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September 26, 2018

Sustainability Theme Emerges at Fashion Week and the U.N.

by Jharonne Martis.

In New York, the month of September sees two major events: New York Fashion Week and the U.N. General Assembly meeting. They would seem to have little in common, but one theme is emerging at both gatherings: sustainability.

Sustainable development meets the needs of the present without compromising opportunities for future generations. The concept affects the use of resources, pollution control, technology and financial investment, and institutional change. Various areas of sustainability are being tackled by global companies, citizens and non-governmental organizations.

New York Fashion Week attracts journalists, fashion bloggers, industry participants and the public to view the latest design collections and trends.

The U.N. General Assembly snarls Manhattan traffic as dozens of world leaders converge on the international organization’s iconic headquarters building to debate U.N. priorities. One of those major priorities was the Millennium Development Goals (MDGs), which in 2015 transitioned to the  Sustainable Development Goals (SDGs). They include: end extreme poverty, protect the planet, ensure sustainable consumption and products.

So where do fashion and the SDGs meet? The $2.5 trillion fashion industry supports over 60 million workers throughout the global value chain and is the second largest industrial polluter after oil. According to the U.N. the fashion industry is the second biggest consumer of water, producing 20% of global water waste, and  generating approximately 10% of global carbon emissions. More alarming is how consumer behavior has shifted, and 80% of discarded textiles end up at landfills, while only 20% of clothing globally are reused or recycled and less than 1% of collected clothing is recycled.Therefore, today more than ever the urgency to collaborate and aim for the SDG targets is crucial.

Both the fashion industry and the SDG targets touch on a broad range of environmental concerns. For instance, textile dyeing is the second largest polluter of clean water globally; microfibers of polyester add to increasing values of plastic; most garments are not biodegradable, represent serious threats to our oceans and end up in landfill; increasing impact of toxic chemical use in agriculture for growing cotton. The clothing industry also is affected by gender, human and labor rights issues. SDG 12 is “Ensure Sustainable Consumption and Production Patterns,” and is interlinked with eight other targets. It is clear to see that the fashion industry has a big role to play in achieving the SDGs.

Fashion is perceived by most people as innovative and re-defines itself in a sexy disruptive way time and again, while international development and aid often fail to make headway against the mechanisms of poverty.  Even though, fashionistas want to be portrayed as intellectuals and humanitarians want to be categorized as dynamic and artistic, they will not be considered that way at first glance.

Fashion, development and sustainability

For the longest time fashion wanted to have nothing to do with the un-stylish and traditional institutions like the United Nations, but recently there has been a visible change. The fashion industry as well as the international development world have a hunger for newness and we are not talking about fast-fashion, but about sustainable approaches.

Sustainability was very prominent at Fashion Week. Actress Rosario Dawson and designer Abrima Erwiah’s Studio 189 brand was awarded the CFDA and Lexus Fashion Initiative for sustainability.

In the fashion industry, sustainability highlights the importance of raw materials and how they are processed, from harvesting plants for raw fiber to numerous hours of human labor. Conscious designers are paying attention, and even celebrities are getting involved.

Designer Mara Hoffman, once known for her bold colorful prints, has adjusted her design esthetic to introduce fabrics that are sustainable. In addition, designers Cienne, Whit, M. Patmos, and St. Roche are just a few that stood out this year in this area.

Surge in luxury leather goods

But when examining the traditional leaders in the prestigious luxury sector, it’s a whole different picture. Established players that produce luxury leather goods are attracting criticism from environmental groups worldwide. Currently, the demand for leather is very high, especially among high-end shoppers from big markets including China and Russia.

China apart, the rise of influencers has contributed to the spike in demand for luxury leather goods from millennials who are very social media savvy. They follow various influencers, brands on platforms such as Instagram, feel inspired in a visual way, and are getting a sense of necessity. For example, when Balenciaga launched their “dad” shoe (made of leather), every famous influencer and model wore it. And, now LVMH and other brands have their own version of the “dad” shoe- trying to capitalize on the hot trend. LVMH saw a robust 25.4% jump in fashion and leather goods sales this past quarter (Exhibit 1).

Exhibit 1: LVMH – Fashion and Leather Goods Revenue in Millions of Euros

Source: Eikon

How luxury retailers comply

Animal rights organizations such as PETA are critical of materials harmful to our planet – which is a big problem in fashion. As a result, this has made luxury brands try to come across as sustainable, by incorporating an Environmental, Social and Governance (ESG) area on their websites.  They are also discussing this more and more on their earnings calls. When questioned by PETA on the use of the skin of exotic animals in leather goods, LVMH responded: “LVMH is very much committed to the provisions of the Washington Convention of 1973 on the trade in certain animals and has scrupulously abided by the provisions of that convention” (Source: LVMH Annual Shareholders Meeting, April 12, 2018).

To evaluate the long-term health of these luxury fashion brands in a more holistic way, we turned to our ESG data. This allows us to consider both financial and business sustainability dimensions to evaluate these companies with superior business characteristics, including management, culture and risk profile.

We looked at the leaders in the luxury space known for prestigious leather goods. All scores are relative percentile rank score, where 100 is considered the best score and zero the worst. The scores for the luxury names are below the top 25% quartile. This suggests that they don’t meet the top standards of corporate responsibility and could use better management (Exhibit 2). These companies are less vocal and transparent when it comes to social responsibility, and sometimes even company culture and management.

Exhibit 2: Luxury Brands Environmental, Social, Governance data

Source: Eikon

Destroying dead stock

In its latest annual financial report, Burberry stated: “The cost of finished goods physically destroyed in the year was £28.6m (2017: £26.9m), including £10.4m of destruction for Beauty inventory” (Source: Annual Report 2017/18, June 2018).  Burberry took heat from its shareholders for the move, meant to head off counterfeiting and avoid discounting that could tarnish the brand’s price exclusivity.

In the fall of 2016, designers including Tom Ford, Burberry, Tommy Hilfiger and Ralph Lauren introduced a strategy called “see-now, buy-now” and made their fashion show collections immediately available online and/or in stores as they went down the runway. The result from this strategy was that there was very little that sold out immediately. Traditionally, brand new fashion collections are a novelty and therefore are launched at full price. However, high inventory levels for these collections suggest that the fashion merchandise is not moving out of the stores, and their high price points make them inaccessible to the average shopper.

High-end established luxury brands rarely discount their products, even in today’s promotional environment. No discounts mean staying true to brand image, selling the illusion of brand exclusivity. Other major European designers understand that offering steep discounts could tarnish their brand image, and refuse to partake in the see-now, buy-now model that could lead them down that road.

Sustainability was a super-trendy topic this last New York Fashion Week. Fashion brands are becoming more transparent in reporting how they handle their products, business and labor practice. Burberry seemed transparent by disclosing it destroyed £28 million worth of products in their annual report, and justified it as fighting counterfeiting. However, disclosing it alone does not make Burberry’s practice more sustainable.

True sustainability is about taking full responsibility for a company’s business practice, renewable resources, relationships with communities and the environment. All these measures are crucial to a company’s value and reputation. Today’s consumer market is mainly powered by the socially conscious and responsible millennials. For this group, these qualitative measures are important even when considering fashion brands. Although sustainability is becoming more “fashionable,” the prestigious luxury fashion houses have a long way to go.

Jemi Laclé, World Bank Group, also contributed to this report.

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