Sustainability as a business model is becoming critical for fashion companies that want to stay relevant to consumers and compliant with increasingly complex regulations. Most businesses by now have understood that they need to take their environmental and broader impact seriously, but how do you actually go about planning your journey towards net-zero?
To begin with, let's explore the key drivers of sustainability in the industry.
Increased regulatory pressure: Governments are increasingly regulating ESG, and products and companies are getting much more scrutiny than before, with bodies like ICPEN (International Consumer Protection and Enforcement Network) cracking down on non-compliance and misleading claims. The extended producer responsibility, laws around transparency in the supply chain, climate acts, consumer product safety laws and enforcement of new trade policy restrictions are all driving sustainability across different industries.
Increased consumer awareness and activism: Today, 6 in 10 consumers consider sustainability when buying products, and on average, products that are marketed as sustainable see a 35% sales boost. Sustainability is no longer a choice; it is becoming critical for a company's survival.
Reducing dependency on virgin materials: The cost of farmed and mined raw materials is increasing day by day and according to McKinsey, 80% of the material value is thrown away and never recovered. The only way businesses can continue to sell more with higher margins is to augment their products with other services and adopt circular business models.
Increasing product lifecycle value: As sustainability measures may at least initially put pressure on margins, companies are forced to look at new business models to extract the maximum value from the products across the lifecycle. Business models like Renting and Re-Commerce are creating new revenue streams for many enterprises.
Moving towards a sustainable business model requires fundamental changes across the organization. It impacts every function from product development, production and distribution to marketing and sales.
Sustainability First in Product Design and Sourcing: The design stage has a significant impact on the overall footprint of the product. The aim is to ensure a smaller footprint already in product design, by choosing materials that use less water during production and usage, leveraging recycled materials and using recycled packaging materials. It is also key to source materials from suppliers who have strong ESG adherence.
Transparency and Compliance in Production: The main objective of this phase is to validate compliance of the product to the specification and regulatory requirements. Traditionally, highly regulated industries like pharma and automotive have built compliance validation programs. For fashion, this is new. It includes capabilities such as supply chain mapping, supplier risk assessment, real-time tracking of material movement, material certificate collection and validations.
Two-Way Distribution: Apart from looking at more sustainable logistics options, sustainable distribution looks at capabilities like reverse logistics; handling excess inventories, consumer take-back programs and the ability to handle output from recycling.
Communicating Real and Proven Sustainability in Sales & Marketing: Consumers are naturally distrusting of sustainability claims, and for good reason: in a global sweep of brand websites in 2021, ICPEN found 40% of sustainability claims to be misleading consumers. Building trust in such an environment requires consistent sustainability communication validated by data and independent / 3rd party certifications. Here are some of the sales and marketing initiatives that have become critical.
40%
OF SUSTAINABILITY CLAIMS
COULD BE MISLEADING
Consumer Transparency Initiatives: Multiple industries, especially within fashion and food, have started to be transparent about their supply chains and the carbon footprint of their products. While this comes with additional costs in the short term, getting full and trustworthy data is fast becoming a hygiene factor in conscious consumerism.
Retailer Engagement Programs: Retailers have special areas in their store (online/physical) for sustainable products, and many retailers have unique programs to qualify a product as sustainable. On top, many also have their own transparency initiatives, putting pressure on brands to provide data and evidence supporting the claims. Proliferation of these programs can make data-provision a resource-intensive exercise for brands and suppliers, but failure to do so may lead to inferior in-store placement, declining sales and product delisting.
Embracing Circularity: Establishing circular business models requires additional capabilities to extend the product's life and value. In fashion; Rental, Re-commerce and Recycling/Upcycling are key opportunities around circularity, and each of them requires new tools and ecosystems to be developed.
Mandatory Sustainability Reporting: Compliance management and sustainability reporting are becoming key pillars of corporate governance. While sustainability reporting is still voluntary, there are discussions in the EU to make it mandatory. Reporting requires quality data at scale that can be used to baseline and benchmark an enterprise performance within the industry. As sustainability evolves, so will the actions needed to be at the forefront – or at minimum compliant. As enterprises look at sustainability as a differentiator and as a business model, the possibilities will continue to grow and continuously challenge the current set of organizational capabilities.
Having a long-term strategy is critical for a successful transition into sustainability as a business model. Below we outline the digital strategies that are pivotal in making this happen at the supply chain level.
Collect Your Data: Sustainability requires large volumes of high quality granular data to take actions. Most companies are relying on audits and certifications to assess the performance of suppliers across various ESG parameters, and today this data is often manually collected via emails and excel sheets, making it difficult to consolidate and analyse.
As brands are trying to look deeper into their supply chains and are increasing the amount of primary data collected, the need for this data grows exponentially. Apart from supply chain data, there are material data sheets, real time production data, evidence data collected from suppliers and product test reports. All this data has to be collected, validated, enriched and analysed in order to be acted upon.
Strengthen Enterprise Systems for Better Master Data: Having strong enterprise applications to manage product flows and suppliers is critical for the sustainability journey. Most brands lack even basic information about their suppliers and the materials used in their products, which are essential data to baseline and improve the sustainability performance of an organization.
Some of the key steps towards enhancing the master data for sustainability include building a complete material and product database, creating a supplier database for all direct and indirect suppliers and maintaining purchase orders and delivery information digitally. Once these systems are in place with quality information, organizations can analyse where the largest ESG risks lie, and can actively take steps toward improving their footprints.
Stay Ahead with an Agile Platform Approach: Enterprises should look at a platform-centric approach when it comes to building a robust sustainability system. The needs and compliance for sustainability are continuously evolving, and IT investments should support agility in terms of handling this evolution. Rather than choosing a bunch of point solutions to address specific problems, it is important to choose a system which can be the core platform to which current and new sustainability applications can be connected.
The platform should have i) the ability to collect different data about suppliers, products and materials from the supply chain, ii) a mechanism to validate the data collected, iii) enrich the data using industry applications and datasets, iv) the ability to analyse the data to identify hotspots and areas of improvement, and v) enable an ecosystem of sustainability related services to act on these insights.
The following section covers a reference architecture on how to implement the above digital strategies at scale.
This reference architecture is intended to help fashion brands get started on their sustainability journey as well as to keep up with the growing and changing needs in the ESG space.
The below figure provides a reference of the architecture of the TrusTrace platform that sustainability leaders in fashion are using to accelerate and scale their sustainability initiatives. We call this reference architecture an Operating System for Sustainable Enterprise.
There is no sustainability without traceability: The primary system that drives the transformation towards a sustainable business model is the traceability system. The traceability system provides tools for data collection and validation across the supply chain.
A company-wide approach is key: Having systems for managing design, development, production, sales and marketing functions are key to scale the transformation. It is important to look at sustainability as a way of doing business rather than an additional capability. Sustainable business is all about integrating every action of the business to the society and the environment.
Integration: A robust integration platform is critical to enrich the existing business processes with additional sustainable data that can be useful to make better decisions.
Digital Thread: One of the major benefits of the above reference architecture is that it establishes a complete digital thread of the product from design to end of life by integrating information flow across different systems.
Sustainability Apps: Different apps that can be built using the digital thread and other underlying services to address needs of individual functions around sustainability.
Cloud platform: The infrastructure should support the explosion of data that will be generated through various data collection and enrichment methods and cloud becomes an obvious choice.
Sustainability is not an individual enterprise problem, but a collective, global problem, and we have limited time to transform our existing business models. Accelerating the rate and depth of change requires industry collaboration. Having a shared operating system for sustainable enterprise enables this collaboration between companies, industry bodies and regulators. We hope this white paper has helped you understand the importance of having a digital strategy for tackling sustainability, and how you can get started.