ESG Concerns That are Becoming a Pressing Matter for Apparel Industry

Dec 26, 2022
ESG Concerns That are Becoming a Pressing Matter for Apparel Industry

In June 2022 a panel at this year’s Global Fashion Summit held in Copenhagen said global standardisation on due diligence is necessary for sustainable change to be achieved.

As the climate crisis worsens, the fashion industry is called upon to take further action and responsibility for its ecological footprint. We uncover the growing environmental, social and governance concerns that are becoming a pressing matter for brands who wish to stay afloat in an industry that faces such scrutiny.

It is no secret that the fashion and textile industry is one of our planet’s most detrimental and polluting sectors. Following the fast fashion business model, the industry has proven to impose incredibly negative impacts on our environment. It is notably responsible for 10 per cent of humanity’s global carbon emissions, contributing to the pollution of waterways and soil. And overall, generating tons of waste that inevitably have a profound impact on our biodiversity and ecosystems.

Furthermore, this issue is aggravated and made more difficult to ignore because, as a society, we are becoming more aware of social, political and environmental problems such as the climate crisis, sustainable living and of course, ethical fashion. People are speaking up and increasingly voicing their opinions on such matters through social media, generating a movement that influences and pushes for change within the fashion and retail sectors.

As a result, the industry has been at a turning point for close to a decade, led by consumers who want to do business with brands concerned about their environmental impact and who incorporate ethical practices into their values and business models.

In the past few years, the environmental, social and governance — ESG for short — aspects of business have evolved from being a minor concern to becoming a crucial factor that brands and companies can no longer ignore if they wish to survive and thrive in their respective markets. With growing demands for ESG, brands that do not meet the expected and satisfactory standards must be willing to sacrifice profitability, as their financial performance is more and more dependent on their ability to contend with environmental, social, governance and overall ethical matters.

Feeling the pressure to change and this as quickly as possible, many brands have publicly published their newly developed sustainability objectives and strategies as a response to this urging pressure. A notable example is Kering, an industry frontrunner for sustainability. As part of its initiative and efforts to minimise the effects of global warming, Kering announced in 2019 its commitment to become carbon neutral across all owned operations and throughout its entire supply chain. The goal is to achieve net-zero emissions by 2030.

Other luxury giants such as LVMH and Prada Group are following suit and setting trajectories to reach carbon neutrality by 2050, a target compatible with the Paris Agreement. This move towards increased responsibility among such industry leaders is more critical than ever. The ethical dimension of building a fashion brand has become the number one priority.

The growing number of Instagram-friendly brands that have completely built and designed their business models, brand image and values around sustainability means that consumers no longer have to settle for anything less than what they so eagerly demand: brands that demonstrate responsibility.

However, although this shift is welcomed and beneficial to our environment, the excessive pressure imposed upon brands and the industry overall, has generated another challenge. 

The act of greenwashing is now a growing concern for investors and consumers alike. Known as the act of conveying false or misleading information about a company’s ESG action plans and actual results. According to an article posted by ESGClarity, the United Kingdom’s Competition and Markets Authority found that up to 40 per cent of environmental marketing claims could be considered misleading to consumers.

Similarly, a report conducted by the Business of Fashion shows that while the majority of the industry’s most prominent companies have committed to a “net zero” target, only half of them have laid out a plan with specifics that will create proper accountability and have incorporated time-bound targets to reduce emissions. Companies are to be held to greater accountability, especially by investors who are more likely to pull out funds if companies are found to not be living up to their sustainability credentials.

It is clear that the environmental aspect of ESG has received considerable attention. It is essential to clarify and understand what issues are covered by the “S” or social aspect of the acronym. To better understand the concept, it is crucial to see it as an interdependent concept, with each theme working together with social issues sitting at the heart of it all. The simplest way to consider the “S” is by seeing it as a point that addresses explicitly the people included and take part in the business model. Meaning directors are expected to consider the situation of employees, stakeholders, suppliers, and customers. This relates to the way people are treated and to the extent their voices are being heard. 

Total transparency is expected between brands, their partners and employees. Moreover, emphasising and ensuring that employees are given the ability to voice their concerns can play a crucial role in the well-being of any brand or company. When it relates to the scrutiny over sustainability in fashion, employees are positioned best to see if the supply chain operations are feeding into and replicating the company’s communicated values. Moreover, the topic of diversity within an organisation is to be covered when discussing social issues. Fortunately, the fashion industry is excelling in this specific area of ESG, with many Fashion Houses, such as Hermès for example, leading the way when it comes to diversity and inclusion.

Moving forward, more and more companies will be turning towards ESG as a form of competitive advantage and their unique selling points and brand identities. This form of activism that pushes brands to enhance their production and operations in a more eco-friendly manner is an opportunity for fashion houses to better their practices and overall profitability in a market where consumers demand responsibility and accountability over products. Brands should focus on sustainable textiles as this will drive the decrease in water, chemical and carbon footprints. As little businesses continue to gather attraction via their sustainable practices and models, we look forward to the changes industry leaders will put into place to foster an environment of sustainable progress and innovation. 

In a report from Ernst & Young (EY) titled: Why net-zero supply chains are the next big opportunity for business, increasing pressure from consumers, employees, investors, governments and regulators is pushing COOs to consider the future of their operations in the dual context of what’s best for the business, society and the planet.

EU’s Corporate Sustainability Reporting Directive (CSRD)

Supply chain transparency, social compliance and the circular economy are top priorities for both the EU and national governments. For instance, the EU’s new Corporate Sustainability Reporting Directive (CSRD) will require all large European companies from 2023 onward to disclose how they manage social and environmental challenges.

When it comes to the circular economy, the EU is set to introduce new legal measures to increase circularity in textiles, including new directives concerning durability of textile products and a ‘right to repair’. To reduce global carbon emissions, the EU is currently considering a Carbon Border Adjustment Mechanism, also called a ‘carbon border tax’. This is effectively an import duty based on the amount of carbon that was emitted during production.

Environmental, social and corporate governance (ESG) is not a new topic on C-suite agendas, and the business case for action is well-established. Supply chain sourcing and manufacturing has long focused on human rights aspects — such as child labour and working conditions. Some large companies have closely monitored their suppliers for their carbon footprint and sustainability key performance indicators. Forward-thinking retailers have targeted energy savings tied to operating their physical stores to reduce their overall environmental impact, and they have improved transportation routes and leveraged hybrid vehicles for last-mile delivery. Consumer packaged goods companies have focused on reducing their packaging and their water usage.

More recently, the increase in regulatory action is adding greater urgency. The need to consider ESG more broadly within supply chains, with more change on the horizon in what companies will need to provide, not just in their operations but in their supply chains.

What’s more textile and apparel companies could be missing out on billions of dollars in net profit enhancements from a lack of supply chain traceability, according to a new report from financial think tank Planet Tracker’s titled Lifting the Rug. Planet Tracker has found that companies without traceability systems are missing out on a net profit enhancement of 3% to 7% – the equivalent of approximately US$3bn to US$6bn per year for a company earning US$80bn per annum.

How can apparel retailers navigate the new laws and regulations?

With regulations and legislation growing, apparel retailers must navigate what is required to fulfil each piece of legislation and efficiently report on all of the information required for compliance.

Digital scrutiny

New European rules will come into effect sometime in 2022, offering consumers protection for making online purchases. These rules consider that when shopping online, consumers increasingly make purchases outside of their own countries, and that more and more products and services have digital elements. The ‘legal guarantee’ will thus also apply to products with a digital element, such as services and content.

Mandatory human rights, environmental, and good governance due diligence

Last March the EU paved the way with its directive for due diligence and corporate accountability. Penalties will be served if fashion brands are found to cause harm by insuffient due diligence in their supply chains, for example, ensuring no child labour, fair wages are paid and the environment is protected.

End of greenwashing

In October the UK’s Competition and Markets Authority (CMA) developed the Green Claims Code, which sets out six key points to check if environmental claims are genuinely green. Green claims (sometimes called ‘environmental claims’ or ‘eco-friendly claims’) are claims that show how a product, service, brand or business provides a benefit or is less harmful to the environment.

Many businesses use green claims to help market their products or services, but sometimes ‘greenwashing’ comes to the fore. In the US, the Garment Worker Protection Act (GWPA) was strengthened in October, ensuring that retailers cannot use layers of contracting to avoid liability. It also prohibits the use of paying garment workers by the “piece,” thereby eliminating a significant obstacle to workers being paid minimum wage and also protecting their health and safety.

Supply chains today are global, dispersed and come with a host of complex challenges to businesses around the world. In order to move towards a sustainable approach, retailers and brands need to work towards legislative compliance, and this is not only limited to their own business practices but also must filter through their vast supply chains.

Source: Key Global Laws& Regulations Effecting Textile Supply Chains

Planet Tracker Reporta: How Traceability in Textiles Improves Financial and Sustainability Performance

Posted by Abiteks


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