Finlayson corporate responsibility review 2017

FINLAYSON CORPORATE RESPONSIBILITY REVIEW 2017

Contents Greetings from Salmisaari..................................................................................3 Our Corporate Responsibility year 2017 in a nutshell.................................4 UN Sustainable development goals and Finlayson.......................................5 1.

The company must be moral..................................................................... 6

2.

We promise to be nice to everyone except to those who are mean to the environment..................................................................................... 8

3.

We love recycling....................................................................................... 12

4.

Buy less but better .................................................................................... 16

5.

We consider from whom we buy............................................................. 19

6.

We don’t befriend the bad ...................................................................... 24

7.

Love belongs to everyone .......................................................................26

Appendices.... ...................................................................................................... 27 Contacts................................................................................................................35

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Greetings from Salmisaari If someone says doing business is easy, I say they are lying. In the recent years, we have taken Finlayson back to its roots, defined our design strategy, updated our collection structure, built a responsible and a transparent code of conduct and launched internationalization. At the same time, we have broadened our network of stores in Finland and doubled the size of the company. It has been a fast ride - so fast, it hurt a little.

In 2017, it was about time to start looking into the mirror, when the business internationally did not go as planned. Especially, the Swedish network of stores was unprofitable. We did not receive sales from the Swedish stores and hence also the profitability did not rise enough. We had to state that we are still far too small to build, on a market new to Finlayson, a sufficient marketing system in order to have enough customers in the stores. We had to make a hard decision about closing the Swedish store network. But it is part of the business. Sometimes you are beaten and then, the corrective moves need to be quick.

At the same time, we also stopped to think more about Finlayson. How we do things, what business-related truths are in fact truths and could we develop our profitability by doing something differently? Soulsearching paid off. We realized that many things are done in a funny way from the viewpoint of our strategy. We wanted to produce less meaningless stuff into this world, but we noticed that we manufacture them way too much. According to our calculations, we can manage with 1/3 of material production just as well as before. We also decided to involve our customers in developing our products and learn to make even better decisions.

We think of responsibility as deeds that create a better world. I have always wondered why home textile companies are absent from websites that introduce products with an almost life-long guarantee. In fact, we got so mad about this that we decided to create such a home textile. And we did it. The only bed sheet in the world that we can give a guarantee of 50 years, and we are so proud of it. It is not only responsible but extremely comfortable in use.

We have also continued to raise matters important to Finlayson into public discussion. Maybe the most discussed theme was the Women's Euro campaign, in which we reminded the Finns about the fact that even though I think we live in the greatest country in the world, not everything is ready yet. We still have things that need fixing. We think that one of these matters is the incredible fact that the women's euro is only 0.83 â‚Ź of a man's Euro. We created some good conversation and we are certain that by raising the subject, we will change this fault in the Finland of future.

Photo: Markus Rantanen

In a year, we have increased the share of responsible materials. Last year, we brought relatively many new recycled products to the market, such as denim towels, Reno recycled flannels and clothespins made from recycled plastic here in Finland. We also succeeded in increasing the share of audited risk country partners to 97%, as it was 95% the year before. Last year, we also launched a very demanding project: we performed a supply chain study with the objective to clarify all the players in the value chains of our products.

We have invested a lot in the development of responsible business. I want to thank everyone at Finlayson for this.

Jukka Kurttila 3

DESIGN We designed new more responsible products such as jeans towels, clothespins and flannel sheets.

COLLECTING AND RECYCLING

MATERIALS

We recycled old jeans and sheets into new products and introduced the Circular Economy Account.

We increased the proportion of more responsible materials in our products and removed single-use plastic bags from our shops.

Our Corporate Responsibility year 2017 in a nutshell PRODUCT USE

PRODUCTION

We introduced a 5-year warranty and Jesus bedding with a 50-year warranty and kept our customer reclamations to the minimum.

We raised the proportion of audited suppliers in risk countries to 97 % and launced an extensive supply chain research.

SALES AND MARKETING We raised awareness on various societal topics, took initiative in inadequacies and increased the transparency of our communications.

4 4

UN Sustainable development goals and Finlayson The SDG's, Sustainable Development Goals of the UN, aim to change the development of the world into a sustainable direction from the viewpoint of the mankind, environment and the economy by 2030. It is possible, if we take the environment, the people, human rights and the economic viewpoints into account. The 17 goals that came into effect in 2016 bind all countries and they will be promoted from the individual level to the global level, including the companies. The following table represents how we promote these goals in practise with our responsibility work.

Finlayson has a responsibility strategy up to 2020. It is important that there are clear goals for the responsibility work, so that we are able to monitor whether genuine development is achieved. You can read the entire responsibility strategy in Appendix 1 and in the beginning of each chapter.

WHAT FINLAYSON IS DOING TOWARDS THE GOAL?

SDG

• •

Equality at Finlayson p. 24-25 Social campaigns to raise awareness on equality: Womens’s Euro and Girls Takeover p. 26

• • •

Microplastics, p. 11 Improvement of water stewardship, p. 11 Products to protect the Baltic Sea, p.11

•

Human rights due diligence and payment of living wages, p. 6-7 Value creation in all steps of the value chain, p. 19, 21 amfori BSCI Code of Conduct and auditing of suppliers, p. 19-23 Employment and wellbeing of personnel, p. 24-25

• • • • • • • • •

•

Reduction of packaging materials, p. 10 Increasing the amount of more responsible materials, p. 12-16 Product quality and durability, p. 16-17 Product safety and chemicals, p. 18 Increasing transparency, p. 19, 21 Responsible sourcing and purchasing, p. 19, 22-23

Reduction of CO2 emissions in Finlayson’s entire value chain, p. 8-9

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TARGET 2020

SITUATION 2017

Comply with the human rights due diligence process*

Participatin in human rights training in autumn 2017, starting supply chain research, increasing supplier audits

STATUS

WHAT’S NEXT?

Initiated

Human rights impact assessment of Finlayson’s value chain, living wage estimations in risk countries

*NEW TARGET! The previous target was: ”Increasing turnover sustainably”. Target changed to account for human rights due diligence process.

The company must have clear values, according to which all empolyees work.

We have a strong value leadership, which means that every time when we face new issues, we think whether it is according to our values and are we on the good side. If we are able to answer "yes" to both questions, we make progress and we shall not be afraid of external reactions.

Our values were renewed in 2017 and our new values are: WE ARE RESPONSIBLE. WE ARE BOLD. WE ARE INTERESTED IN THE WORLD AN ISSUES. Our responsibility work has been noted. Third time in a row, Finlayson was valued as the most responsible company of the industry and the 12th most responsible brand in the Sustainable Brand Index 2017 study, which is the largest Scandinavian brand study ocusing in sustainability and responsibility, and which is based on 30,000 consumer estimates on over 900 brands.

OUR COMPANY HAS VALUES, according to which we do our work each day. We only cooperate with partners that match our values and we take human rights seriously. We act instead of shouting from the back of the room and for this we have been recognized as the most responsible brand in our sector in Finland for three years in a row in the Sustainable Brand Index survey.

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HUMAN RIGHTS AND LIVING WAGE Human rights belong to everyone. In corporate operations, the companies must respect human rights. That means that they need to avoid causing negative human rights impacts in their operation, estimate whether negative impacts exist in the operation and if they do exist, aim to prevent or mitigate the impacts, monitor the implementation of the actions and to inform about the actions externally. This process is called the human rights due diligence process, and it has been added to Finlayson's responsibility targets in 2017.

It is important that workers are paid a living wage regardless of the country in which they work. The issue is very challenging, and we are not able to solve it by ourselves, because we do not pay wages in our supply chains. However, we strive as a part of our human rights assessment, to compare the paid minimum wages with the calculatory living wage in all risk countries, in which Finlayson operates. We are aware of the wages paid by our audited manufacturing partners and of the fact that they pay the statutory minimum wage, if such a wage is applied in the country in question.

The following table represents the minimum wages of the clothing industry in our highest risk manufacturing countries: PRODUCTION COUNTRY Pakistan India China Turkey

MINIMUM WAGE IN THE GARMENT INDUSTRY 1 119 USD 135 USD 297 USD 530 USD 2

In Turkey, the minimun wage is the same regardless of the industry and it is the highest of the four countries. In India and Pakistan, the minimum wage in textile industry is significantly lower, and it varies regionally and according to the skill level of the worker. In India and China, there is no statutory minimum wage. In China, instead of a statutory minimun wage, there are regional regulations regarding the levels of minimum wages, and in China, the wage is also based on the skill level.

1 2

ILO: Minimum wages in the global garment industry: Update for 2015 https://turkishlaborlaw.com/news/legal-news/567-2018-minimum-wage-announced

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TARGET 2020 Reducing CO2 emissions 20% in proportion to turnover Reducing packaging waste by 20% in proportion to turnover

Continual improvement of water stewardship*

SITUATION 2017 -10 % (compared to 2015)

STATUS

WHAT’S NEXT?

On schedule

Recommend renewable energy to suppliers, reduce cotton’s share of materials

Achieved, new more ambitious target set

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

Initiated

Water stewardship commitment, supply chain research, increasing the amount of ecological materials

0,68 CO2ekg/€ -26 % (compared to 2015) Plastic 64 tn, corrucated cardboard 206 tn, cardboard 78 tn, wood pallets 149 tn The amount of more ecological materials (organic cotton, recycled materials) increased, water risk assessment conducted

* NEW TARGET!

COOPERATION TO MITIGATE CLIMATE CHANGE

TO US, RESPONSIBILITY MEANS that we want to act like any good person does with their neighbors and the environment. We only produce high-quality products with long service lives. We recommend recyclable RePack delivery packages in our web shop. We aim to reduce our carbon footprint and are always searching for new, more ecological materials. All our stores operate on EKOenergy.

We joined the Helsinki city Climate Partners (Ilmastokumppanit) and made a climate commitment. Our goals for the commitment concern the existing goals in the responsibility strategy: reducing our carbon footprint, replacing cotton with materials less burdening for the environment and reducing packaging waste. We are also committed to educate our staff more in environmental issues.

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OUR CARBON FOOTPRINT IS REDUCED IN TARGET SCHEDULE The 20% reduction of carbon dioxide emissions (in relation to turnover) by 2020 is one of our responsibility targets. In 2017, the carbon footpront of our entire operation was 24 900 tons CO2e. In relation to our turnover, the emissions were 10% smaller than in the year of 2015, which means that we are making good progress towards our goal. We are especially proud of our product-specific carbon footprint, which was almost 30% smaller than in 2015.

Among the most significant reasons, specifically for the reduction of productspecific emissions, is the increase of new, more ecological materials in our products. The share of materials in our emissions in total is remarkable, because especially cotton causes over half of all our emissions. If we compare different materials, wool has the highest emissions and linen the lowest. The emissions of recycled materials depend on whether the recycled material is cutting waste created in the process of product manufacture or used materials received from the consumers. Also the percentage of the recycled material of final product's materials in total affects.

Other reasons behind the waste reduction include the packaging update in 2017 for small products and giving up on the use of single-use plastic bags in our shops. Year 2017 was also the first entire year on EKOenergy, which means that all our own operations had zero emissions, as far as electricity consumption is concerned. The calculation is performed annually by Natural Step Nordic Oy. Please see how our emissions have changed between 2015 and 2017 in Appendices 2 and 3.

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THE AMOUNT OF PACKAGING WASTE WAS REDUCED BY 26%

WE REMOVED SINGLE-USE PLASTIC BAGS FROM OUR STORES

The amount of our packing waste was reduced in 2017 by 26% in relation to the turnover compared to 2015 (see image below). For example, we implemented a packaging update for small textiles, which reduced the amount of cardboard by 80%. The amount of plastic packages has been reduced, because we removed plastic shopping bags from our stores in the summer 2017. Also in 2016, we replaced the shipping bags of the web store with cardboard boxes and reusable RePack-bags. The amounts of corrugated cardboard and wooden pallets are not entirely comparable due to the changes in reporting.

In the summer of 2017, we removed all plastic shopping bags from our stores and implemented only paper bags and new ecological bags. The bags are also subject to a fee, the idea of which us to awake the consumers to consider whether they need a plastic bag at all. We also wanted to encourage our customers to carry a shopping bag of their own when shopping. The plastic strategy of the EU also binds the states to reduce the consumption of plastic bags.

PACKAGING WASTE 2015-2017 IN RELATION TO TURNOVER 10 9 8

2015*

2016

2017

7 6 5 4 3 2 1 0 Corrugated cardboard

Cardboard

Plastic

Wood pallets

* 2015 figures are note totally comparable to the figures from 2016 and 2017, as the accuracy of the calculations have improved in 2016.

We continue our work to reduce and optimize our packing materials. The next big step is the packaging update of bed textiles. Bed textiles are our largest category, and we use plenty of plastic in their packaging at the moment. We aim to find a new, more ecological solution for plastic.

REPACK We started to use RePack packagings in our web store in summer 2016. The number of RePack deliveries increased a little in 2017. Due to techincal reasons, at the end of 2017, RePack was not available in our new web store. We are launching RePack again in our web store in spring 2018.

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MICROPLASTICS Recently, there has been dicussion in the media about microplastics and the fact that they come off from synthetic fibre textiles during the wash.

Finlayson products are mainly made of natural materials, but in some products, we use polyester, acryl and nylon. We use polyester mainly in shower curtains and as filling material. We use nylon and acryl in some of the throw pillows and blankets. We have not studied the shedding of microplastics from these products, and such products are usually washed more seldom than for example clothes. Synthetic fibres are not always worse from the environmental point of view, because for example as filling material, we use a certain amount of recycled polyester.

WATER AND BIODIVERSITY The share of cotton is over 90% of our used materials. The cultivation of cotton has numerous negative effects on nature and especially on the waterways. In the biodiversity workshop, organized by Fibs in 2016, we recognized water as our most significant environmental risk. It is also an issue which we are able to influence with our business operations. This is why we implemented in August 2017 a water risk analysis of our entire business operations using WWF's Water Risk Filter. It considers thoroughly the company's operations and production and the influence of material production. The tool also evaluates separately the risks involved in the location of the premises and the drainage area and how the operations of the company influence these risks positively or negatively.

In the evaluation of water risks, India and Pakistan were identified as the most significant risk areas of Finlayson with regard to both manufacture and material production. Especially the Punjab province in Pakistan, where cotton is produced for some of Finlayson's products, was identified as a risk area due to drought and poor water infrastructure. Please see appendices 4 and 5 for analysis results on map.

SMYCKE PRODUCT FAMILY FOR THE BENEFIT OF THE BALTIC SEA In autumn 2017, we introduced the Smycke product family. Smycke is a cooperative pattern between Finlayson and WWF. Smycke pattern is like the Baltic Sea, beautiful from the far like a submersed flower, but examined more closely, waste is uncovered, such as disposable containers, plastic bags and cigarette butts. We donate 10% of each Smycke product in full to the Baltic Sea conservation work of WWF.

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TARGET 2020 Increase the share of more responsible materials* (Fairtrade cotton, orcanic cotton, linen, recycled materials) to 30%

SITUATION 2017 8,4 % (Fairtrade organic cotton 3,6 %, recycled materials 2,7 %, linen/flax 1,9 %**, organic cotton 0,2 %)

STATUS

WHAT’S NEXT?

Initiated

Increase the use of certified cotton (Fair trade, organic), increase products containing recycled materials

* More sustainable materials are estimated based on the environmental classification of fibers by MADE-BY (A, B and C-categories) as well as the emission factors of fibers. ** Linen/flax was included in the share of more sustainable materials in 2017 based on the MADEBY classification and emissions.

2017 WAS THE YEAR OF CIRCULAR ECONOMY FOR US In 2017, we updated our circular economy operations. We joined the Telaketju initiative, which aims to build in a multi-sectoral cooperation a total concept of textile utilization, which includes a strong Finnish value chain from collection to processing and to end product. We also brought several new recycled products to the market; we increased the selection of rag products, designed new clothespins from the plastic industry surplus materials, collected old jeans to manufacture towels in Belgium and we also introduced flannel sheets made from cutting waste by our Portuguese manufacturing partner. The share of recycled materials of all our materials increased from 0.3% to 2.7%. At the end of the year, we also launched the Finlayson Circular Economy account (Kiertotaloustili), which is a more responsible way to buy and recycle home textiles.

WE WANT TO TAKE RESPONSIBILITY for our products after they are no longer used. We salvage our customers’ old sheets and jeans and use them to manufacture rag products and jeans towels. We promise to be in the frontline when it comes to recycling. In addition to recycled materials we intend to increase the amount of more sustainable materials, such as Fairtrade and organic cotton, in our products.

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THE DENIM TOWELS SAVED 10 MILLION LITRES OF WATER In spring 2017, we introduced Old Jeans denim towels. The towels are partly made of recycled material (40%), partly of viscose (40%), the share of virgin cotton remaining small (20%). In the manufacturing process of the towels, the products are not dyed, which also saves water. It has been calculated that in the manufacturing process of a denim hand towel, almost 850 litres of water are saved, and in the manufacture process of a bath towel, almost 2,500 litres are saved compared to a similar product made of virgin cotton3.

Thus in 2017, the denim towels purchased by Finlayson saved water over 10 million litres in total, which equals the amount of over four Olympic-size swimming pools.

CLOTHESPINS FROM SURPLUS PLASTIC In spring, we also launched our clothespins made entirely of recycled materials. The clothespins are both designed and manufactured in Finland.

We did not want to bring any more unnecessary plastic products to the world, which is why we wanted to manufacture the clothespins from the surplus materials of plastic industry. Plastic is a global environmental problem, and it is important to find new solutions to plastic waste.

RENO FLANNEL BED SHEETS MADE OF CUTTING WASTE In autumn 2017, we introduced Reno flannel bed sheets. They are made in Portugal of the cutting waste of our partner's factory. Reno flannel bed sheets are of high-quality, soft material; 94% of recycled fibres and 6% of cotton. A product made of recycled fibres is a better choice from the environmental point of view compared to an equivalent product made of virgin cotton.

The product contains several different natural fibres (mainly cotton and cellulose-based fibres, small amounts of linen, wool or cashmir) and their shares may vary depending on the production batches by some percents. In the weaving process of the yarn, virgin cotton is added to the recycled fibres in order to guarantee the high quality and durability.

3

The figures are calculated by Modint, which is a Dutch umbrella organization for textile industry manufacturers, importers and agents.

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OTHER MORE RESPOSIBLE MATERIALS

10 YEARS OF FAIRTRADE COTTON

Our goal is that in 2020, 30% of all our materials come from more responsible sources. In addition to recycled materials, we define certified cotton (Fairtrade cotton, organic cotton) and as a new addition, linen as more responsible materials. At the moment, the share of more responsible materials is 8.7%, including linen. If linen is excluded, the share is 6.5%. We are going in the right direction, but there is still a lot of work to be done and bigger steps to be taken.

Finlayson has had products made of Fairtrade cotton since 2007. In the Fairtrade cultivation programme, the farmers receive an equitable, guaranteed price compensation and a Fairtrade premium, which is meant for economic, social and environmental initiatives of the producer cooperative associations. In addition to the criteria, the premium is often used for projects and education improving for example the development of a more nutrient soil or using animals in pest control. Fairtrade cultivation does not allow the use of genetically modified seeds. As of 2016, all our Fairtrade towels and bathrobes are made also of organically cultivated cotton (originating from Burkina Faso and India). We aim to increase the share of Fairtrade cotton in our products.

We do not purchase the materials used in our products ourselves, but we are able to influence in the material selection in the design and production planning stage by choosing certified cotton, linen or recycled materials.

PACKAGING LABELS AND CERTIFICATES THAT CAN BE FOUND ON OUR PRODUCTS:

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LINEN Linen has been added to our responsible materials' category in 2017. The reason for the addition of linen is the advanced internal knowledge. The emissions of linen compared to cotton are approximately only a half, and in the cultivation, significantly less water and pesticides are used. Linen is also a very durable natural fibre. MADE-BY includes linen in class C in their environmental fibre classification4.

ORGANIC COTTON In 2017, we bought for the first time certified GOTS organic cotton and we will be selling tricot sheets made of this material in spring 2018. In organic cultivation, less water and irrigation is used, rain water is more efficiently used, and the cultivation produces less nitrogen and phosphorus emissions in the waterways, because the fertilizers and pesticides are natural.5 We also aim to increase the share of organic cotton in our products.

4 5

http://www.made-by.org/consultancy/tools/environmental/ Source: http://aboutorganiccotton.org/environmental-benefits/

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TARGET 2020

SITUATION 2017

Ensuring quality: keeping the share of product reclamations under 0.1 % of turnover

The share of reclamations 0,08 % of turnover

STATUS

WHAT’S NEXT?

Achieved

Keep on developing quality assurance processes

QUALITY CONTROL The high quality of our products is very important to Finlayson, and this is why we constantly improve our quality control process. We control the quality of our work, and each product is checked after production. In addition to our own tests, the quality of the products is also controlled by our partners and by third-party testing institutions. The percentual share of consumer reclamations in relation to turnover was 0.08% in 2017, which means that we are still within our reclamation target of under one per mille.

5-YEAR WARRANTY As of December 2017, we give our products a 5-year warranty. The warranty covers Finlayson bed sheets, pillow cases and terry towels. We guarantee the quality of our products and commit ourselves to the responsibility in the production chain. Based on the quality control, we are assured that our products last extremely well in normal use. Of course, we believe that our products last a lot longer, but 5 years is a good minimum level.

WE ONLY PRODUCE HIGH-QUALITY PRODUCTS, whose service life is as long as possible. All our products fulfill our precise quality criteria and most of them have the Oeko-Tex 100 certificate to ensure that the products do not contain harmful chemicals and are safe to use.

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JESUS BEDDING WITH 50-YEAR WARRANTY We took the warranty up a notch with one product.

We launched Jesus linen sheets in April 2017. We wanted to create such durable sheets that you only need to buy them once in your lifetime. In this unique product, the same material and the same twill weave has been used as in the Shroud of Turin that is claimed to date back to the beginning of our era.

The linen material used in Jesus sheets is from Belgium and France. The fabric is weaved and sewn in China. Details that would probably not last over normal product life were removed or replaced with more durable solutions. For example, all the seams are strenghtened, the instructions embroidered directly on the fabric and the design is made to last. The name of the product and the product itself is a mark of respect for the old, durable manufacturing method, which we wanted to bring to the present day.

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CHEMICALS AND RECYCLED MATERIALS Most of Finlayson's textile products are Oeko-Tex Standard 100 certified, which means that we guarantee to our customers that the product is safe and tested. All o u r manufacturing partners need to be committed to EU's REACH chemical legislation, regardless of their location, and guarantee that the products do not contain listed concerning or dangerous chemicals.

In addition to Oeko-Tex, we perform occasionally our own chemical tests, specifically if the product category is new to us. In 2017, we had our denim towels specifically tested by the criteria of Oeko-Tex Standard 100 and now we have added Oeko-Tex label also to them. With regard to recycled materials, the challenge is that every batch is different, and we are not able to test every yarn batch. This is why the careful sorting of materials and the washes in process stages are important from the viewpoint of safety.

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TARGET 2020

SITUATION 2017

Increasing transparency in supply chains

Material guidelines, supply chain research, factories on a map and on web shop, organic cotton for the first time

All suppliers audited in risk countries (BSCI/SA8000/ Sedex) and having all suppliers sign the BSCI Code of Conduct*

97 % of suppliers in risk countries audited, 81 % have signed the BSCI Code of Conduct

STATUS

On schedule

On schedule

WHAT’S NEXT? Continue supply chain research, increase certified/ traceable materials, calculate product value formation

Gather signatures from all partners, continue discussions about audits with remaining partners

*Target edited since the last report. The former target was: “Increasing the share of BSCI audited suppliers to 80% and having all suppliers sign BSCI Code of Conduct”. We concentrate auditing activities to risk countries and thus our partners in the EU area are not audited as of now.

WE WANT TO BE THE MOST TRANSPARENT home textile company. Step by step, we move towards this goal. Our manufacturing mostly takes place in Europe (34 %) and in Turkey (61 %). All our partners must commit to amfori BSCI’s Code of Conduct. We monitor our partners through BSCI – in 2017, 97% of our purchases from risk countries came from BSCI audited suppliers.

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COTTON'S JOURNEY TO TOWELS AND SHEETS The value chain of cotton products is usually long and includes several actors around the world. Between many manufacturing processes, there might also be traders, who buy cotton in bales, as yarn or as griege fabric and who distribute it forward. Due to the wholesalers and other intermediaries, tracing cotton afterwards is challenging. This is why at the moment the best way to trace it is to use certified, i.e. organic or Fairtrade cotton. The following image shows the production stages of our Fairtrade cotton towels on map:

In the textile industry, it is unfortunately normal that the origin of the materials is unknown. Unknown is also which actors are actually involved in making the products. We do not settle for this, and instead we have worked hard to be able to know as much as possible of the manufacturing stages of our products. In autumn 2016, we found out the origins of cotton and other materials and from where the packing materials for our products come from. We received information from each of our partners at least on a country-specific level.

Our most significant cotton origin countries include the USA, Turkey, India, Pakistan, Turkmenistan and Kazakhstan. In autumn 2017, we wanted to take the work up a notch and launched a study about all the actors in the supply chains. The objective was to learn how long supply chains our different products have, that is, how many manufacturing stages there are in our own partners' hands and where the other manufacturing stages take place and by whom. We have been able to deepen our knowledge on, for example, the dyehouses used by our partners and other outsourcing. The study continues in 2018.

In 2017, we also updated the material procurement instructions for our partners. In the instructions, we forbid the procurement from Uzbekistan and Belarus. In addition, we prefer Non-GMO cotton and non-mulesed wool.

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TRANSPARENCY IN COMMUNICATIONS We have studied our supply chains thoroughly, but studying itself though is not enough, as we also need to communicate the results openly. In 2017, we added all the plants of our manufacturing partners on a map that can be seen in our responsibility page (in Finnish). The page also includes videos of the manufacturing process of our main partners. We opened our new web store in October 2017 and there the name of each factory that made the product can be seen under each product. We are looking into the possibility to communicate more detailed information on the value creation of our products in different manufacturing stages.

In spring 2017, we participated for the first time in the international Fashion Revolution communications campaign. Fashion Revolution is organized on the anniversary of the Bangladeshi Rana Plaza clothes factory accident.

The event's goal is to challenge fashion brands to add transparency in their operations by publishing photos with #whomademyclothes. We published photos of the people working in our main partners' plants in Belgium and Turkey. In the photo, there is an employee of our Belgian partner, Jan, who has worked as a weaver for 40 years. Most of our bath textiles are made in Belgium.

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RISK ASSESSMENT IN SUPPLY CHAIN We are a member of amfori (former FTA, Foreign Trade Association) and BSCI (Business Social Compliance Initiative). All of our manufacturing partners need to commit themselves to amfori BSCI's Code of Conduct. 66% of our production takes place in so called risk countries: Turkey, India, Pakistan and China. All our partners in risk countries have signed the BSCI Code of Conduct, but only 81% of all our partners have signed the Code, because we have not asked that of some of our most long-standing partners.

PRODUCTION COUNTRIES 2017 1% 3%

2%

1%

Turkey

0% 3%

Belgium Latvia 4%

Estonia

4%

The risk country status does not automatically make the partner a risk partner, because in every country, there are suppliers who decrease the country risk with their own operations. However, country-specific statutory and infrastructural limitations affect every company operating in the country. BSCI updated their risk country classification in January 2018. Please see the risk classes of all manufacturing countries used by Finlayson in appendix 6.

AUDITS OR FACTORY INSPECTIONS We audit our risk-country manufacturing partners mainly through BSCI. We approve also the SA8000 certificate and in some instances the Sedex SMETA audit. amfori BSCI's factory inspections are performed so that the BSCI-certified auditors visit the suppliers regularily and report the audit results on scal e A to E. Depending on the audit result, the supplier needs to make a plan and implement the improvement actions for the next follow-up audit. In case the result of the next audit is approved (A or B), the audit is valid for the next two years. The purpose of the audit system is to develop and improve the working conditions together with the supplier. 97% of our risk-country purchases come from audited (amfori BSCI, SA8000, SMETA) supplers. All BSCI audits were valid in through 12/2017.

12/2017

AUDITED SUPPLIERS IN RISK COUNTRIES

Portugal 10 %

60 % 12 %

Audited

Finland Pakistan China India Czech Republic Others (Spain, Lithuania, Italy)

100 % 80 %

Not audited 5%

3%

95%

97%

2016

2017

35%

60 % 40 %

65%

20 % 0% 2015

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At the end of the year, 95% of the BSCI audit results were approved (A or B, or SA8000). A year before, the same figure was only approximately one third of all the audited. Most findings in the inspections involved the leadership systems of the factories and their implementation and the health and safety of the workers. Mainly, the findings had to do with the documentation and lacking instructions for the workers and not so much with actual findings with regards to safety.

None of our partners had zero tolerance findings, such as child labour or forced labour. The develompent of the audit results 2015–2017 can be seen in appendix 7. The more specific results of 2017 audits by subject can be seen in appendix 8.

AUDIT RESULTS 12/2017 1% 1%

1%

3% A/SA8000 B

16%

C D E SMETA 79%

Not audited

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TARGET 2020

Including stakeholders in developing responsibility

Designing, developing, and monitoring work for equality

SITUATION 2017 Presenting Finlayson’s CR work in various occasions, discussions with office and sales personnel Personnel wellbeing survey conducted in 10/2017, follow up on a yearly basis, assessment of pay between genders

STATUS

Initiated

On schedule

WHAT’S NEXT? Questionnaire to most important stakeholder groups and materiality analysis Combine the different plans into a single equality and nondiscrimination plan.

OUR MOST IMPORTANT STAKEHOLDERS We have identified our most important stakeholders. Three most important stakeholders include our customers, our personnel and our suppliers. We will increase discussion with our stakeholders from 2018 onwards by implementing a materiality analysis, in which we ask our main stakeholders about their opinions on our responsibility operations and compare them to Finlayson's priorities.

WE COLLABORATE with our stakeholders and try to engage them in our corporate responsibility work. Unfortunately values sometimes collide which is why we have had to terminate our cooperation with one of our distributors as we could not continue cooperation with an operator whose values were so radically different from our values.

24

WE ARE MEMBERS OF THE FOLLOWING ORGANIZATIONS:

PERSONNEL Our personnel is the soul of the company, and their wellbeing is of utmost importance. In autumn 2017, we performed a personnel survey, which is renewed annually. We will develop our operations based on the survey results. In 2017, we updated the Finlayson personnel's equality plan and implemented a wage study required by the equality law. The purpose is that in the future, Finlayson has a combined equality plan. Commitment to the plan and implementing the procedures is very important. The commitment will be realized through leadership, development discussions and developing the personnel and by complying with the equality laws.

Our year 2017 ended with cooperation negotiations, due to which we had to decrease the number of our personnel. In 2018, we will invest more in our personnel's wellbeing and promote workplace health.

10%

2017

90%

Women

Men

25

SPR TAKEOVER In September we took part in the SPR Takeover, where we directed our web shop visitors to donate to the The Finnish Red Cross’s (SPR) Nälkäpäivä fundraising.

GIRLS TAKEOVER On 11th October, which is the International Day of the Girl, our CEO’s place was taken over by an 18year-old Nora Nevalainen. The takeover was part of Plan International Girls Takeover -campaign, where girls all over the world stepped into the boots of political, societal and economic leaders. In Finland the girls took over 13 leadership positions from different fields of society. The aim of the day was to shed light to the opportunities but also the discrimination that girls face at the same time enabling them to make a genuine and meaningful difference. On her day as the CEO of Finlayson, one of the main goals for Nora was to figure out how to make boys more interested in the textile industry since the majority of our personnel are women.

WOMEN’S EURO -CAMPAIGN TO ADDRESS THE GENDER PAY GAP In September we decided to conduct a campaign to bring forward the gender pay gap between women and men in Finland. According to Statistics Finland, the average pay of women is 17 % lower than that of men. We wanted to level the difference by offering our products to women by 83 cents to the euro and having men pay the full price and by that raise discussion on the reasons behind the pay gap.

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) whose art delivers a strong message in support of tolerance. In 2017 we took a stand to lower the gender pay gap and to support girls’ rights.

The Equality Ombudsman in Finland made a statement based on our media briefing stating that we should offer the discount to everyone instead of just women. We ended up doing so but donated the difference to an organization that promotes equality in their work. The campaign also stirred up a lot of discussion in the society which was one of our main purposes.

26

APPENDICES

APPENDIX 1. Finlayson’s Corporate Responsibility Strategy 2015-2020 CR ASPECT 1. THE COMPANY MUST BE MORAL

TARGET 2020 Comply with the human rights due diligence process* Reducing CO2 emissions 20% in proportion to turnover

2. WE PROMISE TO BE NICE TO EVERYONE, EXCEPT TO THOSE WHO ARE MEAN TO THE ENVIRONMENT

Reducing packaging waste 20% in proportion to turnover

BASELINE 2015

SITUATION 2017

STATUS

WHAT’S NEXT?

-

Participating in human rights training in autumn 2017, starting supply chain research, increasing supplier audits

Initiated

Human rights impact assessment of Finlayson’s value chain, living wage estimations in risk countries

17,200 CO₂e tonnes,

-10 % (compared to 2015 in proportion to turnover)

in proportion to turnover: 0.75 CO2ekg/€ 0,68 CO 2 ekg/€ Plastic waste 61 t, corrugated cardboard 210 t, cardboard 57 t, wood pallets 50 t **

Plastic 64 t, corrugated cardboard 206 t, cardboard 78 t, wood pallets 149 t The amount of more ecological materials (organic cotton, recycled materials) increased, water risk assessment conducted 8,4 % (Fairtrade organic cotton 3,6 %, recycled materials 2,7 %, linen/flax 1,9 %***, organic cotton 0,2 %)

-

3. WE LOVE RECYCLING

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

4 % Fairtrade cotton

4. BUY LESS BUT BETTER

Ensuring quality: keeping the share of product reclamations under 0.1 % of turnover

The share of reclamations 0,06 % of turnover

The share of reclamations 0,08 % of turnover

Increasing transparency in supply chains

Review of material origin countries initiated

Material guidelines, supply chain research, factories on a map and on web shop, organic cotton for the first time

All suppliers audited in risk countries (BSCI/SA8000/ Sedex) and having all suppliers sign the BSCI Code of Conduct****

65 % of suppliers in risk countries audited, appr. 1/3 signed the BSCI Code of Conduct

97 % of suppliers in risk countries audited, 81 % have signed the BSCI Code of Conduct

Including stakeholders in developing responsibility

Main stakeholders identified

Presenting Finlayson’s CR work in various occasions, discussions with office and sales personnel

Designing, developing, and monitoring work for equality

An equality plan exists, not updated for the new organization

Personnel wellbeing survey conducted in 10/2017, follow up on a yearly basis, assessment of pay between genders

6. WE DON’T BEFRIEND THE BAD

Recommend renewable energy to suppliers, reduce cotton’s share of all materials

Achieved

Reduce packaging waste further: develop product packaging, develop internal logistics, increase the share of RePack deliveries in the online store.

Initiated

Water stewardship commitment, supply chain research, increase the amount of more ecological materials

Initiated

Increase the use of certified cotton (Fair trade, organic), increase products containing recycled materials

Achieved

Keep on developing quality assurance processes

-26 % (compared to 2015)

Continual improvement of water stewardship*

5. WE CONSIDER FROM WHOM WE BUY

On schedule

On schedule

Continue supply chain research, increase certified/traceable materials, calculate product value formation

On schedule

Gather signatures from all partners, continue discussions about audits with remaining partners

Initiated

On schedule

Questionnaire to most important stakeholder groups and materiality analysis Combine the different plans into a single equality and non-discrimination plan.

*NEW TARGET ** 2015 figures are not totally comparable to the figures from 2016 and 2017, as the accuracy of the calculations have improved in 2016. *** Linen included in the calculation of more responsible materials in 2017 figures based on the fiber classification by MADE BY and emissions. **** Target edited since the last report. The former target was: “Increasing the share of BSCI audited suppliers to 80% and having all suppliers sign BSCI Code of Conduct”. We concentrate auditing activities to risk countries and thus our partners in the EU area are not audited as of now.

28

APPENDIX 2. Carbon footprint per operation 2015-2017 2015

2016

2017

Materials Transport of materials to production sites Production

54,9 %

58,0 %

57,1 %

1,4 %

0,8 %

1,2 %

23,0 %

21,7 %

22,6 %

Transport to Finland

1,0 %

1,0 %

0,9 %

Packaging materials

2,8 %

2,3 %

1,5 %

Administration and retail

16,9 %

16,1 %

16,6 %

Domestic logistics

0,1 %

0,1 %

0,1 %

100 %

100 %

100 %

APPENDIX 3. Carbon footprint in proportion to turnover and per product 2015-2017 2015

2016

2017

CO2e kg/â‚Ź

0,75

0,70

0,68

CHANGE 20152017 -10 %

CO2e kg/product

6,96

7,03

5,54

-27 %

29

APPENDIX 4. Finlayson’s suppliers and water risk

30

APPENDIX 5. The origins of materials used in Finlayson’s products and water risk

31

APPENDIX 6. Risk classifications of Finlayson’s supplying countries and recommendations by amfori BSCI regarding auditing practices PRODUCTION COUNTRY Finland Belgium Estonia Portugal Czech Republic Lithuania Spain Latvia Italy India Turkey China Pakistan

RISK CLASSIFICATION* (ON A SCALE FROM 0-100) 6 95.3 85.5 84.1 83.7 79.4 78.2 76.3 74 67.5 45.2 41.7 40.2 20.9

RECOMMENDATIONS

BY AMFORI BSCI 7 Surveillance, no audits Sample of suppliers audited

Reasonable and systematic auditing approaches

APPENDIX 7. Supplier auditing, 2015-2017

Percentage of passed audits (A/B/Good/SA8000) Improvements needed (C/D/Improvements Needed) Non-compliant (E/Non-Compliant) SMETA-audited Zero tolerance findings

2015

2016

2017

90 %

29 %

97 %

5%

71 %

2%

5%

0%

0%

0

0

1% 0

All figures measured in purchase prices.

Regular and reoccurring auditing activites

* Countries are assessed on a scale from 0 to 100 and the less points a country gets, the riskier doing business is in that country. If a country has less than 60 point it is classified as a risk country.

6 7

amfori Country Risk Classification (2018) amfori Country Due Diligence: A Guidance (2018)

32

APPENDIX 8. Results of amfori BSCI audits per topic 2017, N=14 A Social Management System and Cascade Effect

B

C

D

E 4

5

Workers Involvement and Protection

3

10

The rights of Freedom of Association and Collective Bargaining

1 1

12

Fair Remuneration

10 1

8

No Child Labour

14

Special protection for young workers

14

No Precarious Employment

14

No Bonded Labour

Ethical Business Behaviour

1

5

9

Decent Working Hours

Protection of the Environment

1

13

No Discrimination

Occupational Health and Safety

1

4

1

3

1

3

1

1

13 1

10 13

3 1

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APPENDIX 9. Personnel indicators 2015-2017 2015

2016

2017

NUMBER OF PERSONNEL

APPENDIX 10. Financial indicators 2015-2017 (€ millions) FINANCIAL INDICATORS

2015

2016

2017

Women

116

170

197

Turnover

Men

14

22

23

22,9

35,1

36,5

Operating margin

Total

130

192

220

1,9

3,1

0,0

Depreciation

0,76

1

1,3

Financial expenses

0,77

0,77

0,87

Profit before taxes

0,3

1,4

-2,18

Taxes paid

0

0,04

0

Wages paid

3,2

5

6,9

1,8

2,9

2,2

11,1

17

17,3

0

0

0

DURATION OF EMPLOYMENT under 25 years

44 %

57 %

64 %

2-5 vuotta

22 %

17 %

15 %

5-10 years

13 %

8%

8%

10-20 years

15 %

11 %

7%

over 20 years

7%

7%

6%

100 %

100 %

100 %

Total

AGE OF PERSONNEL

Social security contributions Goods and services purchases Paid dividends

under 25 years

18 %

17 %

21 %

25-35 years

32 %

34 %

35 %

Paid interest

0,6

0,5

0,5

35-45 years

25 %

28 %

22 %

Investments

0,8

1,8

1,7

45-55 years

16 %

11 %

13 %

over 55 years

9%

9%

9%

100 %

100 %

100 %

Regular, full-time

43 %

40 %

Definite

17 %

12 %

Regular, part-time

28 %

30 %

Part-time (framework)

12 %

18 %

100 %

100 %

Total

TYPE OF EMPLOYEMENT

Total

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responsibility@finlayson.fi