ESG Metrics in the Fashion Industry

What are the ESG metrics in the fashion industry? Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria focus on how a company performs as a steward of nature. Social criteria deals with it manage social relationships where it operates. Governance focuses on leadership, executive pay, audits, internal controls, and shareholder rights in the company.

MSCI ESG Metrics is a tool designed to give institutional investors a wide range of standardized ESG data and simple flagged metrics. These metrics are comparable across about 8,500 companies in the MSCI Investable Market Index (IMI) coverage universe.

ESG Metrics in the Fashion Industry

In the last decade, global clothing production increased with more than 300 million people employed along its value chain. It is safe to say that the fashion industry is thriving. However, this has come with high environmental costs. The fashion industry is one of the most environmentally unfriendly industries as its manufacturing practices puts substantial pressure on non-renewable natural resources. 

For one, water-intensive textile manufacturing processes use 93 billion cubic metres of water annually. Secondly, the process of dyeing clothes is one of the sources of water pollution globally. Thirdly, the annual greenhouse gas emissions from the fashion industry are more than the combined amount for all international flights and maritime shipping. Then there is the issue of working conditions. Low wages, unsafe working environments and child-labor are often part of the industry. 

In today’s fashion industry, ever-changing trends are designed, manufactured and sold to consumers in increasingly shorter time frames, thus causing a dramatic reduction in the number of times garments are worn before they are thrown away. More clothes are being discarded, economic value is lost, and there are also environmental implications.

The best part is that more people are aware of this fact. Especially with the sustainability credentials of the global fashion industry coming under increased scrutiny. Recent research suggests that 52% of consumers in the UK and the US want the fashion industry to become more sustainable.

Recently, a group of fashion executives met in Los Angeles to talk about how manufacturing practices could be modified so that companies were compelled to act the G7 Fashion Pact. The pact focuses on

• Getting zero greenhouse gas emissions by 2050;
• Restoring biodiversity by reinstating natural ecosystems and protecting endangered species;
• Protecting the oceans by such initiatives as eliminating single-use plastics, by 2030. 

In the event of rising consumer awareness and behavioural changes and further global agreements on guidance standards, there is a paradigm shift occurring across the fashion industry. ESG issues now form an increasingly vital part of the business model of companies.

Prada has pledged to phase out virgin nylon by 2021. Zara has also toed the same path. It has committed to making all of its clothing from 100 percent sustainable fabrics by 2025. There is still more. Urban Outfitters also announced a clothing rental subscription that will help customers make better sustainable clothing decisions while Nordstrom has started an online shopping category called “sustainable style.”

Patagonia, which is an unlisted sportswear brand has for many years, been one of the fashion industry’s leaders in terms of sustainability. It is a standout example of a fashion company with a business that is closely aligned with environmental and social priorities. Patagonia enjoys lots of shifting consumer sentiment by developing recycled and organic materials, creating durable products, pledging at least one percent of sales to environmental groups and supporting social justice for its employees.

Reduction in the amount of packaging; providing fair pay and good working conditions; using renewable and recyclable materials; making clothes that are designed to last longer and using fewer resources(power, water, materials) are some of the ways that customers want the fashion companies to adjust.

Long term investors carefully assess the sustainability of companies involved in, or aligned, with the fashion industry. They pay attention to how they approach the significant resource of demands and labor issues that are part of the manufacturing processes. In essence, they focus on the most material aspects of a company’s long-term value creation.

Takeaway

The fashion industry is currently undergoing a change as per sustainability thanks to ESG metrics.

ESG Enterprise is the all-in-one app to help fashion companies on ESG branding, metrics and disclosures.

What are ESG Metrics in the Fashion Industry?

Environmental, social and governance (ESG) criteria are a set of standards for a fashion company’s operations that socially conscious investors use to screen potential investments. In today’s fashion industry, ever-changing trends are designed, manufactured and sold to consumers in increasingly shorter timeframes, thus causing a dramatic reduction in the number of times garments are worn before they are thrown away. More clothes are being discarded, economic value is lost, and there are also environmental implications.