Fashion Industry Moving to Improve Sustainability Footprint

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Fashion Industry Moving to Improve Sustainability Footprint

Many Global Companies Seek Efficiencies and Enhanced Profitability Through ESG Practices
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Thursday, February 14, 2019 - 7:00am

CONTENT: Article

EDINBURGH, UK, February 14, 2019 /3BL Media/ – The global fashion industry is booming. In the last 15 years, world clothing production has almost doubled, with more than 300 million people employed along its value chain. However, the growth of this huge industry has come at a significant environmental cost.

Awareness of that outsized environmental and societal impact has increased. The sustainability credentials of the US$1.3 trillion global fashion industry are coming under heightened scrutiny. The underutilization of apparel and the linear process of its creation – along with sheer volumes – underpin the critical need to reframe the textiles system in a more circular, sustainable manner.

“We are witnessing a paradigm shift within the fashion industry,” said David Sheasby, Head of Stewardship and Environmental, Sustainability and Governance (ESG) at Legg Mason affiliate Martin Currie. “It has been characterised for years as a ‘race to the bottom,’ searching for new and cheaper ways to manufacture clothes with faster periods of obsolescence. With fashion’s focus potentially shifting from scalability to sustainability, this may be about to change.”

The rise of “fast fashion,” where ever-changing trends are designed, manufactured and sold to consumers in increasingly shorter timeframes, has led to dramatic reductions in the number of times garments are worn before they are thrown away. Globally, utilisation rates have decreased 36% in the past 15 years, with some clothing items worn just seven times before discarded. Half is estimated to be disposed of within a year. Not only is a huge percentage of economic value lost, but the external costs of waste management through landfill and incineration are mounting.

The “Take-Make-Dispose” model of the fashion industry puts substantial pressure on non-renewable natural resources. Water-intensive textile manufacturing processes use 93 billion cubic metres of water annually. The process for dyeing clothes is one of the biggest polluters of clean water globally. Annual greenhouse gas emissions from the fashion industry are more than the total amount for all international flights and maritime shipping combined.

From a societal perspective, working conditions along the garment supply chain have for a long time also been poor, with low wages, unsafe working environments and child-labour commonplace.

Yet signs of rising consumer awareness and behavioural change are increasing. With further global agreements on guidance standards, it could be materially impactful for fashion companies.

“As investors with a long-term view, we carefully assess the sustainability of companies involved in, or aligned, with the fashion industry,” Mr. Sheasby said. “We find out how they approach the significant resource demands and labour issues prevalent in all parts of the textile lifecycle. Our focus is on the most material aspects of a company’s long-term value creation.”

Looking towards industry leaders in terms of sustainability, Patagonia – the unlisted sportswear brand – has for many years been the standout example of a fashion company whose business is closely aligned with environmental and social priorities. It has developed recycled and organic materials, created durable products, pledged at least one percent of sales to environmental groups and promoted social justice for its workers. As a result, the company has been able to mine a rich vein of shifting consumer sentiment and has built an incredibly strong brand allegiance. 

“As Patagonia and other sustainability leaders have shown, opportunities exist for fashion businesses able to innovate efficiencies in production or develop new fibres that lower environmental externalities,” Mr. Sheasby said. “Firms investing in ‘circular’ production adaptions – such as mechanical and chemical recycling, as well greater end-product durability – can potentially tap significant new market areas. Greater circularity is trending across a range of manufacturers, with many leading brands already initiating ‘clothing take-back schemes.’”

He also noted Swedish multinational clothing-retail company Hennes & Mauritz AB (H&M).

“We do not hold the stock, but H&M is a good example of the kind of momentum on material ESG issues we look for when analysing a prospective investee company,” Mr. Sheasby said. “H&M has faced criticism over several of its practices, including alleged incineration of unsold products, but there is certainly evidence of improved awareness to address issues of reusability. Its Garment Collecting initiative encourages clothing items to be recycled in store. Its website has an area dedicated to sustainability, with advice on prolonging the life of fashion items.”

These changes are representative of a cultural shift occurring across the fashion industry, with ESG issues forming an increasingly integral part of a company’s business model.

The information provided should not be considered a recommendation or solicitation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were, or will prove to be, profitable.

Source: Ellen MacArthur Foundation, A new textiles economy: Redesigning fashion’s future, (2017, http://www.ellenmacarthurfoundation.org/publications).

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