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Making the Business Case for Sustainability

Reputational and financial risks related to the industry’s exposure to climate change are creeping up executives’ agendas, coming into focus at the launch of the Global Fashion Agenda’s new sustainability priorities at Davos.
  • Sarah Kent

DAVOS, Switzerland — Worrying about the climate is hot right now. So much so that the subject is front and centre at the World Economic Forum's annual Davos gathering.

Normally a hub for politicians and business folk to discuss the most pressing geopolitical and financial issues of the day, environmental concerns have crept up the agenda this year, with a host of fashion players joining the usual suspects to highlight the issue.

At a glitzy lunch held at the Swiss ski resort Wednesday, executives from companies including Asos and the H&M Group will join the Global Fashion Agenda to launch the sustainability advocacy group's annual list of priorities for senior executives at global apparel brands. This year marks the first time the organisation has included combating climate change as an immediate stand-alone priority, alongside improving supply chain traceability, working environments and companies' water, energy and chemicals use.

Unpredictability is a nightmare for fashion retailers.

While the fashion sector’s environmental impact is hard to quantify because of the complexity and opacity of global supply chains, a report published last year by environmental sustainability consulting group Quantis estimated the global apparel and footwear industry is responsible for around 8 percent of the world’s greenhouse gas emission — almost as much as the total climate impact of the European Union.

"It's a pretty staggering number," said Eva Kruse, chief executive of Global Fashion Agenda. "That number in itself demands counter-action for the industry to change." The organisation's CEO Agenda is intended to provide senior executives with guidelines for the most important areas to tackle in order to improve the industry's sustainability track record.

The growing awareness of fashion's negative environmental impact comes at a time when companies are facing mounting pressure from consumers, investors and regulators to show they are developing a more sustainable business model. According to BoF and McKinsey & Company's latest State of Fashion report, nine out of ten Generation Z consumers believe companies have a responsibility to address environment and social issues.

Major brands like Patagonia and Stella McCartney have shown for years that a strong focus on sustainability can make a compelling business case. But an increasing number of players are boosting their activity in this space, highlighting their ethical credentials on their websites and signing on to international initiatives to reduce the industry's environmental impact.

That’s in part because changes to the climate present a very real business risk to the sector. Disruptions to the production and delivery of goods and services due to environmental disasters are already up by 29 percent since 2012, according to the WEF’s annual global risk report published last week.

“Of all risks, it is in relation to the environment that the world is most clearly sleepwalking into catastrophe,” the WEF said in its report.

Of all risks, it is in relation to the environment that the world is most clearly sleepwalking into catastrophe.

Changes to the climate are already having a negative impact on crucial raw materials like cotton and wool, causing fluctuations in quality and price. The luxury sector, which relies on access to high-end materials — often produced in limited locations and quantity — is particularly vulnerable to changes in climate that could damage key producing regions.

A 2015 report published by Kering and non-profit consultancy Business for Social Responsibility found climate change has already reduced cotton crop yield and quality, and led to a decline in high-quality cashmere production in Mongolia.

"Cotton, cashmere, they are of course directly impacted by the effects of climate change," said Kering's chief sustainability officer Marie-Claire Daveu in an interview. Dealing with the problem is "not only a moral obligation, it just makes good business sense."

Extreme weather events are equally having an impact on companies’ bottom lines. Last year, retailers across Western Europe were left scrambling to manage their seasonal inventory after a winter snowstorm dubbed the Beast from the East was swiftly followed by one of the strongest heatwaves on record, said Florence Allday, an analyst at market research provider Euromonitor International.

“Such unpredictability is a nightmare for fashion retailers, particularly fast-fashion brands that create cheap items en masse,” Allday said.

Growing awareness, as well as mounting external and internal pressures are gradually spurring the industry to action.

Late last year, a group of 43 brands, retailers, suppliers and others teamed up with the United Nations to launch a charter for climate action within the industry. Companies that signed on, including luxury groups like Kering, as well as fast fashion players like H&M and Zara parent Inditex, agreed to reduce their aggregate greenhouse gas emissions by 30 percent by 2030.

Elsewhere, companies are taking individual steps to improve their own environmental impact, with some becoming global frontrunners. On Tuesday, Toronto-based media company Corporate Knights rated Kering the world’s second most sustainable company in its annual corporate sustainability ranking. Other fashion companies that made the cut against key performance indicators that covered resource management, employee management, financial management and supplier performance included Adidas and Inditex.

Still, progress across the industry has been slow. At many companies, sustainability remains an afterthought, with the Global Fashion Agenda estimating that around half the industry hasn’t taken any action on the issue at all.

The test now is whether greater awareness will translate into greater action.

“Everyone’s eyes are on this industry,” GFA’s Kruse said. “We’re there to make a common voice to help the 50 percent of the industry that doesn’t know where to start.”

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