The push for credible sustainability data
By now, every company in the textile and apparel sector has likely been subject to some form of data scrutiny over their sustainability performance.
Customers, investors and EU regulators, in particular, have been the driving force of increased transparency and accountability when it comes to sustainability data reporting.
Fueled by the pandemics, customers increasingly demand information about the safety of clothes, sustainable materials as well as labor conditions behind their production.
Meanwhile, EU regulators are working hard on extending sustainability reporting requirements to more companies, including to SMEs by 2026. The key legislative efforts include the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation. Jointly, these will extend sustainability reporting, include an audit requirement, and define what activities can be deemed sustainable.
Investors follow suit and evaluate the sustainability impacts of the companies in which they invest, partly to meet their own disclosure requirements under the Sustainable Finance Disclosure Regulation, as well as the requirements of the upcoming EU Taxonomy Regulation.
These developments will require that companies develop appropriate sustainability management systems, including the collection of environmental, social and governance data and verification procedures for concrete actions.
Who is affected?
Although large brands, such as H&M and ZARA, are the first ones to be affected by the legislation, SME brands will feel the pressures too, directly through investment opportunities and through supply chains. Investors will give preference to companies that can ensure taxonomy alignment. Big brands and retailers will pass through their reporting requirements to their Tier 1 and 2 suppliers, many of whom are SMEs, and some even microenterprises, with the aim of ensuring supply chain transparency and legal compliance.
In fact, some retailers are already bracing for impact. Zalando, for example, is the first retailer to use the Higg Brand & Retail Module from the Sustainable Apparel Coalition to make sustainability assessment mandatory for its private labels and partner brands (many of which are SMEs or even microenterprises). This will help the fashion e-commerce platform gather comparable sustainability data from its partner brands to understand where the challenges in the industry are and to jointly develop solutions.
What data are we talking about?
The Financial Reporting Advisory Group (EFRAG) tasked with the development of reporting standards under CSRD is publishing a first draft in mid-2022, and the European Commission could, in theory, adopt them by end of the year. Companies covered by the scope of the directive will also need to report on indicators showing alignment with EU Taxonomy. These will be expressed through the share of turnover, capital and operational expenditure that is aligned with the overarching six environmental objectives of the Taxonomy.
Although we still have to wait a bit more for the standards, the reality is that there is no looking back. The train has already left the station and the sooner companies are able get up to speed, the better. The relevant question is then what sustainability metrics to start collecting.
The choice of a company’s key performance indicators and the supporting data needs to follow a company’s overall business and sustainability strategy, with material topics being at their center. In the fashion sector, there is emerging practice around certain metrics, which are worth looking at:
Environmental metrics: impacts on carbon emissions, water, land and waste. One of the most used environmental metrics relates to carbon footprint (scope 1, 2 and 3). Carbon intensity levels (in addition to absolute levels) are a useful addition for fast growing companies, and are appreciated by investors as well. The level of circularity is the newest area of measurement, that will hopefully find its way to fashion reports very soon.
Social metrics: metrics relate to employee satisfaction, diversity, non-discrimination, fair wages, worker benefits, and health and safety practices in your premises as well as supply chain.
Governance metrics: these might include metrics measuring compliance with a company’s Code of Ethics, Code of Conduct, or a company’s anti-corruption policy.
Companies can collect data at the level of a product, supply chain and operations/stores. Supply chain data can be more difficult to acquire at first, because it presumes that suppliers (existing or new) already possess such data, or are willing to collect and share it. This requires investments on their part. Brands, on the other hand, are expected to collaborate with suppliers to achieve higher transparency, and put in place a range of policies, processes and data that will boost overall supply chain sustainability.
Where to start?
While the process can be overwhelming at the beginning, the first step for any company is to start talking about the sustainability strategy, overarching KPIs and data. You might also want to allocate some initial human and budget resources for initial research on your data gaps, and the identification of options for an improved data management. If you are only starting, there are many useful self-assessment tools available to your company out there. These include the B Corp’s impact assessment, the different Higg Index tools for facilities, brands and retailers, and products, as well as the new Impact Calculator by OEKO-TEX, which are specific to the textile and apparel sector.
Trust that although collecting, monitoring and assessing data takes time and cost, it is also your competitive advantage. Companies that will sooner be able to quantify and manage the impacts of their sustainability policies will be stronger candidates for investments and will be surprised how data can help their shareholders tell a much more compelling story. They will also be more innovative because data will reveal ways to improve their strategy and operations.
 The Higg BRM is a tool that provides brands and retailers with a comprehensive way to assess their performance around ethical and environmental and social performance in operations and supply chains.
 In line with the double-materiality principle of the CSRD, companies will need to report on the sustainability risks and opportunities that they face, as well as the impacts that they have on people and the environment.