People - Operational Risk

Overview

Operational risk focuses on the transparency and management of a brand's value chain. It evaluates how well a brand identifies the facilities where its products are made and how it mitigates labour rights abuses, especially in high-risk geographical regions. This area is fundamental to sustainability because brands cannot manage or improve conditions they do not know about. High-performing brands are those that demonstrate deep traceability, publish detailed supplier information, and prioritise worker empowerment through union representation and inclusive practices.

Industry verticals: Fashion, Beauty, Services, Retailer (labelled “Direct Operations Risk”)

Applicable for: small and large brands

What is assessed?

While specific criteria vary by vertical, common themes include:

1. Traceability

Brands are evaluated on the proportion of their supply chain that they have identified. This includes multiple stages, from raw material sourcing to final assembly. The methodology also considers whether brands disclose and trace subcontractors, which are often high-risk points for labour abuse.

2. Supply chain transparency

This assesses whether a brand publicly lists its suppliers. Scoring is higher for brands that provide specific names and addresses of facilities rather than just the countries of manufacture.

3. Labour risk and certifications

The methodology analyses where production takes place (low, medium, or high-risk countries) and whether facilities hold recognised labour certifications. Common standards included are SA8000, Fair for Life, and Fairtrade.

4. Business model

Brands are rewarded if the products they offer are made solely by the owner or by a small team of fewer than 10 people. In addition, if a brand’s mission is to improve labour conditions by working with artisans as equal partners, or if it is a social enterprise or NGO set up to improve conditions for marginalised communities.

Assessments in industry verticals

Fashion 

The fashion methodology breaks the supply chain into three distinct stages for traceability:

1. First stage: Harvesting or collection of primary fibres (eg cotton, wool)

2. Second stage: Transformation of fibres into fabrics (eg, spinning, weaving, dyeing)

3. Final stage: Assembly of the final garment (Cut-Make-Trim)

Beauty 

Similar to fashion, beauty supply chains are categorised into:

1. Raw material production: Sourcing plant extracts or minerals

2. Processing and manufacturing: Transforming raw materials into cosmetic ingredients

3. Formulation: Manufacturing the final finished product

Services and Retailer

The Services and Retailer methodologies emphasise direct operations and contractors. They recognise that service brands have a high influence over their own retail staff and contractors (eg cleaning or security staff) who represent higher labour risk. 

Conditional assessments

For some questions, the assessment is unavailable depending on previous selections:

• If the brand does not trace its first or second stages of production, questions will not be asked about location risk or certifications

• If the brand produces its products in-house by either the owner or a small team, the traceability question on the final production stage will not be asked

Geographic risk logic

The labour risk assessment will give a base level score depending on where the manufacturing occurs. Brands that manufacture in low-risk countries are still expected to have strong initiatives to ensure labour rights are upheld. However, as the level of risk is lower, they will score a base level score to reflect that.

Disclosure and data sources

Good On You primarily relies on a brand’s public website and formal sustainability, CSR, or ESG reports. In addition, for the operational risk section we reference:

• Data verification: Analysts cross-reference a brand’s claims stating it uses certifications against the relevant database eg Fairwear Foundation  

• Open-source data: Analysts cross-reference against transparency hubs such as the Open Apparel Registry

Relevance for different brands

The assessment of risk can vary slightly depending on a brand’s size.

Small brands

Small brands are rewarded more for in-house production by the owner or a small team (typically fewer than 10 employees), as this allows for direct oversight of labour conditions. Small brands are also rewarded for having social missions embedded into their strategies.

Large brands

Large brands are expected to have greater transparency over where their manufacturing occurs and to disclose supplier lists.

Best practice and common pitfalls

Best practice principles

• Tracing 100% of the supply chain back to the raw material stage represents industry leadership

• Disclose where the manufacturing takes place, including names of suppliers

• Having robust certification to ensure labour rights are maintained, such as Fairwear Foundation. Leading brands will either have robust internal systems that achieve a higher threshold than certification, or have certifications covering all their labour in high-risk countries

Common pitfalls

• "Designed in" v "made in": A common greenwashing tactic is using a prestigious "designed in" location to mislead consumers about the actual manufacturing site. Analysts require clear evidence of the production country.

• Brands may state that most of their manufacturing occurs in lower-risk countries or regions such as the European Union. However, they either do not disclose the country, or do not disclose where the manufacturing occurs for the remaining amount

• Brands may state that a number of certifications cover their manufacturing such as SA8000, BSCI and WRAP, without providing breakdowns of what is actually covered