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FINLAYSON CORPORATE RESPONSIBILITY REVIEW 2018


CONTENT A word from Jukka 3 UN Sustainable Development Goals at Finlayson 4 1.

A company must be moral. 6

2.

We promise to be nice to everyone except to those who are mean to the environment. 12

3.

We love recycling. 18

4.

Buy less but better. 23

5.

We consider from whom we buy. 26

6.

We don’t befriend the bad. 31

7.

Love belongs to everyone. 34

Appendices 35 Contact 40

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A word from Jukka For us, 2018 was the year that responsibility became a part of our everyday lives. Responsibility is one of our operational values and has clearly been established as our way of existing. Responsibility is no longer a thing we have to learn or to remind ourselves of, but it has instead become a thing that unites us and guides our thinking and actions. We have been glad to see that people are waking to see the situation of the Earth. Responsibility is no longer demanded but expected as a selfevident fact. Consumers have become aware of hate speech, mobilization of the far right, and environmental issues and we as companies are called to take a stance, even on social issues. We companies bear a major responsibility for what our world will become in the near future. With regard to responsibility in 2018, our most significant challenge is still the fact that we are dependent on so many production partners, due to our long supply chains. Therefore, we are always doubting whether we know enough about what happens in our partners’ production facilities. It is important for us to invest large amounts of time into engaging our partners in dialog, use external auditors, and aim to increase the amount of certified raw materials. In my opinion, it has been a major achievement to increase the share of external audits in risk countries to 99.8% and the share of more responsible materials used for our products to 12.5%. For example, we introduced stylish rugs made from recycled PET plastic and pillows and duvets made from organic and recycled materials. Other significant developments included a major reduction in the use of plastics, as we completely eliminated plastic shopping bags, for example. Another big push was the citizens’ initiative for a new law prohibiting female genital mutilation. Instead of the required 50,000 names, the initiative was signed by more than 60,000 people and will be brought before the new Parliament in the spring of 2019. Jukka Kurttila, Creative Director and co-owner of Finlayson

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UN Sustainable Development Goals at Finlayson The UN Sustainable Development Goals were set out in 2015 with the aim of transforming global development toward a sustainable direction with regard to the humanity, the environment, and the economy by 2030. We have identified the goals that are essential to Finlayson's operation and work on responsibility. The enclosed table demonstrates how we further these goals in practice, and each section of this report specifies the goal which it relates to. SDG

WHAT IS FINLAYSON DOING TO FURTHER THE GOAL Gender equality is a significant theme for Finlayson. Shortcomings pertaining to women and their situation have been taken into consideration in many of our actions. As a company, we take a stance on issues that are important to us, such as equal pay, the rights of girls, and prohibiting female genital mutilation. Read more: • Actions towards equality 2018: Seis Silpomiselle -citizen’s initiative, p. 34 Water is an essential requirement for the cotton industry. Water is used for farming cotton and manufacturing the end products, as well as for washing products by the consumers. Finlayson aims to survey the impact of its operation on water bodies and to reduce water use and burdening throughout its value chain. Read more: • Continual development of water stewardship, p. 16 • More ecological material choices, such as recycled materials, p. Ekologisemmat materiaalivalinnat, kuten kierrätysmateriaalit, s. 18-21 • Restricting the use of chemicals, p. 24 We take care of our staff, and indirectly the workers in our supply chains. It is important to guarantee decent work for everyone within Finlayson’s value chains. We are committed to respecting human rights in all of our operations. Read more: • Human Rights Due Diligence, p. 6-8 • Living wage in supply chains, p. 8 • Employee wellbeing, p. 9 • amfori BSCI Code of Conduct and supplier auditing practices, p. 27-28 • Transparency and traceability in supply chains, p. 29 Large amounts of natural resources are used in the manufacturing of Finlayson’s products. We aim to ensure resource efficiency by reducing packing materials and increasing the share of responsible materials. We invest in the quality and safety of our products and communicate responsibility to the consumers. Read more: • Reduction of packing materials, p. 15 • Increasing the amount of more sustainable materials: recycled materials, Fairtrade cotton, organic cotton and linen (flax), p. 18-21 • Product quality, p. 23 • Restricting the use of chemicals, p. 24 Finlayson has clearly defined goals for reducing the overall emissions of our operation. Significant actions to reduce emissions include the use of renewable energy and replacing cotton with cleaner materials. We will also do our best to affect Scope 3 emissions, which are not directly in our own hands. Read more: • Reduction of CO2-emissions in all operations (Scope 1-3), s. 12-14 4


OUR COMPANY HAS VALUES, according to which we work every day. We only cooperate with partners who match our values and take human rights very seriously within our value chains. The wellbeing and motivation of our personnel is a significant part of our success.

OUR VALUES ARE: WE ARE RESPONSIBLE. WE ARE BOLD. WE TAKE INTEREST IN THE WORLD.

The progress of our Corporate Responsibility Strategy 2015-2020: TARGET 2020

STATUS 2018

WHAT’S NEXT?

Comply with the Human Rights Due Diligence process*

Human Rights Impact Assessment of Finlayson’s supply chain and own operations. Comparison of paid wages to different levels of living wage.

Continuing Human Rights Impact assessment to exports and licensing, integration and communication.

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HUMAN RIGHTS IN BUSINESS Human rights belong to everyone, everywhere, at all times. Human rights are characterized by the fact that they are universal, inalienable, and fundamental. They include such rights as the right to life, the right to health, the right to an adequate standard of living, the right to work, the right to freedom of opinion, and the prohibition of slavery and servitude. The responsibility for ensuring human rights lies with the states and those rights are regulated nationally. Companies are obligated to respect human rights and review the human rights impact of their operation, rectifying and minimizing them where necessary. This process is known as the Human Rights Due Diligence process (see picture).

1. Human Rights Impact Assessment

2. Integration and action

4. Communication

3. Tracking

At the moment, we are in the first stage of the process, which means that we are evaluating the human rights impacts of Finlayson's operations. We have evaluated the impact from the perspectives of both our supply chains and our own activities.

HUMAN RIGHTS IN FINLAYSON'S SUPPLY CHAINS In the textile industry, supply chains are long and knowing each operator in the chain is challenging. As we don't manufacture the products ourselves, it is also important to evaluate how far the company's influence within the supply chain reaches. Our human rights assessment was provided a solid basis by the supply chain analysis, in which we requested our manufacturing partners to provide information on all sub-contractors included the supply chains for our products. Cotton was identified as a material that is associated with risks, as most of Finlayson's products are made from cotton. Within our assessment, the supply chain was broadly divided into two stages: 1. Cotton production and 2. manufacturing the product (incl. spinning the thread, weaving the fabric, and manufacturing the end product). At first, we evaluated the potential risks related to these manufacturing stages in general, after which the risks were reflected through available sources to determine the true impact. With regard to product manufacturing, of Finlayson’s countries of manufacture the risk was highest in Pakistan, then Turkey, China, and India. The assessment was carried out on the basis of the amfori BSCI Country Risk Classification. Thus, the assessment focuses primarily on manufacturing in these countries. In addition, we included manufacturing in Latvia and Belgium as these two are significant manufacturing countries for Finlayson in terms of volume, even though they are not considered risk countries. It was clear in the assessment that while the country-specific lists of risks were extensive, the risks were not realized in many cases when assessing the actual human rights impacts, based mainly on the auditing reports. Thus, there are reasonable grounds to suspect the comprehensiveness of the audits in ensuring responsibility. Third party audits are the best available tool for small and medium-sized enterprises, but a large amount of information is probably left undelivered. For example, child labor or forced labor is rarely seen in the auditing. We will deepen our assessments 7


through employee interviews in Turkey in 2019 and will continue to evaluate our purchasing policies more precisely.

LIVING WAGE IN SUPPLY CHAINS It is important that employees receive compensation that is enough to live on regardless of the country they work in. This is a challenging issue and we are unable to resolve it by ourselves, as we do not pay the wages within our supply chains. As part of our human rights assessment, we compared the minimum wages paid with the calculated living wage in all so-called risk countries where Finlayson operates. The results showed that all of our manufacturing partners pay at least the statutory minimum wage in the industry, if such a statute exists, but also that the level of living wages vary extensively depending on who makes the assessment. In BSCI auditing, the factories must self-assess the level of living wage. In Turkey, for example, the assessments by our partners varied from 1,597.20 to 2,793.20 TL. Obviously, the manufacturing partners cannot be considered a reliable source for calculating a genuine living wage. It is nevertheless good that such exercises are carried out and that they are encouraged in this direction. Further discussions on the level of living wage are still required, along with wider cooperation with other operators.

HUMAN RIGHTS IN FINLAYSON'S ACTIVITIES The most important finding of our Human Rights Impact Assessment was that our operation has direct effects on our personnel in Finland. These are also issues, which we can influence fully and rectify quite quickly. In assessing our own activities, the most significant human rights impact comprised: The right to health: musculoskeletal diseases, stress, neck and shoulder disorders The right to work: inequality of training opportunities, zero-hour contracts The right to decent working conditions: occupational accident at the logistics center, overtime, forgoing breaks The right to freedom and personal protection: pestering at work Next in 2019, we will be evaluating our export and licensing activities in more detail from the perspective of human rights and will continue to integrate human rights into the everyday life of each Finlayson employee.

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BRINGING EMPLOYEE WELLBEING TO THE CORE OF OUR WORK ON RESPONSIBILITY The progress of our Corporate Responsibility Strategy 2015-2020: TARGET 2020

STATUS 2018

WHAT’S NEXT?

Developing the wellbeing of personnel *

More resources to HR, update of model for early intervention, trainings and workshops (first aid, coping at work, supervisor work, textiles, diversity and CR).

Development of orientation materials (incl CR), CR targets for all teams, development of worker well-being survey, development of intranet, risk assessment in shops, safety at work trainings.

*NEW TARGET

Ensuring the wellbeing of our personnel is essential to the success of the entire company. In the future, we will develop personnel-related matters with a more systematic approach and we have thus updated our responsibility strategy goal pertaining to our personnel to be more extensive (see appendix 1). Subjects related to the wellbeing of personnel also came up as clear development priorities in the Human Rights Impact Assessment. We engage in responsible actions and communication outwardly, but it is also essential to ensure that our personnel thrive.

PERSONNEL 2018

9%

91% Women

Men

A major theme for 2019 is the further integration of responsibility as part of the everyday life of each Finlayson employee. In late 2018, we held our first workshop for office workers, where we considered how we could promote responsible operation and reduce environmental impact within our work. In 2019, workshops will also be extended to the other members of our staff, and we will simultaneously introduce a responsibility goal for the performance review of each team. In 2018, Finlayson appointed a HR Manager, who is joined by the HR Coordinator and the HR team consisting of staff representatives in the development of personnel-related matters. During the year, we carried out various measures: we expanded our intranet for wider use, updated our early support model, provided various types of training (first aid, coping at work, managerial work, textiles, human diversity), reviewed our emergency plans and availability, and improved the use of our anonymous feedback channel on the intranet. We didn’t have enough time to carry out a wellbeing survey in 2018, but in 2019 we will develop a new wellbeing survey that will be conducted three times per year. See how our key personnel figures have developed in recent years from Appendix 2.

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#YKKÖSKETJUUN CAMPAIGN – WHY WE ARE INVOLVED Finlayson was one of the first companies to join the #Ykkösketjuun campaign, which is backed by organizations, companies, and trade unions. The campaign calls for Finnish corporate responsibility legislation pertaining to human rights. The law would require companies to avoid and reduce the negative human rights impact of their operation. We have joined the campaign, because we want all companies operating in Finland to play by the same rules. A fair market would benefit everyone. At Finlayson, we do our best to ensure responsible operation and try to improve our activities, step by step. However, we are competing with companies who might not have as strict responsibility criteria for their global activities. Legislation would even the playing field for us all.

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WE REDUCE THE ENVIRONMENTAL IMPACT OF OUR OPERATION. We aim to reduce our carbon footprint and introduce new, more ecological materials to the market. All of our Finnish operations run on EKOenergy. We reduce packing materials and unnecessary use of plastic. We consider the impact of our operation on bodies of water throughout our value chain.

CLIMATE CHANGE AND EMISSIONS The progress of our Corporate Responsibility Strategy 2015-2020: TARGET 2020 Reducing CO2 emissions by 20 % in proportion to turnover

STATUS 2018

WHAT’S NEXT?

18,000 CO2e tons

Recommending renewable energy to suppliers, increasing the portion of ecological materials, development of internal reporting system of materials.

-31 % in proportion to turnover: 0.57 CO2ekg/â‚Ź

In 2018, there have been clear signs of a climate awakening following the publication of a report by the Intergovernmental Panel on Climate Change (IPCC). Finlayson intends to reduce the CO2 emissions of its entire operation by 20% by the year 2020. After this, we will set a new reduction target, which will be even more ambitious. We engage in cooperation to fight against climate change. We are a member of the Climate Partners Network of the City of Helsinki and we are participating in the Big Deal (Iso Juttu) campaign organized and administered by S Group. 12


CO2 emissions are usually divided into three categories: Scopes 1, 2 and 3. Scope 1 emissions refer to the direct emissions caused by Finlayson’s own operations. Scope 2 refers to indirect emissions, such as bought electricity. Finlayson’s overall emissions are mostly in Scope 3, which refers to all the emissions outside our own operations such as materials, logistics, and energy use in our supply chains. The most significant single source of emissions is cotton cultivation.

CO2-EMISSIONS 2018 4%

26 %

Scope 1 Scope 2 Scope 3

70 %

In our 2018 CO2-calculation all our sources of emissions have decreased, despite outgoing logistics, to which we were able to gather more detailed data this year. The main reason for emission reductions is that we purchased significantly less products than in previous years due to the significant sock we had to sell. In addition, our data gathering has developed, and we were able to get more detailed information from our suppliers. We have increased the amount of more sustainable materials and reduced the amount of packing materials.

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In the future, the most significant measures to decreasing overall emissions is to increase renewable energy in the operations of our main suppliers, improving the reporting of material contents in our internal reporting system and increasing the amount of more sustainable materials. We will set a new more ambitious carbon reduction target in our next CR strategy.

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PACKING MATERIALS The progress of our Corporate Responsibility Strategy 2015-2020: TARGET 2020

STATUS 2018

WHAT’S NEXT?

Reducing packaging waste by 20 % in proportion to turnover

-45 % (in proportion to turnover) corrugated cardboard 143 t, wood pallets 87 t, cardboard 50 t, plastic 32 t,

Reducing the amount of plastic in product packaging, development of internal logistics.

In 2018, we significantly reduced the volume of packing materials used. Compared to 2017, we used 26 percent less packing material, which means that we produced approximately 180,000 kilos less packing waste! This considerable reduction was partly caused by the fact that we purchased significantly less products compared to previous years while simultaneously clearing our stock, which made the year quite exceptional (Appendix 3 shows packing material amounts divided by product purchases). In proportion to our turnover, we reduced our packing materials by 45% and in proportion to euro amount purchases the reduction was 17% compared to 2015, which shows that we are definitely moving in the right direction. In particular, we were able to significantly reduce the amount of plastic used, as 2018 was our first full year of operation since we eliminated plastic bags from our stores.

PACKAGING MATERIALS (T KG) 2015-2018 350 300

tons

250 2015*

200

2016 150

2017 2018

100 50 0 Corrugated cardboard Cardboard and paper

Plastic

Wood pallets

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WATER STEWARDSHIP The progress of our Corporate Responsibility Strategy 2015-2020: TARGET 2020

STATUS 2018

WHAT’S NEXT?

Continual improvement of water stewardship

Increasing the amount of more ecological materials in products, Water Stewardship Commitment, supply chain research, water risk assessment of all operations.

Increasing the amount of more ecological materials, deepening water risk assessment.

In March 2018, we made a Water Stewardship Commitment. The Water Stewarship Commitment is part of the Finnish Society's Commitment to Sustainable Development and our commitment extends to the year 2022. Water is vital to the operation of Finlayson, as a large amount of water is used in the manufacturing of our products to produce cotton for the end products. With our commitment, we aim to identify the impact of our operations in various areas and what we can do to improve our water responsibility as a smaller operator. In 2018, our emphasis has primarily focused on human rights issues, but in 2019 and 2020 we intend to invest more in assessing and developing our water responsibility. 16


WE WANT TO TAKE RESPONSIBILITY for what happens to our products when they are no longer used and are constantly searching for new materials to replace regular cotton in our products. In our stores, we collect old sheets and jeans, which we turn into new products. We aim to increase the share of recycled materials in our products, one product at a time. We are willing to learn and promise to stay at the forefront on all matters related to circular economy. The progress of our Corporate Responsibility Strategy 2015-2020: TARGET 2020

STATUS 2018

WHAT’S NEXT?

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

12.5 % (Fairtrade organic cotton 4.7 %, linen (flax) 4.7 %, recycled materials 1.6 %, organic cotton 1.5 %)

R&D of more sustainable materials and products and increasing their portion in collections.

Most of our products, approximately 90%, are made from 100% cotton. Cotton as a fiber is excellently suited for household textiles, but its production is linked with various environmental and social risks. Our goal is to ensure that by 2020, 30% of all materials used by us come from responsible sources. We define responsible materials as recycled materials, Fair Trade cotton, organic cotton, and linen. In 2018, the share of more responsible materials of our overall purchases grew to 12.5 percent. We have thus tripled our share of responsible materials compared to 2015. Viewed more closely per material, linen and organic cotton in particular have increased their share in our range of products in 2018:

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THE DEVELOPMENT OF MORE SUSTAINABLE MATERIALS 2015-2020 * 14% 12% 4,7 %

10%

Linen (flax)

8% 6%

0,3 %

4% 2%

1,9 % 0,2 % 2,7 %

1,5 %

Organic cotton

1,6 %

Recycled materials Fairtrade cotton

4,0 %

4,8 %

2015

2016

3,6 %

4,7 %

0% 2017

2018

*Percentage share of all product purchases of that year

TEXTILE COLLECTION AND NEW RECYCLED PRODUCTS In 2018, we continued to collect old sheets and jeans in our stores. The sheets are turned into rag products and the jeans are used to make towels. We constantly receive more recyclable materials than we can process into new products and have thus acquired a new channel for recycling the materials: Frankenhuis in the Netherlands. They recycle jeans into raw material for manufacturing thread, and the textile dust from the jeans can also be used to manufacture paper and an additive for thermoplastic material. They also use other textiles to produce soundproofing materials for the white goods industry and interiors, as well as upholstering and insulation materials for the automotive industry. In 2018, we once again introduced new products made from recycled materials: The Siperia rug made from recycled PET bottles and Finlayson's pillows and duvets, whose filling is made from recycled polyester fiber (also from PET bottles). The outer fabric used for the pillows is made from organic cotton.

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ORGANIC COTTON (GOTS) Organic cotton is a more environmentally friendly material than regular cotton. Organic farming uses less water and artificial irrigation, utilizing rainwater more efficiently. Organic farming practices produce less nitrogen and phosphorus emissions in water bodies, because the fertilizers and pesticides used are natural. Using genetically modified seeds is not allowed in organic farming. We only use GOTS (Global Organic Textile Standard) certified cotton. GOTS is the most commonly used certification system for organic cotton and it monitors each operator participating in the manufacturing of the product. All operators in the supply chain must be certified and their facilities are inspected by annual audits. Finlayson's own certification process was launched in late fall 2018. GOTS requires that each employer in the supply chain complies with ILO standards, such as the prohibition on child labor and forced labor, non-discrimination, maximum working times, and equality. GOTS also includes criteria pertaining to colorants, processing, and the treatment and purification of waste water.

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FAIRTRADE ORGANIC COTTON The Fairtrade certification system is considered to be the most ambitious product certificate. In the Fairtrade farming program, the farmers receive fair compensation based on guarantee prices and an additional Fairtrade bonus, which is intended for the producers’ co-operatives' economic, social, and environmental projects that promote the development of nutrient-rich soil or the use of animals for pest control, for example. Fairtrade farming does not allow the use of genetically modified seeds. Finlayson has offered Fairtrade products since 2007, and we are the only household textile producer in Finland with products made from Fairtrade cotton. Our range includes towels and bathrobes made from Fairtrade organic cotton.

LINEN Compared to cotton, linen is an ecological fiber. Emissions produced by linen are approximately half of those generated by cotton, and its farming uses significantly less water and pesticides. The share of linen used in our products has grown considerably over the past few years. In particular, the proportionate share of linen grew in 2018 - with nearly 5% of our products consisting of 100% linen. Our most significant linen product categories include the Jesus and Lino ranges.

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WE ONLY MANUFACTURE HIGH-QUALITY PRODUCTS, whose useful life is maximized. We do not want to fill the world with unnecessary things that no one wants or needs. All of our products meet our strict quality criteria and most of our products carry the Oeko-Tex label, which ensures that the products do not contain harmful chemicals and that they are safe to use.

QUALITY CONTROL The progress of our Corporate Responsibility Strategy 2015-2020: TARGET 2020

STATUS 2018

WHAT’S NEXT?

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

The share of customer Keep up the good work, reclamations 0.07 % of developing quality turnover monitoring further.

A high quality of products is essential to Finlayson and thus we provide a 5-year warranty on our primary products. Our manufacturing partners are obligated to ensure that the products meet our requirements fully. We monitor and test the quality of their work, the durability of colors, and the properties of the products (shrinkage, pilling, wrinkling, etc.) both during the manufacturing process and when the products arrive to our warehouse. In addition, when dealing with a completely new product category or supplier, the products are also sent to be tested by an external testing facility. Our long-term work on quality control brings results, as the percentage of reclaims made by consumers in proportion to turnover was 0.07% in 2018, which shows that we are well on track to achieve our reclamations target of less than one tenth of a percent.

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RESTRICTING THE USE OF CHEMICALS The starting point for all of our manufacturing partners is that regardless of their location, they must commit to compliance with EU’s REACH regulation on chemicals and ensure that their products do not contain listed Substances of Very High Concern (SVHC) or hazardous chemicals in amounts exceeding the limit values. Most Finlayson textile products are certified under the STANDARD 100 by OEKO-TEXŽ system, which means that our customers can be sure that the products are safe and properly tested. In addition to Oeko-Tex, we also occasionally carry out our own chemical tests performed by a third party, especially when dealing with new product categories. Both of the cotton certification systems used by us, GOTS and Fairtrade, regulate the use of chemicals in both the farming and further processing of cotton. Both systems also prohibit the use of genetically modified seeds. No synthetic fertilizers or herbicides or pesticides are used in the farming of organic cotton. The Fairtrade cotton used by Finlayson is also organically farmed. GOTS maintains a list of the allowed colorants, prints, and auxiliary agents, and each operator manufacturing GOTS products must submit the chemicals they use for approval by GOTS. Fairtrade also has a list of banned substances and treatments, which includes: Chlorine bleach, sandblasting, and formaldehyde.

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WE WANT TO BE THE MOST TRANSPARENT home textile company. We continue toward this dream one step at a time. Finlayson's products are made by our manufacturing partners. We have precise criteria for beginning cooperation and we wish to engage in long-term cooperation with our partners. All of our partners must commit to compliance with the BSCI Code of Conduct, against which our partners operating in risk countries are audited. In 2018, 99.8% of our purchases from risk countries were made by audited partners.

EXCEPTIONAL YEAR 2018: OUR PRODUCTION VOLUME WAS REDUCED TO A HALF We do not want to fill the world with unnecessary things that no one wants or needs. In late 2017 we noticed that our warehouse was full of things just like this. Thus, our theme for 2018 was clearing the stocks and adopting a new way of operating. We switched to continuous forecasting and improved our follow-up on which products sold and which didn't. We also aim to reduce the number of individual products radically. Going forward, we will only focus on the most appealing products and develop our entire range to a more responsible direction. 2018 was an exceptional year in terms of manufacturing. Our product purchases were halved compared to 2017. The reason for the reduced purchases was the high value of stocks at the beginning of the year, which meant that our goal for the year was to sell as much of the products lying in our warehouse as possible. Due to the exceptional year, the manufacturing of our products was also distributed differently. For example, the proportionate share of purchases from Turkey, Belgium and China grew, whereas the share of Latvia, Portugal, and Finland decreased in relation to all purchases. The growth of the Chinese share is explained by the manufacturing of linen products, especially the Jesus range, as the purchase price is higher, with linen being a more expensive material.

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PRODUCTION COUNTRIES 2018 Portugal Pakistan 1 % 2%

India 1%

Finland 1%

Estonia Latvia 4% 4% China 5%

Belgium 16 % Turkey 66 %

COOPERATION PRINCIPLES All of our partners must commit to the amfori BSCI Code of Conduct. Finlayson does not have its own Code of Conduct as we believe that the BSCI code is sufficiently extensive. 88% of our active partners have signed the Code of Conduct. We are developing a new responsibility form for our suppliers and will be implementing it beginning with potential new partners. Some of Finlayson's manufacturing partners operate in so-called risk countries. Our definition of risk countries includes countries where legislation, policies or the infrastructure may restrict or hinder business operations (see Appendix 4). Operating in a risk country will not automatically make a partner a risk partner, and we assess each partner separately. However, there are countries from where we do not want to purchase materials, such as Uzbekistan and Belarus, if we believe that the country risk is excessive.

SUPPLIER AUDITS The progress of our Corporate Responsibility Strategy 2015-2020: TARGET 2020

STATUS 2018

WHAT’S NEXT?

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

99.8 % of suppliers in risk countries audited, 88 % signed the BSCI Code of Conduct

100 % of suppliers in risk countries audited, all suppliers signed the BSCI CoC, developing new supplier form and purchase agreements.

We audit our partners operating in risk countries using a third party, primarily amfori BSCI. There are various reasons why we do not perform our own audits. We are a small operator and we do not have the resources to regularly perform our own audits. We trust the internationally recognized 27


systems, such as BSCI, Sedex or SA8000. We also know that our manufacturing partners are audited by larger brands and that there may be several audits each year. Thus, we don't want to overburden our partners with excessive, often overlapping audits. In 2018, Finlayson had 11 BSCI audited active partners in risk countries. One of our partners switched to SA8000 certification, which is considered to be the most ambitious auditing system. 99.8% of our production in risk countries is covered by audits. We have a single manufacturing partner who we have been unable to audit despite requests and are thus searching for a replacement manufacturer. THE DEVELOPMENT OF AUDITING PRACTICES IN RISK COUNTRIES 100% 80% 60% 40% 20% 0%

5%

3%

0,2 %

95%

97%

99,8 %

2016

2017

2018

35% 65% 2015

AUDIT RESULTS 12/2018 0% Accepted (A/B/SA 8000)

33 %

Improvements needed (C/D) 67 %

Non-compliant (E)

At the end of 2018, 67% of our audited partners (12 partners) had received a passing score in their audit, i.e. BSCI audit result A or B. One of our partners was certified under SA8000 and they were included in the list of approved partners. Room for improvement was found in one third of the audits (C or D score). No partner failed their audit. In the audits, the clearest need for improvement by our partners related to occupational health and safety and the social management system and its mobilization. The shortcomings related to occupational health and safety pertained to incorrect storage of chemicals, missing components in fire safety systems, incomplete or obsolete reports (elevators, earthquakes, electricity, water quality), emergency exits in office buildings opening in the wrong direction, and incomplete risk assessment. The shortcomings related to management systems largely only arose if there was a clear need for improvement in other areas, but exact shortcomings included the lack of training and information, deficiencies in the documentation of the management system, mapping and evaluating the documentation of subcontractors, and the lack of a complaint mechanism outside of the workplace. After the audit, each partner will prepare a Corrective Action Plan and the improvements carried out will be followed up in another audit. See a more detailed breakdown of the audit results in Appendix 5. 28


TRANSPARENCY AND TRACEABILITY IN SUPPLY CHAINS The progress of our Corporate Responsibility Strategy 2015-2020: TARGET 2020

STATUS 2018

WHAT’S NEXT?

Increasing transparency in supply chains

Deepening the knowledge of our supply chains, increasing the share of traceable materials (certified cotton)

Deepening supply chain research further, increasing communications (adding more supply chain information to web shop), increasing the portion of traceable materials.

The supply chains for textile products are often long, including several operators throughout the world. There may also be intermediaries between many manufacturing stages, who purchase cotton as bales, thread or raw fabric and sell it on. Tracing the origin of cotton afterwards is challenging due to wholesalers and other intermediaries. Therefore, the best tracing method at the moment is to use certified, i.e. organic or Fairtrade cotton. The enclosed figure illustrates the manufacturing stages of cotton on four levels. Usually our supply chains are not as long and we endeavor to find partners that have as many stages of the production process under the same roof as possible. We have identified all the supply chains of our partners and will publish the information more extensively in 2019 and 2020.

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WE COOPERATE with our interest groups and attempt to only choose partners who share our values. This has not always been self-explanatory, and we have thus had to end our cooperation with one of our retailers. In 2018, we conducted our first stakeholder survey. The progress of our Corporate Responsibility Strategy 2015-2020: TARGET 2020

STATUS 2018

WHAT’S NEXT?

Including stakeholders in developing responsibility

Presenting Finlayson’s CR work in various occasions, discussions Collaboration with stakeholders and conducting stakeholder survey and materiality analysis

Developing stakeholder survey process.

OUR STAKEHOLDERS APPRECIATE THE QUALITY OF OUR PRODUCTS AND OUR WORK ON HUMAN RIGHTS In the spring of 2018, we conducted a responsibility survey on our most important stakeholder groups, i.e. our personnel, customers, and manufacturing partners. The survey was conducted by a group of students from Hanken as part of the course ”Project Course in CSR and Humanitarian Logistics”, and their assignment also included carrying out a materiality analysis based on the responses. The online survey was sent to the employees of Finlayson, F-club members, and all of our manufacturing partners. The survey had 817 respondents, 91% of whom were regular customers. The survey was also taken by the owners of Finlayson, and the responses were compared with each other using a materiality analysis. The most important areas of responsibility for the interest groups were the quality and durability of the products and human rights. These were also included among the areas considered most important by the management of Finlayson. Extending the useful life of products and personal inclusion in the development of Finlayson's work on responsibility were considered the least important by the interest groups. Another splendid finding was that the interest groups are happy to recommend Finlayson based on our responsibility work (average score 8.49):

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How likely would you recommend Finlayson as a company based on their surrent Corporate Responsibility practices? (0=would not recommend, 10=would very likely recommend)

32%

33% 21%

9% 0%

0%

0%

0%

1%

2%

2%

0

1

2

3

4

5

6

7

8

9

10

32


WE ENGAGE IN CONCRETE ACTIONS for equality as part of our everyday business operation. For example, we have taken a stance on gender pay gap and in 2018 we launched a citizens’ initiative to prohibit female genital mutilation in Finland.

#SEISSILPOMISELLE We collected signatures for a citizens’ initiative whose aim is to prohibit female genital mutilation by law. The purpose of the initiative is to urge the Finnish Parliament to begin preparing legislation to prohibit female genital mutilation (FGM). Finland is the only Nordic country where female genital mutilation is not prohibited by a separate statute. At the moment, FGM is classified as assault according to law. A separate statute would be a significant statement showing that the practice is not acceptable in Finland. It would also provide an important tool for parties engaging in preventative work. Signatures were collected for the citizens’ initiative between April 2 and October 2, 2018. The initiative was signed by 60,852 people, which means that it will be brought before the parliament. We wish to thank everyone who signed the initiative. The citizens’ initiative will be handed over to the new Parliament in the spring of 2019. The development organization World Vision provided their expertise for the initiative.

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APPENDICES


APPENDIX 1. Finlayson Corporate Responsibility Strategy 2015-2020 CORPORATE RESPONSIBILITY ASPECT

TARGET 2020

Comply with the human rights due diligence process

BASELINE 2015

MEASURES TAKEN IN 2018

-

Human Rights Impact Assessment of Finlayson’s supply chain and own operations. Comparison of paid wages to different levels of living wage.

1. THE COMPANY MUST BE MORAL Developing the well-being of personnel * Reducing CO2-emissions by 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 by 20 % in proportion to turnover

17,200 CO₂e tons, in proportion to turnover: 0.75 CO2ekg/€ Corrugated cardboard 210 t, plastic waste 61 t, cardboard 57 t, wood pallets 50 t **

More resources to HR, update of model for early intervention, trainings and workshops (first aid, coping at work, supervisor work, textiles, diversity and CR). 18,000 CO2e tons -31 % in proportion to turnover: 0.57 CO2ekg/€ -45 % (in proportion to turnover) corrugated cardboard 143 t, wood pallets 87 t, cardboard 50 t, plastic 32 t, Increasing the amount of more ecological materials in products, Water Stewardship Commitment, supply chain research, water risk assessment of all operations.

STATUS

WHAT’S NEXT?

On schedule

Continuing Human Rights Impact assessment to exports and licensing, integration and communication.

Initiated

Development of orientation materials (incl CR), CR targets for all teams, development of worker well-being survey, development of intranet, risk assessment in shops, safety at work trainings.

Achieved

Recommending renewable energy to suppliers, increasing the portion of ecological materials, development of internal reporting system of materials.

Achieved

Reducing the amount of plastic in product packaging, development of internal logistics.

On schedule

Increasing the amount of more ecological materials, deepening water risk assessment.

Continual improvement of water stewardship

-

3. WE LOVE RECYCLING

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

4 % Fairtrade cotton

12.5 % (Fairtrade organic cotton 4.7 %, linen (flax) 4.7 %, recycled materials 1.6 %, organic cotton 1.5 %)

On schedule

R&D of more sustainable materials and products and increasing their portion in collections.

4. BUY LESS BUT BETTER

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

The share of reclamations 0.06 % of turnover

The share of reclamations 0.07 % of turnover

On schedule

Keep up the good work, developing quality monitoring further.

Increasing transparency in supply chains

Review of material origin countries initiated

Deepening the knowledge of our supply chains, increasing the share of traceable materials (certified cotton)

On schedule

Deepening supply chain research further, increasing communications (adding more supply chain information to web shop), increasing the portion of traceable materials.

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

99.8 % of suppliers in risk countries audited, 88 % signed the BSCI:n Code of Conduct

On schedule

100 % of suppliers in risk countries audited, all suppliers signed the BSCI CoC, developing new supplier form and purchase agreements.

Main stakeholders identified

Presenting Finlayson’s CR work in various occasions, discussions Collaboration with stakeholders and conducting stakeholder survey and materiality analysis

On schedule

Developing stakeholder survey process.

5. WE CONSIDER FROM WHOM WE BUY

6. WE DON’T BEFRIEND THE BAD

Including stakeholders in developing responsibility

* NEW TARGET! Renewal of former target: “Planning, Development and Monitoring of Equality Work” to a new, more comprehensive HR target. ** 2015 figures are note totally comparable to the figures from other years, as the accuracy of the calculations have improved in 2016.

36


APPENDIX 2. Personnel indicators 2015-2018

2017

2018

197 23 220

196 19 215

57 % 17 % 8% 11 % 7% 100 %

64 % 15 % 8% 7% 6% 100 %

55 % 25 % 6% 9% 6% 100 %

17 % 34 % 28 % 11 % 9% 100 %

21 % 35 % 22 % 13 % 9% 100 %

24 % 34 % 23 % 11 % 8% 100 %

40 % 12 % 30 % 18 % 100 %

34 % 7% 40 % 18 % 100 %

2015 2016 NUMBER OF PERSONNEL Women Men Total

116 14 130

170 22 192

DURATION OF EMPLOYMENT under 2 years 2-5 years 5-10 years 10-20 years over 20 years 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 Total

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

TYPE OF EMPLOYEMENT Regular, full-time Definite Regular, part-time Part-time (framework) Total

43 % 17 % 28 % 12 % 100 %

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APPENDIX 3. Finlayson’s packaging materials in tons divided by the total purchases of the year.

25

T/meur

20

15

2015* 2016

10

2017 2018

5

0 Corrugated cardboard

Cardboard and paper

Plastic

Wood pallets

APPENDIX 4. Risk classifications of Finlayson’s supplying countries and recommendations by amfori BSCI regarding auditing practices PRODUCTION COUNTRY Finland Estonia Portugal Belgium Czech Republic Lithuania Spain Latvia India China Turkey Pakistan

RISK CLASSIFICATION* (ON A SCALE FROM 0-100) 1 96.5 84.9 84.8 84.5 80.5 77.6 75.0 74.9 46.3 42.1 40.3 22.9

RECOMMENDATIONS BY AMFORI BSCI 2 Surveillance, no audits Sample of suppliers audited Reasonable and systematic auditing approaches Regular and reoccurring auditing activities

* 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.

1 2

amfori Country Risk Classification (2019) amfori Country Due Diligence: A Guidance (2018)

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APPENDIX 5. BSCI audit results per area, 2018, n=11 A Social Management System and Cascade Effect Workers Involvement and Protection

B

C 2

D

E 4

2

8

1

The rights of Freedom of Association and Collective Bargaining

11

No Discrimination

11

Fair Remuneration

1

9

1

8

1

No Child Labour Special protection for young workers

9

2

2 11

No Bonded Labour

11

Ethical Business Behaviour

1

11

No Precarious Employment

Protection of the Environment

2

10

Decent Working Hours Occupational Health and Safety

3

9

2 11

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Finlayson Corporate Responsibility Review 2018  

Finlayson Corporate Responsibility Review 2018