30 September 2022
September plays host to fashion weeks in New York, London and Milan, ending in Paris. With origins in the 1940s, the events preview collections from designers for the approaching season. This news post contrasts the more contemporary concept of 'fast fashion', explores the relevance to Wiltshire Pension Fund and describes how the Fund's investments are managed.
Fast fashion is loosely defined as "inexpensive clothing produced rapidly by mass-market retailers in response to the latest trends."
The traditional fashion model used to be based on two seasons with trends running through them. Today, the time between designing and selling garments can be measured in days rather than months. Looks and advertising campaigns featured in magazines can now be instantly posted on social media and the smartphone has made it possible to shop online, anytime, anywhere.
There are obvious benefits to these developments, but pressure on time and costs to deliver this through supply chains has led to increased concerns with associated environmental and social issues.
|Traditional fashion||Fast fashion|
|Seasons per year||two||up to 52|
|Design to retail timeframe||months||weeks/days|
|Point of sale||retail stores||online|
|Promotion strategies||catwalk shows, fashion weeks, campaigns, photography||social media, celebrity endorsement, influencers, selfies|
|Production/supply chain locations||developed countries||developing countries|
|Typical materials/design factors||natural fibres, exclusiveness, quality||synthetics, low prices, production speed and quantity|
Perhaps an unexpected implication of Fast Fashion is that levels of waste can be very high where returns are provided for free and multiple sizes are ordered to try fit, or excess garments are ordered on impulse. Returned items represent an environmental and financial cost for companies - as processing costs for resale are uneconomical - but creating durable, sustainable garments for short-lived styles does not make business sense either.
Environmental, social, and corporate governance (ESG) is a framework designed to be integrated into an organisation's strategy to create shareholder value. When companies, or fast fashion brands, do not manage sustainability-related risks, it can reduce investor and consumer confidence.
Fast Fashion and Wiltshire Pension Fund
The Fund is a large investor with exposure to the global economy. Its investments are spread across many companies in various sectors and industries. These sectors and industries span raw materials, manufacturing, distribution and retail; and technology, financial services, communications and consumer products, which is where clothing, accessories and textiles come in.
Analysis - The list of companies involved in the garment industry held by Wiltshire Pension Fund is relatively short and mainly concentrated in large, established, multinational companies. The overall value of these stocks is around £20.8m, which represents 0.64% of the total Fund value (£3.2bn 31 March 2022).
The fashion industry and its supply chains were brought into public consciousness by the Rana Plaza Disaster in 2013. The Accord on Fire and Building Safety helped to improve building safety in Bangladesh, but tragedies have still occurred elsewhere and other health and safety hazards, labour rights and pay issues remain.
Covid-19 had dominated the news in June 2020, when investigative reports drew attention to labour rights in the UK supply chain of a well-known fast fashion retail company. Investor sentiment collapsed along with its share price. The share price made a gradual recovery, but not to the same level as before the event. Wiltshire Pension Fund was not invested in the company, but the case study serves to highlight the value of considering ESG and reputational risk for the long-term investor.
The table below is an extract from the Federated Hermes - Companies engaged by theme 2021 report for Brunel filtered to show fashion companies held by Wiltshire Pension Fund. It should be noted that Hermes do not engage with every company on every theme, but are focussed on those that are identified as priorities. This is not exhaustive, but serves to illustrate that Natural Resources, Pollution, Waste and Circular Economy along with Human Rights are recurring themes in this industry.
|Company [Brand/high street name]||Climate Change||Natural Resource Stewardship||Pollution, Waste and Circular Economy||Conduct, Culture and Ethics||Human Capital Management||Human Rights||Board Effectiveness|
|Associated British Foods PLC [Primark]||👚||👚||👚||👚||👚|
|Burberry Group PLC||🧥||🧥||🧥||🧥|
|Fast Retailing Co Ltd [Uniqlo]||👕||👕|
|H & M Hennes & Mauritz AB||👗||👗||👗||👗|
|Industria de Diseno Textil SA [Zara]||👖||👖|
|LVMH Moet Hennessy Louis Vuitton SE||👜||👜||👜|
|TJX Cos Inc/The [TK Maxx]||👡||👡|
|Wiltshire Pension Fund has a culture and vision that is supported by a series of 16 Strategic Vision Goals (SVGs). These are outcome focussed and SVG 11, Responsible ownership and stewardship, is particularly relevant in this area.|
You can read more about this on the 'Our vision goals and values' page.
The Fund has a Responsible Investment Policy that sets out the how the investment strategy is implemented within the context of responsible investment. Selection of individual companies and day to day decisions on investment are delegated to specialised asset managers and the Brunel Pension Partnership. For institutions investing, many fashion industry investments will be in groups of companies or those that operate across other industries, such as supermarkets and other retailers. The Pension Fund Committee oversee the activity of asset managers and Brunel and are supported by the Accounting and Investment Team.
The updated now includes an engagement policy (page 15 - 16) that sets out the structure and methods to influence in areas identified as priorities. Hermes EOS are the engagement and voting provider appointed by Brunel to carry out direct engagement on its behalf. More information on other means of collective LGPS engagement can be found on the partners investment pages.
The new Responsible Investment Policy also sets out the UN SDGs (United Nations Sustainable Development Goals) that the Pension Fund Committee has selected as priority engagement themes. SDG 8, Decent Work and Economic Growth, [target 8.8 in relation to labour rights] is particularly pertinent to the fashion industry.
The United Nations Sustainable Development Goals are a call for action to promote prosperity while protecting the planet. They recognize that ending poverty must go hand-in-hand with strategies that build economic growth and address a range of social needs including education, health, social protection, and job opportunities, while tackling climate change and environmental protection.
While primarily aimed at governments and policy making, the Goals are increasingly used in the context of institutional investment. Read more on inclusive and sustainable economic growth, employment and decent work for all and why it matters on the United Nations website.
The solution to more sustainable clothes is complex. Research in the industry suggests that cost and consumer demand are barriers to overcome and that government initiatives may be needed to drive change.
Over the last few months, many online fast fashion retailers have ended free returns. These policy changes came after profit warnings were issued by companies on the back of unexpectedly high levels of returns earlier in the year. The primary driver for this may be to address financial costs, but commentators are likening these moves to plastic bag charges (introduced in England in 2015) in the impact it could have on protecting the environment and reducing waste.
For consumers, getting transparency on products is becoming easier as many brands are beginning to publicise their sustainability policies and practices.
While progress has been made, there is potential for 'greenwashing'. This is where climate related statements, targets and plans do not stand up to scrutiny. Two of the most well-known fast fashion retailers and a supermarket brand recently come under investigation by the Competition and Markets Authority, CMA, amid misleading 'eco-friendly' claims.
Wiltshire Pension Fund will continue to monitor these themes, and others, as they develop as part of ongoing stewardship. You can read more about this in our stewardship report and voting and engagement webpages.
Where can I find more specific information?
As mentioned previously, Hermes EOS engage directly with companies on behalf of clients and have published a specific Fixing fast fashion paper, along with case studies, such as Adidas achieving certification from the Science-Based Targets initiative (SBTi). Ongoing engagements can often be on corporate activity outside the public domain and therefore issues details are confidential.