INSIGHT by PlanetTracker
In a recent analysis of 3,900 documents, transcripts and filings from apparel-related companies, financial think tank Planet Tracker examined how the management teams of 29 major apparel brands perceive water-related risks.
The analysis – Exposing Water Risk – discovered a striking lack of attention to water-related risks in the apparel industry. An overwhelming 90% of the examined documents failed to mention water-related risks, with many companies barely mentioning water-related risk at all, highlighting a significant gap in disclosure practices.
Despite this, the findings reveal a notable increase in mentions of water-related risk over the analysed period, growing from approximately 2,000 in 2018 to more than 9,000 in 2022, implying that in the minority of documents where water-related risk is disclosed, the subject is being more frequently discussed.
Natural Language Processing (NLP) was employed to scan regulatory filings, investor meeting transcripts, annual reports, and sustainability reports for extracts focused on water-related risks.
The majority of disclosures come from non-luxury brands, followed by luxury brands, while companies mainly operating as apparel retailers show limited mentions of water-related risks.
Sustainability reports and annual reports emerged as the primary platforms for water-related disclosures, with minimal attention in transcripts from corporate events, suggesting a lack of focus from investors on this critical issue. Furthermore, the quality of water-related risk disclosures has remained relatively flat over the analysed period.
Most disclosed information is centred around water consumption, with toxins and contaminants receiving minimal attention. Planet Tracker emphasises the need for companies in the apparel industry to address water risk comprehensively, given that various stages of apparel manufacture are significant consumers of water.
“The availability of water is increasingly stressed in many parts of the world due to climate change, inefficient use, and untreated disposal. This could threaten textile production in key regions, disrupting supply chains.”
-Richard Wielechowski, Senior Investment Analyst (Textiles) at Planet Tracker
Financial institutions, investors, and lenders in the apparel industry face financial exposure to water-related risks. Planet Tracker recommends the inclusion of water risk in investment decisions, urging financial institutions to consider the potential impact on supply chains and consumer pricing.
They advocate for pushing companies to disclose water use and risks through standardised frameworks such as the CDP. Additionally, Planet Tracker encourages investor support for engagement with the textile supply chain to address water usage and pollution associated with textile manufacture.
| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.
