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Insight of the Day: Fashion brands should treat water stress as a material risk to their finances, study says

The fashion industry faces significant challenges related to water usage, yet many companies fail to adequately address these risks. A recent report from Planet Tracker highlights the urgent need for fashion brands to recognize water stress as a material risk to their finances and take proactive measures to mitigate it.

Despite the substantial amount of water required to produce garments, including more than 700 gallons for a single T-shirt, few fashion companies and investors discuss the potential impact of dwindling water supplies on their businesses. However, the consequences are tangible, with a 1 percent increase in costs from drought potentially leading to a 3 percent decline in operating profit for a typical brand.

The report reveals a concerning lack of transparency and action within the industry. Only a small percentage of fashion companies report their water impacts to organizations like the CDP, and even those that do disclose minimal data. Additionally, water risks are seldom mentioned in earnings calls or capital markets events, indicating a widespread lack of awareness or prioritization of this critical issue.

To address these challenges, Planet Tracker recommends that fashion brands take several key actions:

1. Recognize water-related risks as a material threat to profits or revenues and disclose relevant data accordingly.

2. Implement water stewardship agendas that encompass efficiency, discharge, withdrawals, raw materials, pollution reduction, and water recycling.

3. Set clear water targets aligned with the Science-Based Targets initiative and prioritize risk reduction across all scopes of operation.

4. Use financial strength to support suppliers in transitioning to more sustainable water usage practices, even if it requires compromising on volume and margins.

Furthermore, the report emphasizes the ethical implications of water usage in regions facing extreme water stress, particularly in the Global South where fashion brands often source materials and manufacture garments. It calls for greater accountability and awareness among brands regarding the social and environmental impacts of their operations.

In conclusion, the fashion industry must urgently prioritize water stewardship and transparency to mitigate the financial and environmental risks associated with water stress. Failure to address these issues not only threatens the industry's long-term sustainability but also undermines its ethical responsibilities to communities and ecosystems worldwide.

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