This newsletter is about the fashion world needing to embrace the challenge of transforming into a more sustainable industry.
In this week’s edition, we are digging into the increasingly popular genre of bonds tied to sustainability initiatives (a regular favorite of this newsletter). We’ll dig into the important difference between a Sustainability Bond and a Sustainability-Linked Bond. We’ll also examine the importance of creating a shared language around this new breed of financial instruments, along with some of the possible adverse consequences.
Finally, we’ll teach you a tiny bit about bioplastics made of cactuses (or cacti, we had to double-check, and confirmed it really can be either).
Happy reading,
The Embrace Team
Chanel’s Sustainability Financing, Explained - BoF Professional
As sustainability rises to the top of the fashion industry’s agenda, more fashion companies tap into green financing to bring the necessary innovations to scale. In fact, BoF's latest article points out:
Increased demand for green financing reflects the beginning of fashion businesses' transformation towards sustainability. In September alone, big brands Burberry, Chanel and Adidas hit the headlines with oversubscribed bonds. Who's next to join?
One of the issues with green financing is a lack of universal standards and regulations, rating methodologies and criteria vary even between third-party auditors. Walk the talk: Chanel was the first to reinforce the bond terms to prove its commitment, meaning, if the company's sustainability targets are not met, Chanel will have to pay a penalty.
Let's once again define types of bonds to avoid comparing apples to oranges:
While proceeds from Sustainable Bonds (Green Bonds, Social Bonds and Sustainability Bonds) are earmarked for sustainable projects, Sustainability-linked Bonds are non-earmarked standard bonds whose financing cost may be increased in the event of failure to achieve a sustainable performance objective. Sustainability-linked bonds allow for more outcome-focused sustainable finance.
In simple terms, sustainability bonds are those where the proceeds will be exclusively applied to finance or re-finance environmentally friendly and social projects.
On the other hand, sustainability-linked bonds are linked to an issuer’s overall sustainability strategy and efforts.
Although sustainability-linked bonds can help fund sustainable development, companies may be pursuing more gains than it seems on the surface. According to WSJ, there are financial benefits, such as:
Companies issuing sustainability-linked bonds expect lower staffing and administrative costs compared with other types of environmental, social or governance bonds.
It's easy to get tripped up on terminology, as we mentioned earlier there is no uniform regulation on green financing. Indeed, we couldn't agree more:
"To help cut through the noise, and discern the green good deeds from greenwashing the industry needs to deploy green bond guidelines, robust frameworks such as the SDGs and a taxonomy that is widely accepted. Companies should not base their targets on pledges, they need to show progress towards meeting their targets" - Krista Tukiainen, head of research and reporting of Market Intelligence at the Climate Bonds Initiative
To sum up, Chanel issued a sustainability-linked bond, hence they introduced a reinforcing mechanism to its terms, while Burberry and Adidas issued green and sustainability bonds. The intersection of fashion, sustainability, and financing has become a hot topic and we will continue to keep our eye on how things unfold.
Burberry’s Sustainability Bond Raises Issues About Fashion’s Relationship With Chinese Cotton - The Fashion Law
Speaking of bonds and sustainability targets, as reported by The Fashion Law, Burberry's Sustainability Bond Framework and sourcing of cotton generated some controversy:
Burberry aims to “procure 100 percent of cotton more sustainably by 2022, using a portfolio approach, [which] includes working with partners, such as the Better Cotton Initiative and Textile Exchange, as well as exploring new sources, including organic and regenerative cotton”. [...]
The emphasis on cotton potentially thrusts Burberry into the midst of a larger battle over cotton coming out of China and its headline-making Xinjiang region, where native and Western companies, alike, are increasingly being criticized over their alleged ties to forced labor.
Truth to be told, the fashion industry was quite slow to react to concerns over the use of forced labor in China's cotton industry. Just two weeks ago, we saw on the news H&M cutting ties with its Chinese yarn producer. Worth to mention, Vogue Business did some good reporting on the US and the EU's approaches to target human rights abuses in the fashion supply chain.
Approaching Sustainability as a Mass-Market Retailer: A Case Study With Walmart and Asos - Fashionista
In the past years, mass-market retailers became more vocal about their sustainability efforts, introducing eco-friendly collections to their range.
In some cases, these sustainability claims were over-promising and under-delivering and many consumers saw through platitudes and gimmicky campaigns. Just a week ago Asos faced a backlash for its newly launched circular collection.
It slipped under our radar but looks like Walmart embarked on the fashion journey, putting sustainability front and center. In this article, Fashionista explores whether silence is golden when it comes to sustainability and mass-market fashion, featuring the latest launches by Asos and Walmart.
Why ‘Biodegradable’ Isn’t What You Think - The New York Times
"Biodegradable" and "compostable" are environmental buzzwords that we’ve all come to know and love — but very few of us actually understand what happens with so-called biodegradable waste.
This NY Times piece is an eye-opener: as it turns out, "biodegradable" doesn't necessarily mean it breaks down by itself. Moreover, product degradation may require special conditions and further recycling efforts.
Engineered by Nature
Each week we highlight one cutting-edge sustainable material innovation. Hit reply if there are any materials you’d like us to include! 🌵
Let’s get to the good news: researchers worldwide are finding creative ways to use cactus to make nature-friendly materials that won’t harm the planet. The University of the Valley of Atemajac engineer has developed a bioplastic that takes advantage of the properties of cactus that is found all throughout Mexican deserts, as well as in much of the American continent:
Not only plastic can be made of this succulent plant, two entrepreneurs from Mexico created cactus vegan leather Desserto that already found a wide application from shoes to car seats.
Around the news
Gucci Launches Official Resale Partnership With the RealReal - the Italian fashion house launches an online shop with consignment site The RealReal in attempt to take control of its resale market.
Why Aren't Consumers Willing to Pay More for Climate-Friendly Products? - despite prevailing attitudes of consumers to prioritize sustainability and environmental good, data shows consumers are not willing to "pay it forward" for the benefit of the Earth if there is a cheaper alternative.
Just one fifth of shoppers trust brands’ sustainability claims - aware of greenwashing, UK consumers address the lack of independent third body assessment when it comes to sustainability credentials.
Clothes Mountains Build Up as Recycling Breaks Down - the growing stock of clothes at warehouses brought second-hand clothing trade business to its knees.
Digital Helsinki Fashion Week Saw Significant Drop in Carbon Emissions - some good news amid travel restrictions: CO2 emissions decreased by more than a half during digital format of Helsinki Fashion Week, according to the report.
HUMAN RIGHTS - basic rights and freedoms that belong to every person in the world, including the right to life, the right to live free from slavery, the right to equality and dignity, and to live free from all forms of discrimination.
Fashion has a multi-faceted relationship with human rights, regarding employment practices and the narratives of fashion, which either uphold or deny universal rights, equality and equity.