It’s Time for Fashion to Get Real About its Climate Risks

Vidhura Ralapanawe thought he had more time.

The climate scientist, who heads sustainability and innovation for Epic Group, a Hong Kong-based apparel sourcing business, has spent years worrying about how to keep workers protected and factories functioning as the world heats up.

He never had high hopes for the industry to take the effects of rising temperatures seriously, viewing international environmental commitments as doing too little, too slowly. But he didn’t expect the consequences of inaction to hit so hard and so fast, either.

The last two years have been the hottest on record. In Bangladesh and India — countries where Epic manufacturers — sizzling temperatures sickened workers and strained machinery. Schools shut, power failed and dozens died.

“That was a shocker,” said Ralapanawe. “Even for me, knowing the science, I didn’t expect these kinds of massive heatwaves so fast… that really floored me.”

The rest of the industry is slowly waking up to climate change as an imminent threat. Kering and LVMH are among the major fashion companies that in regulatory filings have flagged that higher temperatures could hurt access to key raw materials like leather and cotton, killing off cattle and causing crops to shrivel. Warmer winters are bad news for purveyors of puffy coats like Canada Goose and Moncler. Zara-owner Inditex said in its latest annual report that extreme weather damaged stores and disrupted sales on nine separate occasions in 2023, though the impact of these natural disasters on the group’s overall business was immaterial.

It’s likely there will be more warnings buried in corporate documents this year, even as the issue is moving down many fashion executive’s agendas.

Indeed, instead of focusing on how to adapt to a new, threatening climate reality, climate risk is still largely portrayed as a long-term, unquantified externality — a fancy way of saying “someone else’s problem.” That’s in contrast to more immediate concerns, like how to navigate inflation-linked demand sluggishness, growing trade tensions and delivering on quarterly growth expectations.

But there is growing evidence that the world can no longer hope to avoid a climate calamity and the onset of disastrous tipping points may come much more swiftly than previously predicted.

“Acting has a cost, but inaction has a higher cost,” said Anna Raffaelli, sector lead for fashion and apparel at climate consultancy The Carbon Trust. “That’s the business case.”

The Climbing Costs of Climate Change

Since 2000, climate-related disasters have caused nearly $4 trillion in economic damage, according to a recent report from consultancy BCG and the World Economic Forum’s Alliance of CEO Climate Leaders. If temperatures continue to rise at their current rate, global GDP could decline by as much as 22 percent by the end of the century.

Many of fashion’s largest manufacturing hubs could face severe financial impacts much sooner. Soaring temperatures and increased flooding could curb export earnings for Bangladesh, Cambodia, Vietnam and Pakistan by more than 20 percent by the end of the decade, according to an analysis by Cornell and Schroders published in 2023. The number of high heat days experienced by workers in key cities in these countries has already increased by 42 percent over the last 20 years, an analysis published by Cornell last month found. According to the International Labour Organisation, heat stress alone could reduce global work hours by 2 percent by 2030.

Getting a more concrete handle on brand’s climate risks is a challenge. Companies base their analysis on a range of different scenarios, but how the climate crisis evolves is increasingly difficult to predict. Deep and diversified supply chains mean brands have so far been sheltered from the consequences when droughts and floods hit key producing regions. Meanwhile, basic data, like the temperature in factories, remains hard to come by.

“If you get a leading global retailer on the phone and press them on the level and quality and confidence in the [climate risk] analysis they’ve done, I think it’s not very high,” said Jason Judd, executive director at Cornell University’s Global Labour Institute. “That’s unnerving.”

Risk Management

Things are beginning to change. Incoming European regulations are set to make brands more responsible for what happens in their supply chains. Large companies operating in the EU will need to publish information on both their environmental impact and exposure to climate risks starting this year. And climate extremes are getting harder to ignore.

“Physical climate risk and the social angle of climate risk really hasn’t got enough attention from brands or investors,” said Katie Frame, active ownership manager at Schroders. The asset management company has engaged a number of its apparel holdings on their approach to climate risk and its impact on workers. It’s planning to publish a toolkit in the coming months to encourage broader investor engagement on the issue. Across the industry, thinking on the topic is “still at quite an early stage,” Frame said.

Even leading companies are only starting to sketch out their approach to adapt to a new, dangerous climate reality. Kering and LVMH both point to efforts to establish more climate-secure supply chains for raw materials by supporting farming practices that protect and restore soil health and biodiversity. LVMH estimates about 5 to 10 percent of its raw materials are currently produced in line with such standards.

H&M Group has established contingency plans to temporarily or permanently move production to lower-risk regions if extreme weather or water scarcity start to have an impact on production or logistics. Nike stands out as having introduced heat stress prevention requirements into its code of conduct for suppliers.

But by and large, brands are still acting like climate change is a train that can be stopped, when in reality it’s already careened out of the station with no industry plan in place to prevent a disastrous collision.

“People are losing their lives in extreme heat, whether in production facilities or in the field,” said Naidoo. “I don’t think there’s enough recognition of how problematic that is, especially because brands are so far removed from that reality.”

For his part Ralapanawe sees developing plans to manage heat levels in Epic’s factories as a matter of urgency. It’s a difficult challenge: The trade off for keeping temperatures bearable inside may be running air conditioning systems that belch yet more planet-warming gases into the atmosphere. And these energy-guzzling cooling systems are expensive to install and run, especially when retrofitting older buildings.

In an industry that operates on knife-edge margins, the core issue always comes down to who will pay to manage and address climate exposure.

“Places deemed to be higher in climate risk the big brands will leave,” said Ralpanawe. At some point there will be nowhere left to go. Until then, “it’s a different way of racing to the bottom,” he said.