Reporting of Scope 3 Water Consumption by Major Brands Remains Rare Even as Risks Grow

But there is an aspect that is being ignored by one and all. The report says: “A particular potential breaking point is likely to be seen in areas where intense textiles production is paired with existing socioeconomic concerns such as poor sanitation levels and low access to safe drinking water.”

An example is that of India. “In particular, with sanitation quality currently on the lower end of the scale, the projected 12% increase in water stress is likely to represent a significant hurdle for local municipalities in the quest to improve health standards. This is especially true in key apparel producing regions in India, such as Tamil Nadu and Karnataka, where the significant water footprint that textiles production involves may ultimately impact manufacturing volumes, should water rationing policies be introduced to prioritise sanitation.”

The focus is so much on immediate water stress that the overall context is often missed out.

This is crucial, and can make or break it for apparel brands: “Sanitation and drinking water standards would seem to represent more of a direct concern for governments and local municipalities rather than global apparel corporates. However, there is a trend in legislation towards greater due diligence requirements meaning global brands/retailers are facing more and more scrutiny on matters happening outside their direct operations. Increasingly, poor social or environmental actions in their supply chains are not something to which they can turn a blind eye. Competition for water in areas where basic social needs are still only partially met may well be one of those cases and represent a potential long-term risk to brand reputations.” You can’t afford to miss the broad picture.

Still enough, Planet Tracker mapped and identified the major brands’ suppliers and was able to begin to determine which brands/retailers, if any, are likely to face the highest water related pressures among the ones that report on Open Supply Hub. It found that the average firm in the highest revenue band is likely to have over two-thirds of its factories located in areas with poor or significantly poor sanitation levels.

The study sees two major potential financial impacts to apparel corporates from water stress in the supply chain. “First, a potential impact on revenues. This could, for instance, be due to suppliers having to reduce their production levels in light of water stress, meaning brands cannot source as much product as they need. This could also be due to a lack of available water or regulation limiting access to water to prioritise water for sanitation in a region.

“Second, a potential impact on margins if suppliers are forced to pay more for water, or water management technology and pass on this cost to brands. We note that these two impacts are not mutually exclusive. A reduction in production volumes by manufacturers could well drive up prices for brands/retailers as they have to pay more to source supply from a more limited pool of availability.”

Planet Tracker has created a simple model of the potential impact of disruption to supply chains (for instance by water stress) on the revenues and gross margins of major apparel brands/retailers. Roughly a third of factories fall into each of the High, Moderate and Low categories.

The report paints a gloomy picture, especially given the lethargy of brands. So, is the situation  out of control, where sustainability/impact reports talk big, but ground truths are very different? Wielechowski responds: “We think that the apparel industry talks a good game in many areas of sustainability (water included in some cases) but the focus (for many) remains growth at all costs. There remains a problem of the supply chain being expected to deal with the sustainability challenges whilst the global north brands continue to reap the profits, grow volumes and push down prices. We struggle to see how this business model can deliver a sustainable industry.”