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Continuing to fight the fashion revolution

Fashion, by definition, is among the fastest-moving industries and one that has presented many challenges for sustainable investors over the years. Our work on this industry over two decades highlights how our thinking on themes can change and also shines a light on our engagement efforts as an active owner of companies.

As the idea of ‘fast fashion’ proliferated, clothing supply chains lengthened under relentless pressure on costs with emerging economies offering lower wages, weaker labour laws and tax breaks to win contracts from major brands. But since launching the Sustainable Future (SF) funds in 2001, our view has always been that unsafe and degrading working practices make no business, common or investment sense.

Fashion Revolution Week has become an established part of the sustainable calendar and this year’s event, against a backdrop of Covid-19, felt more relevant than ever in pushing for businesses to protect employees throughout their supply chains in times of stress.

Overall, the aim of the event is to increase transparency in the global garment industry and a key part of this is the publication of the annual Fashion Transparency Index. This ranks 250 of the world’s largest fashion brands and retailers against 220 indicators, covering topics from animal welfare and climate, to forced labour, gender equality, supplier disclosure, and waste and recycling. Headline results confirmed our current thinking on this sector: while improvements are evident, there is much to be done, with no brand scoring anywhere near full marks and a disappointing average of 23% (up from up from 21% from 200 brands surveyed in 2019).

Based on these findings, we believe our Better monitoring of supply chains and quality control theme is more important than ever, with huge improvements required. Just 2% of brands publish a time-bound, measurable strategy for how they will achieve a living wage for all workers across their supply chains and we view such a lack of progress on this key social impact as a major risk during and beyond the Covid-19 epidemic.

As the fashion sector grapples with issues of sustainability, we have shifted our own investments away from high street retailers and it is worth investigating why we ultimately made such a move. Since the earliest days of the SF funds, labour standards in supply chains has been one of our most important engagement areas and we have seen several major projects to improve this, from Oxfam launching Better Returns in a Better World in 2006 to Fashion Revolution itself, formed in the wake of 2013’s Rana Plaza disaster.

A decade ago, we completed a detailed project to assess the fashion industry’s supply chains, concluding that working conditions were unacceptable in a significant number, that change was coming, and there were opportunities available to companies that could drive improvements. We focused on the need for decent work and wages throughout the chain and identified Inditex, the owner of the Zara brand, as an investment for our funds as we believed its proximity sourcing model allowed for a more sustainable form of manufacturing.

This issue of unsafe working conditions came into sharp focus with the 2013 collapse of the Rana Plaza complex in Bangladesh, a disaster that resulted in the loss of more than 1,100 lives. Many of those killed were employed in the garment industry and change was urgently required. As a direct result, we saw the Accord on Fire and Building Safety in Bangladesh and Alliance for Bangladesh Worker Safety quickly established, notable wins for an industry that had previously been slow to respond to such issues.

After years of ongoing analysis, we concluded in 2016 that retailers had been unable to show sufficient improvements in supply chains and the image of fast fashion had become irrevocably damaged as a result. The theme exposed more risks than opportunities for the large retailers and we sold out of names including H&M and, ultimately, Inditex in 2018.

This is not to say we no longer find opportunities within this theme but we now focus on companies that assess supply chains on behalf of retailers. The Testing, Inspection and Certification (TIC) industry is vital for sustainable development, ensuring the safety of products both for users and the people making them. With more complex supply chains, product innovation, stringent regulations and ever-increasing consumer demands around sustainability, this sector enjoys a long-term structural growth rate that should continue to rise ahead of global GDP.

We identified Intertek as a positively exposed company benefiting from growth in increasing safety standards, outsourcing, regulations and sustainability, adding it to our funds in 2018. It also has the sustainability profile, business fundamentals and valuation that we need to invest with confidence.

Now more than ever, the ability to manage a supply chain will determine success in the fashion industry. We believe positive impacts delivered through the chain can reduce fashion and business risk, both in the short term and as we come through the Covid-19 crisis: fighting the fashion revolution has never been more important.

For a comprehensive list of common financial words and terms, see our glossary at: liontrust.co.uk/benefits-of-investing/guide-financial-words-terms

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About the author

Peter Michaelis, Head of Sustainable Investment team, Liontrust

Peter Michaelis joined Liontrust in April 2017 following the acquisition of Alliance Trust Investments, where he was Head of Investment. Peter has been managing money in Sustainable and Responsible Investment for over 19 years. After completing a PhD in Environmental Economics, Peter started his career working for the Steel Construction Institute as an Environmental Engineer. He then moved to Henderson Global Investors where he was able to use his experience as a Sustainable and Responsible Investment Analyst and Assistant Portfolio Manager. In 2001 he moved to Aviva Investors, where he was promoted to lead Portfolio Manager on a number of its Sustainable and Responsible Investment funds, before being made Head of Sustainable and Responsible Investment.


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