Water risks pose threat to global fashion giants: Report

29 Mar '24

2 min read

Pic: Adobe Stock

Insights

Major global fashion brands face increasing water-related risks, emphasising the need for water risk management, as per a report.
The report highlights regulatory and reputational threats, with significant financial consequences from water stress.
Urging transparency and science-based water targets, it calls for industry-wide sustainability efforts.

Leading global fashion brands and retailers, including Adidas, Gap, H&M, Inditex, Levi Strauss, Nike, PVH Corp, Ralph Lauren, and VF Corp, are facing growing concerns over water-related risks, according to a recent report by Planet Tracker. As water stress intensifies in crucial manufacturing regions, the report calls for urgent action from companies and investors to integrate water risk management into their sustainability efforts.

Despite the apparent minimal direct water-related risks to their operations, the report emphasises the potential significant indirect impacts that could threaten the viability of these brands. Planet Tracker delineates three primary categories of water risks within the fashion industry: physical risks to operations and supply chains due to water scarcity, regulatory risks affecting water costs and access rights, and reputational risks stemming from negative publicity regarding water usage.

The analysis underlines the acute water stress already present in key regions supplying apparel and warns of an aggravating scenario, particularly for North American brands facing an upsurge in water stress levels, as per the Ripple Effects report.

Moreover, the financial stakes of ignoring water risks are substantial; the report illustrates how a mere 1 per cent increase in the cost of goods sold (COGS) from water disruptions could lead to a 3 per cent decline in operating profits for a brand operating at a 55 per cent gross margin and 15 per cent EBIT margin.

Highlighting the water-intensive nature of apparel manufacturing, from dyeing to raw material production, the report urges industry players to openly discuss and disclose their water usage and exposure to related risks. With climate change, inefficient usage, and untreated disposal exacerbating water scarcity in essential manufacturing locales, supply chain disruptions are an increasing threat.

The situation in apparel supply chains, predominantly situated in regions already facing moderate to high water stress, is expected to deteriorate, impacting sales and profit margins for brands and retailers. In response, financial institutions are encouraged to factor water-related risks into their investment decisions and to promote transparency and mitigation strategies among companies, including the adoption of science-based targets for water.

“Water risk should be seen as a strategic threat by major apparel corporates,” said Richard Wielechowski, senior investment analyst (Textiles) at Planet Tracker. “Developing plans to manage and reduce this risk over time is essential for long-term sustainability.”

Fibre2Fashion News Desk (DP)

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