At the crossroad: Growth and sustainability in Bangladesh's RMG industry
To remain competitive and align with global sustainability trends, Bangladesh’s RMG sector must undergo a strategic overhaul within the next five years
Bangladesh's Ready-Made Garments (RMG) sector, the backbone of its export-driven economy, is navigating a pivotal moment as global markets shift toward sustainability and ethical production.
Data from the Export Promotion Bureau (EPB) highlights several significant trends that outline both opportunities and challenges for Bangladesh's RMG sector in the global market. On the positive side, overall RMG exports to global markets reached $40.49 billion in the first 10 months of the 2023-24 fiscal year, marking a growth from the previous fiscal year's $38.57 billion during the same period.
A standout contributor to this increase is the expansion of RMG exports to new markets, which saw a 10% growth, reaching $7.70 billion in the July-April period of FY24. However, despite this robust growth, market fluctuations in traditionally strong regions like the European Union (EU) are a cause for concern. RMG exports to the EU witnessed a 5.0% decline in the first half of 2024, fetching €8.72 billion compared to €9.17 billion during the corresponding period of the previous year.
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This negative growth in exports to the EU raises concerns, particularly as the EU has traditionally been a significant market for Bangladesh's RMG industry. The decline may reflect challenges such as rising competition, economic downturns in Europe, and the increasing need for compliance with stringent ESG and sustainability requirements.
Bangladesh's RMG sector's journey towards sustainability is fraught with complexities. Balancing its historical reliance on mass-produced, low-cost garments with the investments required for ESG adherence has become a pressing dilemma. Firstly, Bangladesh's RMG sector thrives on cost competitiveness, with some of the lowest labour costs globally, averaging between $0.45 and $0.54 per hour.
This low-cost labour enables manufacturers to produce basic clothing at highly competitive prices, which meets the global demand for fast fashion, a market driven by speed and affordability. However, as production costs rise and the pressure to adopt sustainable practices increases, this cost-based model faces growing challenges.
Furthermore, the sector faces a significant productivity gap. Bangladeshi workers' hourly productivity is $3.4, which is considerably lower than in competitor countries such as Vietnam ($4.7), Sri Lanka ($15.9), Indonesia ($12.3), India ($7.5), and China ($11.1). This disparity is largely due to outdated infrastructure and limited automation. Additionally, the skills gap among workers exacerbates the productivity challenge. While global benchmarks for garment factory efficiency range from 75% to 85%, most Bangladeshi factories operate at only 40% to 45%.
Bangladesh's RMG sector stands at a critical crossroads, confronting the limitations of a cost-based model that struggles against a widening productivity gap and lower efficiency relative to global competitors and the emerging trends and demands of ESG standards. Failing to meet ESG standards isn't just a challenge; it's a deal-breaker for many international buyers. Non-compliance can lead to significant fallout, including loss of market access. For instance, major retailers like the H&M Group aim to reduce their greenhouse gas (GHG) emissions by 56% by 2030 compared to the 2019 baseline. This is part of their broader sustainability goals and commitment to achieving net-zero emissions by 2040.
To remain competitive, the sector must enhance both productivity and efficiency while prioritising decarbonization. A crucial element of this effort is the development of green skills, particularly in carbon accounting and sustainability reporting. Many of the brands are committed to adhering to international frameworks such as the Paris Agreement and the UNFCCC's Fashion Industry Charter for Climate Action. These sustainability commitments are shared responsibilities across the supply chain and have a significant impact on the manufacturing process. Therefore, it is essential to strengthen the technical capacity of supply chain factories to facilitate the green transition and meet the increasing demands of ESG standards.
Carbon accounting involves the precise measurement and management of greenhouse gas (GHG) emissions across manufacturing and supply chain activities. Adopting standards such as the Greenhouse Gas Protocol and ISO 14064 allows factories to accurately diagnose their carbon footprint, identify reduction opportunities, and implement technologies and practices that harmonise profitability with environmental compliance. This process is essential for developing strategies that reduce emissions while optimising production efficiency, contributing to the broader goal of a net-zero economy.
Conversely, sustainability reporting entails the public disclosure of a factory's ESG performance, including energy use, waste management, and labour practices. Standards like the Global Reporting Initiative (GRI), European Sustainability Reporting Standards (ESRS), and the Sustainability Accounting Standards Board (SASB) guide this reporting.
Comprehensive sustainability reports enhance transparency, build stakeholder trust, and support regulatory compliance by providing detailed disclosures on corporate governance, ethical practices, and emissions reduction targets. This not only aligns with global sustainability commitments but also improves market access and reputation.
The interplay between carbon accounting and sustainability reporting is crucial. Effective carbon accounting provides the data needed for accurate sustainability reporting, ensuring that environmental impact disclosures and sustainability commitments are credible and aligned with frameworks such as the Science Based Targets Initiative (SBTi). This synergy fosters a virtuous cycle of improved performance and enhanced credibility, positioning factories to better meet ESG requirements and strengthen their market standing.
Additionally, Bangladesh's RMG sector faces significant challenges in developing green skills. The consulting market for green skills is underdeveloped and fragmented, leaving many factories struggling to find local expertise and heavily reliant on expensive international consultants. Only a handful of service providers offer specialised services like energy audits, which means many factories are unaware of their emissions status.
In contrast, India and Vietnam have made significant strides in green transition. India has seen major investments in advanced technologies, including IoT-integrated engineering management, which helps manage energy efficiency and sustainability more effectively. This reflects a broader trend where the Indian consultancy service providers market is leveraging technology to reduce their environmental footprint.
Several factories in Vietnam are implementing energy-saving measures like biomass boilers to minimise their environmental impact. Many factories have heavily invested in green transitions, including machine replacements, waste-heat recovery, renewable energy, and workforce training. These efforts are part of a broader synergy among government regulation, the consulting service market, and the agility of the factories. These advancements reveal a growing gap with Bangladesh, highlighting the urgent need for stronger local expertise and affordable consultancy services.
Despite these challenges, it is essential to acknowledge the progress made thus far. Bangladesh has demonstrated its commitment to sustainability through initiatives such as establishing green factories and achieving recognition for having the highest number of LEED-certified garment factories in the world, with 229 factories certified as of 2024. These efforts provide a solid foundation for the future, but more action is necessary to meet evolving global expectations.
To remain competitive and align with global sustainability trends, Bangladesh's RMG sector must undergo a strategic overhaul within the next five years. The immediate priority for Bangladesh's RMG sector is to track emissions and report progress on commitments toward ESG targets. To achieve this, more accessible services for carbon accounting and sustainability reporting must be established, along with capacity building for local technical service providers.
To drive this change, several strategies can be implemented. First, the industry needs to be educated about the long-term benefits of adopting sustainable practices. Both the government and apparel brands should incentivise factories that successfully implement these practices, using recognition mechanisms to encourage others to follow suit.
Additionally, integrating sustainability into the curricula of technical institutions and universities will help cultivate a new generation of executives and managers proficient in ESG principles.
Factories should establish dedicated teams focused on adhering to sustainability and ESG standards. Moreover, they must prioritise technology integration and invest in the upskilling and reskilling of workers and management staff to enhance overall governance and operational efficiency.
By developing models that promote energy-efficient solutions and reduce carbon intensity and emissions, Bangladesh can position its RMG sector for a transition to more sustainable and cost-effective practices.
Furthermore, diversifying product lines to include high-value items will facilitate long-term sustainable growth and better alignment with global market trends. This proactive approach will enable factories to meet the increasing demands of global buyers and regulators.
In conclusion, Bangladesh's RMG industry is at a pivotal moment. The path forward will require not only investments in technology and infrastructure but also a fundamental shift in mindset. Meeting ESG demands is no longer optional; it is imperative for survival.
Without a cohesive strategy to enhance internal expertise, diversify products, and adapt to evolving market demands, the sector risks stagnation in a rapidly changing world. By taking proactive steps, Bangladesh can secure its place as a leader in the global RMG market while achieving sustainable growth that benefits all stakeholders.
Nayeem Mahmud is the Coordinator of Environmental and Social Compliance - PROGRESS, Swisscontact.
Sayeda Zeenat Karim is Senior Officer - GESI and KCM, Swisscontact.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.
