Global fashion titans are at peril from water hazards: Report

According to a recent research by Planet Tracker, major international fashion companies and retailers, such as Adidas, Gap, H&M, Inditex, Levi Strauss, Nike, PVH Corp, Ralph Lauren, and VF Corp, are becoming increasingly concerned about hazards associated to water. The research urges businesses and investors to take immediate action and include water risk management into their sustainability initiatives, given the increasing water stress in critical manufacturing zones.
The analysis highlights the possible considerable indirect repercussions that could jeopardize the viability of these companies, even when the direct risks associated to water seem to be modest for their operations.

 

According to Planet Tracker, there are three main types of water risks that the fashion industry faces: the physical risk of water scarcity, which could affect operations and supply chains; regulatory risks related to water costs and access rights; and reputational risks resulting from unfavorable publicity about water usage.

According to the Ripple Effects research, the analysis highlights the acute water stress that is already present in important countries that supply garments and warns of a worsening scenario, especially for North American companies witnessing an increase in water stress levels.

 

The report shows how a mere 1% increase in cost of goods sold (COGS) due to water disruptions could result in a 3% decline in operating profits for a brand operating at a 55% gross margin and a 15% EBIT margin, highlighting the significant financial stakes associated with ignoring water risks. The paper emphasizes how water-intensive the textile manufacturing process is, from dyeing to the production of raw materials, and calls on industry participants to be transparent about their water usage and risk exposure. Supply chain interruptions are becoming more likely as a result of climate change, wasteful use, and untreated disposal aggravating water scarcity in crucial production locations.

 

It is anticipated that the state of clothing supply chains, which are primarily located in areas that are currently experiencing moderate to severe water stress, would worsen, affecting brand and retailer sales and profit margins. As a result, financial institutions are urged to consider the risks associated with water when making investment choices and to encourage corporations to adopt science-based water targets as well as other transparency and mitigation measures.

Major garment corporations should view water risk as a strategic issue, according to Richard Wielechowski, senior investment analyst for textiles at Planet Tracker. “Creating strategies to monitor and gradually lower this risk is crucial for long-term viability.”

 

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