07 Oct 2020 • Sustainability
Fashion financing doubles down on sustainability
Sustainability-linked financial instruments will impact every stage of fashion’s supply chain.
At the start of the year we wrote about how Prada had taken on a major sustainability-linked loan, ensuring that the brand had to either reduce its environmental impact or else face pecuniary consequences. We speculated that more brands were likely to follow Prada’s lead in tying the way they raise capital to sustainability objectives, something that would have a fundamental impact on the design and operation of their property portfolios. Fast forward several months and, despite the world being a very different place, competitors Burberry and Chanel have now moved in a similar direction.
Both companies have taken a different route than Prada, choosing to raise money from investors through the issuance of bonds, rather than financial institutions. In Burberry’s case they were able to claim their early September announcement was ‘the first sustainability labelled bond issued by a luxury company’. The brand has developed its own ‘Sustainability Bond Framework’, with which it will ‘enlist the support of investors in further delivering these sustainability ambitions by linking Burberry’s sustainability strategy to its funding requirements’. These ambitions include ongoing efforts to increase its reliance on green energy, improve material sourcing and further initiatives aimed at reducing and revaluing waste.
The events of 2020 have only reinforced the value consumers place on brands being more responsible stewards of the environment
Towards the end of the month Chanel revealed that it had raised a €600 million bond with clauses attached to its environmental goals. The brand will be forced to pay a premium when the bond matures if certain emissions and supply chain criteria, as set out in the Chanel Mission 1.5 strategic plan it published earlier this year, are not met. It will likely also use some of the capital to further invest in start-ups developing sustainable alternatives to materials such as plastic and leather. ‘In launching these bonds, Chanel hopes to support the development of the sustainable financing market and the wider social and environmental progress that this type of financing can advance,’ explained Chanel’s CFO Philippe Blondiaux. ‘It’s a logical step. . .we’re making (the financing strategy) consistent with the company strategy, which is centred around travelling to a more sustainable model.’
It might seem a strange juncture at which to raise finance that places limits on the ways in which a company can react to market conditions at such an unprecedented and unpredictable time. But, as we’ve previously discussed, the events of 2020 have only reinforced the value consumers place on brands being more responsible stewards of the environment.
For both Prada and Burberry the impact of their bricks-and-mortar operations will be of far less consequence to their environmental burden than core supply chain activities such as material sourcing, manufacturing and distribution. Burberry say that offices and retail account for around 9 per cent of its greenhouse gas emissions, for instance. However investment in more energy-efficient stores, as well as more ecologically sound building practices and design decisions, can’t fail to have a tangible effect on how consumers experience the brand in-person. Prada’s commitments, which require that a set number of outlets meet gold or platinum LEED (Leadership in Energy and Environmental Design) green building standards, will make this even more overt. All three will also be considering the increased importance retail now plays in giving narrative to a brand’s sustainability story.
Another associated avenue brands and building owners are likely to explore is the adoption of green leases. These are leases that include clauses requiring both owner and occupier to provide for the management and improvement of a building’s environmental performance, and they’re slowly gaining in prominence. Last month Grosvenor – one of the world’s largest privately-owned property businesses and landlord to huge swathes of central London – signed off its first green lease. The deal, struck with florist Pulbrook & Gould, will see the two entities collaborate on collecting and sharing energy consumption data, implementing a waste reduction and recycling programme, utilizing only green energy and joining a new tenant forum to share experiences and accelerate innovation. This type of lease will become standard for all new Grosvenor office and retail tenants in Mayfair and Belgravia, with existing tenants migrating over time.
Working together, landlords and tenants can drive down emissions much faster, creating healthier, more sustainable places
‘Working together, landlords and tenants can drive down emissions much faster, creating healthier, more sustainable places,’ explains Tor Burrows, director of sustainability and innovation, Grosvenor Britain & Ireland. ‘Our approach enables companies to choose a landlord focused on working with them to operate sustainably and survive commercially.’
Hero image: Burberry's latest retail experiment in Shenzhen marries the digital and physical in a way that makes their stores vital again. Photo: Courtesy of Burberry