Why it’s hard to track the fashion industry’s emissions – ET BrandEquity

To understand fashion’s climate challenge, think of a shirt.

Every shirt starts with raw materials. Cotton, for example, is grown on farms and then spun into yarn in factories largely found across the Global South. The fibers are sent to textile makers, who turn them into fabric used to make clothes. The clothes are shipped to apparel retailers, who sell them to consumers in stores and online. The exact number of steps in the process depends on the company and the product, but the overall gist is the same: Behind any piece of clothing you buy is a complex supply chain, almost every link of which involves emitting greenhouse gasses into the atmosphere.

Behind that supply chain, though, is a carbon-accounting mess.

Take PVH Corp., the US-based company that owns Tommy Hilfiger and Calvin Klein. In detailed reporting last year, PVH disclosed its emissions for 2017/18 (its “base year”) as well as 2021/22 and 2022/23. The numbers seem to indicate an impressive 47% drop in emissions between the base year and 2022/23. But a closer look reveals what actually happened: PVH changed how it calculated its latest emissions. As a result, the company notes, “prior year footprints are not comparable.” PVH says it’s still recalculating its baseline footprint.

US-based Kohl’s Inc. started reporting emissions from direct operations in 2014, but didn’t begin tracking most of its indirect emissions until 2021. (Kohl’s didn’t respond to requests for comment.) US-based L.L. Bean Inc. has also reported its direct emissions for years, but only recently calculated its full indirect emissions — and hasn’t reported them publicly. (A spokesperson says L.L. Bean “will share that information once it is finalized.”)

These companies are far from alone. To assess the trajectory of big fashion’s carbon footprint, Bloomberg Green set out to identify the emissions of 38 apparel companies with at least $1 billion in annual revenue. We looked for companies that disclosed at least three years’ worth of data, including a base year; reported totals across Scope 1, 2 and 3 emissions; and broke those emissions down into detailed sub-categories. The companies shared their figures through public reports, with Bloomberg Green directly or with the nonprofit CDP, which operates a database of corporate climate disclosures.Just 20 of the reviewed companies, or roughly half, met all three criteria. Of those, 11 reported emissions reductions over the period for which they disclosed data. Nine reported an emissions increase.

Fashion’s emissions-tracking disarray is unlikely to be resolved anytime soon: As better data becomes available and with potential regulations looming, companies across a variety of industries are overhauling or at least finessing how they calculate their carbon footprint. In the short term, though, the inconsistency is making it near impossible to evaluate companies’ progress — or lack thereof.

“We shouldn’t allow a change in how you measure things to lead to meeting your goal,” says Jonatan Janmark, a partner at McKinsey & Co. and co-author of its “Sustainable Style” report. When it comes to really cutting emissions, he says, “clearly brands are struggling.”

The fashion industry generated just over 1 gigaton of carbon dioxide equivalent in 2019, or roughly 2% of global greenhouse gas emissions, according to a World Resources Institute and Apparel Impact Institute analysis. That footprint, and the rise of fast fashion, have made apparel companies a target: In recent years, the industry has come under fire for fueling overconsumption, favoring high-speed mass production despite its environmental impacts, and generating mountains of plastic waste.

In response, fashion companies are setting goals to slash their emissions, with many relying on the United Nations-backed Science Based Targets initiative (SBTi), a nonprofit that acts as the world’s main verifier of corporate climate targets. To meet those goals, apparel makers are experimenting with more sustainable materials, transitioning their operations off of fossil fuels, embracing energy efficiency and piloting business models that are less reliant on new products. But few of these solutions are easy, quick or cheap.

SBTi “[gives] you the goals and some of the accounting,” says Matt Dwyer, vice president of product impact and innovation at Patagonia Inc. “They don’t tell you how you are going to get there.”

Assessing who is and isn’t getting there — and how — boils down to detailed emissions data. Here, the industry is evolving quickly: A CDP review of 100 fashion companies with stated climate commitments found that 80% reported emissions last year, up from 40% in 2020. But more disclosures are needed. So is much more consistency in what’s being disclosed.

“We’re almost a quarter-century into this endeavor,” says Kenneth Pucker, a professor of practice focused on sustainability at the Fletcher School at Law and Diplomacy at Tufts University. “Notwithstanding all the consortia and pledges and goals and targets, it’s sad we’re talking about the inability to do just an apples-to-apples comparison.”

Greenhouse gas emissions come in three buckets: Scope 1, Scope 2 and Scope 3. Scope 1 refers to direct emissions generated by a company’s owned and operated assets, such as its offices and vehicles. Scope 2 are indirect emissions that come from a company’s purchased energy sources, such as electricity, heating and cooling.Scope 3 is basically everything else: indirect emissions from across the supply chain, from consumer use of products and more. The Greenhouse Gas Protocol — a widely used standard for corporate carbon-footprint accounting — outlines 15 different sub-categories for Scope 3 emissions. Not every category is relevant to every company; not all companies have franchises, for example. But it’s also entirely up to individual companies to decide what they consider relevant enough to report.

That’s critical leeway: While Scope 3 represents a big portion of any company’s emissions, that share is especially outsized for fashion. On average, apparel companies’ Scope 3 emissions are up to 25 times greater than their Scope 1 and 2 emissions combined, says Laura Hohmann, CDP North America’s associate director of sustainable supply chains. In many cases, Scope 3 accounts for at least 95% of a fashion company’s total carbon footprint.

And yet, many fashion companies are still determining their Scope 3 emissions, let alone disclosing them. Of the 38 companies reviewed by Bloomberg Green, two did not report Scope 3 at all: Urban Outfitters Inc. — which according to published reports is still collecting the data — and L.L. Bean. Victoria’s Secret & Co. and Nordstrom Inc. reported a single year of Scope 3 emissions, while four companies (Kohl’s, Macy’s, SMCP and Shein) reported two years. Ten companies provided no breakdown or only a partial breakdown of Scope 3 emissions over time; for at least four, that was due to recent changes in how those emissions were calculated.

Even when companies do break down their emissions — including Scope 3 — many are relying on industry averages in lieu of detailed supplier data, intermittently updating their calculations as more data becomes available. Further complicating things: Not all companies get their emissions audited by third parties, and many don’t agree on which emissions should be disclosed.

“Up until recently, everything has been voluntary and this, by its nature, is up to interpretation,” says Berkley Rothmeier, director of consumer sectors at the consulting company BSR.

Digging into the numbers highlights how these inconsistencies can make assessing progress difficult. Uniqlo parent company Fast Retailing Co., for example, doesn’t report emissions from “use of sold products,” a Scope 3 sub-category that primarily accounts for the washing, drying and ironing of clothing. This is often the second- or third-largest source of emissions for fashion companies that disclose it. (Other brands “also do not report that sub-category,” says a Fast Retailing spokesperson.)

J.Crew Inc., on the other hand, does report emissions from use of sold products — but as a standalone figure that isn’t included in its total emissions. That total-emissions figure dropped 9% between fiscal years 2019/20 and 2022/23, but if emissions from use of sold products were included, J. Crew’s emissions actually increased 8%. The company did not respond to requests for comment.

Hanesbrands Inc. reported emissions from use of sold products in its Scope 3 emissions for 2019 (its base year) but not for 2022 — a methodology change that makes it look like the company’s Scope 3 emissions dropped by half in three years. A spokesperson said Hanesbrands stopped reporting the sub-category in 2021 to align with SBTi, and recommended excluding it from comparisons across years. Without emissions from use of sold products, Hanesbrands’ emissions declined 4% between 2019 and 2022. (SBTi considers emissions from washing and drying “optional” for apparel manufacturers, according to a spokesperson, although it recommends that companies include them in Scope 3 reporting.)

The single largest source of any fashion company’s carbon footprint is a Scope 3 sub-category known as emissions from “purchased goods and services.” This represents the bulk of the upstream part of the fashion supply chain — all of the emissions from the heat- and energy-intensive processes of producing fibers, dyeing, and finishing substances required for turning raw materials into clothes. Each of the 11 fashion companies Bloomberg Green identified as having reduced emissions did so in large part by cutting emissions in this sub-category.

Some of those reductions came from companies shifting away from petroleum-based fibers, although the limited availability of alternatives makes that an expensive option, says McKinsey’s Janmark. Luxury brand Burberry Group Plc, which achieved a 39% reduction in emissions between fiscal years 2018/2019 and 2022/2023, attributed part of that decline to its increased use of recycled and organic materials.

Fashion companies are also working with suppliers to reduce their carbon footprints by improving energy efficiency and switching power sources from fossil fuels to renewable energy. At Gap Inc., for example, emissions from purchased goods and services dropped nearly 16% between the company’s fiscal year 2017 (its base year) and fiscal 2022, while overall Scope 3 emissions fell 22%. A spokesperson credited “increased use of renewable energy both in our owned and operated facilities and on the part of our suppliers.”

Jennifer DuBuisson, senior director of sustainability at Levi Strauss & Co., says some of its biggest emission reductions have likewise come from suppliers investing in more energy-efficient equipment and transitioning to lower-carbon fuels and renewable energy. In 2023, Levi’s key suppliers committed to moving away from coal in their facilities, she says.

But these shifts can be exceedingly challenging. Many of the small- and medium-sized companies behind textile manufacturing “don’t have the technical or the financial capabilities, or even the market structure, for renewable energy to make the required change at the required pace,” says Hohmann at CDP.

Often these small manufacturers also work for more than one big fashion company, which can create a perverse incentive to maintain the status quo. To enable suppliers to transition to clean energy, big fashion brands must either collaborate or one company has to charge ahead knowing others will reap some of the benefits.

“We are never the only brand working in an individual facility,” says Henrik Sundberg, climate impact lead at Hennes & Mauritz AB, which has financed 17 renewable-energy projects with suppliers. Sundberg says those projects will cut 50,000 tons of CO2 equivalent from the company’s value chain and save another 140,000 tons of CO2e for other brands. (H&M’s emissions dropped 25% between its 2018/19 base year and 2022/23, according to its latest sustainability report and data shared with Bloomberg Green.)

Corporate emissions disclosures won’t be voluntary forever. The European Union is starting to require large public and private companies to disclose Scope 1 and 2 emissions, as well as Scope 3 emissions that companies deem “significant” and “relevant.” In the US, the Securities and Exchange Commission announced new rules that would require Scope 1 and 2 disclosures from large public companies, though it later paused those rules for legal challenges. Last year, California passed its own, stricter rules requiring large companies to disclose all emissions or risk paying penalties. Those, too, are being challenged in court.

As regulators circle the wagons, the fashion industry is becoming more vocal about a new holy grail in its quest to cut emissions: circularity. If raw materials become fibers that become fabrics that become clothes, the goal of circularity is to keep those clothes out of the trash, either by repairing them, reselling them or turning them back into raw materials that can be used to make new clothes.

But there are major hurdles to making circularity a reality. Resale has yet to prove profitable, and recycled and next-generation materials don’t yet exist at scale. If a company is counting on circularity to solve its climate problem by 2030, “I would look at that skeptically,” says Pucker. “It’s not going to happen.”

As those dynamics evolve, there is one way to reduce fashion emissions that showed up in a handful of the companies Bloomberg Green reviewed: cutting production. Gap named “lower inventory volumes” as a contributing factor to its emissions declines, for example, and Sundberg at H&M acknowledged a connection between a lack of sales growth and a lack of emissions growth.

On the flip side, business expansion was at least partially behind some companies’ emissions increases. Aritzia Inc., which saw a 182% jump in overall emissions between 2019 and 2022, described the increase as in line with growth in its business. (The company also noted that it is adopting lower-impact materials and working on decarbonization with companies in its supply chain). American Eagle Outfitters Inc. said in a statement that while some of its 7% emissions growth between 2018/19 and 2022/23 had to do with methodology changes, “business has continued to grow since 2018, accounting for the majority of the increase.” A spokesperson for VF Corp., where emissions rose 18% between 2016/17 and 2022/23, characterized the increase as “primarily driven by growth in the number of units produced year over year.”

Lululemon Athletica Inc., which saw a 114% increase in emissions between 2018 and 2022, did not explicitly cite growth in its business. “Our goals and strategies include innovating in materials and products, and investing in suppliers and the industry’s transition towards renewable energy and efficiency,” the company said in a statement that also touted 100% renewable energy and a 60% decline in emissions at its owned and operated facilities.

Reducing production isn’t something any apparel maker is likely to embrace with intention. But the myriad solutions fashion companies are exploring to cut emissions have a ways to go before they can match it on efficacy. “These material shifts are not silver bullets, they are not eminently scalable, [and] nothing is perfect,” says BSR’s Rothmeier. “What would most significantly reduce the global apparel footprint is if we make and throw away less stuff.”