Summary

The impact of climate change on the apparel sector

Anna Triponel

September 22, 2023
Our key takeaway: Do you know how heat stress will impact the apparel sector, and its workers? And how about flooding? Well, now you do. Cornell University's Global Labor Institute and Schroders have undertaken detailed analysis to respond to these questions for us - and to provide recommendations for companies. Here are some key takeaways. The apparel industry needs to significantly increase its focus on adaptation - alongside mitigation. This is needed for workers subject to the heat stress and flooding in question - but also for the companies themselves. When looking at Bangladesh, Cambodia, Pakistan and Vietnam (four countries representing 18 percent of global apparel exports), projected earnings foregone due to high heat and flooding are USD 65.89 billion in 2030 (a 22% fall-off in export earnings when compared to a climate-adaptive scenario in which companies, governments and workers adapt to the higher heat). And the lost earnings get significantly worse if we fast forward to 2050 (a 68.8% drop, when compared to a climate-adaptive scenario.) Jobs will also be foregone due to this slower growth linked to climate change: close to 1 million new jobs will not be created (nearly 7 percent) by 2030; by 2050, the number of jobs foregone increases to 8.64 million (nearly 35%). This is an alarm bell for companies: pay attention to adaptation now, and you will reap the benefits in the future - as will your workers. And most importantly, don’t engage in a cut and run exercise: shifting sourcing away from climate-vulnerable centers won’t benefit workers, companies, or governments.

Cornell University's Global Labor Institute and Schroders released ‘Higher Ground? Fashion’s Climate Breakdown’ (September 2023) which delves into the impacts of climate change on global apparel production. Report 1 (Fashion’s Climate Breakdown and its Effect for Workers) delves into climate change impacts at the global, national, and factory levels, while Report 2 (Climate Resilience and Fashion’s Costs of Adaptation) delves into company-level climate risk, cost, and financing for adaption and just resilience:

  • What will the impact of climate change be on global apparel production? The report highlights that the fashion industry is focused on mitigation: it is seeking to cut down its very high greenhouse gas emissions (fashion ranks third on greenhouse gases behind global food production and construction.) However, apparel companies are not focused on adaptation - this is alarming in light of the high vulnerability of a number of production centers to high heat, humidity and flooding (these in particular: Colombo, Dhaka and Chattogram (Chittagong), Yangon, Delhi, Bangkok, Phnom Penh and the massive Dongguan-Guangdong-Shenzhen region). How will extreme heat and intense flooding impact apparel production? The report looks at four countries representing 18 percent of global apparel exports: Bangladesh, Cambodia, Pakistan and Vietnam. Of course, the actual impact will also depend on how governments, employers and workers adapt to this higher heat. The analysis therefore looks at two scenarios: one where apparel industries move quickly to reduce heat stress for workers (climate-adaptive scenario), and one where the apparel industry does not adapt (non-adaptive scenario.) When comparing the scenario of the apparel industry not adapting, projected earnings that are foregone due to high heat and flooding are USD 65.89 billion in 2030. This is a 22% fall-off in export earnings when compared to the climate-adaptive scenario. The report also delves into jobs that are lost due to slower growth: close to 1 million new jobs will not be created (nearly 7 percent) by 2030. If we fast forward to 2050, the earnings will drop by 68.8% when compared to the climate-adaptive scenario. The jobs foregone will be 8.64 million (nearly 35%).

  • What does this mean for workers and companies? Researchers delved into applicable law, and found that existing global public, mandatory and private voluntary standards are inadequate to provide relief for workers. For instance in Cambodia, “[t]here are no requirements for paid breaks, paid sick leave, pay during work stoppages, or rights during work stoppages.” The report delves further into six brands to analyse the impact for individual brands and suppliers. The report finds that the effects of heat become meaningfully worse between 2030 and 2050. Specifically: “workers manufacturing goods for our focus brands face a sevenfold increase in exposure to extreme heat in these production centers, on average, between 2030 and 2050.” When it comes to flooding, flooding risk increases more gradually. This being said: “While the pervasive and large scale effects of heat make it a systemically important subject for adaptation, the unpredictability of flooding means it is a potentially idiosyncratic cost, with severe impacts on individual suppliers and their workers, and therefore on brands and their investors.” What are the financial costs of these productivity risks for a company? The report finds that “productivity headwinds amounted up to 3 percent of [Cost of Goods Sold (COGS)] for Ho Chi Minh and Phnom Penh, or circa 5 percent of our sample brand’s global net operating profit after tax.” This is a “meaningful headwind”, especially for “brands and retailers operating on competitive margin profiles, with limited cushion for absorbing productivity burden or excess costs.” In other words, the physical effects of climate change will result in “meaningful productivity loss within brands’ supply chains.” The report therefore delves into the risks of ‘cutting and running’ from suppliers in higher risk regions in favour of safer production centres - highlighting that “[f]ashion brands and retailers tempted to shift sourcing away from climate-vulnerable centers would struggle to build the large-scale capacity they benefit from in South and Southeast Asia.”

  • What are companies to do? The report encourages companies not to stay on the low road when it comes to climate adaption. The low road would be, for example, including “heat measures as part of worker ‘wellness’ programs and commissioning … flood hazard certifications.” Instead, companies should take the higher ground - which “is where these financial, social and environmental risks overlap: adaptation and mitigation, productivity and earnings, worker income and worker health, and jobs.” Four clear recommendations for companies. First: “Treat heat and flood events as health hazards with paid leave for events and related illnesses, and provide the right to stop work. Alter work hours, effort levels, rest and hydration based on indoor wet-bulb temperature standards.” Second: “Develop social protection mechanisms and climate adaptation finance that redistributes costs and risks away from apparel workers.’ Third: “Establish binding agreements and foster formal partnerships between brands, manufacturers, unions, governments to address and adapt to climate breakdown.” Fourth: “Explore return on investment (ROI) from adaptation measures and support suppliers to retrofit or relocate nearby in lower risk locations.” There are also specific recommendations for investors (“Engage with apparel companies and their stakeholders to encourage adoption of adaptation measures given the focus to date is almost exclusively mitigation.”) and governments (“Integrate climate adaptation and worker-rights related factors within trade policies.”)

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