Finance & Investment
Apparel Brands Urged to Understand, Disclose Water Risks

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 percent 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 analyzed 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 importance of the issue is being given its due.

Many stages of apparel manufacturing are significant users of water. As Richard Wielechowski, Senior Investment Analyst (Textiles) at Planet Tracker, points out: "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."

Investors and lenders to the apparel industry are therefore also exposed to this water-related risk; so, financial institutions should be including this risk in their investment decisions.

The analysis

Planet Tracker’s Textiles Tracker investigates the impact that financial institutions have in funding companies across the Textiles, Apparel & Clothing sector. Fast fashion has created cheap and abundant clothing globally; but the natural capital cost has been high — with toxic production practices, degradation of natural resources, massive and growing waste, as well as labor injustices. By providing information and analysis on these problems, placing a value on them, and quantifying the negative impact on profits and investor returns from current practices and the potential benefits and opportunities from changes, Textiles Tracker aims to support and stimulate a transition to greater sustainability in the industry. Textiles Tracker identifies the nodes in the textiles supply chain that are creating the greatest damage, analyzes their financial value, provides transparency of ownership; and, through owners and investors, pressures for change in industry practices.

Exposing Water Risk scanned 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 analyzed period.

The report examines the water-related disclosures of 29 of the biggest apparel brands to determine to what degree corporates and investors are cognizant of the risks they face from water stress. As a starting point, Planet Tracker examined whether brands report on water to CDP, as well as the sort of targets they have set for water management.

Of the 29 brands included in the analysis, 15 report to CDP on their usage of water — a fairly positive starting point, suggesting that water is something management teams are thinking about.

Most disclosed information is centered around water consumption, with toxins and contaminants receiving minimal attention.

Attention, investors

Given that various stages of apparel manufacture are significant consumers of water, financial institutions, investors and lenders in the apparel industry face significant exposure to water-related risks. Planet Tracker recommends the inclusion of water risk in investment decisions, and urges financial institutions to consider the potential impact on supply chains and consumer pricing.

The think tank also advocates that investors push companies to disclose water use and risks through standardized frameworks such as CDP, and encourages investor support for engagement with the textile supply chain to address water usage and pollution associated with textile manufacture.