H&M Lawsuit a Red Flag for a Whole Industry

    Stockholm (NordSIP) – It is not often you find an industry with such a capacity to undermine all three components of ESG at once.  Garment manufacturing is a case in point, with H&M among several well-known brands currently under litigation or investigation.  The sector’s “S” and “G” failures were shockingly highlighted back in 2013 when the Rana Plaza building collapsed in Bangladesh, killing well over 1,100 textile workers and injuring roughly 2,500 more.  The awful event was symptomatic of an industry with a ruthlessly exploitative value chain.  Much of the clothing and fashion industry has seen a race to the bottom in terms of price and quality over the last 40 years.

    The rise of fast fashion and a mountain of waste

    While the price of clothes in the European Union decreased by 30% in real terms between 1996 and 2018, average household clothing expenditure grew significantly during the same period.  These figures signal the rise of so-called “fast fashion,” with consumers encouraged to buy large quantities of inferior quality, cheap clothes produced rapidly in line with constantly shifting fashion trends.  In short, people are buying many more clothes than in the past and keeping them for a fraction of the time.

    The 100 billion garments produced worldwide each year are unfortunately met with dismal rates of recycling.  Figures published by the Dutch State-sponsored Centre for the Promotion of Imports from developing countries (CBI) show that in the EU only 1% of second-hand textiles are recycled into new clothes.  According to the CBI, roughly half of the collected textiles in Europe are “reused.”  This supposed reuse translates in most of them being exported to developing countries, where the evidence shows many of them being discarded as waste.  Textiles that do find their way to recycling facilities in Europe are mostly downcycled into industrial rags or fibres used for textile filling materials.

    Organic materials are not the solution

    Along with a move towards overseas production in poorly regulated jurisdictions, the downward pressure on prices has also pushed manufacturers towards cheaper synthetic materials that inject further sustainability issues into the mix.  The domestic laundering of nylon and polyester fabrics is responsible for 10% of the microplastics dispersed in the ocean each year.  Moreover, these synthetic textiles are produced using fossil fuels, contributing to the industry’s growing greenhouse gas (GHG) emissions, which currently account for almost 10% of the world’s total.

    Is the solution a return to natural fibres?  While that may help eliminate fossil fuels from the equation, the fact that it typically takes around 20,000 litres of water to produce just a kilo of cotton simply shifts the problem to another sustainability challenge.  Moreover, the vast quantities of textiles that end up decomposing in landfill sites are a significant source of GHG.  The harvesting, processing and global distribution of cotton also give rise to serious social and environmental challenges along the whole value chain.

    Inadequate industry response

    In recognition of some of these problems, the non-profit Sustainable Apparel Coalition (SAC) was formed in 2011, and promptly repurposed the Nike Materials Sustainability Index into the Higg index suite of products aimed at supporting manufacturers’ sustainability efforts.  Some of the allegations being made against H&M stem from the use of Higg metrics in their marketing.  Much of the data is based on the average environmental impact of different materials.  The specificities of different manufacturers’ production processes and the actual impact of individual products are too complex to be captured by these averages.  More surprisingly, H&M are being accused of presenting negative results as positive, for instance claiming 20% less water use when in fact the detailed analysis of that product demonstrates 20% more water usage than the relevant average.

    Investors beware of corporate sustainability claims

    NordSIP’s Laundromat recently highlighted the contrast between the Kellogg Company’s sustainability credentials and commitments and the vast quantities of unrecyclable waste it continues to produce.  The allegations being made against H&M are similarly surprising, given the company’s claimed sustainability commitments, including a strategic partnership with the Ellen MacArthur Foundation.  This appears to be another example of companies publicly “exploring solutions” without significantly changing their products or value chain.  Are institutional investors being correctly served by ESG ratings or index providers when companies are seemingly gain ESG credentials for targets and commitments rather than concrete change?  It is quite telling that the lawsuit against H&M has been brought by an individual consumer in the US rather than a regulatory body.  H&M is not an isolated case.  For instance, in the UK three fashion brands are currently being investigated by the Competition and Markets Authority (CMA) for potential greenwashing

    Tinkering on the industry’s fringes is not a solution

    Like many sustainability challenges, the potential solution will mainly come from systemic change.  Governments need to urgently address the use of virgin plastics in the garments industry and the export of textile waste to developing countries under the guise of reuse/recycling.  Product and value chain innovation and to a lesser degree individual actions can also be beneficial.  A few members of the garment industry have taken steps to manufacture longer-lasting clothes and offer repair facilities to customers.  Clothes rental is also a partial solution to the need for people to follow fast-moving fashion trends without producing too much waste.  In the meantime, all the key sustainability statistics relating to the textile industry continue moving in the wrong direction, and NordSIP’s Laundromat will therfore maintain a keen eye on the outcome of these lawsuits and greenwashing investigations.

    Image courtesy of Michael Schwarzenberger from Pixabay (edited)
    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.

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