Broker Check

Fast Fashion and the Environment

September 19, 2019

With concerns about climate change on the rise, investors are beginning to address environmental challenges through their investment decisions. Investing does not have to be about profiting at any cost. It’s becoming more and more common for people to ensure that a company’s values align with their own before they invest. That’s why buzzwords like “impact investing” and “socially responsible investing (SRI)” are thrown around so often in the finance world. These types of investing involve the analysis of at least three factors of a company: environmental, social, and governance (ESG).

There are many opportunities for investment within industries that are responsible for large amounts of C02 emissions. So, it makes sense that those concerned with sustainability would want to know about the environmental footprint of a company before investing. The good news is that brands are becoming aware of this. If you pay attention to New York Fashion Week news, you may have seen more headlines than usual about sustainability in the industry this year, such as designer brand Gucci outlining the strategy they used to become carbon neutral. This is because awareness of the problematic CO2 emissions caused by this industry is growing.

According to Forbes, fashion and apparel is a $2.5 trillion industry, making it one of the largest consumer industries. Unfortunately, fashion and apparel is responsible for an estimated 10 percent of global CO2 emissions, 20 percent of the world’s industrial wastewater, 24 percent of insecticides used and 11 percent of pesticides used. To put it in different terms, an estimated 1.2 billion tons of greenhouse gas emissions come from textile production. That’s more than those of all international flights and maritime shipping combined. In terms of wastewater, it takes 2,700 liters of water to make one cotton t-shirt. That’s about the amount of water a person would drink over a three-year time span.

This is all a reflection of an overall societal change. The ever-growing middle-class population of the world is buying more articles of clothing but wearing them less and getting rid of them faster than ever before. According to the United Nations Economic Commission for Europe, the average consumer today purchases an estimated 60 percent more clothing than they did 20 years ago. In developed countries, garments are also kept for only half as long as they were two decades ago and about 40 percent of these pieces are never even worn. The EPA reported that Americans alone threw away 16.22 million tons of clothing in 2014, 71 percent more than in 2000 and 822 percent more than in 1960.

These consumer patterns are creating a demand for clothing that’s produced quickly and cheaply. Brands that use business models to achieve this are often referred to as “fast fashion” and have increased in popularity over the past decade. In turn, over 100 billion garments are now produced annually, according to Moxie Future, which means that in the 15 years between 2000 to 2015, clothing production almost doubled.

Not all consumers are interested in the fast fashion trend as the production process often results in lower quality garments. However, more expensive designer brands play their own part in the emissions issue. For one, these are the brands that actually dictate the fashion cycles, which are now extremely short because more collections are produced per year than ever before. There is also the issue of what high-end designer brands do to appear exclusive, which is a big part of fashion culture. In 2017, Burberry destroyed $37 million worth of unsold clothes, accessories and perfume rather than discounting them until they were sold. Although this was done to maintain the designer’s luxury reputation, the practice of burning clothes also extends back to more affordable brands. H&M burned about 19 tons of clothing in 2017, although they spent the very same year working on recycling programs.

When researching the sustainability of any company, consumers and investors should look out for greenwashing, which is basically when a company spends more time and money claiming to be “green” through advertising and marketing than actually implementing business practices that minimize environmental impact. As a consumer, once you’ve completed this research, it can be pretty easy to avoid stores who don’t have the same values as you, and many of us are already used to doing this with a variety of industries for a variety of reasons.

However, it’s true that this process is a little trickier as an investor. Currently, you may not even know which fashion and apparel companies you are invested in, especially if you are invested in mutual funds and ETFs, and that’s alright. You could do some in-depth auditing, or simply use your awareness of this issue to inform future investment decisions, or a little of both. 

There are many ways to tell if an apparel company’s values align with your own opinions on sustainable practices. Here are some examples of things companies do that could signal a green light for investors looking to support truly eco-friendly clothing brands…

  • Putting effort into minimizing their infrastructure’s waste, water and energy footprints
  • Providing transparent information on these efforts on their website and other places
  • Regularly releasing sustainability reports to stakeholders
  • Launching or taking part in sustainability campaigns
  • Offering customers assistance with repairing and recycling clothing in an attempt to maximize all garment lifecycles
  • Using more sustainable fabrics, such as organic cotton
  • Sourcing and manufacturing locally

Overall, there are a lot of trends in both fashion and investing, but sustainable clothing appears to be here to stay. More brands are describing themselves as “green” (and hopefully aren’t greenwashing), more consumers are demanding eco-friendly products, and more investors are taking their values into consideration than ever before. According to The Boston Consulting Group, taking action on sustainability can raise an apparel company’s earnings (EBIT) margin by 1 to 2 percentage points. Recently, Gucci signed the Fashion Pact, an initiative with a manifesto that details practical objectives and targets set to minimize the industry’s impact on the climate, oceans and biodiversity. But they’re not alone, even Burberry and H&M (previously mentioned for burning unsold products) have signed up, showing that this is a direction the whole industry is headed in. With some research and financial advice, you can find fashion and apparel brands that are sustainable and that could be profitable to invest in.