Retailers must have better engagement with their supply chains to claim green credentials

Planet Tracker, a non-profit financial think tank, has released new research revealing the necessity for textile retailers to actively collaborate with suppliers and manufacturers in reducing negative environmental impacts. The report, titled "Following The Thread," examines 3,897 companies throughout the textile supply chain and uncovers a significant disparity between the location of environmental impacts and the distribution of capital within the industry.

According to the findings, fabric manufacturing and fiber production are responsible for a substantial portion of the textile supply chain's environmental impact, contributing to 76 percent of climate change impact, 74 percent of resource consumption, and 61 percent of water use. Surprisingly, these sectors only generate a collective 18 percent of revenues and 7 percent of market capitalization. In contrast, clothing retail represents 54 percent of revenues and 63 percent of market capitalization, while directly contributing only marginally to environmental impacts.

The report highlights that the frequent outsourcing of manufacturing operations leads to poor visibility along the supply chain, resulting in limited control over the industry's negative environmental consequences for retail companies and investors alike. Furthermore, the regulatory landscape is shifting towards increased scrutiny of supply chain responsibility, exemplified by the European Commission Directive on corporate sustainability due diligence. Moreover, international efforts are underway to clamp down on disingenuous "green credentials." Failure by textile retailers to actively collaborate with their supply chains in driving substantial change may expose major companies to significant regulatory risks.

Richard Wielechowski, Senior Investment Analyst (Textiles) at Planet Tracker, commented on the issue, stating, "While retailers themselves contribute relatively few emissions, claims of greenness by brands lose meaning when the clothing they sell contributes to global warming acceleration and pollutes water supplies with toxic chemicals."

The pressure is on for retailers

Planet Tracker is urging investors to exert pressure on retailers, compelling them to engage with their supply chains in reducing their negative environmental impacts. Brands can support this endeavor through direct funding or order guarantees, working hand in hand with suppliers to drive meaningful actions across the entire value chain.

Earlier research conducted by Planet Tracker demonstrated that investments in the supply chain to improve environmental impact, such as heat recovery and water reuse, not only substantiate retailers' green claims but also align with pressing Net Zero commitments. Better yet, these investments can generate quick returns. The "Easy Unpickings" report from Planet Tracker showcased that an average one-off investment of 455,000 dollars yielded annual savings of 369,500 dollars, resulting in an average payback period of 13.8 months.