How Apparel Companies Win by Shifting their Focus from Success on the Catwalk to ESG Leadership
From factory floor to retail storefront, clothing goes through a resource-intensive, globally distributed journey before it’s ever worn. As environmental, social, and governance (ESG) and sustainability continue to rise to the fore, companies in the apparel industry face a pressing need to improve ESG performance in their supply chains, their own operations, and even after their products go from shopping cart to closet.
The growing focus on ESG comes from a variety of stakeholders, from consumers who expect an emphasis on sustainability and social responsibility from their fashion brands to younger shoppers increasingly adopting a mindset of ethical consumption. Major retailers seeking to improve their own ESG performance are applying downstream pressure to their vendors. Investors and governments are pressing brands for greater transparency across ESG criteria in the face of a warming planet. And in the future, we can imagine circular business models will no longer be optional, and operations in remote geographies where environmental and labor regulations were once less strictly enforced will face enhanced scrutiny. As a result, every player across the apparel sector’s value chain now has the added challenge, and the upside potential, of improving ESG performance.
The business case for an ESG strategy for apparel companies
Apparel is becoming an increasingly competitive market today and the companies that invest in and implement key sustainability strategies are positioned for the greatest success.
Fashion makes a sizeable contribution to climate change and apparel companies want to act. But many face the risk of committing to lofty climate aspirations prior to conducting a baseline performance assessment developing a data backed ESG strategy. Apparel companies need to first gain a quantitative understanding of which issues are most material to their business, and secondly, evaluate how the company is performing against those criteria before acting. Companies may miss out on realizing the ROI that sustainability can drive when investments are made in the areas of greatest potential value, however expose themselves to risks by setting goals they can’t attain.
Climate action first requires an understanding of operational ESG performance
As we push ahead on the ‘Decade of Action’ to achieve the Sustainable Development Goals, solving the climate crisis has moved to the top of the global agenda. Stricter regulation and enforcement of environmental practices and performance is a matter of when, not if. With the COP26 climate conference just a few months away — arguably the most important moment for climate since the Paris Agreement was signed — momentum is building for emerging legislation to be introduced by countries to spark a breakthrough. By incorporating ESG into their business model, apparel companies can build resilience against emerging legislation.
For the apparel sector in particular, the Science Based Targets initiative (SBTi) asserts two primary ways to reduce emissions are by deploying energy efficiency measures and renewable energy across the value chain and substituting materials with lower environmental impacts. Only with the proper data measures in place can apparel companies confidently determine that their investments are driving improvements and innovate on areas of opportunity for value creation in product design.
Efforts to measure product-level impact, which we’re seeing as the newest ambition for ESG-focused consumer goods brands, increasingly requires specific tools to analyze the lifecycle of an individual apparel item. Without data-backed ESG measures in place, brands can only guess at their overall impact by conducting a rudimentary company level assessment informed by product-level estimates. Simply dividing company level performance by the number of products manufactured does not account for the true environmental impact in an individual product’s life and may overlook potential consumer engagement opportunities and future revenue streams, such as product takeback and repair programs being piloted by forward-looking brands.
Apparel companies that have ESG embedded in their operating model and a mechanism for collecting the related data can adapt more quickly to new requirements, such as those for product circularity and priority raw materials sourcing. For instance, SASB – just one of many ESG reporting frameworks – is in the midst of a project overview to raise standards for raw materials sourcing in the apparel, accessories, and footwear industry soon to cause a significant shift in product costs and availability.
Companies acting early on climate change and investing in transparent calculations that align with science-based targets will be rewarded in the long term with more efficient supply chains, future-proof products, and reputational and competitive advantage. To uphold brand reputation and more importantly, bolster long term business resilience, apparel ESG leaders are implementing systems to collect, measure, and analyze the data metrics that drive ESG performance.
How your apparel company can transform into an ESG leader
Transforming your business for greater impact, as with any other company-wide effort, requires the right tools, partnerships, and leadership for alignment around ESG. Driving toward improved ESG performance often requires integration of ESG practices into every aspect of the business.
As your company begins its ESG journey, the best place to begin is to conduct an ESG materiality assessment to gauge which issues matter most from a financial perspective to your industry and unique operational practices. From this assessment, your company can then determine where to focus efforts across a broad spectrum of ESG criteria.
Within the apparel, footwear, and accessories industry material areas of focus typically include:
Greenhouse Gas Emissions
Diversity, Equity & Inclusion (DEI)
Water Intensity & Wastewater Discharge
Ethics & Code of Conduct
Land Usage & Waste
Supply Chain Labor Conditions
Product Design & Management of Chemicals in Products
Giving & Philanthropy
Sourcing Priority Raw Materials
Labor Code of Conduct
Policy & Advocacy
Once a materiality assessment has been conducted, the next step is to gauge current performance through an ESG baseline performance assessment and identify opportunities for ESG improvements within your company. A baseline assessment identifies gaps, investment risks, and opportunities that help companies set benchmarks for future performance. This process is essential for developing your overall ESG strategy based on setting ESG targets and only then building an ESG plan to achieve those targets.
A strong data foundation is crucial for apparel companies to strengthen ESG performance
Reliable performance data is essential. As more companies invest in developing an ESG strategy, gathering the data to enable performance tracking and improvement becomes essential. Streamlining the processes of ESG data collection, questionnaire distribution, and data management is now possible with purpose-built ESG solutions. With the right tools in place, companies can collect, store, analyze, and visualize data and performance on material ESG KPIs from their operations on an ongoing basis. Visibility into this data and drill down insights become invaluable in terms of moving the needle on performance and bolstering corporate ESG profile as stakeholders seek to confirm that proper ESG data management plans have been put in place, built around key performance indicators and related targets.
It is imperative that apparel companies utilize robust tools to streamline the ESG data management process. A robust data management program can simplify the intimidating task of reporting emissions-related data. With several reporting frameworks investors expect companies to report to such as GRI, SASB, and CDP, it is crucial to have a strong data foundation to meet reporting requirements, which can frequently change as ESG reporting evolves, to make the process smooth and efficient.
Once a plan is in place for ESG data management, leadership can feel confident making public statements related to ESG performance, sign on to apparel industry pledges, and report on company level ESG performance via annual and sustainability reports, and eventually through dynamic and intelligent ESG data solutions. Rather than view the result of ESG solely as outbound reporting to rating agencies that track performance and assign an ESG rating, the real value in the ESG data is that the company can then use that data to report to review progress and plan next steps to surpass targets to differentiate and grow their brand as a socially conscious company.
You can’t possibly reduce what you don’t have good measurement for; a robust strategy also creates additional accountability for the industry to keep driving footprints down.
Allbirds Sustainability Lead, Hana Kajimura
As the need for action on the climate crisis becomes ever clearer, a spotlight is being put on fashion companies to ensure that their sustainability commitments are genuine, achievable, and based on a solid data foundation. Apparel companies wanting to take a leadership position in sustainability need to start with a commitment to improving ESG performance backed by reliable and secure data. Leaders in the industry looking to sustain themselves for success in fashion’s future recognize that rebuilding with ESG principles at the industry’s core becomes the path forward.
Good.Lab helps companies supercharge their ESG performance with Fractional Sustainability Talent, ESG Performance Packages and ESG Data Services. We help apparel brands establish company level ESG strategies with quantitative targets to accurately gauge performance and set goals and metrics for improvement. Our ESG experts implement strategies that future-proof your product(s) and vendor relationships and initiate product level sustainability measures to track, manage, and communicate on waste/water/carbon footprints, and innovate on next-gen materials and product circularity.
Nothing is more fashionable today than a commitment to long-term ESG leadership. If you’re ready to jump on the most lasting trend in fashion today, connect with our ESG experts to learn more about our ESG solutions tailored for the apparel industry.
Disclaimer: Good.Lab does not provide tax, legal, or accounting advice through this website. Our goal is to provide timely, research-informed material prepared by subject-matter experts and is for informational purposes only. All external references are linked directly in the text to trusted third-party sources.
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