Two decades before the Business Roundtable awakened on the merits of stakeholder capitalism, I was fortunate to be part of the executive team of Timberland, a purpose-oriented company. The company’s mission included “trade and justice” in equal parts, enabling innovative sustainability actions and outcomes. As a result, the company has been recognized by entities ranging from Professional ethics magazine at the White House.
Yet despite the recognition, I can’t tell you how much the company’s carbon footprint has grown during my tenure as chief operating officer. Although the impact of Timberland’s “scope 1” (direct emissions) and “scope 2” (purchased electricity) decreased by double digits each year, 96 percent of the company’s carbon emissions were in “scope 3” (emissions upstream and downstream). These emissions came from cattle ranchers in Brazil, exclusive producers in the Dominican Republic, and finished product factories in China. Despite the company’s intention to remedy its climate impact, Timberland did not have the tools or know-how to comprehensively measure its environmental impact.
It’s been over a decade since my Timberland graduation. A lot has changed. The company was acquired by VF Corp. Climate change is no longer theoretical; it is helping to burn down homes and flooded subway stations. Consumers and investors are starting to rate their values. And there are better tools for estimating and measuring emissions.
As a result, responsible companies are stepping up their commitments to climate action. For example, The Fashion Pact, an industry-led initiative launched before the 2019 G7 Summit, has committed 70 companies to protect the oceans, promote biodiversity and achieve carbon neutrality by 2050. At the same time, dozens of fashion companies (including VF Corp) are committed to delivering science-based goals with aggressive goals of purpose 1, 2 and 3 by 2030 and 2050.
This all looks promising.
Unfortunately, it looks better on paper than in practice. How come? For starters, commitments shouldn’t be confused with progress. Consider past corporate commitments to stop deforestation, reduce plastic use, or reduce corporate carbon emissions. This is, in part, because system incentives continue to prioritize short-term profits over long-term health of the planet. After all, investor time horizons are shrinking as companies’ investment horizons grow. Furthermore, most externalities, including carbon emissions, remain priceless. As a result, companies that pay the true cost of carbon, for example, become victims of a free rider problem.
Despite the passage of time, the advent of tools and the presumed business case for sustainability, even those most committed to recovery and action fall short. According to my analysis, less than half of the Fashion Pact signatories even include scope 3 emissions in their goal setting. At the same time, many large fashion companies that have joined Science Based Targets are already behind their goals and have no legitimate plans to deliver on their commitments.
After 25 years of trying, it is time to admit that our voluntary corporate action to address social and environmental challenges is not working. Since the start of the corporate reporting movement, carbon emissions have increased by 50%. At the same time, social justice in overseas factories remains elusive. We need a different approach.
Part of the solution is to change the rules of the system. This is what the proposed Fashion Sustainability and Social Accountability Act does. The Fashion Act, for short, was introduced this week in New York State by The Act on Fashion Coalition which includes, among other leaders, the New Standard Institute, Stella McCartney, NRDC, Uprose and South Asian Fund for Education Scholarship and Training. The law requires basic transparency for both finished products and raw material suppliers, the disclosure of risk mitigation strategies and compliance with the objectives set in agreement with the Science Based Targets Initiative. All brands with revenues over $ 100 million transacting in New York State are covered by the law, which effectively means all major fashion brands, from Louis Vuitton to H&M.
Passing and complying with the Fashion Act will ensure New York consumers that the footwear, apparel and accessories they buy are made with respect to planetary boundaries. It will also serve as a signal to investors that these same companies are actively reducing their carbon footprint and are therefore less susceptible to rising costs when the carbon price is eventually priced. For workers, the law represents a step towards a level playing field, thus creating an opportunity for the growth of the domestic industry. Finally, it will stimulate pre-competitive collaboration between companies to innovate to reduce their collective carbon emissions.
Quite often, companies reject regulation as a reflex. In this case, brands may worry about the breadth of their complex supply chains and the absence of direct control over their distant partners (who are the source of their purpose 3 emissions). These concerns are reminiscent of the fears expressed by automakers when they were forced to adhere to higher fuel efficiency standards. Yet on reflection, I imagine most automakers now wished they had acted faster to develop electric vehicles. I also hope my fashion colleagues reflect on the opportunity that presents itself.
The Fashion Act serves as a call for progressive companies to innovate – to reduce the real cost of their production. It also serves as a directive for fast fashion companies to redress social and environmental exploitation in order to sell in New York State. Unlike the rhetoric of the Business Roundtable and the well-meaning voluntary actions of companies like Stella McCartney, Eileen Fisher, Timberland and Patagonia, the law will push the entire fashion industry towards legitimate governance. Fashion companies have a history of leadership and cultural involvement. Here is a key opportunity to extend that legacy.
Kenneth P. Pucker is a Senior Lecturer at Tufts Fletcher School and an Advisory Director at Berkshire Partners. Ken worked at Timberland for 15 years and served as COO from 2000 to 2007.
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