H&M is continuing to drive its sustainability agenda forward, with the release of its fifth annual sustainability report.

CEO Karl-Johan Persson believes behaving sustainably fits in with the company's ethos of "offer fashion and quality at the best price". He said the efficient use of resources leads to reduced costs, yet there is "much more to this than the obvious", including the attraction and retention of talent, as well as contributions to economic growth, jobs and stability in its purchasing markets.

Challenges
While the company has made great strides, including being named the biggest user of organic cotton in the world for the second year in a row, Persson emphasised that there are still a lot of challenges to be overcome.

The retailer is focusing on "closing the loop on textile fibres and waste and playing our part in combating climate change and water scarcity," he said.

"Ensuring that all workers in supplier factories earn enough to live on in a decent number of hours is another key challenge. It's a complex issue and solutions need to consider the competitiveness and development of entire countries. Our whole industry has more to do to find and implement such solutions. And the tragic, recent factory fires show again that safety can't be taken seriously enough."

Closing the loop
As part of its first efforts in developing a closed loop for textiles, over the year, H&M launched a clothing collection programme. It said all surplus generated by selling these garments will be used to fund research into closed loop and into social products through its Conscious Foundation.

Describing the challenges faced around closing the loop for textiles, the report admitted that often, the yarn made from recycled textiles is not strong enough to make quality garments.

Empowering workers
While H&M does not own any of the approximately 1,800 factories that produce its garments, the group said it is "using its influence to promote better working conditions and environmental consciousness throughout our value chain".

H&M added that it is working towards greater involvement of the workers themselves and on empowering its suppliers to take ownership of their sustainability issues.

Over the year, the company conducted 2,541 audits at its supplier factories. Together with training and other support, this averages at 3.6 activities per factory over the year.

H&M is focusing on helping its strategic suppliers improve their management systems, and provide and facilitate extensive training in factory management, mid-level management and the workers to help strengthen their in-house sustainability capacities.

"Our focus is on our strategic partners, where we have stronger influence and bigger impact. This way complementing our purchasing practices and auditing, we ultimately aim to significantly extend the improvements in the sustainability performance amongst our suppliers," the group said.

Meanwhile, its supplier sustainability performance index IcoC increased from 76.5 to 78.4.

Fire safety in Bangladesh
H&M is continuing to promote fire safety in Bangladesh. It said it has developed two training films to increase fire safety awareness amongst employees at all levels in garment factories. The films have been distributed beyond H&M's 200 supplier factories to more than 1,250 factories in Bangladesh, and more than 100,000 workers at H&M suppliers have received the training.

It hopes that around 3m workers in Bangladesh will have seen the films by the end of 2013.

H&M has said that all of its supplier factories conduct electrical assessments and has offered to share the costs with them.

In partnership with the Fire Defence and Civil Department, H&M has conducted five factory assessments on fire safety involving the factories' worker representatives.

"The assessments have shown that a continued increase in awareness about fire safety is needed and we hope that the continuation of related training programmes will help to address this issue with stronger impact," the retailer said.

Overtime
Overtime continues to be a major challenge in the garment industry, H&M said, and despite requiring all suppliers to comply with national labour laws on overtime, non-compliance is common throughout the industry.

It said that by 2012, it registered a compliance rate of 17% on overtime hours within the legal limits among its supplier factories.

The group believes it can help minimise overtime through its buying behaviour, including fair lead times, clear communication and long-term capacity planning.

Yet, further improvements in supplier operations and management systems are needed. "Adding to the complexity of the issue, overtime compensation is often an important contributor to additional income, resulting in workers themselves often demanding for overtime to increase their pay," the company said.

The retailer moved to highlight how overtime is a "core issue" faced by the industry, which will require further scalable solutions in close connection with further promotion of higher wages, while considering market-specific needs.