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Impact investors want to finance fashion’s sustainability transformation. As progress proves elusive, will the money start to dry up?
Last week, Dutch firm ASN Impact Investors, which invests in companies across industries including technology, healthcare and agriculture, divested €70 million worth of shares from across the 12 fashion companies in its portfolio, citing a lack of progress against certain sustainability criteria. San Lie, chief executive of ASN, says he hopes the decision will act as a warning to the industry to accelerate its efforts, or risk losing further financial backing.
ASN claims the 12 fashion companies in which it had minority investments — H&M, Next, Marks & Spencer, Puma, Brazilian department store Lojas Renner, Canadian manufacturer Gildan Activewear, Asos, Wrangler and Lee owner Kontoor Brands, Asics, Inditex, Hanesbrands and VF Corporation, owner of Vans, Timberland and The North Face — were not making enough progress to meet its four-point minimum criteria, which assesses whether brands are actively reducing production volumes, improving garment quality, adopting renewable materials and investing in recycling initiatives.
ASN only owned a small fraction of shares in each of the 12 companies — ranging from 0.03 per cent in Lojas Renner to 1.28 per cent in Next. Nonetheless, Lie hopes it will have an impact.
“For us, it was a very big dilemma. This is not a decision you make overnight,” he says. “But we’ve been engaging with these companies for seven or eight years. At some point, after so many years of talking and seeing hardly any progress, we said this is the limit.” The rise of ultra-fast fashion was another factor. “Shein and Temu are entering the market and forcing the companies that are already fast to only produce more and more,” he says. “We hardly see progress on the social side. We see more and more negative pressure on the environmental impact. We cannot keep these companies in our universe anymore.”
However, H&M Group challenged ASN’s criteria and the divestment, arguing that it could hinder — rather than encourage — progress. “We also believe that the fashion and textile industry needs to tackle its negative impact with clear and comparable goals,” a spokesperson shared over email. “We, however, believe that these goals should be fact and impact based and should build on existing sustainability rankings and assessments. To enable a positive change in our industry, it’s important to continue supporting the brands that are making good progress and that will help drive positive development in the sector.”
On its progress, the spokesperson added: “Our commitment to reducing greenhouse gas emissions is evidenced by a decrease of 22 per cent in 2023, bringing us even closer to our science-based targets that include a 56 per cent reduction of our absolute Scope 1, 2 and 3 emissions by 2030 (baseline 2019). Furthermore, as of 2023, already 85 per cent of our materials are either recycled or sustainably sourced.”
Puma also responded to say it has made “significant progress in sustainability over the past years”. “Puma reduced its greenhouse gas emissions by 24 per cent in 2023 compared to 2022, despite strong sales growth,” said a spokesperson. “Because of this, Puma reached its science-based greenhouse gas reduction target seven years ahead of schedule and set a new, more ambitious climate target in line with what scientists say is necessary for global temperature increases to remain below 1.5 degrees celsius.”
On the divestment, Puma added: “We regret that ASN has taken this step at this stage. ASN actively engaged with us over the past years and even put Puma at the top of the Living Wage Benchmark it helped compile last year.” The other companies had not responded to requests for comment by the time of publication.
A wake-up call for brands?
Could ASN’s decision influence other investors to follow suit? “It’s definitely a conversation-starter,” says Delphine Williot, policy and campaigns manager at global non-profit Fashion Revolution. “It sends a very strong message. We’ve seen so many cases of investors trying to engage with brands, and maybe now is the time to question if you can truly change a brand by investing in it.”
Others note that climate and human rights have been central factors in all ASN investments since its launch in 1993, making it relatively unique. “Given its very ambitious and inspiring remit, ASN is probably not representative of the broader investor community,” says Leslie Johnston, CEO of Laudes Foundation, a philanthropic foundation focused on responding to the crises of inequality and climate change. “I don’t think this move by a firm that already has ethical investment at its core is necessarily going to spur a divestment of other types of investors. But it does tell us that these factors are important and need to be considered when investors make their choices.”
By nature, impact investors aren’t looking to make a quick buck or encourage rapid expansion of the brands they invest in. Often, these investments require increased support to ensure brands are making progress on their ESG (environmental, social and governance) targets, or they offer opportunities to provide such support. “Investors often prefer to engage with companies, providing guidance and encouraging improvements,” says Lewis Perkins, president of the Apparel Impact Institute.
While this can result in near-term progress, in many cases it likely underscores how complicated some of the necessary changes can be.
Just as investors sometimes need to adjust their financial expectations according to a company’s performance, they may also need to be flexible when it comes to improving environmental and social impact as well. Investors should be engaged with their portfolio companies enough to understand where they’re making progress and where they’re not and why, says Perkins. “Sometimes, this means recalibrating expectations and recognising that reaching their ESG targets may require a longer-term view.”
However, it should be a wake-up call for brands that they need to clearly communicate not just plans, but results. “The ASN divestment is a strong signal to fashion industry executives that merely stating commitments is not sufficient; they must demonstrate measurable progress,” says Perkins. Fashion Revolution’s recent report ‘What Fuels Fashion?’ revealed that 94 per cent of major brands do not disclose information about their investments into renewable energy, and just 6 per cent disclose how much they invest.
NGOs like Fashion Revolution are increasingly being consulted to help investors make data-driven choices. “We’re seeing more and more investors reaching out to us activists to get our take on what specific brands are doing, and trying to get our data to create those funds,” says Williot. “What I find incredibly worrying is that given that brands themselves usually use estimates rather than collecting primary data on their greenhouse gas emissions across their supply chain, how are you able to say what a brand is truly doing beyond what’s in their sustainability report?”
That lack of specificity, and of verifiable progress, is something ASN is trying to address head-on through its investment approach. “We don’t believe in long-term engagement processes where you engage on pretty vague topics with no clear objectives and/or timelines. I think that’s the business industry standard, and sometimes also an excuse for investors to stay invested,” says Lie.
To meet the fashion industry’s net-zero targets, $1.04 trillion of funding is needed — could divestment actually stall progress further? “At the end of the day, for the change that we want to see in fashion, we need more finance and not less,” says Johnston. “I’d hope it would spur the industry to create more urgency on the need to change.”
Both Lie and Johnston say greater government intervention in the industry is the piece of the puzzle that will not only accelerate impact, but also instill impact investor confidence. “There’s been a lot of really good things happening in the industry, but is it happening at scale? Not yet,” says Johnston. “I think that for investors to feel fully comfortable that the industry is seriously tackling its environmental and social challenges, you need both carrots and sticks. You need the regulation that draws the parameters, but also need the excellence, ingenuity and creativity that comes with the business sector.”
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