Interest in environmental, social and governance (ESG) issues from investors and consumers has never been higher, and the growing urgency of the climate crisis, coupled with the ongoing health emergency, is a big part of the reason why.
“They’re both about life and death choices,” Rose Marcario, former CEO of outdoor brand Patagonia and a board member of Rivian and Meati Foods, said at a virtual event organized by the Responsible Business Coalition at Fordham University’s Gabelli School of Business last month. “We have about 10 years before we are impacted by the irreversible effects of climate change—that is a fact. And what business has to focus on now is the transformation, at scale, of transportation, of energy, of industrial and agricultural systems.”
That goes for fashion, which touches all of these sectors, as well. But while brands will have to approach longer-term risk management in a “meaningful way” and adapt their businesses to the changing needs of stakeholders, the dearth of uniform standards and industry tools for measuring ESG data remains a critical challenge, said Marissa Pagnani McGowan, chief sustainability officer at PVH Corp., which owns Calvin Klein, Geoffrey Beene and Tommy Hilfiger.
“It’s so tempting to come up with your own,” McGowan said, noting that PVH measures against 25 rankings and indices annually, in addition to the framework it uses for its corporate responsibility report. “But until we have consistent ways of measuring, I don’t think we can effectively activate consumers and investors at scale” to assess companies “apples to apples” without having to navigate myriad systems.
Some consolidation is happening. The International Financial Reporting Standards Foundation, for one, is poised to issue new standards to improve the global consistency and comparability in sustainability reporting. Last month, the European Commission published a package of ESG and sustainable finance legislation, including a proposal for a corporate sustainability reporting directive.
Also in April, the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council announced plans to merge the bodies to create the Value Reporting Foundation, which would simplify the reporting requirements for listed companies. The standards won’t change in the near term, said Neil Stewart, director of corporate outreach at SASB, but the new foundation will make it easier for businesses to use both together, streamlining workflows. “It’s a very dynamic space [with] a lot of moving parts, but we are moving toward a simpler landscape for companies,” he said.
When investors examine supply-chain sustainability, what they’re really ferreting out is risk, said Amisha Parekh, product manager, sustainable finance solutions, at Bloomberg. Though brands are getting better at talking about their ESG performance, even opening up their Tier 1 suppliers, most of a supply chain’s risk comes in at the Tier 2 and 3 levels. “That’s all the way down to raw materials where you don’t end up getting the information you’re looking for,” she said. “That’s really the biggest gap from an investor perspective right now.”
Supply chain risks, such as forced labor or environmental non-compliance, matter because they’re business risks, Parekh said, but the transparency piece of the puzzle is frequently missing. “There’s probably just one apparel/retail company that’s done a good job talking down to the Tier 2 and Tier 3 suppliers in a fairly systematic fashion,” she added. But investors want to know how businesses are actively managing these issues, even if they’re doing so imperfectly, or even if they’re being considered at all.
The uneven availability of trusted data is one of the impetuses behind Textile Exchange’s forthcoming Preferred Fiber and Material Matrix, which will leverage Gap’s Preferred Fiber Toolkit, the Sustainable Apparel Coalition’s Higg Materials Sustainability Index and others to provide guidance on more than 65 of the industry’s most commonly used materials.
“We’ll be looking at animal welfare, climate, biodiversity, things that aren’t always considered in the traditional data landscape but are what companies really want to have when they think about their full material impact,” said Claire Bergkamp, chief operating officer at the sustainability nonprofit.
Indeed, verified data is going to be increasingly important to consumers, governments and other stakeholders who want to make informed purchasing decisions or hold companies accountable for their business practices, said Amina Razvi, executive director of the Sustainable Apparel Coalition, whose members include Amazon, Asos, Gap, H&M, Levi Strauss, Nike and Walmart.
“I think all of us are looking at data,” Razvi said. “It’s not about data for data’s sake, but what those insights actually allow us to do as an industry to drive impact. That’s the opportunity we have in front of us.”
Frank Zambrelli, executive director of the Responsible Business Coalition, later told Sourcing Journal that gaining a better understanding of data can help companies unlock both profitability and sustainability.
“For years, sustainability has been looked at as an opportunity to fix—how do we improve some of the damage that we’re doing?” he said. “Data powers that; data allows us to reconcile inventory to consumer wants, it allows us to build products in ways that are going to be naturally more sustainable and it allows us to manage waste streams.”
The industry, Zambrelli said, is facing a watershed moment of market forces that can accelerate transformation, but it’s crucial to know what the baselines are so improvements can be made, measured and managed. “Artificial intelligence and machine learning, combined with all this new data as inputs, is just rocket propelling ESG and sustainability to the forefront of financial opportunity and social opportunity,” he added.