As the idea of sustainability continues to move into the mainstream, investors and consumers are becoming increasingly aware of clothing and fashion’s impact on the environment. However, the fashion industry has unfortunately undergone a shift from a time when designers used to release as few as two new collections each year to the current concept of fast fashion, where clothes are worn for a short period of time and then disposed of in favor of new items. Fast fashion retailers such as Forever 21 and Primark embody this trend as they both sell trendy clothing at low prices. While these items are often of inferior quality, consumers are enticed to purchase items with deals that are “too good to pass up” and out of fear of missing out given limited quantities. This has contributed to overconsumption, with consumers buying 60% more clothes than 15 years ago while keeping them for half the time which creates waste and excess throughout the system.
This shift in apparel buying patterns has come at a cost. Currently, the apparel industry accounts for around 8% of global greenhouse gas (GHG) emissions. This number is set to grow over time due to the trend towards less durable clothing and supply chain inefficiencies. Water usage is also an issue as the industry now accounts for 10% of the water used in industrial processes. Furthermore, chemical and pesticide use in dying garments is estimated to contribute an estimated 20% to industrial water pollution. And, with only around 1% of textiles recycled, clothing is rapidly accumulating in the world’s landfills. The apparel industry has also come under scrutiny in the areas of supply chain risk, worker safety, labor practices and inequality.
Sustainable Fashion Leaders
While many companies are profiting from selling large volumes of inexpensive clothing, others approach their customers with a different value proposition. In 2011, outdoor apparel maker Patagonia published an advertisement in the New York Times with the headline “Don’t Buy This Jacket." It seems counter intuitive to urge customers to hold onto their existing clothing items until the end of their useful life, but in doing so, Patagonia has been able to build a successful premium brand that has gained the trust of their customers by delivering high-quality, sustainably-made items that last a long time. Other fashion retailers have taken note and are incorporating sustainability into their strategies.
Levi Strauss & Co. also recognizes the need for responsible clothing production. They encourage customers to avoid participating in fast fashion and to instead consider the purchase Levi’s jeans as a long-term investment. Like Patagonia, the denim maker aims for consumers to be able to keep their products for as long as possible; they even have repair capabilities within their stores to assist customers with worn out items. In their quest to operate more sustainability, they discovered that the use and disposal of a pair of jeans accounts for 40 percent of the product’s climate impact. Therefore, they have also made consumer education a priority and include tags in their jeans instructing consumers to wash their jeans infrequently, line dry them and donate them, rather than throwing them away. As demonstrated by Levi’s research, the consumption, care, and eventual disposal of clothing is harmful to the environment, and the way in which individuals choose to consume clothing matters. In recent years, the average consumer has become more environmentally conscious and these individuals are choosing quality, long lasting pieces that are ethically made.
Circular Fashion and Other Solutions
With consumers increasingly asking for more sustainable options, the industry is starting to respond in a number of ways. A “circular fashion” initiative is underway in hopes of alleviating some of the industry’s sustainability issues. This would include the increased use of renewable materials, more focus on clothing rental businesses and the recycling of old clothes into new. The Climate Group
[1] has also highlighted companies that have set a goal of 100% renewable operations. Chemical reductions, the use of digital printing instead of dyes and textile recycling programs, have also begun.
Is Fashion a Fit for a Sustainable Investment Portfolio?
As corporate responsibility efforts among apparel makers garner increasing attention from investors, managers of sustainability-oriented investment portfolios will need to consider a variety of items to gauge whether there is a fit with their strategies. From an environmental standpoint, primary considerations involve the company’s ability to responsibly minimize the impact of its physical footprint via pollution and waste mitigation programs, as well as advances it has made in embracing the concept of circular fashion. On social matters, key focus areas center on the responsible, transparent, management of human capital along its supply chain as a means of reducing controversies in areas like child labor, sweatshops/work intensity, and inequality. An assessment of governance standards is critical to understanding an apparel company’s adequacy for inclusion in an investment portfolio as it will provide insight into how closely aligned management incentives may (or may not) be with its stated sustainability goals. While sustainability risk remains an issue among fashion firms, there is investment opportunity in firms that embrace a holistic approach to managing key environmental, social, and governance considerations into the creation of a premium brand and loyal customer base.
While the fashion industry has come a long way in many regards, it still has a long path ahead before it can be broadly considered a core part of a sustainable investment portfolio. Much of that path forward will depend on the adoption of new approaches to old processes and a commitment by apparel executives to both embrace and to fund this progress. But, new approaches, like integrating recycled materials into clothing and educating consumers on low-impact garment care, will continue to have positive, sustainable impacts.
[1] The Climate Group is a non-profit organization that collaborates with business and government leaders around the world to address climate change.