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Footwear & Apparel

The Footwear & Apparel sector has a long history of addressing key areas of social impact and exposure, particularly within their supply chains, through standards and programs on human rights and labor conditions. Increasingly, this sector is also addressing environmental risks associated with its direct operations, supply chain and products. A considerable number of multi-stakeholder sustainability initiatives from this sector have emerged in recent years.
Footwear & Apparel
Abercrombie & Fitch Co.
Coach, Inc.
Fossil, Inc.
Gap, Inc.
J.C. Penney Company
L Brands, Inc. (formerly Limited Brands)
Nike, Inc.
PVH Corp.
Ralph Lauren Corporation
Ross Stores
TJX Companies
Under Armour
Urban Outfitters
V.F. Corporation

Key Findings

  • As in 2012, there is considerable room for improvement among Footwear & Apparel companies with respect to governance for sustainability.
  • The sector’s overall performance against the Ceres Roadmap’s stakeholder engagement expectations changed little since 2012. A few companies demonstrate leadership, but most fail to disclose any effort to engage stakeholders on sustainability issues.
  • Footwear & Apparel companies are doing a better job than they were in 2012 of disclosing sustainability information to investors and other stakeholders.
  • The Footwear & Apparel sector performs poorly against GHG emission reduction and water stewardship expectations, two areas where failure to perform will have considerable adverse impacts on the sector.
  • Not surprisingly, given the enormous, high-visibility sustainability risks embedded in the Footwear & Apparel supply chain, this sector outperforms its peers on sustainable supply chain management.
  • Industry wide commitment is needed to bring sustainable product design to scale.
  • Engaging employees is a missed opportunity for many Footwear & Apparel companies.

 

Introduction

The world’s garment and textile industry plays a vital role in the global economy. Comprising clothing, textiles, footwear and luxury goods, it reached USD 3 trillion in sales in 2011.1 The role of this sector is especially important in many emerging economies. Footwear & Apparel companies rely heavily on manufacturers and a labor force in emerging market countries, making supply chain risks one of the sector’s major sustainability challenges. The Rana Plaza factory collapse in 2013, the deadliest garment factory accident in history, killing more than 1,100 garment workers and injuring more than 2,500 laboring on behalf on apparel brands, brought this problem into stark relief and prompted many companies to take a more proactive role in addressing issues of human rights and worker safety.

 

Additionally, expectations are ramping up for companies in the sector to improve transparency. For example, the California Transparency in Supply Chain Act requires all companies with annual gross worldwide receipts exceeding $100 million that “do business” in California to detail and publicly disclose the nature and scope of their corporate compliance efforts to eliminate human trafficking, slavery and child labor from their global supply chains.

The sector is also being impacted by supply chain challenges from the physical risks associated with climate change. Severe weather, flooding in some regions and drought in others, have disrupted transport routes, threatened manufacturing facilities and upped the challenge (and, in some cases, impacted the price) of sourcing raw materials, such as cotton, which is a key input to the manufacturing processes.

 

To address sustainability issues within the industry, companies in this sector are banding together in various configurations to address common challenges and collectively scale solutions.  Following the Rana Plaza building collapse, for example, two organizations— The Bangladesh Accord and The Alliance for Bangladesh Worker Safety (the Alliance)—formed to address worker rights and safety issues. Focused on addressing the challenge of hazardous chemicals, the Roadmap to Zero Discharge of Hazardous Chemicals (ZDHC) formed in 2011 in response to a Greenpeace campaign focused on compelling footwear and apparel companies to work with their suppliers and eliminate all releases of hazardous chemicals into global water sources. Among the members of this initiative are three of the sector companies in this analysis—Gap, Nike, and PVH.

 

Borne out of the desire to raise the industry standard for product sustainability, the Sustainable Apparel Coalition (SAC) was formed in 2009 and now represents more than a third of the footwear and apparel global market. Members of the SAC pooled resources and expertise to create the Higg Index, a suite of assessment tools that standardizes the measurement of environmental and social impacts of apparel and footwear products across the products’ lifecycle and throughout the value chain.

 

Each of these initiatives highlights the need for, and greater effectiveness of, industry-wide collaboration in addressing key sustainability issues so that the knowledge and experience of those who lead the sector can be shared with those who are just starting their sustainability journey.

 

In this report, the Footwear & Apparel sector comprises 14 companies. As with many other sectors, performance by Footwear & Apparel companies across the Ceres Roadmap expectations is a tale of two cities; a few are perennial leaders, but many lag far behind. This is particularly true across those expectations focused on embedding accountability into business systems—specifically as they relate to governance and stakeholder engagement. Not surprisingly, given the sector’s exposure to major sustainability risks in the supply chain, and the scrutiny it receives as a result, this sector performs well relative to others on supply chain-related expectations and showed improvement over 2012. Nevertheless, the results demonstrate that there is much work to be done and significant opportunity for companies in this sector to learn from those that are leading.

 

Governance Section Icon

 

Governance for Sustainability

 

  • As in 2012, there is considerable room for improvement among Footwear & Apparel companies with respect to governance for sustainability.

 

Board oversight of sustainability issues is a critical Ceres Roadmap expectation because it establishes sustainability as a corporate priority. Yet, only 35 percent (5 of 14 companies) engage their boards of directors on issues of sustainability, and only three companies—Abercrombie & Fitch, Nike and PVH—have formalized board oversight for environmental and social improvement by establishing a board committee assigned to that task. This is a modest improvement from 2012 when only 18 percent were engaging their boards in some way on sustainability.

Abercrombie & Fitch Co. (A&F) has a board-level corporate social responsibility (CSR) committee. The CSR committee is responsible for overseeing the company's sustainability goals, including diversity, human rights, philanthropy, and environmental sustainability.

In an examination of management accountability for sustainability, however, the numbers are slightly higher. Fifty-seven percent (8 of 14 companies) have in place management oversight for sustainability performance, up from 45 percent in 2012.  The four companies in Tier 1—Abercrombie & Fitch, Coach, Nike and VF Corporation have in place executive level management committees with C-level participation.

 

Nike’s Corporate Responsibility Committee of the board is responsible for overseeing the company’s environmental and social sustainability performance and strategy. This committee receives regular updates from the leadership of Nike’s Sustainable Business and Innovation (SB&I) team.  The Vice President of the SB&I team also sits on the company’s Strategic Leadership Team, which is chaired by the CEO.  This team sets the company’s mid and long-term strategy, including sustainability and innovation.

Treating sustainability as a stand-alone effort that can be managed apart from the rest of the enterprise is short-sighted and risky because sustainability is implicated in nearly every corporate decision, from product design and delivery to supply chain management. Key to success is ensuring that relevant environmental and social policies are institutionalized and accepted as a core corporate value.  Fifty-seven percent of the companies in this sector (8 companies) perform in Tier 4 for the Corporate Policies & Management Roadmap expectation, virtually unchanged from 2012. For example, while 79 percent of the 613 companies in the Gaining Ground analysis have a company-wide environmental policy, only 43 percent (6 companies) of the Footwear & Apparel companies have such a policy.

Stakeholder Engagement Section Icon

 

Stakeholder Engagement

  • The sector’s overall performance against the Ceres Roadmap’s stakeholder engagement expectations changed little since 2012. A few companies demonstrate leadership, but most fail to disclose any effort to engage stakeholders on sustainability issues.

 

Robust stakeholder engagement—with employees, NGOs, local communities and investors—is invaluable for identifying key risks and opportunities on pressing sustainability challenges. Yet only 29 percent of companies in this sector (4 of 14 companies)—Gap, L Brands, Nike and PVH—disclose how they are engaging stakeholders on sustainability issues, with two—Gap and Nike—the only Tier 1 performers on the strength of their engagement with stakeholders in assessing material sustainability issues and determining priorities.

Increasingly, leading investors representing trillions of dollars in assets are evaluating companies on their ability to manage sustainability risks and their strategies for leveraging related business opportunities. With 50 percent of companies now engaging directly with investors, compared to 45 percent in 2012, the sector showed only modest improvement against this expectation. No company is in Tier 1 for this expectation and only one, Nike, is in Tier 2.

At Nike’s Fall 2013 investor meeting, Chief Operating Officer Eric Sprunk presented the company’s strategy for driving sustainable innovation to realize cost savings through greater efficiency and business growth. Sprunk specifically cited the company’s successful launch of the high performance, yet resource-efficient, FlyKnit running shoe, as well as Nike’s investment in Dutch company Dyecoo to help bring water-less dying technology to scale.

Disclosure Section Icon

 

Disclosure

 

  • Footwear & Apparel companies are doing a better job than they were in 2012 of disclosing sustainability information to investors and other stakeholders.


Detailed, timely and comprehensive public disclosure is essential if investors and other stakeholders are to understand and evaluate a company’s preparedness for, and ability to thrive in, an increasingly resource-constrained economy. This year, half of the Footwear & Apparel companies (7 of 14) produced a sustainability report, up from 36 percent in 2012.
But the greatest improvement came in sustainability-related disclosure in financial filings, where investors get much of their information. Nearly 80 percent (11 of 14 companies) disclosed at least some sustainability-related information in financial filings compared to just 36 percent in 2012. Ten of those 11 companies are Tier 1 or 2 performers for disclosing at least one sustainability risk or opportunity in financial filings and identifying why that issue (or issues) is material to the company.

 

The sustainability risk most often disclosed was, predictably, related to supply chain issues. As noted in the Introduction, this has been one of the sector’s greatest and most visible sustainability vulnerabilities. Yet, despite the sector’s high risk exposure to climate change and related impacts, only two companies in the sector -- Abercrombie & Fitch and TJX Companies – addressed those risks in the context of their operations and supply chains.

 

In its 10-K, Abercrombie & Fitch discusses the business risks associated with climate change and the potential impacts of extreme weather on the availability of raw materials.  The company also discuses its efforts to work with supplier factories that comply with its environmental and social standards, and notes the importance of partnering with suppliers that are committed to protecting human rights, labor rights, environmental practices and workplace safety.

Verification of sustainability information by independent third parties gives added credibility to company claims about environmental and social performance. None of the Footwear & Apparel companies disclose verification and assurance of sustainability reporting; accordingly, as with most companies evaluated for this report, this expectation describes a significant area for focused performance improvement in this sector.

 

Performance Section Icon

 

Performance: Operations

 

  • The Footwear & Apparel sector performs poorly against GHG emission reduction and water stewardship expectations, two areas where failure to perform will have considerable adverse impacts on the sector.

 

GHG Emissions and Renewable Energy

Reducing GHG emissions is the single most important action companies in this sector can take to help blunt the impacts of climate change. Yet, 50 percent (7 of 14 companies) fall in Tier 4 because they are taking no action in this regard. Only two companies—L Brands and Nike—are in Tier 2 for this expectation and no company performed in Tier 1. Even among the 43 percent (6 of 14 companies) that do have time-bound targets for reducing GHG emissions, only  L Brands and Nike report a decrease of more than 10 percent in its carbon intensity trend over the past three years.2

 

Additionally, only 21 percent (3 companies) disclose any effort to increase their sourcing of renewable energy and no company in this sector discloses the percentage of its direct energy needs being met by renewable energy sources.

 

Water

Given its water-intensive practices such as laundering, dyeing and finishing fabrics, the Footwear & Apparel industry stands out for its poor performance in assessing and managing water impacts and risks. However, two companies—Gap and Nike—have taken some notable steps.

 

Gap, for example, has identified key water-intensive manufacturers in its supply chain, including denim laundries and fabric mills, to help focus its water reduction efforts.  Gap also partners with the Natural Resource Defense Council (NRDC) to reduce water, energy and chemical use of its dyeing and finishing suppliers.

In 2001, Nike launched a formal water program to help its suppliers address wastewater quality discharge issues.  Currently, Nike requires 793 participating suppliers to report how they are using water resources and their processes for discharging wastewater.  The program has also been strengthened with the implementation of H2O Insight, an online data collection system that requires participating suppliers to report detailed production and water management data in addition to water volume and quality data. In an effort to raise the industry bar, Nike is releasing the H2O Insight system to the industry and encouraging other brands to leverage this powerful tool to gain greater insight into their own supply chain water use and impact on water resources.

 

Performance Section Icon

 

Performance: Supply Chain

 

  • Not surprisingly, given the enormous, high-visibility sustainability risks embedded in the Footwear & Apparel supply chain, this sector outperforms its peers on sustainable supply chain management.


Until recently, the prevailing model for managing supply chain risks has been a passive one. Companies develop a supplier code of conduct and monitor supplier compliance, with varying degrees of scrutiny. This approach has failed to achieve the necessary outcomes in terms of addressing issues of basic health, safety and personal rights of workers in corporate supply chains. As a result, the sector as a whole continues to face significant reputational risk. Companies whose products were manufactured at Rana Plaza, for example, took a significant reputational hit in the wake of the widely publicized disaster, just as Apple Computer has been tarnished by reports of horrific working conditions and multiple suicides at the Chinese assembly plant where many Apple products are made. Many companies are now taking a more proactive engagement approach, in which they partner with suppliers to provide resources, expertise and other forms of support to address these issues. Overall, however, all of the companies in this sector need to continue to take steps to improve the sustainability performance of their supply chain partners.

 

Policies and Codes

Nearly 80 percent of companies in this sector (11 of 14 companies) are in Tiers 1 and 2 by virtue of having supplier codes of conduct that set clear environmental and social standards, up from just 45 percent in 2012. Across the full universe of companies we evaluated, only 58 percent perform in the top two Tiers, thus establishing the Footwear & Apparel sector as a leader for this expectation.

 

Fifty percent (7 of 14 companies) perform at the Tier 1 level against the expectation that a company will have supplier codes that cover most, if not all of the human rights issues included in the International Labor Organization’s (ILO) Core Conventions. However, it has become increasingly clear that codes of conduct and auditing alone are not enough and must be coupled with proactive engagement, business incentives that drive performance improvements, and a commitment to transparency.

 

PVH Corp has a supplier code of conduct based on the ILO Core Conventions, the United Nations Declaration on Human Rights (UNDHR) and the UN Framework on Business and Human Rights. In response to the Bangladesh factory collapse, PVH joined with many of its European peers to become the first U.S. company to sign onto the Bangladesh Accord.

Align Procurement Policies

Integrating sustainability criteria into procurement practices helps to create a financial incentive for suppliers, and establishes sustainability as a priority for procurement managers and the company as a whole.
For this expectation the companies in this sector again demonstrated improvement over 2012.  Forty-three percent (6 companies) are in Tier 1 for having formal procurement policies systematically implemented and aligned with environmental and social sustainability values and objectives. In contrast, only one company performed in Tier 1 in 2012.

 

Several years ago, Gap recognized that an internal lack of information about working conditions at many of its suppliers, insufficient emphasis on labor standards in sourcing decisions, and expectations regarding cost and speed might be contributing to poor working conditions in contractor garment factories. In 2011, Gap created a Brand Integration and Vendor Performance team to improve procurement decision-making and conditions for its supply chain labor force. Gap managers and executives meet regularly with sourcing department leaders to examine how issues related to working conditions may have stemmed from decisions made by the company.

 

Supplier Engagement

Integrating sustainability into procurement and sourcing decisions is an effective tool for putting some “muscle” behind supplier codes of conduct. But in addition to the procurement “stick,” companies should also be using “carrots” such as dialogue and collaborative training and capacity building programs.

 

Although 71 percent of Footwear & Apparel companies (10 of 14 companies) have supply chain management and monitoring systems, none meet Tier 1 criteria, which require a robust supply chain management system, with formal supplier monitoring programs and programs to improve the environmental performance of suppliers.  However, as noted in the Introduction, companies within this sector are increasingly recognizing the importance of industry collaboration as an effective way to change supplier behavior, eliminate redundant efforts, share information, and create much needed efficiencies. The Sustainable Apparel Coalition, whose members from this sector include Gap, JC Penney, Nike, PVH, and V.F. Corporation, is an example of such efforts.

 

Measurement and Disclosure

The only way a company can ensure the effectiveness of its efforts to encourage supplier sustainability performance is to establish systems for monitoring, auditing and disclosing supplier environmental and social performance data. Footwear & Apparel was the best performing sector for this expectation with 64 percent (9 of 14 companies) performing in Tiers 1 and 2, up from 27 percent in 2012. In 2012, only Gap and Nike performed in Tier 1; they are now joined by L Brands, PVH, and V.F. Corporation. This improvement may reflect a shift away from seeing supplier sustainability data as proprietary information, closely held for competitive reasons, towards seeing it as information that, if shared, can be mutually advantageous for all facing similar supply chain sustainability challenges.

 

Performance Section Icon

 

Performance: Products & Services

 

  • Industry wide commitment is needed to bring sustainable product design to scale.

 

Despite enormous challenges, the consumer-facing Footwear & Apparel companies are well positioned to influence consumer behavior and drive demand for more sustainable products.   In the face of a resource-constrained future, the impact apparel and footwear companies have on the increasing rate of global consumption is very real.
Emerging industry tools, such as the Higg Index, are providing companies from across the sector with the resources they need to consider the environmental and social impacts of the products they make.  Yet, in comparison to nearly 50 percent of all 613 companies in our evaluation, only 29 percent (4 of 14 companies) in this sector—Gap, Nike, PVH and V.F. Corporation—are leveraging efforts to produce sustainable products and embed sustainability considerations into design.

 

Nike integrates sustainable design across its product portfolio – including new product innovations such as the FlyKnit running shoe, which creates two-thirds less waste in production than its traditionally manufactured counterparts. The company also embraces a vision of collaboration and transparency and has open sourced much of its own research, such as its Considered Design tool, to others in the industry.  In 2013, the company unveiled its most recent efforts to spread its knowledge of sustainable design across the industry with its Making mobile app. Powered by the Nike Materials Sustainability Index, the Making app provides product designers and creators with information to understand the environmental impacts of the materials they choose and ultimately inspire them to make better choices.

Driven by consumer demand for “fast fashion”—a trend that necessitates quick turn around from fashions on the catwalk into mass production—the sector needs to examine the existing and potential impacts of this business model on natural resources, as well as worker rights and safety. Consumer demand and willingness to pay for products that are socially and environmentally sustainable is a critical challenge—but one that the industry must take on together by committing to do more to educate consumers and by leveraging opportunities to produce more sustainable products.

 

Performance Section Icon

 

Performance: Employees

 

  • Engaging employees is a missed opportunity for many Footwear & Apparel companies.

Engaging employees in a corporate sustainability mission is essential for success, but employees are often an under-utilized resource in a company’s development and implementation of sustainability programs and strategies.  Robust employee engagement not only helps to meet sustainability objectives, but can help drive business success through improved employee morale, recruitment, retention and productivity.

 

As in other sectors, only a few Footwear & Apparel leaders are working to take advantage of this critical resource; only 29 percent (4 of 14 companies) are engaging employees on sustainability issues.

 

At PVH, for example, the company trains all employees on social and environmental issues via an introductory training, intranet resources, and internal conferences with external experts. The company also provides additional job-specific training on sustainability solutions in departments including product innovation and supply chain management.

Gap trains all employees working in inventory management, merchandising, production, and sourcing on the importance of responsible purchasing practices. It is also developing a new training tool to be used by employees globally to understand how Gap’s purchasing decisions can impact local communities around the world.

Explore the interactive data to see how the Food & Beverage sector performed across all Ceres Roadmap expectations in the Gaining Ground report.


1. MarketLine, “Global Textiles, Apparel & Luxury Goods” (2012), accessed on November 14, 2013, URL: http://store.marketline.com/Product/global_textiles_apparel_luxury_goods?productid=MLIP0468-0001

2. As noted in the main report, a reduction in a company’s Carbon Intensity Trend (CIT) does not necessarily translate into an absolute reduction in carbon emissions because the CIT reflects carbon emissions relative to sales. So, if a company’s sales increase dramatically, its emissions could also increase but its CIT could improve.