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Fashion Goes Green to Raise Capital

The likes of Chanel, Adidas and H&M are landing funds based on potential environmental, social and governance impact, relying on sustainability targets to secure both public and investor goodwill.
Chanel is one of several companies that has utilized ESG financing.
Chanel is one of several companies that has utilized ESG financing. Getty Images (Stephane Cardinale - Corbis)

Over the past year, fashion companies from Adidas to Chanel have issued hundreds of millions of dollars in debt to meet environmental targets, betting that there would be plenty of investors interested in financing green projects. Last week, it was H&M’s turn.

The Swedish fast fashion giant made plans to issue €500 million ($607 million) in bonds that will go towards goals ranging from increasing the use of recycled materials to reducing greenhouse-gas emissions by 10 percent.

H&M’s announcement is the latest example of a trend growing across industries as companies seek to tap into appetite for environmental, social and corporate governance (ESG) financing. It extends to a variety of financial products from sustainability-linked bonds — a current favourite among fashion companies — to green and social-impact bonds that help businesses fund social and environmental projects across their companies and supply chains. Roughly $4 billion in sustainability-linked bonds were issued across all industries in January alone, over a third of the total issuance in 2020, according to BloombergNEF.

H&M’s new bond was significantly oversubscribed, signalling high demand from investors and a pathway for other fashion companies to follow.


Investors are increasingly looking to expand their ESG portfolios, while regulators cracking down on global supply chains have put pressure on brands to transition to greener alternatives. And as the pandemic restricts typical financing routes, companies are turning to sustainability-linked financing to fund capital-intensive environmental initiatives and increase brand value to both investors and consumers in the long term.

“We’ve seen during the corporate crisis that ESG funds have outperformed and companies that have strong sustainability performance have outperformed,” Elisa Niemtzow, vice president at nonprofit consultancy BSR, told BoF in October.

Funding sustainable and social change within the sector, however, isn’t without challenges. As ESG financing becomes increasingly popular, companies, investors and consumers need to evaluate what kind of financing goals and objectives should be in focus.

A New Frontier

So far, fashion brands are using the funds to direct capital to a variety of initiatives: Burberry’s sustainability bond included energy-efficient warehouses and sustainable cotton sourcing; Adidas’ will be used to source more sustainable materials and energy, as well as funding for under-represented communities.

But as is to be expected with developing markets, the framework for ESG financing is still incredibly broad with little oversight or compulsory guidelines. There have been efforts to remedy this: The International Capital Market Association has issued a series of principles and guidelines for companies and a variety of second or third-party certifiers are available, including Sustainalytics and credit rating firms like Moody’s, but methodologies vary. Many companies also adhere targets to the Science Based Targets initiative.

“We’re predicting much more accountability that’s requested from corporate shareholders,” said Maia Godemer, a sustainable finance researcher at BloombergNEF.

Still, the ecosystem of ESG evaluations and ratings, as well as investor knowledge surrounding sustainable financing within fashion, lacks comprehensive auditing and transparency from companies. Weeks before fast-fashion brand Boohoo hit the headlines for exploitative labour practices in its supply chain during the pandemic, for instance, the company received a “double A” ESG rating — identifying it as a leader in the industry for managing ESG risks — from finance firm MSCI. In the wake of the scandal, Boohoo conducted an independent review and has committed to make changes. (As of press time, both Boohoo and MSCI did not respond to a request for comment.)


Critics also argue that fashion’s vogue for ESG financing is more about marketing than impact.

“These ESG streams or investment pools are not yet aligning with things that are material,” said Maxine Bédat, founder and director of fashion think tank The New Standard Institute. “It’s a great opportunity for greenwashing.”

Setting Standards

Brands are recognising the need for verification within the bond process as well as targets that extend beyond the company’s own supply chain.

“[Companies] should focus on where the key material ESG impacts are, issuing these types of instruments, bonds for management of particular issues that they can track, measure and verify,” said Sasja Belsik, managing director and head of sustainable finance development at Bank J. Safra Sarasin. “That will bring credibility to the market.”

Taking the current system, and adding a few ESG KPIs isn’t enough.

To provide a review of the targets outlined for its sustainability-linked bond, for instance, H&M relied on ESG rating company Sustainalytics. It also committed to share annual results of its performance, with targets that included reducing scope three greenhouse gas emissions, a term used to describe companies’ indirect emissions. For fashion brands, this includes their manufacturing supply chain where the biggest environmental impact lies.

To identify key material impacts across their supply chains, companies should also consult with key stakeholders of their businesses, from employees to non-profits to consumers, said professor Tensie Whelan, director of NYU’s Center for Sustainable Business.

“Taking the current system, and adding a few ESG KPIs isn’t enough,” added David Korngold of nonprofit consultancy BSR. “Investors are increasingly realising the need for transformation to key aspects of the economy.”


That also involves integrating sustainability targets and objectives into a company’s overall business strategy, and identifying capital needs for the next five years to determine what kind of issuance makes the most sense.

“To a certain degree it’s not recreating the wheel when going through this process,” said Simon Fischweicher, head of corporations and supply chains in North America for environmental impact non-profit CDP. Many companies “have already taken that first step,” he said, in annually reporting on environmental disclosures, and have started to make progress on goals ranging from water security to deforestation. Scope three emissions for instance, have become increasingly important targets for companies to address within disclosures and annual reporting.

ESG bonds and loans are only a starting point. Indicative of progress within the industry, many still fail to address pressing issues surrounding labour rights and environmental issues beyond their own operations.

“Within the social space, the real material issue is actual wages, and bonds are not going to magically solve those issues,” said Bédat. “Materiality means what is happening on your scope three emissions, materiality means what wages are your workers receiving, materiality means how many people of colour are on your board. That’s the way to move away from greenwashing or green aspirations and really fundamentally address and change how companies are operating.”

Related Articles:

Chanel’s Sustainability Financing, Explained

The Sustainability Goals Chanel, Kering and H&M Could All Agree On

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