The fashion industry, known for its fast-paced and ever-changing nature, has faced growing scrutiny in recent years regarding its sustainability and ethical practices. While consumers have been demanding change, a new force is emerging as a catalyst for progress: investors.
The financial world is increasingly recognizing the significance of sustainable business practices and is pressuring fashion brands to improve their buying practices. As a result, investor pressure is reshaping the fashion industry and driving brands to embrace more responsible approaches to purchasing.
Investor activism refers to shareholders leveraging their financial power to influence companies to adopt responsible practices. In the fashion industry, investors are becoming more attuned to the environmental and social impacts of the brands they invest in. This shift is driven by the recognition that sustainability is not only beneficial for the planet but also for long-term financial success.
The Power of Divestment
One potent tool investors wield is the power of divestment. By withdrawing financial support from companies with poor buying practices, investors send a clear message about their expectations. Divestment campaigns have gained momentum, putting pressure on fashion brands to reassess their sourcing and supply chain strategies.
For example, the well-known luxury fashion brand Burberry has faced investor pressure to address its environmental impact and improve its buying practices. Burberry has faced scrutiny regarding its sourcing of materials, particularly with regard to animal welfare and the use of fur. In response to investor pressure and changing consumer preferences, Burberry announced in 2018 that it would stop using real fur in its collections and ban the practice of destroying unsold products.
Burberry has been under pressure to address the issue of waste generated by the fashion industry. In 2017, it was revealed that Burberry had burned unsold products worth millions of dollars to protect its brand value. The news sparked outrage and investor concern, leading to a change in the company's practices. In response, Burberry committed to ending the practice of incinerating unsold products and has been working on reducing waste throughout its supply chain.
Investors have pushed also Burberry to reduce its carbon footprint and improve energy efficiency in its operations. In response, the company has set targets to achieve a 95% reduction in its scopes 1 and 2 greenhouse gas emissions.
The Demand for Transparency
Investors are demanding greater transparency from fashion brands, specifically regarding their buying practices. They want to see how companies choose suppliers, ensure fair wages, and prioritize sustainable materials. This transparency allows investors to evaluate risks and assess the long-term viability of their investments.
To meet the expectations of socially responsible investors, fashion brands are increasingly developing and adopting sustainability metrics. These metrics provide a standardized framework to assess a company's environmental and social impact, enabling investors to make informed decisions. Brands that perform well on these metrics are more likely to attract investment and secure long-term financial stability.
Investors are engaging with fashion brands through dialogues, shareholder meetings, and collaborations to influence their buying practices positively. By fostering relationships with investors, brands can gain valuable insights into sustainable practices and capitalize on their expertise. Collaboration between investors and brands can create win-win situations, driving positive change while ensuring financial returns.
In turn, investor pressure is not only driving incremental improvements in buying practices but also spurring innovation in the fashion industry. Brands are investing in research and development to find sustainable alternatives to conventional materials, implementing circular economy principles, and exploring innovative sourcing methods. Such innovations not only appeal to investors but also enhance a brand's competitive advantage in an increasingly conscious consumer market.
Enhanced Brand Reputation
By adopting responsible buying practices, fashion brands can improve their brand reputation and appeal to a broader consumer base. Consumers are increasingly seeking out brands that align with their values, making sustainability a key factor in purchase decisions. Investors recognize the significance of reputation and are encouraging brands to prioritize sustainable buying practices to safeguard their market position.
Levi Strauss & Co. is a good example of a brand that has been under scrutiny for its water-intensive manufacturing processes. The brand has faced investor pressure to reduce water consumption and improve water management throughout its supply chain. In response, Levi's has implemented various initiatives, such as the Water<Less™ technique, which significantly reduces the amount of water used in the finishing process of its jeans.
Levi's has also been urged to prioritize responsible sourcing of cotton. This includes supporting sustainable farming practices, reducing the use of harmful pesticides, and ensuring fair wages and working conditions for cotton farmers. Levi's has made commitments to source a significant portion of its cotton sustainably through initiatives like the Better Cotton Initiative (BCI).
By prioritizing responsible sourcing, sustainable materials, and ethical supply chains, fashion brands can not only secure long-term financial stability but also strengthen their brand reputation and appeal to a conscious consumer market. The convergence of investor pressure and consumer demand is reshaping the fashion industry, driving it toward a more sustainable and responsible future.