With the EU finally ratifying the COP21 Climate Agreement last month and the agreement taking effect today, it is now inevitable that highly visible companies such as H&M will be targeted by their respective governments. H&M is the second largest apparel retailer in the world, achieving $21.73B sales in 2015. The iconic fast fashion giant interestingly both contributes to and is impacted by climate change. Importantly, H&M’s active approach puts it in a seemingly oxymoronic state – a sustainable fast fashion retailer.
Apparel accounts for 10% of global carbon emissions – the manufacturing process leaves a significant carbon footprint, requiring significant electricity and water usage. At the end of the supply chain, fast fashion giants, such as Inditex and Forever 21, also facilitate consumer waste through the affordability and temporary nature of their products.
As H&M’s business model is seen to be a key contributor to climate change, the company has suffered reputational attacks. While some may argue that such negative press will not deter H&M’s core target market, say the average cash-strapped student from buying its products, climate change also affects the sustainability of H&M’s business financials. The main challenges H&M are facing:
Reputational and regulatory risk. Fashion is an emotional industry and aside from H&M’s efficient supply chain, it relies heavily on both its image and brand equity. As such, H&M is particularly sensitive to negative PR conducted by NGOs and regulators. H&M’s approach to date has been proactive and all-embracing, rolling out multiple initiatives that have put sustainability in the forefront of their consumers’ minds. In fact, H&M has used its focus on sustainability as a market differentiator from its peers such as Inditex.
Supply chain disruptions. Extreme weather conditions as a result of human-induced climate change affects parts of H&M’s complex supply chain. In recent years, many of the largest suppliers of cotton such as Brazil, have experienced droughts, escalating input prices and forcing H&M to rethink their product assortment and balance the geographic balance of their supply chain. Disruptions in any part of H&M’s suppliers will have ripple effects in its ability to main its supply chain efficiencies.
Product cycle changes. With increases of 3.7 to 7.8Celsius in average surface temperatures, climate change can dramatically disrupt the product assortment and planning of seasonal inventory. For example, there is less need for a winter assortment and the full-price selling period for the season is now significantly tighter. Following the heavy investment by companies such as Amazon in injecting machine learning into demand forecasting, H&M needs to incorporate these environmental factors into their operational decisions
H&M has been a pioneer in their sustainability initiatives, but as the market leader, could take on a more radical approach and lead their counterparts in more revolutionary rules. H&M has made considerable changes to their people, processes and products to address these risks.
- People-wise, they appointed a highly visible Head of Sustainability, Anna Gedda, who speaks openly about the issue  and also a team of more than 200 people.
- Internally, H&M has changed their operational processes to reduce their carbon footprint. By switching to renewable electricity in its stores, H&M reduced its greenhouse gas emissions by 56% YoY in 2015. Similarly, H&M has transitioned to using organic cotton, pledging to use 100% organic cotton by 2020.
- Product innovation has positioned H&M as a retailer that can balance both sustainability and fashion. For example, its Conscious Collection uses eco-friendly materials and has a foundation that offers grants to startups that are dedicated to reducing fashion’s environmental footprint.  However, at present, this is restricted at 20% recycled product, leaving significant room for improvement.
- Externally, they have engaged the consumers with World Recycling Week to raise awareness of fast fashion wastage and also actively recycle used clothing. In 2015, H&M collected 12,341 tonnes and while this is commendable, it is barely a dent in the 150 billion garments produced every year.
Overall, H&M should be commended for taking the lead as both a fast fashion and apparel leader in climate change and sustainability. Yet, despite its various initiatives, the fundamentals of fast fashion – the fact that H&M operates with 30-to-50 mini-seasons, means that it drives consumers to purchase more product than they can truly consume. The effect on the environment needs to be internalized by both H&M and the ultimate customer. Although H&M is unlikely to shift away from their “fast fashion” business model, it needs to do more to ensure skeptics this is not a marketing ploy. To be truly sustainable, H&M needs to quickly scale the impact of their current initiatives both within H&M and its peer group.
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