Transparency is in: Sustainability Reporting in the Fashion industry

Sustainability

,

Fashion

Transparency is in: Sustainability Reporting in the Fashion industry

Andrea Ardizzoia | Jul 30, 2020

As discussed by Greta Thunberg in an interview with the BBC on June 19th, the Coronavirus has no long-term positive effects on the climate save one: that of how perceive and treat a crisis. This goes to show how sustainability has once again become central to public debate, even after being sidelined by the global health crisis.

2019 was a year defined by protests and fierce debate lead by the 17 year-old Swede and by #FridaysForFuture ,with the involvement of over 7,500 cities and 13 million people, spanning all 7 continents.

The fashion industry has always been right at the centre of this debate because of its impact on the environment (according to the UN, this industry alone is responsible for 20% of global water pollution and 10% of CO2 emissions, and is one of the greatest sources of plastic waste in our oceans) and on society (the UN once again tells us that this industry is often linked to dangerous working conditions and worker exploitation).

The response from the fashion industry hasn’t always received much attention: besides the various individual initiatives - not least the open letter by Giorgio Armani - the major brands have joined President and CEO of Kering, François-Henri Pinault, in the Fashion Pact, entrusted to him by French President Emmanuel Macron, and presented to heads of state during the G7 summit in Biarritz.

The purpose of the Fashion Pact is precisely that of combining the industry’s efforts to:

  • mitigate and adapt to climate change
  • flatten the curve of biodiversity loss within 10 years
  • address the loss of ocean ecosystem functionality due to climate change and due to pollution
  • ensure social inclusion, fair wages, and decent working conditions throughout the supply chain.

The fashion industry has always been right at the centre of the debate on sustainability

 

Investors and customers: keyword transparency.

Transparency and responsibility are defined as key points for the Fashion Pact in achieving these goals. They also form a basis on which independent bodies and ratings companies, who influence investors and clients, can assess industry progress.

Among these ratings companies are Fashion Revolution and its Fashion Transparency Index, this year in its fifth edition. The index evaluates 250 of the biggest fashion brands and retailers in the world and classifies them based on the degree of openness about policy, practice, and impact on society and on the environment. Its promotions have been featured in all major publications, as well as industry ones, both online and in print, and are seen as a source of pride for companies, in addition to having a positive impact on their brands and the perception of them by customers.

Always outstanding among ratings companies is Standard & Poor’s’ S&P Global Ratings ESG Evaluation, which aims to provide assessments to investors who are increasingly taking environmental, social and governmental (ESG) issues into account when making investment decisions.

Without a sense of purpose, no company, either public or private, can achieve its full potential.
- Larry Fink, CEO of Blackrock, 2018 Letter to CEOs -

Sustainability Reporting in the fashion industry: navigating standards, best practices, and complexity

If transparency is considered fundamental by the vast majority of stakeholders, Sustainability Reporting will become the fashion industry’s greatest communication tool, regardless of whether it is a legal obligation or not.

Using the GRI Standards, the Global Reporting Initiative has set out a global criteria for best practices in preparing Sustainability Reports. Just like International Financial Reporting Standards, the GRI Standards have enabled a clear, standardised approach to be set out, which is comparable to the way information is shared in the Corporate Social Responsibility (CSR) field.

GRI Standard

Image: GRI Standards Download Center

 

However, ‘standard’ also implies ‘general.’ The nature of the GRI Standards means they are geared towards every kind of business in every industry and, at the practical level, this gets complicated.

Companies in the fashion industry therefore find themselves having to rearticulate standards for their own individual and sectoral realities, and confront critical issues such as:

  • defining which sustainability issues have the greatest impact throughout the value chain
  • prioritising the most relevant chapters of the GRI Standards and setting out materiality assessments
  • mapping the organizational structure of a group by assigning tasks by function and organizational unit
  • designing, implementing, and monitoring data and information collection processes, and the associated workflows
  • defining numerical and textual indicators (KPIs) that are measurable and as objective as possible, in order to monitor ESG impact and provide clear objectives for the managers and organisational units involved
  • developing reports capable of influencing a broad range of stakeholders.

 

ESG Digital Governance: making technology serve Sustainability Reporting

In order to face these general complexities head on, businesses in the fashion industry have begun looking into ESG Digital Governance solutions, i.e. solutions that monitor, collect, trace and share ESG information digitally.

The urgency of the situation calls for efficient tools that are quick to implement, ready-to-go solutions that come with the GRI Standards and the most relevant industry KPIs already integrated, in a way that allows for comparison across the sector.

Responsibility imposes solutions that make it possible to outline the organizational chain of command and cover the entire process from data collection to producing reports, with a single platform that can keep track of both the activities carried out and the people involved.

The objectives are clear: to be able to prepare annual reports in just a few clicks, thereby guaranteeing coherent data by updating information in real time to share data and be transparent on corporate sustainability issues in accordance with the latest ESG regulations to be able to generate presentations and reports from your platform directly and immediately.


Arm yourself with ESG Digital Governance solutions: what an efficient project looks like

While the ESG Digital Governance tools seem to address some of the complexities that businesses face when drafting Sustainability Reports, there are of course others that will need addressing before a solution can be adopted.

In fact, an ESG Digital Governance has to start by identifying all the potential aspects of ESG (the so-called material aspects) that are relevant to your business. A careful and critical analysis of the documentation must therefore be carried out, both internally (e.g. the Annual Report, the Code of Ethics, the Strategic Plan, the Sustainability Roadmap) and externally (e.g. documents on the market and in the fashion industry, assessment questionnaires by sustainability ratings companies, and the Sustainability Reporting by major competitors).

The most critical elements at this stage are finding all the relevant information, identifying the most reliable and influential sources in the sector, and taking an in-depth look at the documentation.

The result of this analysis should be a clearly defined materiality assessment, i.e. one that reveals what aspects of sustainability are most relevant to the company and for its stakeholders. Businesses often find that setting out minimum requirements and prioritising the organization’s effort towards the most relevant ESG issues is a particularly complex process.

Once the organisational structure is defined and the data collection process designed, there is one final phase before the tool can be configured and used, that of  translating the materiality assessment into numerical and textual indicators that can be assigned to the relevant managers.

This translation will not happen immediately, just think of the example of CO2 emissions (carbon footprint). Where do these emissions come from? Where to find the data and, if it is absent or exceptionally unattainable, what proxies will stakeholders accept? How can we translate the various units of measurement into m3 of CO2

These kinds of questions highlight the problems businesses face in this phase.

This process of preparation highlights the value of expert consultants in this phase of adopting the ESG Digital Governance tool. In fact, in order to integrate this tool into existing business systems, we need people capable of combining strong ESG skills, strong advisory skills and strong technological and systems integration skills.

 

Transparency is the new black

Transforming the fashion industry will be a long and arduous process. Changing the entire value chain will take the commitment of each and every stakeholder, especially regulators at the international level. 

What we can be certain of is that businesses in this sector can no longer afford to wait for an ever-increasing number of ESG-aware investors and customers when making investment and consumption decisions. Transparency is the new black!

 

Andrea Ardizzoia
Connect on LinkedIn

 


This article is part of the series #TechedgeTalks: views and thoughts from our Industry Leaders on the main market sectors. Don't miss the next one - subscribe to our newsletter!

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