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Fashion brands should treat water stress as a material risk to their finances, study says

Puma, H&M and others report their water impacts, but the industry has a long way to go, according to Planet Tracker. Read More

(Updated on July 24, 2024)
Planet Tracker's interactive dashboard displays water stress details related to H&M. Credit: Planet Tracker

Planet Tracker's interactive dashboard displays water stress details related to H&M. Credit: Planet Tracker

Fashion companies — and their investors — rarely talk about the risk to their businesses posed by dwindling water supplies even though the threat is real: It takes more than 700 gallons of water to make a single T-shirt, according to the WWF.

On average it takes 2,100 gallons of water to produce 2.2 pounds of cotton lint, according to a new report from Planet Tracker. Warm weather put stress on water supplies in 2022, and cotton prices spiked 30 percent globally that year as a result, the report says. A 1 percent increase in costs from drought would see a 3 percent decline in operating profit at a typical brand, Planet Tracker says.

Yet few brands are adequately prepared for water-stress problems that will only worsen in the coming decades, the report says. The think tank urges companies to regard water as a potential material risk to their profits or revenues, and disclose data accordingly.

Planet Tracker also advises investors and lenders to reduce their exposure to the fashion world unless companies address the risks their global operations face from dwindling water supplies.

Planet Tracker also found:

  • Of 29 companies studied, only 15 reported their water impacts to the CDP (formerly the Carbon Disclosure Project) in 2022 and 2023. Among them: Adidas, H&M and Puma. 
  • Fourteen others did not. Those companies include Foot Locker, Nike and Under Armour. 
  • Of 42 companies in fashion supply chains, only 17 report to CDP.
  • The companies who did report disclosed very little data: Only 1 percent of earnings calls or capital markets events contained a mention of water-related risk.

“No one is doing it really, really well,” Richard Wielechowski, Planet Tracker’s textiles senior investment analyst, said of the low standard of reporting. “There’s still a long way to go before we’re anywhere towards … a sustainable industry in terms of its water footprint and attitudes.”

Water as a material risk

“Maybe we need an attitude change to just think about this as a material risk, and then it falls into the things you have to talk about,” Wielechowski said.

“Understanding water-related risk should be the first step in any water stewardship agenda, and therefore we welcome this report,” H&M spokesman Albin Nordin said via email. The company performs regular water-risk assessments with support from the nonprofit WWF. “To manage water in a regenerative way along all our operations, collaborative actions are crucial.”

Among brands in the report, H&M sets the most water targets — around efficiency, discharge, withdrawals, raw materials, pollution reduction and water recycling and reuse. It’s also a signatory to the UN Global Compact CEO Water Mandate, where companies share best practices around water-use.

What the water risks are

Retail apparel shops, corporate offices and warehouses don’t often face significant water risks, and thus the issue is often out of sight and out of mind for managers, Wiecheloski said. Yet 67 percent of the world’s cotton will be grown in areas of extreme water stress by 2030, Planet Tracker said.

Water is essential at nearly every step of the supply chain: fiber production, weaving and dyeing textiles, and sewing designs. Those companies are often based in China, Vietnam, India, Brazil and Turkey — countries already facing high to moderate water stress. The climate crisis will likely amplify that with droughts and floods, according to Planet Tracker.

As an example of what can go wrong, cotton irrigation reduced the water volume of the Aral Sea by 90 percent in the past half-century. Farmers around the salty Central Asian lake need four times more water to grow their crops, partly because they must first flush the salt from the soil.

Cotton demand from EU nations was the cause of one-quarter of the Aral Sea’s diminished size — and 44 percent of water used to grow and process cotton is done for exports, according to a 2006 study.

“In the coming years, we will keep working closely with factories located in high or extremely high-risk countries for water, which need to strengthen their risk mitigation measures,” Veronique Rochet, Puma’s senior director of sustainability, said via email.

The sneaker maker sets water targets around consumption and discharge. Last year it discovered that it could reduce its footprint by sourcing more recycled polyester and cotton, using low-water-ratio or waterless dyeing machines, and recycling wastewater in its dyeing mills.

What brands should do

Planet Tracker advises brands to take these actions:

  • Expect disclosure of water risks to follow a similar regulatory trajectory in the next two decades as greenhouse gas emissions. “There’s gonna be pressure from investors, I think a bit of regulation, to standardize this and get everyone reporting,” Wielechowski said.
  • Address water risk impacts across Scopes 1, 2 and 3 for direct and indirect operations.
  • Collect data to make a plan that sets targets, reduces risk and minimizes impact, using the framework of the Science-Based Targets initiative.
  • Use your brand’s financial strength to support suppliers in their transition to more sustainable water usage. That may mean compromising on demand for high volumes at low prices and tight margins.

The North-South divide

Planet Tracker also touched on the divide between fashion brands in the Global North and their suppliers in the Global South. Is it sustainable, the report asks, for a brand to gobble up water to make clothing in a region where people struggle to get drinking water?

“Shouldn’t it be something that is absolutely front and center to business, what they’re trying to change in their operations?” Wiechelowski asked. “Because when their ‘green’ pair of jeans is in the shop with a nice leaf-colored label saying ‘eco friendly,’ and it’s actually sourced in a factory where … they don’t have access to standard hygiene…it really should be something this industry is very aware of.”

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