• Only three of 15 footwear and apparel companies assessed in a recent report directly engage investors on sustainability, namely Gap, Nike and PVH Corp.
  • The Ceres report 'Turning Point' found footwear and apparel firms are lagging behind in terms of investor engagement on sustainability, notably with regard to water-related risks.
  • Yet there are "good signs" companies are "looking to embed sustainability into the way they do business" rather than taking a "more siloed approach to addressing a particular issue or impact area".
The apparel and footwear sector needs more leaders in sustainability

The apparel and footwear sector needs more leaders in sustainability

A report from Boston-based sustainability non-profit Ceres analysing the performance of US companies on a range of sustainability criteria has found footwear and apparel firms are lagging behind in terms of investor engagement on sustainability, notably with regard to water-related risks.

Ceres published the key findings of its 'Turning Point' report in February, along with scorecards detailing how some 613 US-based publicly traded corporations address ESG (environmental, social and governance) challenges, and has just released its sectoral analyses. It found that only three of the 15 footwear and apparel companies assessed directly engage investors on sustainability, namely Gap, Nike and PVH Corp, compared with 43% across all 613 companies.

"That's underperforming pretty significantly the 43% that we saw across sectors," says Kristen Lang, director of the Ceres Company Network. The letters investment firms BlackRock and Vanguard have written to companies asking for more attention to be paid to sustainability, Lang continues, underline the "uptick in terms of both interest and understanding from the perspectives of investors as to the importance of embedding sustainability into corporate decision-making".

Water stewardship
Nowhere is heightened investor interest more apparent than with regard to water risk. "We are seeing a significant increase in investor attention as it relates to water risk," Lang says. The Ceres Investor Water Hub, launched 18 months ago to help increase investor understanding of water risks, has now attracted 90 investors with some US$20tr under management.

Ceres found that none of the clothing and footwear companies assessed in the Turning Point report included water-related risks in its financial disclosures, though Lang points out that since the cut-off point for the report, Gap Inc. has included a reference to water risks associated with climate change in its 2018 10-K disclosure.

"As investors are clamouring to better understand what those [water] risks are within their portfolios, there is going to an increased and heightened focus on footwear and apparel companies providing this information and being able to really lay out both the risks that are embedded within the company and within the supply chain, but also to provide a strategy and a strategic vision in terms of how they're going to address those risks today and into the future. That's a key trend."

Ceres describes the footwear and apparel sector's progress on water stewardship as "slow but steady". Since 2014, the number of companies committed to reducing their impacts on water sources has doubled from four to eight. Significantly, however, only Gap, L Brands and Nike have water goals prioritising water management within their supply chains.

Owing to the proliferation of human and environmental sustainability issues in their supply chains, Lang believes footwear and apparel companies have much in common with food and beverage firms when it comes to managing sustainability risks.

However, 90% of the food and beverage companies assessed have committed to quantitative, time-bound targets to manage water impacts, against just 27% of the footwear and apparel firms.

Water may be a particularly emblematic issue for food and drink but it is still a significant area of exposure for the apparel sector, suggesting it should be much closer to the food and beverage figure than to the 20% overall average, which includes sectors like banking, real estate and software that are in no way comparable in terms of resource dependency.

A drive for ambition
Turning Point is the latest iteration of the Ceres Roadmap for Sustainability, following similar reports in 2010 and 2014. It looks at how companies are seeking to reduce environmental and social impacts in their direct operations and in their supply chains, as well as criteria relating to disclosure of sustainability risks, management and executive accountability and stakeholder engagement.

In terms of progress over the last eight years, Lang says it is the footwear and apparel sector's leaders on sustainability, naming Gap, Nike, VF Corp and PVH specifically, that "are really driving the sector", and as a whole it needs "more companies to be translating commitments into action".

Moreover, Lang says the level of ambition also needs to be addressed. "I think where these companies have an opportunity to advance is really in the ambition level of some of the commitments," Lang tells just-style.

Greenhouse gas (GHG) emissions targets are a case to point. Ceres found that 80% of the footwear and apparel companies have commitments to reduce GHG emissions, against 64% for all sectors. However, only 40% have set quantitative, time-bound targets to reduce GHG emissions, compared with 36% across the board.

On a more positive note, since the cut-off for the report, a number of clothing companies, including Gap Inc., Nike and VF Corp, have committed to set science-based GHG emissions targets, which commit a company to a scale of reduction consistent with keeping global temperature increase below 2°C from pre-industrial temperatures.

"We are starting to see almost an industry competition for who can come out with these science-based targets first," Lang adds. "We love to see that kind of competition because that's only going to drive and increase the ambition level of the commitments we're seeing from these companies."

A human rights issue
Where the footwear and apparel sector has undoubtedly had to raise its game in recent years is in addressing human rights issues in their supply chains. While the sector was "driven to act" by high-profile tragedies like the Rana Plaza building collapse and other incidents, Lang says the response is notable for the "willingness within the sector to collaborate and come to the table to develop joint standards, so that there really is a raising of standards within these global supply chains".

Lang says the companies now have "a much more sophisticated understanding" of the human risks related to their supply chains. However, while Ceres found all the clothing and footwear companies now have supplier codes aimed at protecting workers in their supply chains, only 27% promote human rights through formal policies and statements covering employees, against an average across all the sectors of 49%. Given the chastening experience footwear and apparel companies have had over the five years since the Rana Plaza collapse, this finding is surprising to say the least.

Overall, Lang says there are "good signs" that the clothing and footwear companies Ceres examined are "looking to embed sustainability into the way they do business" rather than taking a "more siloed approach to addressing a particular issue or impact area".

An "important marker" for this trend, is executive and board engagement, where the sector performs relatively well. Some 67% of the footwear and apparel companies hold senior-level executives accountable for sustainability performance, which is marginally above the 65% average across all sectors. Regarding board oversight, 27% of the footwear and apparel firms formally integrate sustainability into board committee charters, compared with 31% for all sectors.

The footwear and apparel companies covered in this report clearly include some strong leaders on sustainability. A concern would be that, with a few isolated exceptions, it is the same small handful of companies taking the leadership role across the entire sustainability landscape. What the sector may need in the coming years is more leaders, and for those not ready to lead at least to become more enthusiastic followers.