LONDON – There’s a saying in journalism: news is what businesses or individuals don’t want to you write. Anything else is PR. One could argue that the same principle applies to the data which fashion brands have started to share on a voluntary basis these past few years.
What’s the biggest hurdle when it comes to creating a more sustainable fashion industry? Many will say it’s a lack of transparency or data with respect to a brand’s supply chain. Brands try to sell us on the idea of QR codes or other types of digital IDs as “game changers” to make their business more “sustainable.”
Meanwhile, post Rana Plaza, activists poured an inordinate amount of effort into pressuring brands to disclose their supplier lists. When the likes of H&M, Nike and Adidas made their supplier lists public, it was hailed as a victory. In truth, this was a tiny step for the industry which, in isolation, achieves nothing. Disclosing supplier lists has done nothing to curb the industry’s rampant overproduction or ever-growing use of polyester.
The problem with voluntary data is that companies tend to cherry pick and only disclose non-material information — a well-documented and researched fact as it relates to climate and other ESG-type disclosures. This data isn’t really data. It is information used for marketing. What good is transparency if the information provided doesn’t translate into meaningful action or create a path to accountability?
If we want to see meaningful change in the fashion industry, activism and data must be aligned to drive accountability. Accountability can only come from accurate, objective data.
At present, we are flooded with information when it comes to the supposed sustainability of a product and there are a variety of organisations trying to help consumers et al make more informed brand assessments. All the while, the industry continues to increase its emissions, production and its use of polyester — the unholy trinity and source of the industry’s outsized environmental impact.
More information isn’t necessarily better or even useful if it doesn’t drive change or increase actual transparency. In fact, it creates the illusion of progress when there is none and enables the continuation of an environmentally destructive business model.
How to mislead with statistics
In the wake of the Dodd-Frank crisis a series of laws were passed in the US to increase corporate transparency and create better executive accountability – ostensibly to help avoid the next financial crisis. One of those rules required public companies in the US to publish the ratio of CEO pay to the median worker. By the SEC’s own admission, this rule was one of the most controversial the Commission was required to undertake as part of the Dodd-Frank Act.
However, each company has wide latitude in how they calculate the median worker pay and companies do not have to include third-parties or independent contractors in the calculations. The concession to leave out third-party contractors was part of a series of: “discretionary decision(s) to help ameliorate some of the complexities of implementing the statutory mandate while retaining the value of the disclosure to investors.”
Eliminating complexities, however, also eliminates information. In the fashion industry, for instance, third party contractors produce the entirety of what a company sells — a data point that can be found in a public company’s 10-K filing. There isn’t a materiality threshold where third-party contractors must be included.
Did the SEC or Congress in passing this law realise that a sector like the apparel industry sells products made almost entirely by third-parties rendering this ratio virtually worthless? Unlikely. Is this worth exploring and highlighting? Indeed. Because it gets at the heart of what drives fashion’s outsized environmental impact: the exploitation of labour.
The statistics on these ratios stood out because three of the top ten companies with the widest ratios are apparel companies – see table below – but, again, this ratio would not include the median wages of the garment workers that actually make the clothing these brands sell.
One way to think about this is to imagine if McDonald’s only hired third party contractors to work in their restaurants to make the food they sell. Ostensibly, this would eliminate a large number of lower paid workers from the calculation and could improve the CEO to media worker ratio (MCD’s ratio is 2251:1), but fast food like retail workers generally work directly for the company. It’s probably safe to assume that when a company is given latitude in how they calculate a ratio like this, they ultimately publish the best-case scenario. Even the most recent update to this rule didn’t address this problem.
We can’t re-estimate the apparel industry ratio to include garment workers since we don’t have a breakdown of how each company calculated their median worker salary. Nor do we know the number of garment workers that made each company’s items and their median salary. We don’t want to make a bad statistic worse, but what we do know is the average garment worker salary (I used Statista) in the primary location where garments are made using disclosures in the risk factor section company 10-Ks as a guide.
The average garment worker makes half to a fraction of the median employee salary. Again, we cannot make an apples-to-apples comparison since we don’t have the breakdown of how the median salary is calculated across firms. But, if you simply compare CEO compensation to the average garment worker salary, the ratios double or in Nike’s case goes from 771:1 to 8398:1.
Lies, damned lies and statistics
This exercise demonstrates how easy it is to hide behind a statistic that appears to provide transparency when a company is given leeway in the calculation. It also shows how more information doesn’t necessarily mean a company is being more transparent — a subtle nuance that gets lost in the clamor for headlines.
Data without accuracy or purpose is just information – or garbage as a former colleague in finance described it when I discussed this issue with him. The problem is fashion is flooded with it.
As illustrated above, a statistic that is supposed to help drive transparency and accountability actually helps hide the dirty secret that enables the fashion industry’s ability to overproduce yet remain massively profitable: exploitative labour.
What this exercise also demonstrates is that companies have more insight into their supply chain and Scope 3 climate risks than they often claim. If you examine the 10-Ks of the four firms in the chart, all highlight country and vendor concentration risks.
Abercrombie & Fitch notes they use approximately 119 vendors located primarily in Southeast Asia. Nike notes they have 279 vendors in apparel and that: “For fiscal 2022, two apparel contract manufacturers each accounted for more than 10% of apparel production, and the top five contract manufacturers in the aggregate accounted for approximately 54% of NIKE Brand apparel production.”
While Ralph Lauren noted: “Over 300 different manufacturers worldwide produce our apparel, footwear, accessories, and home products, with no one manufacturer providing more than 6% of our total production during Fiscal 2021.”
When the American Apparel & Footwear association sent a letter to the SEC about the proposed climate-related disclosures they noted that the, “SEC rule should limit the disclosure to material risks: The focus should be on a qualitative discussion of climate-related risks including governance, strategy, and risk management with the inclusion of metrics, targets, and financial impacts only if relevant to understanding and management of material climate-related risks.”
Public apparel companies include disclosures about country and vendor risks in their securities filings because, by their own admission, they are largely if not entirely dependent on independent third parties to produce the goods that drive their revenue.
Whether we’re talking about company disclosures or third-party organisations ranking companies, it’s time we start focusing on data that will drive change and accountability in the industry. Let’s move away from this idea that more is better, and toward the idea of gathering and/or producing meaningful data. Data which, in many cases, fashion brands might not want you to see.
Just because a data point is interesting doesn’t mean it’s useful. This is where activists trying to create accountability in the industry stumble. Like brands with their buzzwords, they too are chasing headlines — and they get them. But they aren’t getting industry change.
The fashion industry tossed the activists a few scraps when they shared their supply chains. But how do we know if we have the full picture – and what has it accomplished? This information hasn’t been used to calculate a brand’s carbon footprint. Nor has it been used to show the path a garment takes around the world to create an emissions benchmark for a certain product. If we were certain of its accuracy, then it could be useful, but we have no way of knowing if we are getting a complete and accurate picture of a company’s supply chain.
This information is voluntarily disclosed in non-financial reports, meaning the legal consequences of misstatements are minor if not non-existent; the information must be taken with a grain of salt.
To reiterate, data without accuracy or purpose is just information. If we ever want to see meaningful change in the industry, we need to be smarter about the data we ask brands to disclose. It’s time for a meaningful shift in fashion’s sustainability narrative towards efforts that drive actual accountability and not just headlines.
About the author: Kristen Fanarakis is the owner of Senza Tempo Fashion (www.senzatempofashion.com)