There are numerous material environmental, social and governance (ESG) issues facing the apparel industry including environmental issues in the supply chain, labor issues, and climate change. In addition, apparel companies face increasing pressure from consumers, regulators, and investors to increase sustainability of their business models. The COVID-19 crisis has created new crises (e.g. supply chain disruptions, labor and employee challenges) while also presenting opportunities for companies to find new ways to connect with consumers and to ensure resiliency in their supply chains.
The NYU Stern Center for Sustainable Business (NYU Stern CSB)’s Return on Sustainability Investment (ROSI) methodology aims to help clarify which sustainability strategies can create financial value for companies to help both them, and investors, make better decisions on how to allocate resources.
With support from HSBC, NYU Stern CSB partnered with a set of apparel companies on the ROSI methodology to estimate the value of tangible and intangible benefits that apparel companies can accrue by making strategic investments in more sustainable business practices. We engaged Reformation, REI, EILEEN FISHER, and conducted both primary and secondary research leveraging industry experts, company contacts, and academic literature to inform our framework.
Our research found that there are eight key sustainability strategies that apparel companies are focusing on to drive impact in their business models. These include operational efficiency focused activities such as improving chemical management and waste management, improving sustainable raw material sourcing, and rethinking business models through a focus on increasing circular economy practices and improving people well-being. Underneath these eight practices we’ve identified over sixty practices and sub-practices that describe the crucial activities companies are undertaking to realize and implement their strategies.
While developing the framework, we worked with apparel companies to apply learnings to the business case for them. For example, we found that REI had $34mm in improved retention and productivity in 2019 as a result of their purpose orientation. EILEEN FISHER saved $1.6mm in 2019 in reduced air freight costs as a result of changing the transportation mix away from air freight to meet climate change commitments. It also earned $1.8mm in 2019 through its resale program, RENEW, by providing value such as RENEW profit, an increased customer base, and reduced customer acquisition costs. Reformation earned $1.9mm from its circularity partnership with thredUP based on sales, customer loyalty & lower acquisition costs, and earned media.
Key Case Findings
- REI found that its purpose-led company culture helped to improve employee well-being, resulting in $25mm and $34mm in monetized net benefits from increased employee engagement and retention for 2018 and 2019 respectively. The 2019 finding represents approximately 5% of the company’s total payroll expenses.
- EILEEN FISHER shifted its transportation mix away from air transport and towards sea and trucking transports, resulting in the monetization of ~$1.6mm in annual cost savings in 2019 (as compared to 2015) and ~$150,000 in cumulative societal benefit by reducing greenhouse gas (GHG) emissions during the four-year period.
- Circularity-related case findings :
- EILEEN FISHER’s resale program, RENEW, generated financial benefits of $1.8mm in 2019 by providing value such as RENEW profit, an increased customer base, and reduced customer acquisition costs.
- Reformation partnered with thredUP to encourage customers to engage in a takeback program by providing shopping credit as an incentive. In 2019, this partnership resulted in $1.9mm in financial benefits for Reformation and involved similar benefits as EILEEN FISHER’s case study but at minimal cost due to the partnership structure.
How To Use?
If you’re a company looking to monetize investments in sustainability or to figure out how to track the ROI of a particular strategy moving forward, here is a way to approach it using our ROSI framework. For this example, we’ll focus on adopting digital sampling as part of the production process.
Strategy: Waste Reduction
Practice: Digital Sampling
For each sustainability strategy, we identify the material changes in business practice – e.g. a practice to improve waste management and reduce waste footprint for apparel companies is to invest in digital sampling which cuts down on fabric and material scraps.
We then determine the potential financial and societal benefits of these practices through the lens of the drivers of financial performance (e..g, operational efficiency, employee relations, supplier relations) – e.g. after implementing digital sampling, how might the company reduce the amount it spends on waste disposal? Is it freeing up employee time, and thus increasing overall job satisfaction by not having to manage disposal and sorting of physical samples? Is this new digital sampling experience helping to smooth supplier relationships and yield more productive relationships?
We then quantify each benefit – e.g. waste hauling fees pre/post implementing digital sampling or reduction in change orders/friction in supplier relationships pre/post implementing digital sampling.
Finally we then apply a monetization process to calculate monetary values for the intangible and tangible benefits, inputting relevant data including costs, and calculating a net benefit or NPV.
Additional Resources
Recent CSB-related Events on Sustainable Apparel
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- CSB-moderated sustainable apparel panel during the Bloomberg Sustainable Business Summit (December 2020)
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- Sustainable apparel panel during CSB’s Annual Practice Forum (March 2021)
Summary of Completed Work & Resource Links
