Sustainability may have been a nice to have in years gone by, but now, not only is it a necessity, but investors in the apparel space are starting to see it as adding to long-term value.
In the past few years, as sustainability has moved more from niche to mainstream, analysts have seen a growth in investment strategies that are more focused on environmental and social governance (ESG) integration.
“Investors are really factoring ESG into the way they think about risk and opportunity,” Lauren Cope, ESG analyst at Bloomberg, said at the recent Textile Exchange Sustainability Conference.
Things like climate change, regulatory pressure, materiality, have all been greater factors, she said, as investors increasingly look for data that underpins that market.
“Investors think it helps them determine long-term risk and a company’s dedication to long-term value,” Cope said. “[Sustainability] creates value and doesn’t imply higher risk and lower returns. In fact, it’s quite the opposite.”
The hunger for sustainability information from investors has increased exponentially of late. Cope’s team—which analyzes sustainability related data across 300 fields, much of which comes out of corporate social responsibility reports most companies think fall on deaf ears—now covers 9,400 companies globally for ESG data, up from a much lower 4,000 just four years ago, which points to investor demand for it.
In looking at green bonds alone—those tax exempt bonds created to fund companies and projects with environmental benefits—the amount issued last year were worth $95 billion, a steep jump from $47.9 billion in 2015.
The change in investor interest in sustainability has been similarly noticeable to Katie Schmitz Eulitt, strategic advisor for stakeholder engagement at the Sustainability Accounting Standards Board (SASB).
“Today we see that 90 percent of the top 100 asset managers around the world have committed to evaluating ESG factors in all their decisions,” Eulitt said.
That fact, and also consumers’ increasing demand for transparency in the areas of sustainability and corporate social responsibility in particular, have led to a jump in company issued sustainability reports.
According to Eulitt, only 20 percent of S&P 500 companies issued a sustainability report in 2011 and today, 82 percent do.
“If you really want to know about a company in the future, you need to look at the material trends and that’s ESG info,” Eulitt said.
In the next two years, according to a report out in May by BNP Paribas Securities Services, investors plan to double their spend on environmental and social governance factors.
“There is set to be a huge shift in the way investments are selected over the next two years. It is widely accepted that incorporating ESG can be beneficial to returns, but what we will see now is firms really putting investment weight behind this,” said Sid Newby, head of asset manager and asset owner sales at BNP. “However, there are challenges. Obtaining and analyzing ESG data will require new tools, resources and skills for both asset managers and owners and so we expect technology to play an extremely important role in helping them meet their goals.”
That means apparel companies investing their own efforts in sustainability will have to find more advanced ways to track and relay that information in a way that works for investors.
“While the industry expects to capture data effectively within two years, the ability to draw conclusions from the data will remain a challenge,” Trevor Allen, product specialist, investment risk and performance at BNP Paribas Securities Services, added in the report. “That is where smart data, artificial intelligence and ESG specialists will step in. We expect to see both managers and owners really ramping up their tech and personnel capabilities to address these needs in the coming years.”