Clothing companies have been exposed as failing to account for and disclose water risks across their value chain.
Planet Tracker, a non-profit financial think tank, analysed 3,900 documents, transcripts and filings from apparel-related companies including major brands such as Ralph Lauren, Levi Strauss and Victoria Secret, looking at how the management teams of 29 major apparel brands perceive water-related risks.
The various stages of apparel manufacture are significant consumers of water.
The findings highlighted a major gap in disclosure practices. The vast majority (90%) of the examined documents failed to mention water-related risks, with many companies barely mentioning water-related risk at all.
However the report, Exposing Water Risk, also revealed a significant increase in mentions of water-related risk over the analysed period, from approximately 2,000 in 2018 to more than 9,000 in 2022.
The implication is that in the minority of documents where water-related risk is disclosed, the subject is being more frequently discussed.
Financial institutions, investors, and lenders in the apparel industry face financial exposure to water-related risks.
Richard Wielechowski, senior investment analyst for textiles at Planet Tracker, said: “The availability of water is increasingly stressed in many parts of the world due to climate change, inefficient use, and untreated disposal. This could threaten textile production in key regions, disrupting supply chains.”
Planet Tracker recommends the inclusion of water risk in investment decisions, urging financial institutions to consider the potential impact on supply chains and consumer pricing.
Natural language processing (NLP) was used to scan regulatory filings, investor meeting transcripts, annual reports and sustainability reports for extracts focused on water-related risks.
The majority of disclosures come from non-luxury brands, followed by luxury brands. Companies mainly operating as apparel retailers showed limited mentions of water-related risks.
Planet Tracker found sustainability reports and annual reports were the primary platforms for water-related disclosures. Minimal attention was in transcripts from corporate events, suggesting a lack of focus from investors on this critical issue.
As well as quantity, Planet Tracker tracked the quality of water-related risk disclosures, and found this has remained relatively flat over the analysed period.
Most disclosed information is centred around water consumption, with toxins and contaminants receiving minimal attention.
Planet Tracker is pushing companies to disclose water use and risks through standardised frameworks such as the CDP.
It also wants investor support for engagement with the textile supply chain to address water usage and pollution associated with textile manufacture.