Quality, business factors (technologies, skill, location, price, customer service, ability to deliver on time); and environmental and social performance are the four factors.

Quality continues to be our principal criterion for sourcing. Reduced environmental harm is a strong second criterion. If we can reduce environmental harm without sacrificing quality we do so; where reduced harm will increase the price we make judgment calls; the environment often wins, even when we think a decision will cost us sales.

Our Social/Environmental Responsibility team can veto use of any mill or factory that does not meet our standards for social and/or environmental practices. Failure to meet our high minimum standards in any regard automatically disqualifies a factory from being considered. When evaluating social performance we look at two things: the degree to which the factory meets or exceeds the standards set in our Code of Conduct and the extent to which its owners are willing to work with us to improve areas in which they fall short.

Our Social/Environmental Responsibility team visits a large percentage of factories in of our supply chain each year. Team members are in daily e-mail and phone contact with factories. We regularly hire third-party auditors to visit the factories to investigate CR concerns. In addition, the Fair Labor Association (FLA) conducts unannounced audits of a sampling of our supply chain each year. Patagonia’s design, development and production staffs are also in constant e-mail contact with our factories and visit them frequently. Our Quality team visits factories regularly; Quality and Sourcing team members have also been trained to identify and report human rights and health and safety concerns in the factories.

When we develop a new product, we look worldwide to find factories with the skills and equipment to do a quality job and deliver on time at a competitive price, do the least environmental harm and treat workers fairly. We make products in factories in Jordan, Nicaragua, Sri Lanka, India and Bangladesh, China, Thailand, Vietnam, Turkey, Mexico, Costa Rica, Colombia, El Salvador, Israel, the Philippines and the U.S.

We currently have 8 factories in the United States making our products. While this does not represent a large percent of our overall volume, we consciously try to source in the United States as much as we can. The global chase for skilled labor and low cost has caused the U.S. garment industry to pretty much shut down. Even in its heyday, U.S. garment factories didn’t have the expertise to make our most technical products. Though we do manufacture some Patagonia garments in the United States, they are few and limited to some of our more basic styles.

Some of the countries we work in, including China, have poor to mixed records for protecting both the environment and workers' rights. The U.S.'s record is better, but not as good – in some cases not nearly as good – as either the E.U.'s or Japan's. We've made the choice not to disengage from countries on the basis of their policies. We work with several excellent factories in China and Vietnam, in particular.

We believe in choosing factories wisely and in constructive engagement with others to lobby or work for change. Patagonia alone cannot change the work culture or government policies of the countries we do business in. We do work with other brands that share our factories and we collaborate with NGOs and others trying to improve working conditions.

During our years in business we’ve seen the epicenter for quality sewing move from Hong Kong to mainland China; now it’s moving to lower-cost Vietnam and Thailand. There are countries with lower labor costs than these. But we only do business with factories that can assure us quality work – and decent environmental standards and workplace conditions.

Our workplace Code of Conduct requires contractors to comply with local law, but even if local law allows it, we will work with no factory that employs workers under 15, the minimum age acceptable to the International Labor Organization. Where law is silent or insufficient, our Code of Conduct prohibits the employment of workers for excessive hours or in hazardous conditions. We pre-screen our factories for social responsibility before any orders are placed: this includes a check for child labor. If child labor is found in our factories, we follow our Forced Labor & Human Trafficking Policy, which is based on International Labor Organization and Fair Labor Association guidelines.

Not all do. We require that factories pay their workers a legal minimum wage or better, that working conditions be decent, and that workers have the right to join a union. Many of our clothes require highly skilled labor from operators who earn a decent hourly rate for local conditions. We prefer to work with factories who pay workers enough to meet basic needs – and more.

We agree with the living wage principle – that a family has to be able to live on what it’s paid – but don’t yet practice it. Why? Sewing is low-paid work and the business is competitive (and many governments, including that of the U.S., set minimum wages low). A living wage can be hard to define. Factories have to be assured that they can raise prices to pay higher wages without losing revenue (and thus risk worker layoffs). Also, factories often work with multiple companies, and pay the same wages regardless of the company. So for a factory to pay workers more, all customers of that factory have to agree to pay more. The factories have to overcome the fear of business loss due to higher prices. And enough consumers have to pony up the extra cash to ensure a living wage.

There’s no excuse, though, for exploitation of the labor of poor people to make nice things for the better off. We believe the best way to achieve a living wage is for a collaborative association like the Fair Labor Association (FLA) to establish a living wage (or fair wage) clause, which would ensure that all companies who are members agree to add to their Codes of Conduct the same standard as well as a graduated or “stepped” timetable for achieving it. To be effective any new wage clause has to have teeth – and include provisions for auditor training and factory verification. We are working for this within the FLA.

For the moment, we track minimum and prevailing wages in each country from which we source; we work toward a higher, fair or living wage in our costing negotiations with each factory. From the results of our own social audits and FLA monitoring, we know that many of our factories pay above minimum wage for some or all of their workers already. We have also participated in the "JO-IN" project, a multi-stakeholder initiative in Turkey (with the Clean Clothes Campaign among others) that worked towards a “stepped” wage ladder in the pursuit of achieving a living wage.

All this said, according to the “Living Wage Calculator” for Ventura County (California), where we have our headquarters, a living wage for one adult (in 2010) is $12.46 an hour – no problem. But for a single parent supporting a child a living wage is $22.49 per hour ($46,779 per year). That sounds about right, but by this standard we do not pay some of our own headquarters employees a living wage, although we pay competitively (and well above minimum) and have earned recognition from the press as one of the best companies in the United States to work for.

In a word, yes, but it’s complicated. Shipping contributes only a small percentage (1 to 2 percent) of carbon output and energy. Of shipping methods, ocean and rail are most efficient and less harmful; airfreight and transport by truck the least desirable. One way to reduce transportation is to cluster a supply chain as much as possible (with relatively short distances from farm to mill to factory to port); this is common practice in China, India and Vietnam. Because we sell worldwide, manufacturing solely in the U.S., if it were possible, would not provide a significant advantage.

Patagonia is committed to “use business to inspire and implement solutions to the environmental crisis.” Over the past 20 years we have given nearly $40 million in cash and in-kind donations to environmental causes. We helped launch two other North American business philanthropies, the Conservation Alliance and 1% For The Planet, and the European Outdoor Group’s Association for Conservation. We don’t give money to schools, hospitals or the arts. All our philanthropic effort goes to environmental work.

That said, we understand that as a business we contribute to the environmental crisis. Everything we do in the day pollutes or generates waste. For the past 20 years we have been working to reduce the harm we do both directly and indirectly through the actions of mills and factories making Patagonia clothing. We were the first company our size to switch to the exclusive use of organic cotton and to make fleece from recycled soda bottles. As we learn to reduce our environmental footprint, we actively share the information with other businesses.

By another definition of responsibility – how we conduct our business – we give the social and environmental sides equal weight. We treat our own employees as full human beings who have active family lives and important outside interests. We are commonly included in lists of “100 Best” North American companies to work for. We were the first company our size to open subsidized, on-site child care at our Ventura headquarters.

We also actively work to improve the lives and protect the health and safety of the factory workers who produce Patagonia clothes worldwide. We don’t chase lowest-cost labor around the globe. We were a founding member of the Fair Labor Association (FLA), which audits factories that produce our goods to make sure employees are paid legal (or higher) wages, work in humane conditions, and have the right to join a union (FLA publishes its audits on its website). In the U.S. we are active members in the Outdoor Industry Association’s Eco-Index and Corporate Responsibility Working Groups and the European Outdoor Group’s Social Responsibility Working Group, where we can exchange information on best practices with other like-minded outdoor brands and mentor smaller companies just starting out on their own social responsibility programs. Patagonia Europe is similarly active within the European Outdoor Group’s (EOG) Sustainability Working Group.

We also take some unusual business actions to advance social responsibility throughout the supply chain. Our Social and Environmental Responsibility (SER) team works in the Production Department, and with the Quality staff, not in the administrative or marketing arms of the company. All three teams (SER, Quality, Production) work and travel together. Each team’s director has an equal say in sourcing decisions for new and current goods. Each has veto power over doing business with a new factory. Before we place our first order, each new factory is viewed through a comprehensive social/environmental and quality lens (during direct audits by our SER and Quality staff). SER staff visit factories regularly to both conduct audits and follow up on corrective actions from previous visits and to conduct training or concentrated remediation for specific concerns. We are strongly committed to long-term continuous improvement of social and environmental standards in factories.

Patagonia as yet has not published a CSR or Sustainability Report that follows the guidelines of the Global Reporting Initiative (GRI) or other framework used by other companies.

We are committed to co-responsibility for decent treatment of workers throughout the supply chain. We publish our factory list online. You can access social audit report results for factories that make Patagonia clothes through the Fair Labor Association (FLA) website (we are an accredited member of FLA; they randomly audit a sampling of our factories every year). Our newly redesigned Footprint Chronicles site also includes social audit results from our supply chain.

To report on environmental responsibility, the Footprint Chronicles looks at some of the environmental impacts in our supply chain. The Footprint Chronicles allows us to talk about critical social and environmental stories with all our stakeholders – customers, the press, suppliers, employees and students – in unspecialized, everyday language. We give priority to the issues that challenge us the most – or that our stakeholders regard as a challenge and ask us to address. We highlight failures and ongoing challenges as well as incremental successes.

We inform our customers and the public on our progress in social and environmental responsibility in other ways too – in the Corporate Responsibility section of The Footprint Chronicles, in our annual Environmental Initiatives booklet, in the Environmentalism section of our website, and on our blog, "The Cleanest Line." We feel these are exciting, interesting, interactive and transparent methods to show our commitment to human rights, environmentalism and ethics.

In early 2012, we became the first company in California to become a Benefit Corporation (B-Corp) with the State of California. This certification process requires annual reporting.

The advantage to the reader/user of sustainability reports that follow the GRI framework is the ability to easily compare data from different companies. The disadvantage: a sustainability report, like an annual report, can be a dull read held forth in specialized language that clouds as much as it reveals. Because we recognize the advantages of easy comparability, we are investigating the possibility of importing data we collect for the Footprint Chronicles into a GRI framework (and with as much plain speaking as possible). Sustainability reports can be expensive for a company of our relatively small size to research and produce and can only supplement, not substitute, for the Footprint Chronicles. We want to continually raise rather than lower the quality of the conversation we’ve created with our stakeholders over the past years.

We use professional third-party auditors to perform most of our social audits and our Director of Social/ Environmental Responsibility, a former social auditor and trainer with 12 years experience, conducts a portion of the audits. A post-audit report describes factory compliance with the requirements of our workplace Code of Conduct and local law. This report goes to Patagonia’s Social/Environmental Responsibility Director and Analyst, who then, if necessary, work with the factory to develop a corrective action plan. The plan lists the problems and corrective actions and includes a timeline for compliance. Where problems are serious, we will engage a factory in a continuous improvement process that includes further audits, longer-term training and onsite help to resolve the issues. There is much follow up from our SER team, but at that stage it’s also incumbent upon the factory to take ownership of its shortcomings and rectify them.

Yes, we have. But because the goal of our program is to safeguard and improve workers’ rights, it is our policy to work with factories to correct social problems and promote better practices. As a factory customer we can have a positive influence; as an outsider we would have little or no leverage. Furthermore, the Fair Labor Association advises against “firing” noncompliant suppliers unless the supplier is unwilling to work toward improvement. Leaving a factory usually leads to further deterioration of workplace conditions and can result in layoffs. Should a factory ultimately be unwilling or unable to meet our requirements, we would terminate our relationship.

We publish our contract factory list for review by NGOs, customers and other stakeholders. We want to be able to work with other customers of a factory to communicate, monitor, and implement solutions for social and environmental responsibility. We want to ease the burden of monitoring and focus resources on making the changes that will improve working conditions.

As more brands become vocal about their social responsibility efforts, suppliers become more aware that social responsibility is a part of doing business. Consistent messaging from all brands builds momentum.