Doing smart business in 2020: Retailers that embrace sustainability are hitting the mark

Apparel has become a long-term product instead of a short-term fashion. Conscientious consumers are voting with their dollars and showing strong preferences for sustainable brands. As a result, retailers, manufacturers and brands alike are being forced to become environmentally aware — and it's increasingly a matter of business survival.

"There's a focus on less-disposable products across all consumer categories, including apparel," said Eric Fisch, national sector head of retail and apparel, corporate banking, for HSBC. "It's all aiming for the same purpose of creating an environment where we produce less and use things longer." In other words, brands now must take a closer look at their supply chains, manufacturing processes, overall and business practices in the context of environmental concerns.

"Ninety percent of millennials use sustainability as a lens for shopping, and 73% are willing to pay more for a product if it's sustainable," Fisch said. "Retailers, manufacturers, and brands are looking more and more for sustainable products."

How retail brands are moving towards sustainability

As the circular economy grows in importance, companies are researching and developing less environmentally damaging production methods and materials and communicating their commitment to sustainability to consumers.

Outdoor clothing retailer Patagonia, for example, explains how products listed in its catalogs are made so that consumers know that their clothes won't linger in landfills for years. Rather, the company produces new clothes in a smart, sustainable way. Similarly, fashion brand Reformation uses sustainable fabrics and upcycled materials in its clothing and ensures that it partners only with socially responsible suppliers. Other retailers are taking similar steps.

In fact, almost one-third of businesses plan to choose suppliers and partners that are more sustainable within three years, according to an HSBC Navigator survey. The reasons aren't simply based on ethics, either; more than eight out of 10 buyer firms that were pushing their suppliers and partners to improve sustainability were doing so because sustainability would help the buyers "achieve cost efficiencies, improve revenues and boost profitability," the survey noted.

Can sustainability be profitable?

The notion that sustainability efforts are not at odds with financial benefits is becoming more and more evident.

said Tensie Whelan, director of the Center for Sustainable Business at NYU Stern, at a 2019 HSBC event on disruption and innovation in the retail and apparel industry. "The result is often an increase in yearly revenue and a renewed sense of loyalty among consumers who see the company as a champion for sustainability."

The need for ethical business practices in retail

Consumer values and expectations are only one driving factor in the current shift towards sustainability in the retail industry. When it comes to apparel manufacturing, sustainability initiatives can be particularly beneficial for the environment, too. The 1.26 billion tons of greenhouse emissions produced by the fashion industry annually exceeds the combined emissions by the shipping industry and international flights, according to the Sustainable Apparel Coalition's Higg Index.

The problem isn't just being caused on the manufacturing side, either. As of 2014, consumers bought 60% more clothes than they did in 2000 but discarded items much more quickly, which creates immense waste. The U.S. Environmental Protection agency estimates that Americans dispose of about 12.8 million tons of textiles each year.

Of all the ways to boost an organization's corporate social responsibility, sustainable supply chains may offer the biggest opportunity for apparel companies to help the environment. The impact is significant: A consumer company's supply chain typically creates more than 80% of the company's greenhouse-gas emissions and 90% of its impact on geological resources like air, land, and water.

Resources are emerging for companies that seek to improve their responsible business practices. For example, HSBC does its part to help develop sustainable supply chains by working with vendors and non-governmental organizations alike to set high procurement standards and minimize negative environmental impact. The organization recently teamed with Walmart to offer the retailer's global suppliers better financing rates for improving their sustainability practices, thereby incentivizing efforts to improve energy efficiency or reduce waste.

Action items for retailers

Apparel companies looking to thrive in the circular economy must recycle raw materials or use innovative alternatives to less-sustainable products. Eliminating waste and demonstrating sustainability are crucial to achieving the efficiency that improves the bottom line as well as the top-line growth that comes from providing environmentally friendly products that consumers want.

Re-using water through closed-loop production processes has greatly reduced the amount of water needed to make a pair of jeans, for example, Fisch said. Investing in the development of new fibers and textiles that will lower the environmental effects of production can also eliminate some environmental risk, as can the implementation of recycling technologies and the verification and support of responsible factories, tanneries and mills.

Investment in environmentally responsible research, collaboration, and technology improvements is not cheap. Financing will play a role in the retail industry's sustainability transformation. But opportunities do exist for organizations that prioritize sustainability. HSBC, for one, has committed to providing $100 billion of financing and investments by 2025 to develop clean energy, lower-carbon technologies, and projects that contribute to the delivery of the Paris Climate agreement and the UN Sustainable Development Goals.

The more environmentally aware manufacturers and retailers are, the more connected with consumers they will become through sustainability.

And so the circular economy goes.

Learn how HSBC can support retail companies' plans for growth. Visit We Speak World for more.

Jim Molis is a writer with The Business Journals Content Studio.