Fast fashion has transformed the ready-to-wear industry, but with consumers making a saving, how is the environment footing the bill?
Fast fashion is a term given to accelerated ready-to-wear garment business models, according to the UK government’s Environmental Audit Committee.
In a 2019 report, the EAC defined this as involving “increased numbers of new fashion collections every year, quick turnarounds and often lower prices”. According to environmental, social and governance experts though, this has significant repercussions.
“Any industry that has the word ‘fast’ associated with it is likely to have some complex ESG and impact issues,” says Amy Clarke, chief impact officer at Tribe Impact Capital. “Fashion, and more latterly fast fashion’s history, is littered with negative impacts.”
From an investment perspective, companies’ ability to effectively navigate these issues is an increasingly important part of the investment case for the sector, and a key point of differentiation between companies
Dr Rory Sullivan, Chronos Sustainability
Fast fashion has already gained attention for its negative social impacts. In 2020, Boohoo was accused of modern day slavery after it was revealed to be paying workers in its Leicester site £3.50 per hour. Now, evidence is surfacing of the industry’s negative impact on the environment.
“The fashion industry has a devastating impact on our planet and our societies and is also responsible for around 10 per cent of global carbon emissions,” explains Rebecca Craddock-Taylor, director of sustainable investment at Gresham House.
“Wastewater from many textile factories releases toxic substances into rivers, and fibre production contributes to precious natural resource loss through water pollution, soil degradation and deforestation.”
However, fashion also relies on nature, from the natural materials used in garments to the use of water in dying clothes.
“Without healthy ecosystems, the fashion industry would look very different,” Craddock-Taylor adds.
Holding companies to account
Fast-fashion brands have thrived due to their ability to rapidly meet new consumer demands at minimal cost. Yet, Dr Rory Sullivan, chief executive of Chronos Sustainability, argues these brands’ ability to grow will change as they come under greater pressure to evolve.
“The investment case for investing in fast-fashion companies has relied on some core assumptions: that these companies can produce quickly and at low cost, that these companies have significant production flexibility, and they can easily switch suppliers to access lower prices and better deals,” he says.
This model needs to adapt, however. “The sector is under growing pressure to take a more measured and careful approach to sourcing,” Sullivan notes.
“From an investment perspective, companies’ ability to effectively navigate these issues is an increasingly important part of the investment case for the sector, and a key point of differentiation between companies.”
Pushing change on companies’ environmental impacts may require greater pressure, according to Therese Kieve, stewardship analyst at Sarasin & Partners. Bad publicity has a place, but she argues that the movement “needs to go further than hashtags”.
“Governments will likely have a key role to play in setting standards and enforcing them. Better labelling, for example, can help consumers shop more responsibly,” she says.
“Taxes linked to environmental costs could be another policy lever, similar to the way in which we now pay 5p for plastic bags in shops.
“In the meantime, long-term investors can play a role in holding companies to account.”
As part of this, Craddock-Taylor suggests investors need to be objective with their fast-fashion holdings and initiate difficult conversations that get to the centre of their business models.
“The fashion industry is probably the most greenwashed industry I have seen. There are so many companies coming out with green initiatives for recycling and using different textiles, which are good steps towards improvement,” she says.
“However, they ultimately need to produce less and encourage people to buy less.
“This doesn’t work for their business models, so they have no option but to draw attention to green initiatives to divert attention from the damage they cause,” she adds.
ESG solutions
Pushing through change in fast fashion means adoption of more sustainable practices. A recognition that current fashion supply and demand dynamics are unsustainable is a starting point, says AJ Bell investment director Russ Mould, who points out that there is simply not enough organically grown cotton to meet demand.
“One new trend here which may help is so-called ‘in conversion’ cotton,” Mould notes.
“Here, the raw material is sourced from fields that used to use fertilisers and chemicals but now no longer do so.
“This helps the farmer, as it means the field is no longer fallow as part of the usual crop rotation cycle, and it helps the retailer, who can now source cotton from a supplier whose business practices may be more acceptable to the customer — and shareholders.”
Tribe Impact’s Clarke is less flexible in her view of fast fashion’s ability to change and wants investors to ask of its very model, “is fast fashion a good investment?”
Is social policy essential for schemes to promote change?
Integrating environmental, social and governance credentials into pensions has become increasingly common, yet deciding whether schemes should adopt a specific policy on social matters has become a point of contention.
She says: “If, as investors, we’re looking for businesses that are future fit and, therefore, likely to be winners in the societies and economies of today and tomorrow, we should be looking to those businesses that are additive. Those that really contribute something to society given the prevalence of issues we now face, and those that are well run. Arguably, fast fashion is neither.”
In making billions and transforming the industry, fast fashion has raised the expectations for the speed, quality and price at which consumers can buy garments. This creates an environmental cost, which investors may have to recognise is still a cost that needs to be paid.
