Mounting scrutiny of sustainability will create long-term financial and reputational risk for many global apparel companies, a credit ratings agency says.
Apparel production practices have a significant impact on the environment and put an increasing strain on raw material resources. These will increase input costs in the longer term and erode many brands’ credit quality, according to analysts at Moody’s Investors Service.
They note apparel companies will have to transform their value chains to remain competitive, by adapting to sustainability, investing in decarbonisation and increasing sourcing transparency.
“Changing behaviour among environmentally conscious and socially aware consumers will put more competitive pressure on global fashion brands to adapt to sustainability measures. Longer term, environmental and social factors will put the apparel industry’s profitability at risk,” says Guillaume Leglise, assistant vice president – analyst, at Moody’s Investors Service.
Small brands already suffering from the pandemic will struggle to adapt, while large international brands and luxury companies such as H&M, Nike, Adidas and Ralph Lauren will fare better. Fast fashion and discount brands are the most at risk of competitive pressure as sustainability becomes more important to consumers, Moody’s analysts add.
“Regulatory challenges related to data protection are also increasing for apparel companies. Brands using online and data analytics are vulnerable to data protection risks, cyberattacks and non-compliance fines, all of which can tarnish their reputations,” the firm says in a research note.
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