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Effective actions needed to drive the energy transition in fashion supply chains

How are brands engaging with their suppliers to improve energy efficiency, source renewable energy, and improve data transparency at the facility level?

In the fashion industry, most apparel and footwear are made in factories that rely heavily on fossil fuels. A high concentration of these factories are located in countries such as China, Vietnam, Bangladesh, Cambodia, India, Indonesia, Turkey, and Pakistan.[1] Energy consumption and GHG emissions in the fashion industry are mainly concentrated (up to 98%)[2] in the production process. The extent to which suppliers can raise their climate ambitions and reduce GHG emissions is a key factor in decarbonisation.[3] Given that most apparel and footwear suppliers are not public facing, but work closely with public-facing brands, leveraging brand engagement is particularly important. Information sharing, technical training, financial support and incentives are all essential when it comes to brands mobilising and supporting suppliers to take action.

Key Findings

Some fashion brands have progressed in transitioning energy use in their supply chains from fossil fuels to renewables, but many have yet to start. There is still a big gap in financial support available to suppliers. Out of the 43 companies evaluated in the 2023 Scorecard, only four companies — H&M, Nike, PUMA and ASICS — reported significant forms of engagement with their suppliers, receiving B- in this category. H&M, Patagonia, lululemon, On Running, and Primark all received higher scores in the 2023 Scorecard than in the 2021 Scorecard, reflecting progress. However, many brands have yet to show any meaningful signs of engaging with their suppliers to decarbonise. 15 brands received a grade of F. With an average grade of D, most brands need to significantly ramp up their engagement efforts to ensure that a renewable energy transition in their supply chains happens.

Few brands paying up for supply chain renewable energy

Since the release of the 2021 Scorecard, more companies have realised that they need to engage their suppliers to achieve the shift to renewable energy. Although 28 brands reported providing their suppliers with training and resources to help them transition to renewable energy, only 13 brands have taken the more meaningful step of providing financial support or incentives to assist in the energy transition. Within that subsection, many brands’ financial support or incentives are only focused on a few strategic suppliers or suppliers in specific regions. Existing support from brands includes providing direct funding or loans to suppliers to scale the adoption of on-site renewable energy, prioritising suppliers that acquire electricity through PPAs, and signing long-term contracts to provide stability over the transition period.

PUMA, ASICS, and Patagonia are leading the sector with their efforts in this area. ASICS and PUMA are the only two companies that explicitly required suppliers to source renewable energy as a condition of their contracts. However, this is potentially problematic as the companies did not report providing financial support or incentives to their existing suppliers to ensure that they were not financially disadvantaged as a result.

Patagonia reports financing energy and carbon audits for partners that focused on implementing renewable energy off-site and on-site and reducing the use of coal. It also reports developing a carbon-reduction performance program with key raw-material suppliers that supports the decarbonisation of their operations by prioritising renewable electricity.[7]

The following are other interesting programs reported by brands:

  • H&M has formed a Green Investment team to support suppliers and directly invest in new technology to decarbonise its supply chain. The team evaluates the sustainability performance of suppliers and provides financial support that assists suppliers in phasing out coal and other fossil fuels.[8]
  • Mammut has provided its suppliers with training and resources to help them transition to renewable energy, including encouraging suppliers to sign long-term Power Purchase Agreements (PPAs) to source renewable energy.[9]
  • New Balance has engaged with suppliers and provided information sharing and training to help them transition to renewable energy, including partnering with the International Finance Corporation (IFC) to assess rooftop solar installation feasibility. The company has also implemented an engagement campaign to educate suppliers on climate change, particularly in Vietnam.[10]

Energy efficiency: the low hanging fruit not all brands are picking

In the last 18 months, a growing number of companies have reported establishing cooperative relationships with suppliers with respect to energy efficiency. Companies are working with their suppliers to reduce energy use by using energy-efficient lighting, installing energy-efficient boilers, and collecting and recycling heat through production processes. It is noteworthy that 11 companies – including ASICS, H&M, Inditex, Levi’s, lululemon, Mammut, New Balance, Patagonia, SHEIN, VF Corporation, and Walmart – have reported providing financial support or incentives to help their suppliers improve energy efficiency, which is an improvement compared to data captured in the 2021 Scorecard. Amazon, Amer Sports, Boohoo, Guess, LVMH, Prada, REI, Richemont, Salvatore Ferragamo, and Under Armour have not yet reported taking any actions to engage with suppliers to improve energy efficiency.

Supplier data needs to be more transparent

Enhancing transparency and requiring suppliers to set GHG emissions reduction targets help brands to measure and improve environmental performance. The majority of companies report that they have engaged their suppliers, to varying degrees, and require that they commit to climate change mitigation and frequently report on the progress of their actions. Despite concerns about some of its public transparency tools, the Higg Index’s Facility Environmental Module remains a popular tool for suppliers to report on their environmental performance, including their GHG emissions reduction targets so that brands can track the progress of their suppliers against sustainability metrics. Brands that require their suppliers to report environmental data through the Higg Index should now make the facility data publicly available to the public for greater accountability. 

In conclusion, although a number of leading brands have demonstrated some progress in engaging and supporting their suppliers in cutting their emissions, the level of financial support is still falling far short of the brands’ responsibilities. The majority of brands analysed have yet to even take their first steps, and many provide limited transparency in these areas. In order to rapidly scale decarbonisation across their supply chains, brands must build equitable partnerships with their suppliers and provide meaningful support and incentives to help them transition to low-carbon manufacturing in a way that doesn’t leave them overburdened or disadvantaged.

Footnotes

  1. “Leading 10 Global Footwear Producers, by Country 2021,” October 10, 2022, https://www.statista.com/statistics/227256/leading-10-global-footwear-producers-by-country/; “Textiles | OEC – The Observatory of Economic Complexity,”, https://oec.world/en/profile/hs/textiles.
  2. “Climate Sustainability in Retail: Who Will Pay?”
  3. “Net-Zero Challenge: The Supply Chain Opportunity.”
  4. “Leading 10 Global Footwear Producers, by Country 2021,” October 10, 2022, https://www.statista.com/statistics/227256/leading-10-global-footwear-producers-by-country/; “Textiles | OEC – The Observatory of Economic Complexity,”, https://oec.world/en/profile/hs/textiles.
  5. “Climate Sustainability in Retail: Who Will Pay?”
  6. “Net-Zero Challenge: The Supply Chain Opportunity.”
  7. Supply Chain Environmental Responsibility Program,”, https://www.patagonia.com/our-footprint/supply-chain-environmental-responsibility-program.html.
  8. “H&M CDP,” 2022
  9. “Mammut’s Journey Towards Net Zero,” August 2021, https://assets.ctfassets.net/l595fda2nfqd/5NyuNY09Q0G8C7AW8QwVYn/933658081600a58fc6c57d4c705cbadd/Net_Zero_committment_August_2021.pdf.
  10. “Climate Action,”, https://www.newbalance.com/climate-action.html.
  11. Supply Chain Environmental Responsibility Program,”, https://www.patagonia.com/our-footprint/supply-chain-environmental-responsibility-program.html.
  12. “H&M CDP,” 2022
  13. “Mammut’s Journey Towards Net Zero,” August 2021, https://assets.ctfassets.net/l595fda2nfqd/5NyuNY09Q0G8C7AW8QwVYn/933658081600a58fc6c57d4c705cbadd/Net_Zero_committment_August_2021.pdf.
  14. “Climate Action,”, https://www.newbalance.com/climate-action.html.