Switzerland recently apologised to France for stealing water to feed 20,000 thirsty cows1. Growing and increasingly competing demands for water means that the historic supply of raw materials (cotton, leather, yarn etc…) brands have been accustomed to will not continue. This is particularly true in China.
Fashion brands operating in China are adjusting to China’s ‘new normal’ economy, more stringent environmental regulations and new agricultural policies. Textiles is not on the list in Made in China 2025 and is one of the most targeted sectors by the new Water Ten Plan. Shutdown of factories are imminent with a “comply or else” order from central government.
No concrete action from industry leaders H&M and Kering on raw material risks they identified themselves
There is plenty here to keep brands busy but a review of 10 top brands’ sustainability reporting has revealed that some leaders are not walking their talk, especially with regards to their upstream raw material exposure. In particular I am talking about two industry leaders: H&M and Kering.
This isn’t a telling off; they are as stated above “industry leaders”. They are pioneering initiatives related to raw materials & going circular – but it’s a case of not stopping here. As leaders H&M and Kering can do more especially in relation to their upstream risks. Since they have identified these risks themselves, surely they should act upon them?
How serious is H&M on ‘closing the loop’?
H&M realised their exposure to this and is moving to find other supply avenues. The risk is particularly great for cotton, which H&M is heavily reliant on, “Cotton is the raw material we use the most”, H&M website.
In response, H&M is looking to ‘Close the loop on textile fibres’.
H&M has realised their exposure to upstream raw material risks – cotton in particular
In response it is looking to ‘Close the loop on textile fibres’
2015 target of 300% increase of garments with 20% recycled fabric from collected garments sounds great but is only 0.2% of total garments
In 2013 H&M launched its global garment collecting initiative and in 2014 launched its first closed loop products (made with 20% recycled cotton/recycled material). This is a positive trend but where is H&M now?
In accordance with H&M’s 2014 sustainability report it is trying to “Increase our use of more sustainable materials” and “Make 300% more garments with recycled fabric from collected garments“.
With regards to the former, H&M states in the report that 0.2% of its product’s total material use was recycled materials in 2014 (see chart right). This is actually a 0.1% decrease from 2013, when it was 0.3%.
However, overall “more sustainable materials” (including organic & others) was up in 2014 at 14% of total material use compared to 11% in 2013.
For the latter, H&M says “For 2015, our target is to increase the number of pieces made with at least 20% recycled fabric from collected garments by more than 300% (compared to 2014) to 1.2 million pieces.”
This target sounds great, but 1.2 million garments is out of the roughly 600 million garments H&M produces a year2. So in fact, a 300% increase means coincidentally only 0.2% of total garments will contain recycled fabrics from collected garments.
It’s unclear if these two are the same or not but what is clear is that 0.2% is a very small share. One can’t help but wonder how serious H&M is about going circular.
We do have to acknowledge that it’s not easy to close the loop/go circular, there are still limitations (currently only 20% of fibres can be blended without losing quality or longevity), import barriers for used clothes and more technological innovations are needed. But H&M said it wants this so it’s time to push on.
H&M you’re on the right track -
the ‘new Chinese consumer’ wants more ‘green’ products & the Chinese govt. wants textiles to go circular
Increasing consumer demand for sustainable or ‘green’ products is another reason for them to push on. In China there is even a ‘new Chinese consumer’ along this line and according to Hart, Zhong et al. from Renmin University this means corporate strategies need to change – an opportunity for H&M to stay ahead of the pack since it is already heading in this direction.
And if H&M needs even further encouragement that it’s are on the right track it only needs to look to the Chinese government. There is a ‘Circular Economy Development Strategies & Action Plan’ setting out strategies and guidelines to upgrade the textile industry towards a circular economy.
Kering ahead of the pack with EP&L but still no concrete action on raw materials risk
Kering is ahead of the pack – it pioneered the Environment Profit & loss (EP&L) through its work with PUMA (which it owns) by publishing an EP&L for PUMA in 2011. By 2013, Kering expanded this to all the brands in the Group – 17 luxury and 5 sportswear & lifestyle. For this, Kering won the 2014 Global Leadership Award in Sustainable Apparel (GLASA) award’s which theme was ‘Natural Capital Accounting’.
In 2013 Kering conducted an EP&L for its 17 luxury and 5 sportswear & lifestyle
For those less familiar with Kering its brands include Gucci, Bottega Veneta & Stella McCartney to name a few. It’s listed on the Paris Stock Exchange and has a market cap of €21.35 billion3 (USD23.77 billion). Clearly a company of this size with an EP&L initiative across the board is a very positive step for the environment. Plus they made their methodology open source so others can also follow suit.
|What is an EP&L?
All businesses rely on natural capital to deliver their products and services. However, as a result of their activities, businesses also impact the environment through their use of land and natural resources and their emission to air, discharges to water and waste.
The EP&L is a tool designed to measure and monitor the costs of environmental changes associated with business. It is based economic analysis that estimates cost of environment impacts across the supply chain, from raw materials to the delivery of products to customers.
Kering Environmental Profit & Loss 2013 Group Results Report
Kering’s EP&L shows €773 mn is the total cost of environmental changes from its business in 2013
Kering Group’s 2013 EP&L states that the cost of the environmental changes associated with its business amounted to a total of €773 million (USD839.8 million). This is no pocket change – almost 2x the average cost to launch a space shuttle in 20114.
Six key impact areas were identified across 5 Tiers of supply chain stages – Kering summarised its impact in the chart below:
Identifying key impact areas allows one to mitigate accordingly but at the same time it shines a spotlight on where the most work is needed. Clearly this is Tiers 3 & 4 of the supply chain – raw material processing & production.
Kering’s 2013 E P&L showed that 3/4 of total impact (€583.3 mn) came from raw material production & processing
But what’s less clear is what they are doing to reduce it so, raw materials remain a serious risk
Kering’s 2013 E P&L showed that three quarters of the total impact are at the start of the supply chain – with half the impact associated with raw material production (Tier 4) and a further quarter of the impact associated with raw material processing in Tier 3, including leather tanning, refining metals, textile spinning & others. Tier 3 & 4 combined accounted for €583.3 million (USD663.7 million).
So how is Kering reducing the environmental cost of Tiers 3 & 4?
Kering lists various sustainability initiatives but it’s hard to gage their impact, especially in regards to any reduction in the environmental cost. Raw material exposure remain a serious risk. So, despite having identified areas of exposure, there are no concrete plans by Kering to tackle these.
Kering says it is committed to sustainability. When Francois-Henri Pinault, Kering’s CEO, was in town in early June, I heard him reiterate this, “Sustainability is at the heart of the organisation”. But the usefulness of an EP&L remains to be seen.
The pressure continues to mount for fashion brands to become more sustainable, a recently released documentary “The True Cost” portrays a far from rosy picture. Industry groups are also focusing more and more on sustainability. The theme at this year’s the GLASA is water. GLASA’s reason for this is “The latest research indicates that in certain regions access to water and water quality will be a major problem for both people and the apparel industry during the next twenty years if nothing is done to ensure sustainable water management.” For more see the report GLASA commissioned in preparation for the awards this year. Moreover, CLSA U® cautioned investors that the USD1.7 trillion global fashion industry could be blindsided by China’s water wars.
China’s environmental woes mean raw material risks are more pronounced
Concrete action urgently needed from H&M and Kering. Other brands need to catch-up & fast!
Given China’s environmental woes, raw material risks are more pronounced. Leaders must continue leading and other brands, it’s time to play catch-up and fast! Let’s not be fooled or satisfied by efforts so far, much still needs to be done.
There is also the matter of reputation. Obviously not walking the talk is not a “good look”. Yes, what both brands are doing or trying to achieve is not easy but these are risks they have identified, so they need to act. If they don’t, it doesn’t bode well for the industry – raw material risks aren’t going anywhere.
3 http://www.bloomberg.com/quote/KER:FP August 12 2015
- Where Are The Top Fashion Brands? – Given tighter regulations for textiles in China, we review the environmental initiatives of 10 top fashion brands from fast fashion to luxury. Are they looking beyond CSR to make their business model sustainable?
- Corporate Water Reporting in China – CDP’s report shows potentially inadequate water risk assessment by Chinese companies & those with HQ’s in China. CDP’s Gillespy on their latest report and why it’s time to report on water risks
- Corporate Strategy & The New Chinese Consumer – Authors of new report say that China’s war on pollution has created a fundamentally new Chinese consumer. Hart, Zhong, Ying & Zhu from Renmin University on why firms need to evolve their strategies
Textiles & China
- China’s Economy: Linear to Circular - China is the 3rd country globally to enact polices to move towards a circular economy. See how & why China needs to make this transition; which industries are affected, what is the role of industrial parks?
- Dirty Thirsty Wars – Fashion Blindsided - CLSA report titled “Dirty Thirsty Fashion: Blindsided by China’s water wars”, examines how China’s water risks could blindside the US$1.7 trillion global fashion industry. Is this the end of fast fashion? Debra Tan expands
- Brand Rankings Through A Chinese Lens - See how global and local brands rank across 8 sectors in terms of their supply chain’s environmental impact in this review of the new Corporate Information Transparency Index (CITI) report by IPE & NRDC
- The Colour this Season is Green - Trucost’s Jackson on key discussions at the 2014 Copenhagen Fashion Summit & Global Leadership Award in Sustainable Apparel awards. On the agenda: natural capital accounting, water savings & education, all against a backdrop of limited resources & increasing demand
- Putting Waste Back Into Fashion - China is clamping down on textiles due to the heavy pollution & waste from the industry. With potential new revenues streams in recycling, hear from Redress CEO Christina Dean on how the EcoChic Design Award’s army of sustainable designers is closing the loop on textile waste
- Cotton Farming: How Deep Is Your Well? - Can cotton flourish in water scarce areas? Cotton Connect’s Lort-Phillips shares key messages from their latest report on how to extract more crop per drop and how brands need to do more than address water at a farm level in China