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Does Sustainability Need Financial Metrics?

While the Covid-19 pandemic set back the fashion industry financially, anyone who thinks sustainability initiatives will now be brushed under the corporate rug is sorely mistaken.

At April’s Fairchild Media Group Virtual Sustainability Summit, the “Sustainability’s Financial Dividends” panel viewed sustainability through a financial lens. Experts weighed in on not only why it makes financial sense for companies to boost sustainability investments, but how they can’t afford not to.

Speakers included Vicki Kalb, Head, EMEA ESG research, group research analytics & communications, UBS; Janice Noronha, partner, sustainability & climate change, PriceWaterhouseCoopers LLP; Sophie Rifkin, director, corporate research & engagement, NYU Stern Center for Sustainable Business. The panel was moderated by Sourcing Journal publisher Caletha Crawford.

“In many ways, sustainability has only ramped up with the Covid crisis,” said Noronha. “We have seen this topic elevate, not only with investors and broader stakeholders, but with the new generation: millennials. Businesses are rethinking the purpose of their organizations and refreshing a transformational model.”

The movement has gathered so much momentum, from consumers to investors to businesses, inertia is carrying it forward.

Noronha noted that PWC has seen some of the big pension funds, institutional investors and asset owners really take on sustainability, and it’s become part of the financial due diligence process, as well. “They’re embedding it into everything they think about, from ESG [environmental, social and corporate governance] ratings to the way they think about valuations, and even investment portfolios themselves from a value creation perspective.”

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Kalb, the UBS ESG expert, agrees. “When discussing ESG issues with investors, we try not to separate environmental and social because quite often they’re very tightly interlinked.” she said, noting that Covid has driven even more of a focus on social issues. “We get the sense that investors are watching social issues, in this industry in particular, very carefully.”

The problem, agreed the panelists, is that “squishier” social issues are harder to measure and quantify. Sustainability teams finally have a seat at the table with CFOs and corporate boards, but the topic’s more qualitative nature is often misunderstood. “We need to really put sustainability into the language of business—financial metrics,” said NYU’s Rifkin.

That said, companies and brands must still answer financially to Wall Street and investors, but the conversation is shifting as they’re under pressure to also answer to consumers. To help companies strike the right balance and really understand the value of their sustainability initiatives, NYU Stern Center for Sustainable Business developed a methodology called the Return on Sustainability Investment (ROSI).

“We help companies unpack their investment and understand how sustainability is driving things like greater operational efficiency, enhancing supplier relations, reducing costs of capital, just to name a few,” Rifkin said. “With retailer REI, for example, we were able to monetize how their investments in being a purpose-driven company are yielding significant employee-related outcomes in areas like greater engagement and retention. With Eileen Fisher and Reformation, we help them understand how their investments in circularity are identifying other brands values as well.”

Boosted collaboration

Another area that’s gotten a boost is cross-company collaboration—notably the Higg Index, which brings together suppliers to quantify emissions of their entire supply chains. The information can be used by numerous brands to achieve shared goals.

“We’re also seeing a lot more collaboration with think tanks,” said Noronha. “The United Nations Sustainable Development Goals are now being very clearly linked to sustainable fashion and the apparel sector. Meanwhile, the United Nations has set up alliances and The Ellen MacArthur Foundation has started to set up alliances enabling the big brands and suppliers to come together and think about innovation and solution sets to drive the industry forward.”

Such collaboration is fundamental to the success of the sector and the sustainability objectives. “We really see value in bringing together companies in collaborative ways, and organizations like Textile Exchange or The Fashion Pack are trying to figure out how to help brands implement on things like raw material sales and circularity,” Rifkin said.

For companies with limited resources to spend on sustainability, Noronha advised focusing investments on data, data, data. “You absolutely need to measure to manage. That’s always the first step,” she said. “A good baseline will help you understand where you’re starting from, then you can use that to pivot towards progress and engagement. With data comes a strategic understanding of how your business can really drive the sustainability agenda.”

After all, without truly understanding how investments help drive value, a company’s decision-making acumen is weakened. That in turn further hampers a company’s ability to tell its stakeholders a compelling story about the impact of that work.

“What we do to devise strategies and how we impact different stakeholders is the very beginning,” said Noronha. “If you don’t already have your story told, make sure that you own and control the reputational brand value that it dictates.”