016

TABLE 7 SUPPLIER AUDITING, 2015 AND 2016

Assessment of auditing areas: A =exellent

B =good

C =acceptable D =inadequate E =failed

Social management systems and distribution Employee inclusion and protection

3 1

2 2

4

Right to organize and negotiate

1 1

1

9

Discrimination ban

8

Fair compensation

3

Reasonable hours

3

Occupational health and safety

3

5 2

2

3

4

1

Special protection for young workers

65 %

64 %

Percentage of audited suppliers

15 %

61 %

Percentage of audited risk country suppliers (BSCI or

65 %

95 %

SA8000)

90 %

29 %*

5%

71 %

Failed (E/Non-Compliant)

5%

0%

Zero tolerance findings

0

0

1

Improvements required

1

8

The share of risk country acquisitions of total purchases

Percentage of passed audits (A/B/Good)

9

Child labor ban

2016

1

1 1

2015

1

(C/D/Improvements Needed)

All figures measured in purchase prices * SA8000 certificate is considered a passed audit

7

Fragile employment ban

Ethical business

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1

9

Forced labor ban Environmental protection

1

8

3 7

2

EST. 1820

responsibility@finlayson.fi