February 19, 2019 / In-depth

Will investors call time on ‘fast fashion’?

By Joe McGrath, ESG Clarity

Investors are becoming increasingly concerned by looming regulations and shifting public opinion

Will investors call time on ‘fast fashion’?

Investors in retailers, manufacturers and suppliers have been urged to take a closer look at the environmental, social and governance implications of “fast fashion”.

On Sunday (17 February), around 100 climate protestors blocked roads and building entrances to London Fashion Week, as attendees arrived to see the latest works from designers around the world.

Among those protesting was campaign group Extinction Rebellion, which said it was participating to urge the fashion industry to recognise an “ecological emergency”.

In a statement released after the protest, Extinction Rebellion activist Alice Martin, said the demonstration had made the desired impact.

“We came to disrupt Fashion Week and to invite the industry to transform itself into a world saving cultural phenomenon,” she said. “This is the beginning of that conversation.”

The campaign group added that the industry was reducing global biodiversity through the intensive cultivation of cotton crops which demand the use of insecticides and contribute to 20 per cent of the world’s freshwater pollution.

The group’s statement added that excessive textile production has led to the loss of natural habitats, with 30 per cent of rayon and Viscose being sourced from endangered forests around the world.

 

Boom times

Fund groups have started to weigh up the long-term sustainability risks associated with investing in the fashion industry. But this discussion comes after consecutive years of gains for holders of fashion shares.

Sports clothing manufacturer Nike, for example, saw its share price rocket from $10.70 on 19 February 2009, to $85.38 a decade later. Rival Adidas made similarly spectacular returns for investors. Its share price stood at €25.51 on 19 February 2009. Ten years later, the stock is trading at €200.10.

In 2017, Bloomberg reported that the incoming chief executive at Adidas, Kasper Rorsted was hoping to emulate the success that rival Nike had enjoyed, by tapping into fast fashion demands. It’s not just sportswear manufacturers, either. Digital fashion retailers have been huge beneficiaries of the fast fashion boom.

Online retailers such as Asos and Boohoo Group, have seen their businesses transformed from small caps to household names. Equity investors, meanwhile, have enjoyed huge gains along the way.

 

Risk recognition

More recently, fund firms have started warning of the consequences of growing public awareness of the negative environmental implications of fast fashion. Asset managers are also mindful of potential cost implications for both retailers and manufacturers if global governments introduce new rules requiring them to take greater responsibility for their supply chains.

In its 2019 ESG Outlook, David Sheasby, head of ESG and Stewardship at Edinburgh-based fund group Martin Currie, recognised these concerns.

“This industry has seen huge growth – production volumes have doubled over the last 15 years, driven mainly by fast fashion,” he said. “What has been created is an unsustainable linear process with only 13 per cent of clothing being recycled and more than 73 per cent ending up in landfill

“Public awareness is certainly starting to rise… and, in the UK the Environmental Audit Committee has sent out questions to a number of fast-fashion retailers looking for a response on some of these concerns.”

Martin Currie isn’t the only fund group raising these questions. In January, Aviva Investors’ ESG Analyst Stanley Kwong said Aviva would typically expect fashion retailers to be able to show how they accurately monitored their supply chain.

“For a fast fashion retailer, we would ask questions such as whether they have a system to measure what is happening across their supply chain and do they have control over it,” he said.

“They may have excellent labour standards in their core business, but it also needs to trickle down through their supply chain.”

 

A big response

Like any area of business, fashion companies want to ensure that their investors are placated. And it seems they are beginning to respond.

In June, Vogue reported that Asos was sponsoring a new training programme on circular fashion in partnership with the London College of Fashion’s Centre for Sustainable Fashion. Elsewhere, Adidas has pledged to use purely recycled polyester in its trainers within five years, and retailer Marks & Spencer has started offering discount vouchers to customers who return used clothing.

However, governments are under pressure to force companies to do more. On Tuesday (19 February) a UK cross-parliamentary group made a series of recommendations for the UK government to implement new measures which would force fashion retailers and manufacturers to make widespread changes.

The report recommended that the government introduce a new levy on garment producers – equivalent to one penny per garment – to raise £35 million to improve clothing recycling in the UK. It also said that the government’s previous pledge to review extended producer responsibility by 2025 was too far away and called for action in this parliament.

Other recommendations included a requirement for retailers to publish a modern slavery statement, and for listed fashion businesses to disclose their approaches to monitoring supply chains and human rights in their annual reporting. Changes to corporate taxation, better education in schools and plans for a more comprehensive waste strategy were also proposed.

While the parliamentary report contained recommendations, the direction of travel now seems clear. The days of fast fashion at all costs, look set to be numbered.