ESG Focus: Environmental Cost Of Fast Fashion

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Role of targets in bringing the environmental cost of fast fashion under control

By Leon Kamhi, Head of Responsibility at Federated Hermes

The fast fashion business model has negative impacts on our environment, including carbon emissions that contribute to the climate crisis, the pollution of waterways and soil, and the wasting of planetary resources. This has a profound impact on biodiversity and ecosystems.¹

According to the UN Environment Programme², the fashion industry produces up to 8% of global carbon emissions, which is more than the amount from international flights and maritime shipping combined.

In the apparel sector, the bulk of greenhouse gas emissions derive from upstream materials production and preparation activities such as dyeing and finishing, while a smaller proportion come from downstream activities such as retail operations, garment use, and end-of-life disposal^3. 

According to the UNFCCC, 60% of the abatement potential lies in decarbonising upstream operations, 20% in a company's own operations, and 20% relies on changing consumer behaviour. The Ellen MacArthur Foundation estimates that without significant changes, the apparel industry will use up a quarter of the world’s carbon budget by 2050, based on the premise that global warming should be kept below 1.5°C.

Goals & Targets

Meaningful change to the way the fashion industry works and removes the significant damage it is doing to the environment is no walk in the park. There will need to be a radical overhaul in most of the fashion retailer’s business processes including materials used, quality of products, all aspects of the supply chain and distribution including returns and possibly most of all customer attitudes to fashion. The industry and company mindset and culture change required is colossal.

Whilst not a panacea in themselves, setting ambitious targets can provide a ‘north star’ to help organisations achieve tangible and substantive change. Companies should then translate their broad ambition to reduce the environmental impact of their operations into concrete, time-bound targets.

We urge companies to set science-based greenhouse gas emissions reduction targets and report on their progress on an annual basis. New Look has been the latest company to announce a Sustainability Strategy with commitments to become ‘climate positive’ by 2040 and plans to set out specific emissions targets and a roadmap in the near future⁴. They hope to join the likes of Nike and H&M and have such targets verified by the Science-Based Targets (SBT) initiative. We see this as a positive step.

The strongest focus should be on targets for more sustainable textiles as this will drive the carbon, water, and chemical footprints. Few companies have set time-bound targets for the proportion of recycled or sustainably-sourced materials they will use as inputs. However, Adidas has set a target to use only recycled polyester where this is technically feasible by 2024⁵, and Inditex has a target to reach 100% sustainable or recycled materials by 2025.

Greenwashing fashion

The fashion industry is clearly feeling the pressure to change and to do so immediately.

Hence the number of companies we have seen publishing sustainability targets, strategies and sustainable clothing lines in response to this urgent requirement. From H&M to Prada, brands are creating sustainability logos and lines made out of recycled materials, showing consumers the shift already made to contribute to global sustainable goals. 

Whilst this is a welcome shift, this pressure is creating another challenge. Greenwashing is now a growing concern reflected by the UK’s Competition and Markets Authority (CMA) in January following the lead of the SEC in the US to crackdown on environmental marketing claims in the industry.

When the CMA began looking into claims in 2020, it found that up to 40% could be misleading to consumers⁶. As we have seen in our own industry, we expect to see increased regulatory scrutiny throughout 2022 and companies held to greater accountability by investors.

Performance indicators

Through our engagements, we will push for fashion companies to report on their progress towards their targets if investors are to understand if they are on the right path.

More mature companies will disclose key indicators such as carbon emissions, and waste and water consumption on a year-on-year basis and how they engage with consumers. We are concerned that there is very little reporting across a range of key indicators, such as on the proportion of recycled and sustainably-sourced materials used.

Of course, it is the actual performance of companies and their products in terms of their environmental impact that matters ultimately. Some of the key performance metrics that we have identified include carbon emissions and water use per unit of production. With improved disclosures, investors will be able to compare companies’ performance on a per unit or per sales basis.

So that companies can demonstrate a genuine transformation of their business model, it is also critical to see reporting on circular innovations such as the proportion of recycled materials inputted, the roll out of take-back schemes and consumer education on recycling, and the proportion of investment committed to circular innovation.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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