FASHIONABLE PICKS: Apparel Stocks With Less Guilt

The industry is no standout on environmental, social and governance issues. These stocks buck the trend.  

- ELLEN KENNEDY

The fashion industry faces many sustainability challenges, and it has been financially sucker-punched by COVID lockdowns in China and surging inflation. So investors with environmental, social and corporate governance issues in mind face a host of hurdles when it comes to trying on fashion stocks. But we found a handful of companies that stand to outperform the industry on both financial and ESG measures. Apparel makers have long come under fire for being environmentally unsound.

A 2020 report by McKinsey & Co. and the Global Fashion Agenda, a nonprofit group dedicated to improving sustainability in the apparel industry, found that the industry was responsible for about 4% of global greenhouse gas emissions in 2018. That amount is on par with the annual emissions of France, Germany and the U.K. combined. Moreover, much of the industry hews to the "fast fashion" business model, which designs and markets styles in rapid cycles to increase consumption and demand. As a result, any improvements made in fashion sustainability may be erased quickly by growing consumption.

Some apparel companies have committed to achieving net-zero emissions by 2050 using transparent, evidence-based measures as part of a United Nations initiative to coordinate the fashion industry's sustainability efforts. But Lindita Xhaferi-Salihu, who leads the UN project, thinks regulation is needed to bring the full industry on board.

Managing climate risk isn't the fashion industry's only challenge. Labor and human rights issues are also tricky. The industry has a deep and complex supply chain. Most garment companies rely heavily on supply-chain workers in Southeast Asia, where human trafficking, violence and safety lapses abound, despite some improvements after a 2013 Bangladesh factory collapse killed more than 1,100 garment workers.

 

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