Management Teams of Top Fashion Brands Showing Dangerous Level of Complacency Toward Water Impact, Finds Study

Are apparel brands impervious to water-related risks, one of the industry’s most pressing challenging factor? The answer is a resounding ‘yes’, finds a study by nonprofit Planet Tracker.

Staff Writer

1 February 2024

3 minutes

Long Story, Cut Short

Most mentions of water-related risk are by non-luxury brands, followed by luxury brands.
There was very little mention of water in transcripts from corporate events, suggesting it is not something investors are focused on.
In total of the 3,947 documents analysed, only 10% included water risk-related disclosures.

Top global fashion brands are displaying a dangerous complacency when it comes to water impact, one of the industry’s most pressing risk factors, a study by nonprofit Planet Tracker has revealed.

It found that that the majority (90%) of apparel brand documents make no mention of water-related risks, with many companies barely mentioning water-related risk at all.
Most mentions of water-related risk are by non-luxury brands, followed by luxury brands. The companies analysed who mainly operate as retailers of apparel typically make very few water-related risk disclosures.
Most mentions of water-related risk are found in sustainability reports and annual reports. There was very little mention of water in transcripts from corporate events, suggesting it is not something investors are focused on.

THE STUDY: The report Exposing Water Risk is an in-depth analysis of 3,947 documents and transcripts from major apparel brands, revealing what executives from companies such as Ralph Lauren, Gap, Levi Strauss, Victoria Secret and Nordstrom are disclosing on the sector’s water impact.

In total of the 3,947 documents analysed, only 10% included water risk-related disclosures. Documents analysed included reports such as annual reports, CSR and ESG reports and 8K (notifications of significant events), 10K (annual reports), 10Q (quarterly reports) and 20F filings (foreign private issuer reports) and transcripts such as company presentations, earnings calls and shareholder meetings.
Planet Tracker examined how the management teams of 29 major apparel brands perceive their water-related risk by examining regulatory filings, investor meeting transcripts, annual reports and sustainability reports. Natural Language Processing (NLP) was used to scan these documents for extracts focused on water-related risks.

THE COMPANIES: The study examined the water-related disclosures of 29 of the biggest apparel brands to determine to what degree corporates and investors are cognisant of the risk they face from water stress.

Shimamura Co Ltd, which was part of the initial 30 companies, dropped out of the analysis during the running of the NLP algorithm as it returned no hits. This is likely due to the fact that the algorithm currently only works on documents in the English language.

Within the companies analysed, the researchers created three broad groupings for comparison purposes during the analysis. These were:

Luxury brands i.e. Kering, LVMH
Non-luxury brands i.e. H&M, Inditex
Stores – Mainly retail focused corporate such as Ross Stores or Burlington Stores

NOT INCLUDED: The research did not focus on any social-related water risks in the textiles industry, i.e. discussion of provision of water, sanitation and hygiene for workers in factories (often referred to as WASH issues). A failure to address WASH issues could represent a reputational risk or litigation risk to a brand, “but our analysis focused more on risk to operations from water.”

THE CONTEXT: Water is fundamental to the production of textiles, from the growing of natural fibres to the dyeing and finishing of fabric. At the same time, water can be a significant threat to the textiles supply chain.

First, water stress, i.e. a potential lack of water, is expected to be a growing issue in many areas of the world as a result of climate change, inefficient use and untreated disposal.
Climate change has also been suggested to increase the risk of flooding (both riverine and coastal) in many areas, potentially putting workers and factories at risk of inundation and damage.
The textiles industry faces potential challenges from multiple angles to its current business model arising from water-related risks.

THE INFORMATION: Of the 29 brands included in the analysis, 15 report to CDP on their usage of water.

The amount of water risk-related disclosures is markedly different across the three groupings.
The highest level of disclosure was seen in the non-luxury group at 69% of the identified disclosures followed by the luxury group (29%).
The researchers found very little discussion of water-related risk for the stores group with only 2% of the identified disclosures.
The vast majority of disclosures for all three groups came in reports (99%), with the analysis suggesting very limited discussion of water in transcripts from earnings calls or capital market events.

THE TEAM: The authors of the report are Richard Wielechowski, Senior Investment Analyst (Textiles); Chris Baldock, Head of Data Methodology; Giorgio Cozzolino, Quantitative Investment Analyst; and, Ailish Layden, Research Associate.

The reported was edited by Dominic Lyle.
The work of Abdel Serna Vazquez while at James Cook University, Australia, was instrumental in developing an early version of the NLP model used in the project.

Management Teams of Top Fashion Brands Showing Dangerous Level of Complacency Toward Water Impact, Finds Study

Are apparel brands impervious to water-related risks, one of the industry’s most pressing challenging factor? The answer is a resounding ‘yes’, finds a study by nonprofit Planet Tracker.

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