H&M Aims to be Climate Positive by 2040
H&M is leading the fashion retail industry in sustainability initiatives with a new ambition to be Climate Positive by 2040 across the retail value chain.
Why is climate change relevant to retail?
The retail sector contributes to climate change through its carbon emissions across the retail value chain. The retail industry emits about five percent of global greenhouse gas emissions [b]. This is approximately the emissions of the aviation industry, or the country of Russia [b].
Today, retailers must decide how to operate in a world where climate change impacts raw materials and pricing, consumer trends and purchasing patterns, and the economies and countries a retailer operates in. Customers are increasingly looking to shop brands that have a positive impact on the environment [c]. The retail value chain is based in areas with water shortages and in countries with a high share of fossil energy usage [d]. Climate change has been slowing the pace of crop growth, and the industry faces increasing prices [c]. For example, the price for a pound of cotton increased from $60 in early 2015 to more than $70 in late 2016 [c].
Why should H&M care?
H&M is the second largest fashion retailer in the world today. With over 4,500 stores in 68 global markets, H&M’s footprint and brand has substantial influence in the global retail economy [e]. In this position the company has an opportunity to influence several players in the retail value supply chain including suppliers, customers and other players in the industry [d]. H&M has identified an opportunity to improve its climate impact across all steps of its retail value chain [a]. Outside of directly owned stores, warehouses and office buildings, the value chain includes raw materials agriculture, polyester manufacturing, garment composition, and even disposal and recycling of H&M products at the end of their life cycle [a].
Climate Positive by 2040
In 2017, H&M announced a long term goal to be climate positive by 2040 throughout the company’s supply chain. This means that the company looks to reduce more greenhouse gas emissions than it will emit through the value chain [f]. In the short term, the company has set a 2020 reduction target for its operational emissions [f].
- “Reduce energy need across the value chain”
- “Ensure energy comes from renewable and sustainable resources”
- “Take actions to reduce greenhouse gases from the atmosphere beyond the footprint caused by our value chain” [a]
Internally, this focus on climate positive is supported by a global sustainability group of 220 employees. [g]
To date, H&M has achieved 96% use of renewable energy from a baseline of 78% in 2015 [a]. Among its current activities, the company is looking into natural carbon sinks and programs to protect valuable natural biomass and promote sustainable agriculture, as well as investment in tech innovations to absorb greenhouse gases [a]. H&M looks to serve as a model and industry standard for climate change. The company was the first textile company to partner with the World Wildlife Foundation in its Climate Savers Program. WWF is working with H&M to reduce greenhouse emissions through dialogue around strategy and engagement with suppliers, customers and policymakers [d]. Most recently, H&M kicked off Climate Week in New York City with a recycling initiative and announced its Climate Positive initiative. [i]
What next?
H&M is a clear leader in climate change within the fast retailer industry. Today, the organization is focused on how it can be a sustainable member of the global retail community. Over the next few years, H&M should ensure it is on track to deliver its customer promise of “offering fashion and quality at the best price” within the context of a world facing climate change. With rising crop prices and changes in regional climate trends, H&M faces risks to its bottom line. In 2015 and 2016, unanticipated weather trends hit retailer sales [i]. Moving forward, it is crucial that the company invests in optimizing its inventory processing and fulfillment to be able to adjust to changing weather patterns. H&M should look to decrease processing times and increase flexibility in its ordering processes.
Looking ahead
As I look ahead there are several questions that remain for H&M:
- Can H&M sustain its low cost customer offering vs. competitors like Zara while maintaining its large climate positive and sustainability initiatives?
- How can H&M directly influence other retailers to make strides in climate positive initiatives?
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Sources
[a] Video, Climate Positive Value Chain by 2040, H&M Website, accessed November 2017. [https://about.hm.com/en/sustainability/sustainable-fashion/climate-emissions.html]
[b] Alden Nate. Panel Discussion on Climate Change, cited in “Fashion Industry Greenhouse Gas Climate Change Sustainability”, published by Fashionista.com, September 22, 2017.
[https://fashionista.com/2017/09/fashion-industry-greenhouse-gas-climate-change-sustainability]
[c] Zaczkiewicz, Artur. “Is Climate Change Killing the Seasonality Of Fashion Apparel Retailing?”, published by the World Wildlife Fund, October 18, 2016.
[http://wwd.com/business-news/business-features/climate-change-impact-fashion-apparel-10525390/]
[d] World Wildlife Fund Website, April 4, 2017.
[http://wwf.panda.org/what_we_do/how_we_work/working_with_business/business_partnerships/handm.cfm]
[e] H&M Website, Market Overview, October 2017
[https://about.hm.com/en/about-us/markets-and-expansion/market-overview.html]
[f] “Global Retailer H&M joins WWF’s Business Leadership Programme Climate Savers”, World Wildlife Fund Website, April 4, 2017.[http://wwf.panda.org/?296990/HM-joins-Climate-Savers-WWF]
[g] H&M Group Sustainability Report 2016, H&M Website, accessed November 2017.
[https://sustainability.hm.com/content/dam/hm/about/documents/en/CSR/2016%20Sustainability%20report/HM_group_SustainabilityReport_ 2016_FullReport_en.pdf]
[h] Kostyal, Adam. “H&M shows that climate positive fashion is always in style during climate week”, Nasdaq Business, September 22, 2017.
[http://business.nasdaq.com/marketinsite/2017/HM-Shows-that-Climate-Positive-Fashion-is-always-in-Style-during-Climate-Week-Kickoff.html]
[i] Long, Heather. “Everyone loves warm December…except stores”, CNN Money, December 26, 2015.[http://money.cnn.com/2015/12/16/investing/warm-december-bad-for-retail/index.html]
H&M’s goal to be climate positive by 2040 will likely require significant monetary and time investment in new technologies, labor, and perhaps higher quality materials. While this may drive costs higher in the short-term, in the long term, these tactics may result in increased efficiency, potentially more consumer interest, and long-term business sustainability. H&M is one of the largest retailers in the world and their behavior will encourage other retailers to behave in a similar fashion, especially as consumers become increasingly sensitive to environmental issues. In addition, because of H&M’s scale, the publicity of their environmental impact will drive consumer education and understanding. Therefore, as more companies adapt environmentally friendly strategies, companies that do not adapt will become less relevant and appealing for consumers worldwide. H&M’s decision to invest in this goal is a strategic, long-term business decision as much as an environmental decision that will positively affect the climate change discussion.
I didn’t know that H&M was so committed to sustainable practices.
In the search of more environmental friendly practices, H&M can consider a vertical integration of its supply chain. Owning the land and leading the production of raw materials can give the company an economic advantage vs Zara or other retailers. Another initiative that could help the company to reduce its footprint is the recycling of clothes. Two different ways to do this could be by: 1) let customers bring their own H&M pieces of cloth and give them a x% discount 2) let customers bring their own H&M pieces of cloth and we will donate it to an NGO
I think H&M can have a huge impact in the industry if it helps educate the customers and makes them buy sustainable clothes which will make other retailers to imitate H&M to catch up with sales.
Really well-written essay. I was also unaware that H&M had such a strong dedication to climate change initiatives. With regard to the “Looking Ahead” questions, I’m not convinced that H&M needs to sustain the low cost offerings to compete with Zara. As noted in the essay, consumers are increasingly seeking environmentally responsible businesses and will pay a premium price to transact with responsible companies. Perhaps over time, H&M will be able to justify a higher price point and drive higher margins due to their strategic focus on carbon emissions. Additionally, I agree with Lily that H&M’s sustainable business practices are directly influencing other retailers to follow suit as the competition tries to mimic the industry leader.
I’m yet another one who didn’t know that H&M had a focus on sustainability, and I find some similarities to what we saw in class with IKEA. However, the issues I see with a player like H&M in achieving sustainability targets, is that unlike the IKEA case, H&M is not large enough to wield power on its suppliers to push quality controls and sustainable practices. Furthermore, H&M faces fierce competition that might gain market share if H&M raises prices as a result of sustainable raw material sourcing.
However, I do see hope for H&M, and I believe it can use its sustainability focus as a differentiator in the space. Instead of silently rolling out changes and pursuing supply chain changes in an “IKEA fashion”, H&M can be more outspoken and launch a “sustainable clothing line” that will allow it to experiment and gain insight into customer base reactions.
It’s exciting to learn that H&M is focused on having a positive climate impact. In my mind, there’s a definite tension between creating such a huge volume of short lived, fast fashion clothing and a focus on sustainability. That said, it seems like they have a pretty comprehensive definition of the impact their trying to offset, which inspires hope.
I’d encourage H&M to consider creating clothes that last a little longer if they’re serious about their commitment to having a positive environmental impact. McKinsey notes that clothing production doubled from 2000 – 2014, and will likely continue to increase as emerging markets begin to adopt Western consumption habits [1]. At the same time, consumers keep clothing items about half as long as they did 15 years ago [1]. If H&M is serious about this commitment, it may consider whether it can influence fast fashion trends to have an improved carbon footprint on the industry writ large, perhaps by encouraging consumers to make incremental tradeoffs between quality and frequency of purchase (e.g., sell higher quality clothes in slightly less frequent fashion cycles). If effectively implemented, this could reduce volume of clothes disposed without sacrificing revenue growth.
Source: [1] https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/style-thats-sustainable-a-new-fast-fashion-formula
Given H&M’s size as the second largest fashion retailer, they have a unique position to influence other retailers. If they can prove that they can succeed, then they can act as a positive re-enforcer for other retailers in making strides towards climate positive initiatives. The best practices that H&M develops over the next few decades have the potential to create a new industry standard for how others need to operate in order to reduce their footprint on the planet.
When thinking about H&M maintaining its low cost offering while reaching for these initiatives, I do think that H&M will need to innovate around technology to achieve efficiencies. Additionally, as they role out initiatives across the organization, they should be able to leverage the huge scale that they have. Further, I do believe that there is an opportunity that if they are able to successfully achieve their climate positive goal, this could be a strong marketing and branding opportunity that consumers would respond well to and be willing to pay slightly more for.
Fascinating piece, thanks for sharing. I was not aware of their sustainability practices, and was interested to learn about how they were looking to reduce their footprint.
To respond to your questions, I do think they can sustain their low cost customer offering over time, as technologies improve efficiencies over time. It is up to them to begin marketing their sustainability commitments to better capitalize on their social impact work, and this may also allow them some headroom in selling their clothes at a slight premium. Through this, they will absolutely influence other retailers.
My question arising from this is – while it is admirable that H&M is adopting sustainable practices from an energy standpoint, their business model is based on fast fashion, which essentially banks on people throwing clothing away after just a few wears every season. How will H&M faithfully pursue their goal of sustainability when their business growth relies on clothing with incredibly short useful lives?
Very interesting and so relevant to our conversation about IKEA! Being a consumer of H&M myself, I actually do associate the brand with sustainability. They were one of the first clothing retailers that I saw promoting a clothes recycling program. I never actually partook in the program, but I do remember taking notice.
Doing some research on the program now, I’m impressed with how robust it is. According to the H&M website, since the program started in 2013, they have collected 55K tons of clothing to be recycled. They have partnered with a third party to sort and recycle the clothes, and they sort them into 3 buckets:
1. Rewear – clothing that can be worn again and sold as second hand clothes.
2. Reuse – old clothes and textiles turned into other products, such as cleaning cloths.
3. Recycle – everything else is turned into textile fibres, and used for things like insulation.
It seems that H&M’s eventual goal is to produce their own clothes from 100% recycled materials. I can envision a cycle in which consumers purchase H&M clothes, wear them, recycle them at H&M stores, and H&M uses these recycled clothes to make new ones.
Really well-written essay. I applaud H&M’s efforts to combat climate change through Green House Gas reductions in their supply chain. However, given prior work I’ve done in carbon capture and sequestration (albeit for other applications), I think H&M is going to face tremendous challenges to invest in this technology, which is very capital intensive and not yet economical. Especially given that H&M’s carbon footprint is very dispersed (through electricity in manufacturing facilities and transportation), it’s difficult to imagine how a carbon capture project can be effectively implemented.
Additionally, I would further agree with Jane Doe above. H&M’s business model is designed on the premise that consumers replace their wardrobe in increasingly shorter cycles. And as we learned from the Gap case, H&M and Zara are actually influencing other retailers who would typically have taken a more traditional approach. In this way, H&M contributes to over-consumption of resources, to larger amounts of waste, and to a culture that encourages the same behavior in consumers of brands that are not offsetting their carbon footprint.
I personally believe that for a global fashion brand such as H&M that operates on a level of scale at which minor cost differences have a meaningful impact on business performance (e.g. through increasing energy costs or surging crop prices), it is inevitable to make resource sustainability a key strategic pillar in the long-term. As other competitors will likely be facing similar pressure, I would expect them to move in a similar direction in the near- to mid-term, in the interest of maintaining competitive edge.
I don’t necessarily agree with some of the comments claiming that the transition to eco-friendly production in this case is customer-induced. I would argue that H&M’s customers primarily care about price and latest fashion trends. Moreover, there’s a fair chance that fashion shoppers simply don’t associate the production of clothes with adverse climate effects, as respective issue is perceived to stem from e.g. industrial manufacturing, traffic, cars etc. Relating H&M clothes to climate change seems to be too abstract and therefore would require significant educational efforts among H&M’s consumer base, with ultimately limited impact on shopping behavior (given the price sensitivity).
It’s incredible that this was submitted before the IKEA case! Great write-up on the situation at hand. I think it is possible for H&M to remain competitive with Zara as they push the sustainability offering. The assumption here is that they’ve maintained market share in improving sustainability from 2015 to 2016. As they evolve to become a more sustainable/environmentally friendly business, this initiative becomes a competitive advantage. Consumers take note, and all of a sudden you have a positive feedback loop as word of mouth builds into a network effect that we can define as the “sustainable shopper.”
To your question “How can H&M directly influence other retailers to make strides in climate positive initiatives?” Simply put, a consumer response that leads to additional market share and profits will do the trick.
Fascinating that the retail industry creates 5% of carbon emissions. I agree that H&M has a unique position that enables it to be a beacon for sustainability in the industry. But I worry that H&M customers aren’t the people who care about sustainability. I think people shop at H&M to find fashionable clothes that are lower cost, knowing that they may not have been produced in the most equitable or empowering of labor systems. I also find H&M’s customers to be skewing younger and younger these days, with millennials now the age with enough income to shop at competitors that offer slightly higher end products like Zara. I think H&M should focus on sustainability, I just don’t know if it’ll become a competitive advantage for them in the eyes of their teenage and young adult customers.