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Can Sustainability Progress and Corporate Profits Co-Exist?

All companies want to be more sustainable, and clients, consumers, government regulators and even Wall Street are increasingly demanding that they are. But companies also need to be profitable.

Sustainability comes with up-front costs that can be hard to embrace, even when they are canceled out by financial returns down the road. It’s a matter of readjusting mindset and balancing myopic vision with long-term thinking.

Our Nov. 22 webinar “Viewing Sustainability Like an Investor” gathered experts from all sides of the issue to discuss the timely topic of weighing progress and profit.

Speakers included: Dr. Jesse Daystar, Vice President, Chief Sustainability Officer, Cotton Incorporated; Sedef Uncu Aki, Director, ORTA; Nate Fleming, Chief Marketing Officer, Bamboo Rose; and Dov Brachfeld, Global Sustainability Manager, Treadler. It was moderated by Edward Hertzman, founder and president of Sourcing Journal.

Picking and choosing

Sustainability might not be a choice, but how to enact it certainly is. Do you invest dollars in a less visible factory system, or something more “consumer-facing” that you can promote to the media or on a hang tag? Do you focus on environmental issues or social concerns? Short of a universal answer, companies must choose what works best for them and their brand.

“Oftentimes, when you’re looking at different product designs or things you could do, there might be tradeoffs between maybe increasing water or reducing greenhouse gas emissions or making microplastics in the ocean,” said Cotton Inc.’s Jesse Daystar. “Brands really need to figure out what aligns with their corporate strategy, their products and what their consumers really want—is it climate change, reducing plastic waste or something else?—then take measurable action toward meeting goals such as science based targets.”

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sustainability webinar

Investing in software is one safe investment, as it makes it easier to monitor the aforementioned issues.

“You can’t fix what you don’t know, and knowing where and how your products are made is the first essential step in any brand’s journey toward sustainability,” said Dov Brachfeld of Treadler, a sourcing division of H&M Group that touts Bamboo Rose’s visibility software as a way for itself and brands to track and reach their ESG goals.

Software is particularly helpful for companies less mature in their sustainability journey, as it can help them make educated decisions about trade-offs, be they ESG- or cost-related. Many low-maturity clients might focus just on meeting compliance regulations, but it’s essential that they push harder to really reduce impacts.

“Treadler is a great example of a high-maturity company, and they’ve really brought an ESG and sustainability strategy into their business model,” said Bamboo Rose’s Nate Flaming.

Turkish denim mill Orta, which has been using eco-conscious materials and water-less techniques since the beginning of the 2000s, has seen sustainability shift more to a pull from brands than a push from Orta, said Sedef Uncu Aki, who notes the company has a guest house on the premises where clients can stay to learn, view, ask questions and verify claims and processes. “Orta’s responsible fiber usage increased from 15 percent in 2017 to 58 percent this year, and the year isn’t even over yet.”

In unprecedented moments of cross-collaboration and even competitive sharing, companies are starting to open up their supply chains and once-proprietary information for the greater good. Last year, Orta created a supplier map, open to everyone on the supply chain. And at Treadler, supplier lists that used to be kept in a locked safe are now published on the website, said Brachfeld.

“H&M Group has actively invested significant time and resources to bring its supply chain to the level it is today,” he said. “And by offering access to its supply chain and knowledge and experience to other brands, they can support them in accelerating toward more sustainable sourcing from one season to the next,” he said. “This is the return on investment we’re talking about.”

Answering to Wall Street

The phrase “answering to Wall Street” used to mean showing profits above all costs, but with today’s Green Funds, conscious investors, and investment banks listing ESG metrics alongside price outlooks, it’s clear that sustainability investment is essential.

“We see clients offering tangible rewards to suppliers who are making quantifiable ESG improvements that might improve supplier financing terms or even grants to make certain improvements to production,” Fleming said.

All ESG efforts aren’t equal, or equally quantifiable—some note that it’s easier to measure the E (environmental) aspect of ESG over the S (social) angle—but all must be addressed.

“Boards, investors and executives are all realizing how important it is to have stringency and accountability there, and we’re seeing investors either sue boards or push certain business leaders out,” said Fleming. “It’s definitely become a more prevalent issue on our clients’ radars in the last couple of years.”

Orta calls this the three T’s—transparency, traceability, and (human) touch. “We employ 1,400 people and we publish our social initiatives and data,” said Uncu Aki. “It’s not always quantifiable but it’s important to be transparent in these issues.”

Finally, necessity can be the mother of invention.

With cotton prices at a 10-year high and logistics so disrupted, Daystar suggested that new investment initiatives, such as infrastructure that brings cotton gins closer to cotton farms, could increase. “Maybe there are new business models out there that could accommodate these changes and shifting behaviors in a way that we haven’t looked at before,” he said.

To watch “Viewing Sustainability Like an Investor,” click the image above.