Conscious capitalism in fashion: the unsustainability of fast fashion, Women control more than half the wealth in US, BlackRock’s Chief demands ESG, more….
Do you know who made your clothes? Have you ever thought about the working conditions that they have to endure? In April 2017, the hashtag #WhoMadeMyClothes created 533 million impressions, a huge increase from 129 million in 2016. The hashtag was encouraged by Fashion Revolution, a global movement for transparency catalysed by the fatal Rana Plaza garment factory collapse in Bangladesh which killed 1,135 people, as a way of pressuring brands to be more transparent about the working conditions and wages of the people who make their clothes. As consciousnes capitalism arises amongst consumers about the fashion industry, the demand for transparency increases.
Fashion Revolution has created the Fashion Transparency Index, a review of 100 of the biggest global fashion brands and retailers, ranked according to how much they disclose about their social and environmental policies, practices and impact. As more and more celebrities and stylists promote ethical fashion, its ‘boho’ stigma has fallen away. Today it’s trendy to buy well and buy less.
‘Every single time you run your credit card through a machine you are making a vote for the kind of world we live in – Cora Hilts, co-founder of reve-en-vert.com.
Clothing production has doubled in the last 15 years. 80% of our donated used clothes end up in landfills. Clothing recyclers can’t compete with the low-cost production of Chinese manufacturing. The textile industry already accounts for more greenhouse gas emissions than all international flights and maritime shipping combined. Yet no one has more of an incentive than the clothing industry itself to address the problem. Climate change will affect cotton yields making production less predictable and more expensive. As recycling breaks down, the fashion industry is forced to look for answers to solve this systemic problem.
Sustainalytics, a global provider of ESG ratings, shares key ESG information with investors around the world. They work with hundreds of the world’s leading asset managers and pension funds. Their recent report Understanding ESG Incidents: Key Lessons for Investors is based on the analysis of over 29,000 “incidents” that took place from 2014 to 2016. At Sustainalytics, the word “incident” refers to a company activity that generates undesirable social or environmental effects.
Of course, a company’s incident track record contains valuable information for investors. But the findings are illuminating for consumers as well. Incidents not only reveal weaknesses in a company’s management systems and the financial effect that has on their shareholders, but also shines a light on the severe social and environmental consequences of poor governance and a single-bottom line mentality.
Where did the most incidents occur?
- 40% US
- 6% UK
- 5% India
What are the top 10 riskiest industries?
- Aerospace & Defense
- Precious Metals
- Diversified Metals
- Household Products
- Food Retailers
- Refiners & Pipelines
- Oil & Gas Producers
- Construction & Engineering
What are the top 10 high-profile incidents?
- Dec-2016 Banca Monte dei Paschi di Sienna, Italy – The Italian parliament approves a state bailout worth USD 6.1 billion. This is Banca Monte dei Paschi di Sienna’s third major bailout, with company shareholders and junior bondholders contributing EUR 4.3 billion. Incident tag: Resilience
- Oct-2016 Samsung Global – Samsung recalls all Note 7 devices and halts production after multiple cases of their batteries catching fire. Multiple investigations are pending, and sources estimate that the company could suffer up to USD 17 billion in lost revenue because of this incident. Incident tag: Quality and Safety
- Sep-2016 Wells Fargo, US – Wells Fargo pays USD 190 million in regulatory fines and USD 142 million to settle a class-action lawsuit after creating two million customer accounts without authorization. Additional lawsuits and regulatory investigations are pending. Incident tag: Business Ethics
- Aug-2016 Energy Transfer Partners, US – Protests among indigenous and community groups disrupt construction of the USD 4 billion Dakota Access Pipeline project and impose costs of USD 500 million on Energy Transfer Partners. Incident tag: Conflicts with Indigenous Communities
- Apr-2016 Multiple: Panama – More than 500 banks are connected to fraud, tax evasion and offshoring activities after 11.5 million documents are leaked from Panamanian law firm Mossack Fonseca. The scandal leads to public scrutiny and heightened regulations. Incident tag: Business Ethics
- Aug-2015 Exxon, US. Exxon is issued a USD 566,000 fine for occupational health and safety violations related to an explosion at its Torrance Refinery. The explosion results in an estimated gross revenue loss of USD 700 million. Incident tag: Health and Safety
- Oct-2015 Volkswagen, Germany. Volkswagen admits to falsifying emission standards tests and later agrees to pay up to USD 18 billion in regulatory penalties and settlements. Individual and class action lawsuits continue in 17 countries. Incident tag: Business Ethics
- May-2015 Toshiba, Japan. Toshiba overstates its profits by USD 400 million for the previous three years and is fined USD 61 million for fraudulent accounting, the largest fine ever imposed in Japan. The company is forced to revise its profit for this period by USD 1.3 billion. Incident tag: Accounting Irregularities
- Nov-2014 Home Depot, US. Over 40 class action lawsuits are launched against Home Depot by customers whose personal data was compromised in a sweeping data breach. The company confirms in its Annual Report that at least 60 million customers are affected. Incidence tag: Data Privacy and Security
- Mar-2014 Petrobras, Brazil. A government investigation reveals that Petrobras executives were involved in the largest corruption scandal in Brazil’s history, with bribes in excess of USD 3 billion received over ten years. Incident tag: Bribery and Corruption
Larry Fink, founder and chief executive of the investment firm BlackRock, dropped a huge ESG bomb on the world’s largest public companies in his letter advising them that they need to contribute to society as well if they want to receive the support of BlackRock. It’s a beautiful piece. The world’s largest investor declaring that he plans to hold companies accountable is nothing close to “box ticking.”
Mr. Fink’s declaration is different because his constituency, in this case, is the business community itself. It pits him, to some degree, against many of the companies that he’s invested in, which hold the view that their only duty is to produce profits for their shareholders, an argument long espoused by economists like Milton Friedman. – Andrew Ross Sorkin, BlackRock
Excerpts from Fink’s declaration:
Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.
In the $1.7 trillion in active funds we manage, BlackRock can choose to sell the securities of a company if we are doubtful about its strategic direction or long-term growth.
Companies have been too focused on quarterly results; similarly, shareholder engagement has been too focused on annual meetings and proxy votes. If engagement is to be meaningful and productive…then engagement needs to be a year-round conversation about improving long-term value.
In order to make engagement with shareholders as productive as possible, companies must be able to describe their strategy for long-term growth. I want to reiterate our request, outlined in past letters, that you publicly articulate your company’s strategic framework for long-term value creation and explicitly affirm that it has been reviewed by your board of directors.
Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation to climate change – affect your potential for growth.
In the United States, for example, companies should explain to investors how the significant changes to tax law fit into their long-term strategy. What will you do with increased after-tax cash flow, and how will you use it to create long-term value?
Just as we seek deeper conversation between companies and shareholders, we also ask that directors assume deeper involvement with a firm’s long-term strategy. Directors whose knowledge is derived only from sporadic meetings are not fulfilling their duty to shareholders. Likewise, executives who view boards as a nuisance only undermine themselves and the company’s prospects for long-term growth.
We also will continue to emphasize the importance of a diverse board. Boards with a diverse mix of genders, ethnicities, career experiences, and ways of thinking have, as a result, a more diverse and aware mindset. They are less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long-term growth.
A company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process.
As we enter 2018, BlackRock is eager to participate in discussions about long-term value creation and work to build a better framework for serving all your stakeholders. Today, our clients – who are your company’s owners – are asking you to demonstrate the leadership and clarity that will drive not only their own investment returns but also the prosperity and security of their fellow citizens. We look forward to engaging with you on these issues.
If women decided to invest only in companies that are doing good for People and Planet, they could create massive change. Only companies that value gender equality, sustainability, ethical business practices and conscious capitalism would be able to thrive.
The Women’s March this month incited dialogue about empowering women, especially in the workplace. The mission of the Women’s March is to harness the power of diverse women and their communities to create transformative social change. Meanwhile, a growing number of investments are aimed at companies that include and promote women.
“Gender lens” investing has been around for awhile, but recently its growth has been increasing as the national conversation on gender focuses on the need for equality in the workplace. If women wealth holders chose to collectively harness the power of their wealth, they could change the playing field for all women.
- The Pax Ellevate Global Women’s Index Fund, follows an index that focuses on companies that have women represented on their boards and in leadership positions. The fund also takes an active shareholder role.
- State Street Global Advisors, which launched an exchange-traded fund focused on women in 2016, also takes an active shareholder role. Their fund SHE focuses on companies with the highest percentage of female managers in their respective sectors.
- JP Morgan’s Parity Portfolio includes 25 to 35 U.S.-based companies with a minimum of three women on their boards.
- U.S. Trust’s Women and Girls Equality strategy focuses on companies that employ more women in all areas of their businesses. They also have family-friendly corporate policies, such as child and elder care.
Having more diversity and views … is better for companies. They tend to be more agile and envision what the future looks like better than other companies. – Jenn Bender, Senior Managing Director and Director of Research, State Street Global Advisors