New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
New report: Transparency 2.0 - Transparency in an age of unprecedented climate, financial and reputational business risks ·
Category
Investment
Author
Sonia Kovacevic
Date
03.11.2022
Industry Deep Dive
Are investors the pressure point for solving fashion’s climate problem?

It is difficult to think about the upcoming COP27 without considering the Paris Agreement, which bound world leaders to the 1.5-degree pathway seven years ago in 2015. To some, the Paris Agreement is somewhat of a ‘third strike’ toward curbing greenhouse gas emissions (Kyoto in 1997 and Copenhagen in 2009, and is nearing failure, with the Economist bluntly stating that it would be “far better to acknowledge that 1.5 is dead.”

Despite nearing the tipping point, the world still needs to reduce greenhouse gas emissions to stabilise current atmospheric levels and sequester the emissions it can’t abate; and investors still need to safeguard their investments against climate risk to fulfil their fiduciary obligations.

Category
Investment
Author
Sonia Kovacevic
Date
03.11.2022
Industry Deep Dive
Are investors the pressure point for solving fashion’s climate problem?

It is difficult to think about the upcoming COP27 without considering the Paris Agreement,1 which bound world leaders to the 1.5-degree pathway seven years ago in 2015. To some, the Paris Agreement is somewhat of a ‘third strike’ toward curbing greenhouse gas emissions (Kyoto in 1997 and Copenhagen in 2009), and is nearing failure, with the Economist bluntly stating that it would be “far better to acknowledge that 1.5 is dead.”2

Despite nearing the tipping point, the world still needs to reduce greenhouse gas emissions to stabilise current atmospheric levels and sequester the emissions it can’t abate; and investors still need to safeguard their investments against climate risk to fulfil their fiduciary obligations.

While responsible for only a portion of overall global emissions (43-8%4), the fashion industry is one of eight sectors that, combined, account for over 50% of emissions.5 Furthermore, fashion has immense cultural capital and influence over the climate discourse. Why? Because it’s omnipresent, tangible, and touches every person, almost everywhere, whether through the physical garment, creative inspiration, supply chain exploitation, or the effects of negative environmental impacts like pollution.

This article explores the role institutional investors and policy have in steering the fashion industry toward impact reduction. It also asks whether investing in ‘greening the industry’ is investors’ biggest opportunity.

Landscape

Analysis by the Apparel Impact Institute and Fashion for Good found that just over $1 trillion in funding was required to decarbonise the fashion industry.6 (Read more about Aii’s stealth fund). They propose that 61% be invested in implementing existing solutions and 39% in developing and scaling pivotal innovative solutions. There is currently a significant funding gap that would require a robust transformation in financing flows to accelerate the adoption of these solutions. Why does this gap exist? And what’s the likelihood it will change?

Historically, many impact and institutional investors have overlooked the fashion industry, as the common trend for impact investing has been to funnel money into an environmental ‘theme’, such as water, energy or air pollution.7 Yet, paradoxically, fashion is connected to all these areas, opening up the same investment opportunities seen in other sectors: clean energy, alternative materials and regenerative agriculture.

Since climate risk is a business-critical, material and financial risk, this has resulted in an increase in government policy and directives from regulators, exposing investors to their own climate-related risks and requiring them to manage such risks in their portfolio companies better. Therefore, this assessment is imperative to ensure they fulfil their fiduciary duties to clients as well as their own reporting and disclosure requirements under securities law and obligations under directives like the Taskforce on Climate-related Financial Disclosures (TCFD).8

Increased scrutiny

The sustainability reporting landscape is shifting with new policies and regulations affecting both companies and investors globally. Where previously ‘ESG’ was niche, it has now become a mainstream consideration for investors,9 in turn putting pressure on companies to mitigate such risks to make them desirable investments.

The United Nations Principles of Responsible Investing is an international network of institutional investors comprising 5,020 signatories, representing US$121 trillion in assets under management.10 In August 2022, it released a trends report stating that in their role as institutional investors, they have “a duty to act in the best long-term interests of [their] beneficiaries” and that “in this fiduciary role, [they] believe that environmental, social and governance (ESG) issues can affect the performance of investment portfolios”.11

To ensure investors have standardised, consistent and reliable information, reporting and disclosure standards are being implemented at national and global levels. For example, in April 2022, the UK enacted two mandatory disclosure laws.12,13 These require companies with 500 or more employees and spanning varied operating and revenue tiers to make climate-related financial disclosures in their strategic reports.

In the European Union, from 2023, the Non-Financial Reporting Directive (NFRD)14 will be replaced by an expanded reporting scope to align with the transition to a sustainable economy. The European Union’s Corporate Sustainability Reporting Directive (CSRD),15 effective 2024, introduces more detailed requirements for the disclosure of non-financial information (including sustainability issues) by companies for investors. Companies will be required to report under the EU’s Sustainability Reporting Standards (ESRS)16 in a standardised, comparable and consistent format, just like for financial reporting. While the scope of reporting extends to SMEs (beginning in 2026), it is not compulsory. However, Ernst & Young acknowledged that those who don’t report ‘may find themselves at risk of exclusion from investment portfolios.17

Additionally, the EU’s proposed Directive on Corporate Sustainability Due Diligence (CSDD)18 outlines an EU standard for environmental and human rights due diligence strategy for companies to adopt, with the requirement to identify – and where necessary, prevent, end or mitigate – adverse impacts. Due diligence must be conducted across an organisation’s own operations, their subsidiaries and their value chain (both direct and indirect relationships). This applies to EU and Non-EU companies trading within the EU and meet specific requirements based on size and revenue. For example, companies with over 500+ employees and generating over EUR 150 million+ in net turnover worldwide (for EU companies) or in Europe (for non-EU companies) will require a business strategy aligned with the Paris Agreement. Moreover, the CSDD proposal states that company directors must oversee the implementation and integration of the climate-aligned strategy. The draft is under consultation.

While there is no mandatory disclosure on a federal level in the United States, in May 2022, the United States Securities and Exchange Commission (SEC) proposed amendments to the reporting rules to include climate-risk factors including the reporting of scope 1, 2 and (if material) scope 3 emissions to provide reliable information for investors.19 Further, the International Sustainability Standard Board (ISSB) formed at COP26 by the IFRS Foundation20 issued two proposed standards this year (one on climate-related and one on general sustainability disclosures), which are likely to be finalised in 2023.21

Collaboration and opportunity

There is global consensus that the transition to a sustainable and arguably regenerative economy is needed. However, we know that implementing solutions requires willpower, regulation and finance, and with the 1.5-degree pathway faltering, those three imperatives have not yet materialised.

Despite an ever-growing innovation pipeline of solutions for the industry, the funding gap for fashion and textiles still exists. In this somewhat previously unchartered territory (at least for investors) and the nature of fashion’s fragmented supply chain, collaboration between brands, supply chain partners and innovators is imperative in developing investment propositions that have a robust financial business case while also providing proven impact reduction opportunities. Moreover, as regulatory scrutiny and the pressure on companies to disclose their sustainability efforts increases, investors may have a newfound confidence in funding fashion’s decarbonisation ventures.

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