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Retailers’ Revenues at Risk as Industry Continues To Use Deforestation Commodities

Clothing companies’ revenues are highly dependent on deforestation commodities, causing a major sustainability conflict for the apparel industry.

According to a recent Carbon Disclosure Project (CDP) report, “Revenue at risk: Why addressing deforestation is critical to business success,” 24 percent of retailers’ revenues rely on deforestation-linked commodities, like cattle products, palm oil products, soy products and timber products. The report indicated that up to $906 billion in annual turnover is in jeopardy, due to the apparel industry failing to clean up its carbon footprint.

“Supply chains are like rows of dominoes: if unsustainable commodities enter the top of a supply chain, the effects will cascade throughout,” CDP head of forests Katie McCoy said. “Failing to address deforestation will have knock-on reputational impacts, manifesting themselves as consumer boycotts, community opposition and increased regulatory scrutiny.”

Although most company incomes hail from deforestation commodities, only 42 percent of retailers have measured how the availability of these unsustainable materials will impact their future business growth. Many apparel companies have overlooked potential business risks connected to deforestation, including potential climate change alterations, tighter regulation and brand damage from consumer concerns over the lack of environmentally-friendly sourcing initiatives.

Despite potential business risks, 74 percent of companies said they were confident in securing commodities in coming years. The report demonstrated the opposite and indicated that retailers were not realistic about their souring practices. Only one-fifth of retailers measure future deforestation risks across commodities, 70 percent of retailers can’t trace their commodities in their supply chains and only 44 percent of retailers monitor compliance and audit suppliers across commodities.

To reduce dependency on deforestation commodities, the report suggests retailers foster transparency with suppliers, discuss deforestation among executive leaders and work with affiliates to brainstorm solutions.

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Out of the 187 retailers evaluated, some clothing companies were recognized for their environmentally-friendly efforts. Marks & Spencer, achieved A’s across all four commodities and Inditex achieved an A for cattle product sustainability leadership. Other apparel tycoons that achieved good ratings included Coach (B- for cattle products and timber products) and Kering (A- for cattle products and B for timber products). Non-responding apparel retailers, including American Eagle Outfitters and Nordstrom, earned F’s for their deforestation reduction initiatives.