Last month, the sustainability pulse of fashion was rated by professionals at an anemic 32/100, and described as ‘weak’. That’s the bad news.
The good news is that the score – derived from Pulse of the Fashion Industry, by Global Fashion Agenda and The Boston Consulting Group – is the outcome of the first ever comprehensive framework for pragmatic, concrete and economical action with regard to sustainability for the fashion industry.
As such, it should be required reading for every manager in the industry today. That’s unlikely to occur; the report is 134 pages long, and people have limited time. To make it more digestible, this analysis condenses the main findings into less than three pages. On the basis of this, you can make up your own mind on whether it’s worth reading or not. GoBlu, for the record, thinks it is.
How was the pulse score derived? There are four components to the methodology:
- SAC Higg Index Brand Module: This is the main data set source. Note that no data from this source is verified externally
- Interviews about the data from the Higg Index with sustainability managers
- An additional survey based on a larger sample size than just sustainability managers
- An expert sounding board to discuss results and ideas
The actual score is based on key environmental and social impact areas (listed below), and will be replicated each year from now on (this is the first report).
What key environmental and social impact areas does the pulse score cover? The report mentions three main areas: environmental, social, and ethical. However, this first report focuses mainly on environmental and social issues. Ethical issues (such as animal welfare, loss of biodiversity, corruption, and negative imagery) are slated for coverage future issues of the report.
At the highest level, there are eight key topics:
- Labour practices
- Health & safety
- Community & external engagement
- Ethics (as mentioned, only marginal engagement on these issues in this first report)
So what? Don’t we know we need to act on this already? Well, yes, but only in a fragmented way. And besides, this is the first time anyone has looked at these areas and valued what is at stake for the fashion industry in dollar terms. And this is what makes the report so interesting (and important).
The bottom line is that €160 billion per year is at stake for the industry as a whole. Or to put that another way, there is a €160 billion-per-year upside for the world economy – about 11% of the current retail value of the global apparel and footwear sector – if the industry were to improve its sustainably performance in each of the eight core areas (such as through more efficient and diligent use of scarce resources, by treating workers fairly, and by making progress on a range of issues up and down the value chain):
- Water: reduce consumption – €32 billion
- Energy: reduce emissions – €67 billion
- Chemicals: reduce occupational illness – €7 billion
- Waste: reduce waste – €4 billion
- Labour practices: increase number of workers earning 120% of minimum wage – €5 billion
- Health & safety: reduce number of recorded injuries – €32 billion
- Community & external engagement: increase community spending – €14 billion
- Ethics: not quantified
Aren’t some companies are doing this already? Yes, and the report acknowledges that. In fact, one of the key findings was that the pulse score (32/100) was not uniform across the industry or the eight areas surveyed (see below for list). Three main findings stand out:
- Good sustainability performance is a function of company size, not price positioning. I.e., the biggest firms do best, with family-owned and some other niche companies doing well. But over 50% of the industry, the small and medium-sized companies in general, have not made a start on dealing with sustainability issues at all
- If the industry stays on its current path, it will not only fall short of accessing the €160 billion per year that is at stake, it will see a decline in EBIT margins by 2030 of more than 3%
- As a result of this, collective action is required. This is one of the most important conclusions of the entire report, and it is reiterated throughout on numerous occasions. It notes that about €60 billion is available to companies operating individually, but this falls well short of the €160 billion per year available
As already mentioned, the reports notes a lack of uniformity across the industry; fast fashion and sportswear are the two fashion categories outperforming the rest of the industry by a considerable margin.
And there performance differences along the value chain, which were divided into the following eight areas (with overall scores in brackets – /100):
- Design & development: (22)
- Raw materials: (17)
- Processing: (38)
- Manufacturing: (28)
- Transportation: (41)
- Retail: (28)
- Use: (23)
- End of use: (9)
With an overall pulse score of 32/100, it is worth nothing that the score for the top quartile (consisting mainly of large fast fashion and sportswear companies) was 63/100. For the bottom quartile, it was 11/100. There was a gap of 52 points between best and worst performers.
This is why the report authors stress the urgent need for collective action. And not just from fashion companies, but from all other stakeholders.
Does the report provide recommendations for action in the eight impact areas listed? Yes, but remember this is not a technical manual, so don’t expect a blueprint.
The reports provides analysis of each of the eight impact areas (design & development, raw materials, etc.) across the seven core issues (water, chemicals, energy, etc.).
So, for instance, on design & development, it is noted that water, chemicals and waste are highly impacted by design. It then notes the biggest drivers for each of those areas (e.g., water: choice of materials, such as high water consumption of cotton, choice of colours (dyeing), and finishing). And then it notes some companies making encouraging moves. In this case, Adidas and Levi’s get a nod.
This section is well worth reading in detail. There is too much information to summarise meaningfully. But there are some broad conclusions with regard to a “landscape for change”:
- Closed loop recycling
- Sustainable material mix
- Reduced energy footprint
- Chemical and water optimisation
- Production-to-demand (i.e., no overproduction)
- Rebalanced industry economics (fair pay and skills development for all workers)
- Health and safety excellence
- Advocacy of human rights
- Transparency and traceability
- Consumer engagement (LCA on garment tags)
- Novel business models
Each of these issues is outlined in full, along with company examples. Once again, there is far too much information to synthesise concisely, so the entire section is worth reading.
Does the report provide any financial data or strategic advice? As you would expect from a report co-authored by BCG, there’s either financial data or conclusions resting on financial data.
The report has two appendices, the first of which is called “Forecasting the P&L of an exemplary fashion brand,” which concludes that, in short, in the high case, the EBIT-margin has 17.5 percentage points at risk until 2030. The increase from the base case of 14.1 percentage points at risk is contributed by a 9.1 percentage point increase from energy, a 2.1 percentage point increase from wages and a 2.2 percentage point increase from water. The remaining 0.8 percentage points stem from an amplification effect when combining all three high cases.
Where can I find the full report? You can go here and either download the full report or an executive summary.