RobecoSAM and water management in the textile sector
Water management is a key sustainability driver in the textile sector. In order to manage a constructive dialogue on the importance of water management and the added value of an effective water management strategy we identified six areas of success both in direct operations and also in the supply chain. Robeco commenced dialogue with 12 textile companies in our portfolio in early-2010.
Why is water management material for textile sector companies?
In order to create resilient and competitive supply chains, companies need to carefully balance commercial imperatives (e.g. quality, costs and delivery time) and broader societal issues (e.g. environmental impact, social considerations and business practices). One of the areas where these coincide is in water management. Through their water use, textile factories compete with local communities for an important local resource. In discharging waste water, they potentially bring adverse impacts to local environments.
Textile companies are susceptible to reputational damage and brand impact which makes environmental management and specifically water management important elements in safeguarding shareholder value.
Criteria for engagement
At the outset of our engagement we identified six criteria for the dialogue with companies on water management. These were addressed in an initial research report carried out for Robeco by CREM in 2009.
#1: Awareness of water dependency
We asked companies to show public awareness of water dependency, both for the company itself and for the various partners in the supply chain. With the exception of Polo Ralph Lauren, all of the companies we have engaged with discuss the need for water management on their website.
#2: Analysis of water impact
We requested companies to provide insight into the water risks to their business and to give clarity on the water footprint of their operations. This is important in understanding the impact of a possible change in the availability of and demand for water in areas in which the company operates, either directly or via their supply chains. Several companies, such as Adidas, GAP, H&M, have done this and provide a thorough analysis of their water impact. Others, such as Abercrombie & Fitch and Burberry, will commence these studies in the coming year.
#3: Water policy
We asked companies to develop a comprehensive environmental policy that incorporates water management or a specific water policy. This policy should address water management by the company and its supply chain and, when made available to all stakeholders, provide the necessary information to judge the approach the company takes regarding water management and mitigation of water risks. We have found during our engagement that water is mostly addressed as part of an overall environmental policy, with Fast Retailing as an example of a company that covers water management in its broader environmental policy.
#4: Water-policy implementation
To enable effective water-policy implementation we asked companies to assign responsibility for water management at executive level and to provide sufficient resources to implement the water policy. Having such senior management oversight creates credibility for the water management strategy for external stakeholders. During the engagement period we have seen this aspect of the implementation of water management policy maturing significantly at the vast majority of the companies, and we used GAP as a best practice example for their governance structure.
We have asked that companies make the results of their water strategy public, and link them clearly to objectives for water management included in their water policy. Transparent publication of water management policy and targets provides insight for investors how the company deals with water risks and we place a high value on participation in the CDP Water disclosure project as this provides investors with comparable data how different companies approach water stewardship. Disclosure through CDP Water has not yet been fully embraced, but GAP, H&M and LVMH do provide valuable information to investors through this important initiative.
#6: Integration of water management in core business
We have looked for companies to develop their business case for water management internally and embed the issue of water management firmly within the organisation. In our view, a company achieves optimal results on its water management and best mitigates the business risks that ultimately could negatively impact shareholder returns, when the business case for water management is made throughout their organisation and is fully embraced by all relevant internal and external stakeholders. Embedding water management in the core business is the final step in a company’s growth regarding water management practices and the leaders in this area area Adidas, H&M, NIKE and PUMA.
Through our engagement we identified an initial six companies who moved beyond our success threshold of criteria to be met. Based on the practices that we saw in these companies we developed a Best Practice Guidance report in 2013. We subsequently used this as a medium for sharing lessons with the other half of the peer group. We found that many were able to take specific best practices on board in their own plans for water management.
Robeco has now completed its engagement on water management with our selected 12 textile companies. During this period we have seen the textile sector making significant progress in its approach to water management. From a starting point of little awareness and disclosure, we now see the majority of companies moving towards better practices and greater transparency. At the end of the engagement, we can conclude that the majority of the peer group, with a small number of exceptions, is now well-positioned to deal with the challenges of water management.