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RAISING CAPITAL BY GOING GREEN: THE FUTURE OF FASHION

As companies are constantly assessed in terms of sustainable performance, investors are becoming increasingly interested in ESG investing: a technique for putting money to work with firms that seek to make the world a better place.

Words By Martina Cocchi and Chiara Foggi

18/09/2021

What is ESG investing?

Environmental protection and sustainability have become critical issues that are frequently debated in society. 

More and more firms have begun to implement sustainable practices along their value and supply chains, but what is the next step? 

Companies that seek to make a difference and drive sustainable improvements worldwide, regardless of size, should define an Environmental, Social, and Governance (ESG) framework. 

The ESG quantifies corporate responsibility and performance in core areas that impact their stakeholders, product lines, and processes.

As reported by Forbes, ESG investing is a technique for putting capital to work with organizations that are seeking to have a positive impact, starting with better serving their stakeholders.

During the years this practice became more common among firms; it is no longer limited to large, global corporations.

It started to work its way down to smaller companies, whether public or privately held. 

How does ESG investing work?

Independent and third-party ratings are used in ESG investing to assist clients with evaluating a company’s conduct and policies.

As the name says, ESG investing is based on three macro areas that are evaluated independently and serve as a basis to assess the company’s rating:

  • Environment.
    • What kind of environmental impact does the corporation have? 
  • Social.
    • How can the corporation improve its social effect both within the company and in the community at large? Does it promote equality, ethnic diversity, inclusion? 
  • Governance.
    • What strategies does the corporation’s Board of Directors and management employ to promote positive change?

Is ESG investing worth it?

The answer is yes.

In fact, together with assisting in the fight against climate change and social injustice, an ESG investing strategy is proven to provide higher returns.

How is ESG investing perceived in fashion?

The fashion industry has been increasingly aware of the need to improve the relationship between production and the environment, and production and society. To do so, more and more brands have put into practice sustainable principles and methodologies, such as the circular economy, providing concrete answers in terms of social responsibility.

Together with making a positive impact, these behaviors are also a good opportunity for companies to improve their ESG ratings. Some brands are more committed than others, but with the UN 2030 Agenda and Sustainable Development Goals, and the Paris Climate Agreement, brands’ interest and commitment will soon increase.

One of the latest strategic agreements based on ESG indicators and related to the transition towards a sustainable supply chain is the one between Gucci and Intesa Sanpaolo, an Italian Banking Institution.

Thanks to this agreement, SMEs in Gucci’s supply chain will benefit from the funding lines for their sustainable environmental and social transition in line with the Recovery and Resilience Plan (RRP).

Marco Bizzarri, President and CEO of Gucci, stated: “We are starting a new chapter that consolidates our commitment to ethical and responsible practices throughout the supply chain”.

Through this sustainable supply chain project Gucci will have access to ad hoc financing lines developed by Intesa Sanpaolo, based on the S-Loan formula and inspired by ESG indicators.

The goal is to achieve crucial objectives such as the introduction of green mobility projects and the adaptation of business models to support the development of the circular economy.

By combining their strengths and respective competencies, Gucci and Intesa Sanpaolo aim to launch an innovative model to support the productive excellence of Made in Italy. 

Meanwhile, even at Burberry, the British Fashion House, ESG strategies are put into place to drive responsibility and encourage continual improvement.

Burberry is recognised for its efforts around ESG, in fact, it is not only ranked third as for the “textile, apparel, and luxury goods” category in the DJSI, but it also participates in rankings by the Carbon Disclosure Project, the Workforce Disclosure Initiative, FTSE4Good, and Sustainalytics.

As a matter of fact, Burberry’s commitment in ESG-related matters is its purest expression of purpose and values: it is not only about building a financially stronger Burberry but also improving their commitment towards a more sustainable industry.

What does the future hold?

On one hand, the fashion industry makes several efforts toward sustainability and ESG investing. However, despite these efforts, the industry’s ESG ecosystem lacks comprehensive auditing and transparency from brands.

The credibility and accuracy of ESG ratings is continuously questioned. In particular, a climate of mistrust spread since Morgan Stanley Capital International, an American investment research firm, gave Boohoo a double-A ESG score just before allegations about its promotion of poverty wages and unsafe working conditions hit the headlines. There is a lack of information for investors that want to work with ESG investments.

To address these transparency issues, the Fashion Revolution engages with more than 200 fashion brands around the world to check how much information they disclose and ranks them through their Fashion Transparency Index

In the past, ESG initiatives were considered as something that an organization would do separately from its core business to attract investors.

Presently, companies’ Corporate Social Responsibility programs are becoming increasingly linked to sustainability and operate with high ESG standards, reflecting the core values of an organization.

Although different organizations have different goals, they must keep in mind the importance of environmental protection.

That is why even smaller firms must set an example for the rest of the industry, and the rest of the world, by displaying how profitable and responsible they can be, regardless of their size. 

In the future, there will be a greater emphasis on the inclusion of financially relevant ESG criteria in investment strategies to reduce carbon footprints and promote the use of this investment technique.

The main aim of this will be to mitigate the negative effects of global warming.

We are starting a new chapter that consolidates our commitment to ethical and responsible practices throughout the supply chain

– Marco Bizzarri, President and CEO of Gucci