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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.

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. For example, through the Sustainable Apparel Coalition (SAC), companies such as Gap, Nike and VF Corp are seeking to improve the sustainability of footwear and apparel products and drive consistent sustainability standards throughout the sector’s supply chain.

Overall, however, the majority of companies in this sector have been slow to take action on key sustainability issues, particularly climate change. Nike and Gap are exceptions: both making strides to meet the expectations of The Ceres Roadmap by integrating sustainability throughout their businesses. Interestingly, both companies were among the first to be prominently targeted by advocacy groups for labor issues in their supply chains, reflecting the extent to which stakeholder engagement can catalyze corporate action.

The Footwear and Apparel sector includes 11 apparel, accessory and luxury good, and footwear companies. Some of them are frontline retailers with physical stores, such as Gap, Abercrombie & Fitch and Urban Outfitters, selling mainly own-brand products; others such as Nike, VF Corp and Fossil manufacture products sold in various retail spaces.

The analysis that follows includes a summary of the sector’s progress on each of the aspects of The Ceres Roadmap: Governance, Stakeholder Engagement, Disclosure and Performance. Within the Performance section—which covers operations, supply chain, transportation and logistics, products and services and employees—those issues that are of greatest relevance to the sector have been highlighted.

GOVERNANCE FOR SUSTAINABILITY

The Footwear & Apparel sector continues to face pressure from consumers and civil society groups to improve transparency and accountability. Of the 11 companies assessed, Nike and Abercrombie & Fitch are the only two with oversight for sustainability explicitly assigned to a board committee. Nike also provides board members with regular training and education on key sustainability issues. This education promotes a more strategic approach to the board’s overall assessment of the company’s business performance. These companies, along with Gap, also have executive-level management oversight in place. Yet, none of the companies in this sector provide strong disclosure on how they are linking sustainability performance and incentive packages, indicating a potential disconnect between sustainability goals and targets and ultimate accountability for their achievement.

This sector’s attention to social issues in the supply chain has both preceded and exceeded its focus on environmental impact to date. While 63 percent (seven companies) disclose an environmental policy, only 45 percent (five companies) make reference to elements of an environmental management system (EMS). Given the sector’s focus on labor issues within the supply chain, policies and management systems addressing direct employees are surprisingly limited with only 36 percent (four companies) disclosing formal policies on working conditions and 27 percent (three companies) with policies on freedom of association.

STAKEHOLDER ENGAGEMENT

Given the sector's complex network of investors, consumers and suppliers, stakeholder identification is a critical means for addressing key sustainability issues. Additionally, with products reaching every demographic, there is opportunity for creativity on outreach strategies through investor networks, industry associations, environmental networks, suppliers, employee committees and direct customer education and engagement. Despite the value of stakeholder engagement, just three companies—Gap, Nike, and TJX Companies—have some level of formal stakeholder engagement strategy in place.

Gap leads in this regard for proactively engaging an array of stakeholders in unique ways, through both involvement in multi-stakeholder initiatives and specific interactions to address issues or opportunities. Furthermore, the company outlines how stakeholders can lend expertise to provide direction on company strategy and priorities. Nike also discloses how feedback gathered from stakeholders is integrated into the company’s strategy and program development.

DISCLOSURE

There is considerable room for improving disclosure on sustainability exposure and performance in this sector. Only three of the eleven footwear and apparel companies have recently published a dedicated sustainability report, two of which are in accordance with the Global Reporting Initiative (GRI) guidelines.  In efforts to disclose sustainability information to investors, 36 percent (four companies) are disclosing some sustainability information in their financial filings. For example, Abercrombie and Fitch goes beyond discussion of compliance and regulation in its 10-K, referring to climate change risks and its potential impact on procurement of raw materials, particularly cotton.

Footwear and apparel companies, as well as others consumer goods sectors, have an additional opportunity to use communications to not only inform customers of the company’s sustainability story, but also to help build consumer demand for more sustainable products. For example, VF Corp’s Timberland brand provides customers with product sustainability information at the direct point of purchase through its Green Index, which informs customers of the environmental impact of the product they are buying—including GHG emissions emitted, chemicals used and resources consumed in production.

PERFORMANCE


OPERATIONS

The Footwear & Apparel sector comprises global brands with vast networks of retail locations, offices, and manufacturing facilities. As such, the industry is not only a major employer but also has a significant environmental footprint. In this sector, the majority of a company’s carbon footprint comes from the energy required to manufacture and transport goods. Roughly half the companies are taking steps to mitigate their carbon footprint, but efforts are still largely oriented towards Scope 1 and 2 emissions and not the emissions embedded within supply chain or products.

Of the companies in this sector, just over 60 percent (seven companies) have some programs in place to reduce GHG emissions from operations. Yet, Gap and Limited Brands are the only two with a company-wide program to reduce GHG emissions with targets and deadlines. By 2015, Gap aims to reduce its absolute GHG emissions by 20 percent from a 2008 baseline. Part of its reduction program includes an Energy Management Program that identifies stores with high energy use, provides support and training to store managers to assist them in reducing energy use and sets targets for store-level energy reduction. Gap is also the only company in the sector with a green retail building strategy as part of its emission reduction efforts. No companies in the sector are yet setting targets to reduce emissions related to their suppliers or products.

For the Footwear & Apparel sector, water is a critical resource. Yet, only Nike and Gap are assessing water risk or disclosing related strategies for reducing their water footprint. Nike has gone further by improving the water management practices of its suppliers while also looking to its product design and manufacturing processes to minimize water impacts. In 2012, the company announced a partnership with Netherlands-based, DyeCoo Textiles Systems, to implement a water-free fabric dyeing process that uses recycled carbon dioxide to color athletic textiles. The company aims to scale this technology throughout the industry, potentially saving billions of gallons of water and emissions.

A company’s operations hinge upon its relations with employees, contractors and host communities. Policies must be in place that recognize the rights of individuals and protect their interests and those of the community. For this sector it is expected that, at a minimum, a company maintain policies for its direct operations on freedom of association, the elimination of discrimination and fair working conditions. Yet, only three companies tracked have policies on freedom of association and only four have policies on fair working conditions, while 10 have policies on the elimination of discrimination. None of the companies tracked refer to the ILO in labor policies that cover direct employees.

SUPPLY CHAIN
For companies in the Footwear & Apparel sector, the supply chain is a key area of exposure for social and environmental impact, risk and opportunity. It is within the supply chain that these companies are most vulnerable to risks related to human rights and labor abuses, resource inefficiencies and the impacts of climate change, such as destructive weather patterns, water scarcity and unpredictable sourcing disruptions.

Of the companies in this sector, 81 percent (nine companies) have in place social supply chain standards and policies. VF Corp’s global compliance principles apply to all operations and facilities owned and operated by suppliers or contractors. VF's policy addresses child labor, forced labor, wages and benefits, hours of work, freedom of association and collective bargaining, health and safety, and non-discrimination. Gap’s code of vendor conduct is based on ILO conventions and the Universal Declaration of Human Rights. As part of Gap’s supplier auditing program, it discloses data on the number of audits conducted, the violations observed (by region), factory approval and factory ratings data. Gap is also seeking external certification of suppliers against rigorous standards, such as SA 8000 – a third-party certification for supplier labor practices.

In this sector, 55 percent (six companies) have programs on green procurement, but only three of them have formal policies with environmental sustainability expectations for suppliers, giving preference to those with more sustainable business practices. In an effort to synchronize their demands on suppliers, companies and key stakeholder organizations are increasingly collaborating to create common supplier requirements. The Sustainable Apparel Coalition (SAC) was founded in 2009 by a coalition of environmental organizations, brands and retailers, including three companies included in this sector—Gap, Nike, and VF Corp. The group is developing an industry-wide, open-sourced supply chain index that measures water and energy use, GHG emissions, waste and social impacts of suppliers. This effort will allow companies to present a common standard to suppliers and streamline the collection of sustainability performance data. The SAC plans to expand membership in 2012 to all footwear and apparel companies and eventually, other consumer industries.

TRANSPORTATION & LOGISTICS
The storage and transportation of goods accounts for a major portion of the Footwear & Apparel sector’s carbon footprint. While some companies own their logistics fleet, most outsource their logistics to a third-party. Either owned or outsourced, the emphasis on reducing transportation impacts is equally significant. Within this sector, 45 percent (five companies) have programs in place to improve the environmental performance of their logistics and thereby achieve considerable savings in fuel costs and increased efficiency. For example, TJX Companies is a member of the U.S. Environmental Protection Agency's (EPA) SmartWay Transport Partnership, which allows shippers, truckers, and the EPA to work together to find innovative ways to reduce fuel consumption and GHG emissions. In addition, the company has added electric and hybrid trucks to its fleet, is shifting to an intermodal transport strategy and is scheduling deliveries to ensure that trucks are fully loaded when sent to stores.

PRODUCTS & SERVICES
Responding to growing consumer demand for more sustainable products, designing for sustainability is an area of increased attention for footwear and apparel companies. Within this sector two companies—Nike and Gap—formally incorporate sustainability criteria into their design programs and only these two companies, along with VF Corp, are offering consumers sustainable product options.

The sector’s initial approach to marketing more sustainable products to consumers was to focus on niche offerings such as products made with organic cotton. Yet leading companies are shifting to a life cycle approach—focused on assessing a product’s impact from design to manufacture to use and end of life.  For example, Nike’s Considered Design Index—a product creation tool that focuses on environmental sustainability in the design and development process, and covers solvents, waste, materials, garment treatments and innovation—positions the company to integrate sustainability criteria across its product lines and focus innovation on the areas of greatest impact.

Industry collaborations like the Eco Index—an environmental assessment tool that allows companies to measure and assess the environmental impact of their products’ life cycle at the design stage—are also taking this approach. This open-sourced tool, originally created by company members of the Outdoor Industry Association (including VF Corp brands Timberland and The North Face), is now being adapted by the Sustainable Apparel Coalition to expand its coverage to include a social impact assessment. The tools and resources created by these cross-industry collaborations will offer those companies in the sector that are just getting started on the road to sustainability an opportunity to learn from the early innovators—raising industry standards for sustainable products and helping to bring these solutions to scale.

EMPLOYEES
Because the most significant sustainability impacts for footwear and apparel companies are related to products, these companies must think creatively about how to engage employees at all levels of the business in sustainability efforts. It is critical for companies in this sector to educate employees about how their daily decision-making affects the overall sustainability performance of the business. From product designers to purchasing managers to retail employees, each has a role to play in minimizing social and environmental impacts.

Among the footwear and apparel companies assessed, only 36 percent (four companies) have in place training and support for employees on key sustainability issues. These companies are interacting with employees either through informal programs (environmental teams to address in-store recycling and lighting programs) or through more formal channels by including sustainability criteria in employee performance reviews. TJX Companies includes a set of standards that employees are expected to follow in its associate code of conduct, including environmental protection standards. Nike takes employee engagement much further with its North Star program, which is designed to integrate sustainability at every level of its business. Through this program Nike is building sustainability into the corporate culture, empowering employees to assist the company in reaching its sustainability goals.

Embedding sustainability into corporate culture is key, as is the customization of employee training and support. For example, companies can offer designers tools like the Eco Index or the Sustainable Apparel Coalition Index to help them better understand the impacts of their design choices. Procurement managers can be educated to better understand the ramifications of purchasing decisions, such as how rushed orders may result in forced overtime for workers in the supply chain. And retail employees can be leveraged as ambassadors to help educate customers on the sustainability attributes of the products they are buying and help them understand how they can lessen a product’s impact in its use stage—for example shifting to cold water washing and recycling or donating the product at its end of life.