Fashion industry scores poorly on its environmental report card

Doing good by doing well is the ESG mantra of companies heeding the demands of investors, employees and other stakeholders. The fashion industry isn’t doing so well on the E part of that acronym, a report finds.

Why it matters: Fashion companies criticized for being environmentally unfriendly run the risk of losing customers and shareholders.

• They also open themselves up for an activist attack, whether a small group of individuals or a larger hedge fund waving the ESG banner (Environmental, Social and Governance).

Reality check: The fashion industry is regarded as the second-largest commercial polluter in the world, right behind the energy industry, according to a United Nations stat.

• With more attention paid to climate change and the circular economy, companies need to get their ESG acts together or fall out of fashion.

What’s happening: According to a report by the global consultancy Kearney, only 7% of fashion industry companies it surveyed used recycled materials to any meaningful extent.

Between the lines: “Executives don’t really understand how circularity actually works and that really cascades its way down through the organization,” Brian Ehrig, a Kearney partner, tells Axios.

By the numbers: Just about 5% of companies — mostly luxury brands — offer extensive repair services, 5% offer secondhand sales, and about 2% provide rental or lease services, the report finds.

What’s next: Very few brands spend on R&D so their next best bet is partnerships with companies like ThredUp, Poshmark and The RealReal, Ehrig says.

• But that needs to come with relationship-building, and maybe some investment, with recyclers, secondhand marketplaces and others in the ecosystem for that to work, he says.