Strategy and Operations

The New Sustainability

Sustainable fashion has been more of an oxymoron than a reality since the advent of mass merchandising. But social media, internet-enabled transparency and a new zeitgeist has brought the broader ESG (environmental social governance) movement to a tipping point. Across multiple industry sectors, a growing awareness of corporate and individual responsibility is driving change, asking companies to not only compete to be the best in their sector, but to do the best for the world and use business as a force for good.

For me, Larry Fink’s (CEO of Blackrock, the largest investment management company in the world) annual letter to shareholders was the clarion call. Disseminated early in 2018, Fink called for a new model of corporate governance where companies look at their social responsibility role in the community, impact on the environment and depth of diversity and role in career development in an increasingly automated world. Purpose-driven capitalism, as articulated by a pillar of the financial community, should be echoing its way through the halls of corporate America. Going forward, investment considerations at Blackrock will increasingly include the aforementioned criteria along with traditional questions of competitive advantage, financial and operating leverage, ROA, ROI, dividend payouts and valuation. Hallelujah!

In mid-March I attended FGI’s (Fashion Group International) Frontliner Series, which, in collaboration with the CFDA, addressed sustainability and fashion in a panel discussion of retailers, brands and academia. Until now, most corporate efforts at sustainability have been limited to reducing impact and not addressing the big picture. It’s taken about two decades to get the point where businesses are looking at the strategic integration of sustainability and what that looks like for their business operating and financial models. Burak Kakmak, Dean of Fashion at Parsons New School said, “We are at a turning point. At larger firms they have created internal innovation labs and have made it a core part of the business to innovate new models for revenue generation with full sustainability built into the model itself. At smaller companies with emerging talents we see 100 percent across the board designers coming out of school looking at the impact of their product and its purpose in society as they create their brands and products. This is a huge shift in the past decade.”

From his perch at Parson’s, Kakmak can impact the future of design, change the business equation and help designers grow into more impactful roles. He explains, “Existing business models are part of the problem. Parsons is encouraging students to think about the full system including social and environmental issues. They are reinventing the fashion model to incorporate the impact on society, business and new ways of engaging with the community.” Businesses can be an impetus for good and change the world. Hallelujah again!

Kalmak was the first hire at Kering (then PPR) to focus on sustainability and he urged the luxury maisons to “Use your brand value to convey a message to society beyond the product you are selling and play a leadership role in trying to change the future that includes society and all its values as it engages with the brand. Understanding the value chain is critical for shaping the future of design.” Furthermore, designers need to know the impact of their design choices on the value chain which should lead to designers having a greater role in creating brand vision and products. If the13 million tons of textiles thrashed annually in the U.S. were recycled, it would equate to removing 7.3 million cars from the road. It’s time the apparel ecosystem, from consumers to brands to retailers, do something … now!

Eileen Fisher Vision2020

Eileen Fisher, long regarded as a sustainability icon in the fashion industry, has Amy Hall heading up Social Consciousness for the past 25 years. Early on, the focus was supply chain, but efforts have grown to marketing, manufacturing, design and finance, activism, labor and community renewal. Hall acknowledged her small team only enjoyed moderate success driving a social and environmental agenda corporate wide until they brought in a systems-thinking consultant who organized a cross-functional team of leaders to form a new vision together.

“Compartmentalization prevented us from doing more. Now everybody owns the vision, holding hands, not pointing fingers. It’s the power of ‘we’. That singular decision and action has changed the playing field at Eileen Fisher,” Hall stated.

The Eileen Fisher plan, Vision2020 was launched in 2015 to create a roadmap for an industry where human rights and sustainability are the causes of a well-run business. This new model focuses on changing the mindset of social and environmental injustices as unfortunate outcomes to reasons to do things differently. It spans fiber—all cotton and linen will be organic by 2020, color—working collaboratively to remove toxins from the dying process and resources—using less water, alternative energy and reduced dependence on air shipping. The company will be U.S. manufacturing carbon positive by 2020. In compliance with SA8000’s labor standards, alternative supply chains and regional investment programs that empower local workers. Mapping, peeling the supply chain onion of suppliers’ suppliers towards greater transparency, and reuse with one million pounds of recycled Eileen Fisher merchandise is the 2020 waste management goal. In sum, Vision2020 is an audacious goal of 100 percent sustainability contingent on eight interdependent manufacturing categories.

From Shareholder Capitalism to Stakeholder Capitalism

The fashion industry isn’t alone. The incredible tech driven upheaval of new business models, rapid innovation, redundancy and irrelevancy in most economic sectors and society in general provides the opportunity for industries and their corporate participants to reinvent corporate goals with a mandate to be more inclusive and mindful of all stakeholders. Business as usual is not an option. The way we have conducted business for generations — producing, consuming and disposing of ever more stuff — is not sustainable, and a growing number of consumers and business leaders are finally waking up to this reality. Businesses can be the mechanism for social change if they take the reins. A focus on valuing people and the planet will reduce risk and can also increase profits. Viewed holistically, a business can only thrive when society and nature prosper as well.

Consumers care and increasingly seek out brands with purpose. In response, the goal of approximately 3,500 for-profit benefit corporations in 33 states are moving capitalism from a single focus of maximizing shareholder value to an inclusive stakeholder model. The benefit corporate model creates value simultaneously for all corporate stakeholders, the workforce, community and environment. Firms that adopt a benefit corporation governance model are required by law to consider all stakeholders when making decisions, incorporating a higher standard of purpose, accountability and transparency as they create long-term value. Benefit corporations can receive certification from non-profit B Lab as a B Corp. For Eileen Fisher, designation as a B Corp adds another layer of oversight, governance and New York State codification to the corporate objectives set out in Vision2020.

Approximately 2,500 companies have achieved B Lab’s B Corp certification, most recently, Gap’s Athleta brand joined Eileen Fisher, Patagonia, Danone and Ben & Jerry with this designation. Everlane, Tom’s, Warby Parker, Reformation are among the new breed of purposeful apparel and accessory brands.

Boxed In

With the growing awareness of the imprint we are leaving to our progeny, the sheer number of packages delivered daily confounds me as consumers execute a just-in-time mentality for so many material needs and wants. John Blackledge, equity analyst at Cowen estimates Amazon will deliver roughly two billion U.S. packages this year. Amazon Prime two-hour delivery is just so not green with the extensive carbon footprint and wasteful packaging. Why doesn’t anyone care? For now, for too many, efficiency supersedes sustainability.

Alpha or Impact, or Both?

Blackstone isn’t the only investor looking at purpose. Andrew Beebe, MD at Obvious Ventures, an investment firm with B Corp certification thinks “we can outperform as a venture fund because of our focus on world positive companies. Ultimately, we see profit and purpose as a virtuous circle. In the right combination they form a flywheel that will deliver enormous financial returns while transforming capitalism in a world positive way.” Obvious Ventures has raised $315 million according to Crunchbase and has invested in 53 startups that meet one of three investment themes: sustainable systems, people power or healthy living.

The UN is on board with impact investing as well, having articulated 17 sustainable development goals (SDGs) in 2015 that span poverty and hunger to climate and sustainable cities. Impact investing attracts approximately $114 billion in global assets according to Global Impact Investing Network (GIIN). Sustainability is garnering the attention of the New York investment ecosystem as well. Portfolio managers and buy- and sell-side analysts recently met at a New York Society of Security Analysts conference, Integrating ESG Factors in Equity and Fixed Income. The discussion concluded there was no one best way to integrate ESG research. It remains the job of the analyst and is frequently integrated in a qualitative manner, but a data set and score are ideal in quantitative investment settings and for comparative purposes. For now, extra-financial information is rarely tracked or presented in ways that meet investors’ needs. One solution (a free benchmark) comes from non-profit Future Fit, bringing together 25 years of data science, along with advisors in multiple verticals (including Grant Thornton, Hermes Investment Management, The Body Shop). The Future Fit Benchmark identifies the extra-financial breakeven point, expressed as a unified set of social and environmental goals. Future Fit is helping to identify what ‘doing good’ really means and how specific projects and product innovations can contribute to society’s future fitness.

Asking the right questions is the beginning of change. Here’s the central question: Why not now? We are busy creating new business models that address the changing ways consumers discover shop and buy, the way we communicate and socialize and get from place to place. Isn’t it time to think about the ripple effect of the actions we take? And it makes good business sense, engendering loyalty and mitigating risk. This is not philanthropy, its investing wisely. I’m with Fink: reduce your footprint!

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