Do major institutional investors, the most significant equity funders along the downstream of the textile supply chain, hold the key to drive the transition to a just, sustainable industry?
PLANET TRACKER ANALYSIS: A Planet Tracker analysis—Follow The (Money) Thread Track -ownership and financing through the apparel industry—of the funders of different stages of the textiles supply chain reveals that investors in upstream players, most closely associated with much of the negative impact, are likely less amenable to external pressure than institutional investors, who have their customers and regulators to respond to.
- The downstream funders can push for the change by adjusting the way they support the funding needs of retailers and apparel manufacturers.
- By facilitating the trickling down of a sustainable agenda via proxy voting, investment decisions and a link to sustainable executive compensation (see our report Textiles Remuneration), investors can drive brands to take ownership of the environmental concerns residing within their industry, as well as the upstream stages of the textiles value chain.
- The report builds on previous research where Planet Tracker created an interactive dashboard to help investors better understand the textile value chain.
The upstream encompassing the raw material manufacturer, fibre producer and fabric manufacturer relies less on loans for financing and is associated with equity ownership via other corporates in the form of holding companies or larger conglomerates. The downstream that includes the garment manufacturer and retail is associated with equity ownership via large institutional investors and family holdings.
FINDINGS: The ownership analysis presented in this report was conducted as of the end of June 2023.
- While equity and bond ownership records represent a snapshot at the time of this analysis, the figures relating to financing and underwriting use the last 10 years of available data.
- An important disclaimer is that the data extracted is only as good as the disclosures captured by Refinitiv, the data source used.
EQUITY OWNERSHIP: Key points:
- For upstream tiers of the supply chain (Tier 4, Tier 3, Tier 2), more than half of the tiers’ market capitalisation is concentrated among corporates, in the form of holding companies or larger conglomerates.
- For Tier 1 (apparel & garments producers), and Tier 0 (retailers), large institutional investors become a much more significant part of the overall shareholding. The retail tier is also characterised by large family holdings.
- The location of major investors mirrors this split, with upstream tiers associated with investors based in China or India, whilst Tier 1 and Tier 0 are more commonly funded by investors based in the US or other developed markets. Shareholder types and ultimate investors’ location of incorporation vary greatly according to which node is in focus.
- There is an interesting divergence between the most important investor types when comparing the upstream and downstream stages of the value chain.
- At the raw material level (Tier 4), as well as the fibre production (Tier 3) and fabric manufacturing (Tier 2) nodes, more than half of the tiers’ market capitalisation is concentrated among corporates, in the form of holding companies or larger conglomerates.
- The major equity holder type changes significantly when switching focus onto Tier 1 and Tier 0 of the value chain, namely apparel & garments producers and retailers. Here, large institutional investors become a much more significant part of the overall shareholding.
- For the retail node (Tier 0), the large institutional investors are just edged out as the most significant holders by a few large family holdings, as in the case of LVMH’s Arnault family, the eponymous Hermes family and Inditex’s Ortega family.
- A quartet of large US asset managers comprising BlackRock, Vanguard, Fidelity and State Street (via their asset management arm, SSGA), make up over a fifth of all market capitalisation. Overall, within the same tier, Asset Managers hold around two-thirds of all market capitalisation.
- Conversely, in the early, upstream, stages of the supply chain, holding companies and larger conglomerates are the major equity owners.
GEOGRAPHIC LOCATION: The geographic location of the major investors (defined as those countries where investors are headquartered), of those in Tiers 2, 3 & 4 tend to be concentrated in Asia, with Chinese investors holding the lion’s share of operations.
- Chinese domiciled investors hold over 40% of equity capital in each of the three earlier value chain stages.
- Comparatively, US based shareholders, in the form of large institutional investors, usually control less than 10%, with the exception of raw material manufacturing, where they hold around 15% of shares in our universe.
- Other significant investors’ geographies for Tiers 4, 3 and 2 are India, Taiwan and Turkey.
- Within all the upstream stages of the textiles value chain, India is home to 30% or more of the entities that are public, rising to 40% in the case of fibre producers.
