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Climate Change Spurs Greater Interest in Transparency from Investors

As concerns about climate change and its potential effects on the apparel supply chain deepen, investors are turning greater attention toward companies’ transparency efforts, often as a way to measure risk.

“Increasingly brands and retailers, but also other stakeholders of the apparel industry and apparel innovation, are backing the case for more transparency, as it facilitates improved mitigation of supply chain risks, decreases exposure to negative press around environmental and social [corporate responsibility], and enables better portfolio diversification of the risks relating to geographies or agri products,” Rogier van Mazijk, investment manager at Fashion for Good, told Sourcing Journal.

Lisa Morales-Hellebo, co-founder of The Worldwide Supply Chain Federation, concurred, noting that there’s also been an increase in the number of “impact” investors who are focused on sustainability, circularity and transparency. “However,” she added, “the term ‘impact’ still has the connotation of philanthropy instead of increasing efficiency, reducing costs and doing good while doing well across the value chain.”

Morales-Hellebo co-founded Refashiond Ventures, an early-stage supply-chain tech venture fund investing in startups modernizing global supply chains, including data/AI and blockchain for transparency, authentication and accountability. She described these technologies as “the foundational building blocks of all supply chains.”

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Fashion for Good, a worldwide initiative promoting sustainability and transparency within the apparel industry, is working with startups and scale-ups to accelerate scaling of innovative solutions and enable a more sustainable apparel supply chain, said van Mazijk, who cited innovation in the supply chain vs. downstream businesses as its primary focus.

“Also from this perspective, apparel startups and their investors should be worried about transparency. Better transparency leads to easier implementation, easier scaling and easier business development—i.e. more success for the ventures.”

The reality of climate change’s effect on the environment is driving a rapid interest in transparency from investors, Morales-Hellebo said, noting that the time for incremental change is long gone.

“VCs that have built things before and understand what innovations are going to drive paradigm shifts will be the ones steering the industry in the right direction,” she said.

Indeed, investors increasingly want to know how well prepared companies are for such supply-chain disruptors as droughts and national disasters.

“Investors are really focused on plans for climate change,” said Natalie Grillon, project director, Open Apparel Registry. “They want to know how companies are tracing their supply chain and understand exposure to a breakdown from a natural disaster or long-term effects from climate change. … I think the turn toward more recycled fibers are because of a real legitimate concern that there may not be enough cotton to go around as we look in the decades ahead because of [water concerns].”

As part of this, Grillon said she’s observed rising interest in data-sharing methods. “That’s interesting because the more we can share open data, you really realize efficiencies there in collaboration, which is a cost savings. That is something that hasn’t been tapped but is increasingly important.”

Garry Bell, VP, corporate marketing and communications of Gildan Activewear, said the company has seen an increase in the amount of transparency and the amount of content that’s being asked of the investment markets. According to Bell, over 54 percent of all invested capital in Canada was done with consideration of environmental, social and governance (ESG) metrics, which he called a first for the country. (The number was around 62 percent in Europe, Bell said, and around 28 percent in the U.S.)

“What those fund managers are finding out when they look at the performance of the ESG funds … they’re recognizing the companies that report strong ESG numbers in fact are outperforming from a financial performance measure than from companies that don’t report this stuff,” said Bell. “Transparency is a fundamental way to access capital.”

Disclosing transparency also indicates a level of commitment and therefore adds a layer of trust, said Bell, as brands are less likely to abandon anything that can be later measured down the road. “If you’re publicly disclosing and being transparent, the likelihood is that’s a practice you’re not going to easily step away from. You’re essentially then committing publicly to this notion of continuous improvement.”

Indeed, more than half of respondents in Sourcing Journal’s 2019 Transparency Report (56 percent) said their companies measure the ROI of their transparency efforts by how much it improves their brand’s reputation and customer loyalty.

“Consumers are picking up on the lack of transparency and disclosure by the industry, which has been getting exponentially more attention over the last few years,” said van Mazijk. “All of these are huge risks for the large corporate brands marketing the products we all know. Apparel brands who have built their identity around sustainability, such as Patagonia and Eileen Fisher, are consolidating trust and have a growing sense of loyalty among their customers. Transparency and traceability strategies that are accessible to all stakeholders, including consumers, are therefore likely to provide an advantageous positioning in the market.”

This piece originally appeared in Eco-Evolution, Sourcing Journal’s 2019 sustainability report. Read about how sustainability in the textile and apparel industries is gaining momentum through responsible practices, alternative materials and new business models here.