Equity Outlook  |  Q1 2020

Fashion industry tackles sustainability challenges

Stephanie Dobson, Portfolio Manager, and Shelby Centofanti, Equity Associate, Sustainable Investing Team

Fashion industry tackles sustainability challenges

The youngest generations of consumers are faced with a sustainability conflict. They have embraced "fast fashion" — clothing that is trendy, extremely inexpensive due to low-quality material and low-wage labor, and designed to be thrown away relatively quickly. These same consumers also care deeply about the environment, and fast fashion has some inherent sustainability challenges. What is the solution to this disconnect?

If consumers hold tight to their fashion choices, then companies have an opportunity to change their approaches to produce fashion in more sustainable ways. Fortunately, many companies in the fashion industry are beginning to demonstrate deeper commitments to sustainability, due in large part to consumer demands. This includes the current fast-fashion leaders as well as innovative newer companies that are working to create a better system.

Creativity from fashion innovators

Consumers who are disposing of clothing at high rates may not realize that only 13% of clothing materials are ultimately recycled. To provide consumers with more environmentally friendly choices, many fashion businesses are demonstrating impressive creativity and innovation. Allbirds, a footwear maker, is one example. In addition to its use of sustainable materials for its shoes, the company is committed to going carbon neutral for its entire supply chain. Also, the company's innovative packaging features 90% post-consumer recycled cardboard. For customer returns that can't be resold, Allbirds donates the products to Soles4Souls, a charity that distributes them to people in need.

The pros and cons of clothing rentals: an emerging industry

Clothing rental platforms are disrupting the fashion industry. Their business models are based on recirculating high-quality designer clothing back into the consumer market. This provides consumers with access to the latest trends while also reducing consumption. This approach has sustainability benefits, but it also relies on some less sustainable processes that are often overlooked. One example is the cost of re-shipping and re-packaging clothes, and washing items after every use. One of the category leaders, for example, created the nation's largest dry-cleaning facility to support its operations.

Traditional retailers step up

Start-ups are not the only businesses offering solutions. Several traditional retailers are piloting thrift store platforms in their stores. These platforms encourage shoppers to make an informed decision to "choose used" by selling high-quality secondhand clothing from favorite brands for up to 90% off retail prices.

Fast fashion: Why should we care?

  • The fashion industry produces 10% of global carbon emissions and is the second-largest consumer of the world's water.
  • Fast fashion has increased consumption. The average American bought 60% more clothing in 2014 than in 1991, and kept those garments half as long.
  • Each year, 85% of textiles end up in landfills.
  • Microplastics from synthetic clothing leach into the environment and eventually the ocean, contributing to pollution and impacting the food chain.
  • The global apparel market is forecast to be worth $1.5 trillion by 2020.
    Source: Putnam Research, October 2019.

Levi Strauss, another more traditional clothing retailer, has differentiated itself with a sustainable approach to apparel. The company has been a recognized leader in responsible supply chain practices for more than 25 years. It has done impressive work on product life-cycle assessments — calculating the resource use and impact of a single item of clothing over its entire life cycle. The company purposely designs products that are durable and built to last, a notable contrast to the fast-fashion approach. Levi Strauss also provides education to consumers on how to extend the life span of clothing. In all of its U.S. stores, the company collects denim from any brand, in any condition, to be recycled.

Stock stories: Leaders and innovators addressing the challenge

Inditex


  • One of the world's largest fashion retailers; eight brands, 7,000 stores in 96 markets
  • Sustainability goal: By 2025, no longer send anything to landfills from its headquarters, logistics centers, stores, or factories
  • Is investing in new technologies for more sustainable fashion products
  • Makes it easy for customers to drop off their used Inditex garments for reuse or recycling

Levi Strauss


  • A holding in Putnam Sustainable Leaders strategy
  • Project FLX manufacturing process reduces time/costs and eliminates thousands of chemicals usually needed for denim finishing
  • Goals by 2020: 100% sustainably sourced cotton; less water to produce 80%+ of Levi products
  • By 2020, produce 80% of products in "worker well-being" factories, which support financial empowerment, health and family well-being, and equality and acceptance for apparel workers

H&M


  • A multinational retailer known for its fast-fashion clothing. Operates in 62 countries with over 4,500 stores
  • Aiming for 100% recycled or sustainably sourced materials over the next 10–20 years
  • Launched the world's largest retail garment collecting system in 2013
  • Collected 20,649 tons of textiles for reuse or recycling in 2018; a 16% increase year over year; equal to 103 million T-shirts

Patagonia


  • Goal is to be carbon neutral across entire business, including its supply chain, by 2025
  • Aims to become carbon positive — taking more carbon out of the atmosphere than it puts in
  • Goal of using only renewable or recycled materials in all products by 2025
  • Its "Worn Wear" program encourages reuse, repair, and recycling to extend the life of products
    Source: Putnam Research, November 2019.

Allbirds is a private company and is not held in either the Sustainable Leaders or the Sustainable Future strategies. While not a holding, the company is representative of sustainability leadership and innovation in the apparel industry. Investment themes selected are determined by the sustainable investing team based on certain environmental, social, and governance factors specific to the apparel industry. Current investment themes were selected without regard to whether such themes, or relevant securities, were profitable and are intended to help illustrate the investment process. A security may be selected for a portfolio based on factors other than the ESG themes highlighted herein and the analysis should not be considered a recommendation to purchase or sell any security. It should not be assumed that an investment in the securities mentioned was or will be profitable.

As of December 31, 2019, Levi Strauss was held in the Putnam Sustainable Leaders strategy and accounted for 0.85% of the representative portfolio. As of the same date, Inditex, H&M, and Patagonia were not held in either the Sustainable Leaders or the Sustainable Future strategies (Patagonia is also a private company). These companies are representative of sustainability leadership and innovation in the apparel industry. Investment themes selected are determined by the sustainable investing team based on certain environmental, social, and governance factors specific to the apparel industry. Current investment themes were selected without regard to whether such themes, or relevant securities, were profitable and are intended to help illustrate the investment process. A security may be selected for a portfolio based on factors other than the ESG themes highlighted herein, and the analysis should not be considered a recommendation to purchase or sell any security. It should not be assumed that an investment in the securities mentioned was or will be profitable. Holdings are for a representative account and are shown for illustrative purposes only. Each account is managed individually. Accordingly, account characteristics may vary.