What Big Brands’ Sustainability Reports Won’t Tell You

A little over a decade ago, an unlikely partnership between American mass market giant Walmart and outdoor apparel retailer Patagonia spurred one of the fashion industry’s first major sustainability coalitions.

With an eye on ending siloed and proprietary brand environmental programs, the pair persuaded 19 member companies (including Timberland, where I worked at the time) to form the Sustainable Apparel Coalition or SAC. The organization’s goal was to standardize sustainability assessment and reporting, theoretically making it easier for brands, consumers, and investors to assess and address companies’ environmental impact. Less than two years later, the coalition included 40 companies representing over 30 percent of the global market for footwear and apparel.

This fast uptake led Patagonia founder Yvon Chouinard to make a bold projection about the prospects for such corporate collaboration to usher in a sustainable future. In a 2011 article entitled “The Sustainable Economy”, published in the Harvard Business Review, Chouinard and his colleagues Rick Ridgeway and Jib Ellison wrote, “Never before have we felt the optimism that we feel now.” The authors’ hopes were fueled by emergent tools to measure, value, and report on companies’ environmental impacts (such as pollution or carbon dioxide emissions). These included the newly formed SAC’s “value chain index” (which would become the Higg Index) and a PWC tool to put a dollar value on natural capital.

According to Chouinard et al., such standardized corporate reporting would enable investors to better understand companies’ relative performance on environmental issues. This knowledge, in turn, would direct “capital to flow to companies known to manage these costs well,” they argued. According to the authors’ theory of change, more reporting would continue to improve disclosure, leading to a virtuous circle of self-interested decarbonization.

Three years later, Chouinard seemed vindicated as the number of S&P 500 companies issuing some form of sustainability report had tripled. The fashion industry played a leading role: As but one example, Puma became the world’s first company to pioneer an Environmental Profit & Loss statement (EP&L), detailing the dollar value of externalities like water use and pollution. Progress has continued apace. According to accounting firm KPMG, 96 percent of the world’s largest companies now file a sustainability report.

Unfortunately, different from Chouinard’s’ prophesy, the proliferation of reporting has not led to less environmental damage. This is because the current unregulated system of voluntary reporting has no quality control governing what companies disclose. The information provided can vary from irrelevant to unreliable, limiting investor ability to assess companies’ environmental impacts and boring a hole in the anticipated virtuous circle.

To illustrate this gap, I reviewed an unscientific sample of sustainability reports from five publicly traded footwear and apparel companies. I chose companies with revenues of more than $1 billion, a size significant enough they should reasonably be expected to have the means and bandwidth to produce a comprehensive impact report. But I avoided the industry’s very largest and most regularly scrutinized players. The goal was simply to understand the quality of an average group of fashion businesses’ reporting based on consideration of one (existential) environmental metric — greenhouse gas emissions.

What I found was confusing and unconvincing. The companies reported on bespoke measures, set goals for different targets, often failed to provide key information, and didn’t detail credible plans to reduce greenhouse gas emissions.

Here’s Where They Fell Short:

• Coverage: Greenhouse gas emissions are divided into three scopes. Scopes 1 and 2 account for the emissions generated by a company’s operations and the electricity it buys. But for most fashion businesses, what matters is scope 3, which covers supply chain emissions, consumer use, and end-of-life. Typically, that’s where upwards of 95 percent of a brand’s greenhouse gas footprint occurs. That said, three of the five noted companies did not report on Scope 3 emissions (one did not report any emissions data at all). The two companies that did disclose their Scope 3 emissions reported these were increasing, in one case, by as much as 55 percent compared to the prior year.
• Target Setting: Three of the companies assessed had no target to curb their emissions (though they did highlight efforts like “sustainable” product capsules and goals to create recyclable shoe boxes). Of the two companies with specific reduction targets, one aimed to reach net zero emissions by 2040 — a goal set for 2030 in the company’s prior report. The other (the most high-profile company I looked at) plans to cut its emissions by 60 percent by 2030 but made allowances for growth by focusing on its Scope 3 intensity (or its carbon emissions per unit of revenue). Even by that metric, the company’s footprint has been increasing.
• Target Integrity: The two companies with specific emissions reduction targets have set or are seeking to set goals with the Science Based Targets Initiative (an NGO that defines and promotes best practices for corporate climate targets). The organization’s approval is typically seen as giving corporate commitments a veneer of credibility, but critics argue they are often less ambitious and concrete than they appear. For instance, SBTI does not take into consideration historic emissions and allows for intensity targets for Scope 3, thereby allowing for continued emissions increases. As Allen White, co-founder of sustainability standards setter Global Reporting Initiative has noted, “Sustainability measurement without this context is simply not sustainability measurement.”
• A Plan: Targets alone are insufficient. According to a recent study, 93 percent of companies with Net Zero emissions targets will not achieve their goals if they do not at least double the pace of emissions reductions by 2030. And yet, none of the companies reviewed provide a roadmap for how they intend to deliver on their emissions targets (if they have one). While one brand does provide a menu of Scope 3 reduction ideas (including shifting to alternative materials and regenerative agriculture), it doesn’t lay out a coherent strategy to deliver on its goals.

While non-financial reporting was just made mandatory for large publicly traded companies in the EU, it remains voluntary in the United States (an SEC proposal to make carbon emissions reporting mandatory remains in flux). A letter from American Apparel and Footwear Association (AAFA) expressed support for reporting Scopes 1 and 2 emissions, but not the industry’s much more sizeable Scope 3 emissions.

Even if fashion companies were to faithfully disclose their greenhouse gas emissions, it is not clear if so doing would accelerate decarbonization. As but one example, consider the impact of mandatory calorie count information sharing at US fast food chains. According to one study, the availability of this information did not change calorie consumption.

To achieve actual fashion industry decarbonization, what is needed is a combination of mandatory, uniform disclosure and consequences for results. Mandatory reporting of greenhouse gas emissions imposed on public companies in the EU is a positive step but needs to be coupled with other measures, like meaningful carbon pricing, or penalties for lack of progress. Absent such combined action, fashion emissions will continue to grow, unabated.

Kenneth P. Pucker is a professor of practice at the Tufts Fletcher School. Ken worked at Timberland for 15 years and served as chief operating officer from 2000 to 2007.