The Planet Tracker report titled 'Ripple Effects – Quantifying water risks in the apparel supply chain', has identified three primary categories of water-related risk for major fashion brands and retailers.
- Physical Risks: operations and supply chains could be jeopardised by water scarcity
- Regulatory Risks: potential changes in water costs, access rights, or social license to operate could impact profitability
- Reputational Risks: adverse coverage of a brand's water impacts could damage its reputation.
The Planet Tracker report reads: “Companies in the apparel industry should be talking about and reporting on their use of water and how they are exposed to water-related risk.”
Addressing gaps in water management reporting
The think tank examined whether 29 leading apparel brands report on their water impacts and dependencies and what targets they have to reduce their water footprints.
Of the 29, the report stated that 15 report their usage of water to the Carbon Disclosure Project (CDP).
H&M was one of these 15 brands and was cited as the brand hitting the most water targets.
A spokesperson for the company told Just Style exclusively that water-related risk is a "key priority" and the management of it is "interconnected" to all aspects of H&M Group's sustainability work for instance "more sustainably sourced materials, biodiversity and chemical management" which they expect will help it fulfil its ambition of achieving net-zero by 2040.
The retailer shared that it has been working to reduce water impacts throughout its value chain for over a decade.
"Our new water strategy for 2023-2030 contains our key goals and actions in our full value chain. To manage water in a regenerative way along all our operations, collaborative actions is crucial," said the spokesperson.
H&M added that it aims to govern and drive water stewardship across the industry in an attempt to "jointly achieve clean water and sanitation for all, as defined in the United Nations’ Sustainable Development Goals".
VF Corporation, which was also mentioned in the report told Just Style: “At VF, we take a rigorous approach to measure and understand water use in our supply chain. Our water stewardship approach prioritises three principles, water efficiency, water quality, and water as a human right."
The spokesperson explained that in FY23, VF completed a new water risk assessment of its global supply chain, leveraging supplier data, the World Resource Institute’s Aqueduct Water Risk Atlas and the World Wildlife Fund Water Risk Filter to assess water-related potential financial and reputational risk indicators across the supply chain.
VF Corporation's key findings from the water risk assessment will be incorporated into its existing policies, procedures and strategies related to water reduction, replenishment, quality.
The Planet Tracker report revealed there are a number of target categories that none or only some of the 29 apparel companies are addressing. This includes discharge, withdrawals, sustainable raw materials, water recycling/reuse, product water intensity and watershed remediation and habit restoration, and ecosystem preservation.
Richard Wielechowski, senior investment analyst of textiles at Planet Tracker stated water risk should be seen as a “strategic threat” by major apparel corporates.
The report explained the overall lack of awareness around water-related risk in the fashion sector would lead to financial exposure for investors and lenders.
The think tank advised investors of major apparel brands to address this data “gap” by pushing corporates to transparently report water impacts using a standardised framework such as the CDP and using tools such as the Investor Water Toolkit from Ceres and adopting Science-Based Targets for water impacts in their supply chains.
The report said this strategy should be backed by concrete capex plans and management teams should be incentivised to deliver on the strategy over time.
A typical apparel brand operating with a 55% gross margin and 15% EBIT margin, could witness a 3% decrease in operating profit with just a 1% increase in COGS (cost of goods sold) due to water-related disruptions.
"Investors in the apparel sector require consistent and comparable data to accurately price water-related risks," said Wielechowski. "Currently, the textile sector falls short in meeting this demand, but investors should collaborate with their holdings to bridge this data gap."
"Developing plans to manage and reduce this risk over time is essential for long-term sustainability," noted Wielechowski.
Water-related risks affecting supply chains
The report examined the extent to which the supply chain was already reporting on water and setting targets by looking at three nodes within the textile supply chain – raw materials, fibres and fabrics.
It found 42 leading companies active in these nodes and of the companies analysed 17 reported to CDP their usage of water.
“The availability of water is expected to be increasingly stressed in many key apparel manufacturing regions as a result of climate change, inefficient use and untreated disposal. This could threaten the production of textiles in many key regions and thus disrupt supply chains,” explained Wielechowski.
Apparel sourcing countries most impacted by region-based water risks
The report highlights the substantial water stress already prevalent in many major apparel-supplying regions and predicts exacerbation of the situation due to projected changes.
North American brands are identified to face a notable increase in water stress, according to Planet Tracker's analysis.
The report found that a majority of the textile value chain is located in Asia and one in two apparel factories operating in either China or Türkiye, displayed a medium to high water stress score.
Bangladesh and India scored very high and high water stress scores respectively, whilst Brazil scored the lowest stress score followed by Vietnam which placed low to medium.
The looming water availability crisis in key manufacturing regions fuelled by climate change, inefficient usage, and untreated disposal, poses a serious threat to these regions.
Planet Tracker projects that by 2050, Brazil and Vietnam are both expected to rise by one water stress category similarly, Türkiye is anticipated to transition into a high-water stress area with its score projected to increase by a third.
