FASHION REVOLUTION | FASHION TRANSPARENCY INDEX 2021
VIEWPOINTS
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VIEWPOINT: TRANSPARENCY ON ENVIRONMENTAL, SOCIAL AND GOVERNANCE ISSUES AND THE ROLE OF INVESTORS
ELINE SLEURINK HEAD, U.K. & IRELAND AND HEAD, NETHERLANDS AT PRINCIPLES FOR RESPONSIBLE INVESTMENT (PRI)
rather than siloed to an isolated sustainability team. Demonstrating that the board has expertise in these issues further supports this argument.
As consumers, investors and stakeholders within the fashion industry, we can assess the sustainability of a fashion brand in multiple ways. This includes determining whether there is board level accountability for social and environmental performance within the business.
Asking a fashion brand whether executive pay and incentives are tied to social and environmental performance is a key data point for investors when assessing how social and environmental impacts are prioritized within a business. ESG-linked pay can increase firm value, rebalance the excessive emphasis on shortterm performance targets and create better accountability for sustainability performance across management. It also signals to investors how committed the brand is to improve its environmental and social practices.
This is a powerful and important tool, as it demonstrates whether those at the top are incentivised to consider positive or negative implications of business operations. This translates into confirmation that these issues are being embedded throughout the organization,
Greenwashing is mitigated as those who are responsible for delivering long-term strategies are held accountable with clear, time-bound targets. If pay is not tied, the investor may conclude that there is an investment risk as any negative environmental and social impacts
of the business are seemingly not prioritised and go unchecked. This in turn jeopardises the financial performance of the brand and may lead to reputational and regulatory risks. Investors can integrate key environmental, social and governance (ESG) factors into their investment strategies through ESG integration (including ESG issues in investment analysis and decisions), screening (excluding companies from investment opportunities based on a filter) or thematic strategies (the intention to contribute to specific social and environmental outcomes). Stewardship also plays a key role, as investors can engage with companies to improve or develop sustainable business practices. The above tools can be used across industries, including the fashion industry. To factor these issues within investment strategies, investors rely on company performance data to measure ESG. We need mandatory and comparable ESG disclosure to support this.
The growth of the fashion industry has led to an explosion of cross-border supply chains with increasing levels of opacity. This has led to associated challenges for investors as they try to ascertain any negative environmental and social impacts a company has, yet often lack the appropriate data. Upcoming legislations in the EU will require companies to be more transparent and provide these impact disclosures, enabling an environment where we have a unified approach to preventing and remedying violations caused by business practices. This is a valuable step towards ensuring that we can identify and remediate any negative social and environmental impacts a fashion brand might be responsible for. Across the investment chain we welcome increased engagement from investors and look forward to ever-increasing adoption of ESG principles in the fashion industry.
