LEC Week1-Introduction PDF

SFT 321FS/ITC 3205T Week 1: ENVIRONMENTAL, SOCIAL, AND GOVERNANCE Sustainability, (ESG) IN FASHION BUSINESS CSR, and ESG CLASS TIME 2-hour lecture every Thursday 10:30 am to 12:20 pm. Lecture Hall: ST111# Consultation:  By appointment (Zoom or f2f meeti...

SFT 321FS/ITC 3205T Week 1: ENVIRONMENTAL, SOCIAL, AND GOVERNANCE Sustainability, (ESG) IN FASHION BUSINESS CSR, and ESG CLASS TIME 2-hour lecture every Thursday 10:30 am to 12:20 pm. Lecture Hall: ST111# Consultation:  By appointment (Zoom or f2f meetings)  Email: [email protected] Module 1 Assessment Week 1-6 (50%) 1-2 Session Day Time Venue TUT001 Mon 10:30am Y303 TUT002 Fri 11:30am CF302 TUT003 Mon 11:30am CF302 TUTORIALS INTENDED LEARNING OUTCOME 1. understand ESG in the fashion business 2. manage ESG issues with major stakeholders and global impacts 3. design an appropriate organizational structure and operation procedures to improve ESG performance 4. understand the sustainable supply chain management in fashion business 5. develop ESG solutions at every dimension: from environmental performance, social responsibility, and governance mechanism LECTURER OF MODULE 2 (WEEK 7 TO 13) SUSTAINABILITY IN FASHION AND TEXTILES Fei, Bin (PhD), Professor in Fashion Technology. Profile: https://research.polyu.edu.hk/en/persons/bin-fei OPENING SMALL TALK Why did you choose this course? OR What are your expectations for this course? FASHION ！ POVERTY HUNGER WASTE  WORKPLACE UNSAFETY Rana Plaza Collapse 2013  POLLUTION Denim factories in Xintang, Guangzhou SUSTAINABILITY Sustainability: the goal that meets the needs of the present without compromising the ability of future generations to meet their own needs.  World Commission on Environment and Development (1987) 15 SUSTAINABILITY GOALS United Nation’s Sustainable Development Goals (SDGs): https://sdgs.un.org/goals UNITED NATION’S SUSTAINABLE DEVELOPMENT GOALS (SDGS): HTTPS://SDGS.UN.ORG/GOALS Breaking down the 17 goals: 169 targets 3965 events 1351 publications 7860 actions “SUSTAINABILITY” IS EVERYWHERE Source: What if? 2  SUSTAINABILITY IS MORE Number of business news about sustainability IMPORTANT THAN EVER BEFORE 400000 Articles 343140 350000 300000 Number of business news about sustainability in 250000 fashion/textiles industries 200000 150000 Articles 100000 9000 317 7840 50000 8000 0 7000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 6000 5000 Source: 4000 Dow Jones Factiva 3000 2000 Keyword: 1000 Sustainability 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Industry: Fashion/textiles SUSTAINABILITY HISTORIC DEVELOPMENT Millennium UN initiative to address global challenges, including poverty and 2000 Development sustainability. Goals (MDGs) Sustainable Adopted 17 goals to address global challenges by 2030, 2015 Development emphasizing sustainability. Goals (SDGs) Paris International treaty on climate change aimed at limiting global 2016 Agreement warming to below 2 degrees Celsius. UN Climate Highlighted urgent need for climate action and sustainable 2019 Action Summit development strategies. 2020 EU Green Deal Aims to make Europe the first climate-neutral continent by 2050. Focused on accelerating action towards the goals of the Paris 2021 COP26 Agreement and the UN Framework Convention on Climate Change.  Putting sustainability into practice “SUSTAINABILITY” IS MORE IMPORTANT THAN EVER BEFORE FASHION AS A FEELING Fashion - a form of self-expression Fashion allows individuals to express their personalities and emotions. What we wear can reflect our mood, values, and identity. Sustainability - the new fashion not merely as a trend but as a reflection of changing feelings, values, and identities within society! FINAL LEARNING OUTCOME Traditional Fashion + Sustainability = New fashionistas! PASS EXAM !! ESG Certification (platforms: Coursera, UN Principles for Responsible Management Education (PRME), Global Reporting Initiative (GRI))  MEANINGLESS BUZZWORD OR KEY SURVIVAL CONCEPT?  SUSTAINABILITY A long-term vision Economic growth Social cohesion Environmental protection Environmental sustainability: focuses on the conservation of biodiversity without foregoing economic and social progress. - e.g., safeguarding water, saving energy, and reducing waste -example: sustainable infrastructure in the Stockholm 27  SUSTAINABILITY Economic sustainability: refers to the organization's ability to manage its resources and responsibly generate profits in the long term. - e.g., recycled materials, responsible consumption -example: Unilever-increasing package recycling 28  SUSTAINABILITY Social sustainability: strengthening the cohesion and stability of specific social groups - e.g., recycled materials, responsible consumption -example: CEMEX-offers decent housing - through self-building programmes and loans with favourable access conditions - to those most in need 29 SUSTAINABILITY Key Take-aways: Sustainability is ability to maintain or support a process over time Many businesses and governments have committed to sustainable goals, such as reducing their environmental footprints and conserving resources. Some investors are actively embracing sustainability investments, known as green investments. 30 SDG PROGRESS HTTPS://SDGS.UN.ORG/GOALS Overall progress assessment across targets with trend data, 2024  Progress assessment for the 17 Goals based on assessed targets with trend data SDG PROGRESS HTTPS://SDGS.UN.ORG/GOALS Proportion of countries or areas with available data, comparing the 2019 database and 2024 database  WHO SHOULD BE RESPONSIBLE FOR SUSTAINABILITY? SUSTAINABILITY IN BUSINESS It’s about making choices that balance economic success with environmental care (prevent the depletion of natural or physical resources) and social responsibility (e.g., ethical behavior, community engagement), so that they will remain available for the long term. 34 CUSTOMER BEHAVIOR IS CRUCIAL FOR BUSINESSES SUSTAINABILITY WILL SHAPE CONSUMER BEHAVIOR AND RETAIL Remain Sustainability will remain a core value despite challenges such as inflation Brands will have to couple their sustainability credentials with accountability Have and transparency The circular business model will play a key role in achieving sustainable Play growth in the market Be Innovation will be at the heart of sustainable solutions Source: Consumer trends 2023 - Statista WHAT DRIVES THE EMERGENCE OF NEW SUSTAINABILITY TRENDS? Consumers are more concerned about sustainability in 2022 than a year ago worldwide  SUSTAINABILITY IN THE FASHION BUSINESS WORLD Increased attention to sustainability issues from the public includes consumers and NGOs (Fan et al., 2014). Detox program in major fashion brands Photo credit: Green Peace Fan, D., Lo, C. K., Ching, V., & Kan, C. W. (2014). Occupational health and safety issues in operations management: A systematic and citation network analysis review. International Journal of Production Economics, 158, 334-344. 38 OVERPRODUCED FASHION? As of 2019, 62 million metric tons of apparel were consumed globally. 57% of all discarded clothing ends up in landfill SUSTAINABILITY WILL BE A MAJOR FOCUS FOR LUXURY Leading luxury brands consumers view as sustainable worldwide in 2022  Estimated revenue of the secondhand luxury SUSTAINABILITY goods market worldwide from 2017 to 2027 WILL BE A MAJOR FOCUS FOR LUXURY Luxury’s response to sustainability: expect to see more secondhand products in the luxury market  NEW FRONTIERS IN SUSTAINABILITY: CIRCULARITY What is circularity and why it is the way forward?  WHAT DOES A CIRCULAR MODEL FOR CONSUMER GOODS LOOK LIKE? H&M’s “Garment peer-to-peer leaders such as Collecting” program eBay or depop 2026 market revenue forecast: In a survey, 45% consumers 334.14bn USD prefer recycled products over Leading category in 2026: Apparel non-recycled ones (99.49bn USD) To extend the life of a product The Home Depot 2026 market revenue forecast: 2026 market revenue forecast: 262.26bn USD 116.33bn USD Leading category in 2026: Leading category in 2026: DIY and Consumer electronics hardware (119.73bn USD) (40.11bn USD) ACHIEVING SUSTAINABILITY IN FASHION BUSINESS? Corporate Social Responsibility (CSR)! It is the practice of businesses taking responsibility for their impact on society and the environment Profit Create sustainable return for the shareholder. Obtain financial resources for sustainable operations. People Create value for the society. Planet Create value for the natural environment. Van Marrewijk, M. (2003). Concepts and definitions of CSR and corporate sustainability: Between agency and communion. Journal of business ethics, 44(2-3), 95-105. 44  CARROLL’S CSR PYRAMID Voluntary efforts and contribution to the improvement of society Adopting higher ethical standards in adherence to societal expectations Operating within the bounds of law and legal requirements Creating profits and providing a return Source: Dathe et al. (2022) based on Carroll (1979) Dathe, T., Dathe, R., Dathe, I., & Helmold, M. (2022). Corporate Social Responsibility (CSR), Carroll, A. B. (1979). A three-dimensional conceptual model of corporate social Sustainability and Environmental, Social & Governance (ESG) (pp. 109–141). Springer. performance. Academy of Management Review, P4, 497–505. ACHIEVING SUSTAINABILITY IN FASHION BUSINESS IS BUSINESS A PANACEA? Trade-offs among triple bottom lines (3BLs) (Profit vs. People and Planet) Ideal Actions: Aligning the 3BLs 46 TRADE-OFFS Perspectives of Profit-People/Planet trade-off Firm resource perspective: “firms incur costs from socially responsible actions that put them at an economic disadvantage” (McGuire et al., 1988). Firm’s employee safety negatively related to firm survival rate (Pagell et al., 2020). Agency theory perspective: CSR is managers using firm resources to gain personal reputation (Friedman, 1970). McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of management Journal, 31(4), 854-872. Friedman, M. (1970, September 13). The social responsibility of business if to Pagell, M., Parkinson, M., Veltri, A., Gray, J., Wiengarten, F., Louis, M., & Fynes, B. (2020). The increase its profits. New York Times Magazine tension between worker safety and organization survival. Management Science, 66(10), 4863-4878.  ALIGNMENTS? Perspectives of Profit-People/Planet alignment Firm reputation (Zhu et al., 2013): CSR enhanced firm reputation. Consumers trust products from reputable firms. Stakeholder theory (Luo & Bhattacharya, 2006): Customer is an important stakeholder of firms. Customers now expect firms to take CSR. Firm taking CSR fulfill customer expectation -> customer satisfaction. Quality management (Molina‐Azorín, 2009): Firm products with good quality -> increase firm revenue Good quality product -> reduced wastes from redo -> enhance environmental performance. Many more scenarios waiting for you to explore! Zhu, Y., Sun, L. Y., & Leung, A. S. (2014). Corporate social responsibility, firm reputation, and firm Molina‐Azorín, J. F., Tarí, J. J., Claver‐Cortés, E., & López‐Gamero, M. D. (2009). Quality management, environmental performance: The role of ethical leadership. Asia Pacific Journal of Management, 31(4), 925-947. management and firm performance: a review of empirical studies and issues of integration. International Journal of Management Reviews, 11(2), 197-222. Luo, X., & Bhattacharya, C. B. (2006). Corporate social responsibility, customer satisfaction, and mark value. Journal of marketing, 70(4), 1-18. HOW TO DO? VOLUNTARY MOVEMENT Financial indicator: Revenue; Profit Non-financial indicator: ESG EMERGENCE OF ESG: PRIORITIZE ESG - WHO CARES WINS Transforming finance and economics through ESG Positive correlation between performance on ESG issues and financial performance managing risks anticipating regulatory actions accessing new markets Financial institutions are looking for robust data and models on environment, social and governance (ESG) topics to support their product design and offerings COMPARISON OF CSR AND ESG In public opinions, ESG performance is often considered measurable fulfilment of CSR (Euramco, 2021) Euramco. (2021). EURAMCO ASSET MANAGEMENT GLOSSAR/WISSENSDATENBANK. https://www.euramco-asset.de/glossar/environmental- social- governance-esg/. Retrieved 24.04.2023.  ESG ISSUES Drivers of ESG: ▪Investor interest ▪Stakeholder expectations ▪Risk mitigation  ESG METRICS – BLOOMBERG ESG SCORES Bloomberg is a global financial services, software, and media company that provides data, analytics, and insights to help professionals make informed investment decisions.  BLOOMBERG ESG SCORES Bloomberg ESG scores measure a company’s management of financially material ESG issues. Using a quantitative Financial materiality is defined as the issues methodology that can have a negative or positive impact on a company’s financial performance, such Scores range between 0-10 as revenue streams, operating costs, cost of Higher scores indicating a capital, asset value and liabilities. better management of Bloomberg identifies financially material issues based on proprietary research, which material issues. is shared transparently and based on an assessment of probability, magnitude and timing of the impact.  ESG Integration Screening for performance on material ESG issues In-depth research and in-house scores creation Portfolio and index construction Engagement & Voting  Company engagement on ESG performance and disclosure, shareholder proposals, and voting decisions Regulatory Obligations & Reporting  Sustainable investment definition  Assessment of sustainability BLOOMBERG ESG SCORES - USE CASES preferences Fund Selection  Comparison of fund ESG performance BLOOMBERG ESG SCORES STRUCTURE BLOOMBERG ESG SCORES ISSUE ES Material Issue G Material Issue Air Quality Board Composition Climate Exposure Executive Compensation Ecological Impact Shareholder Rights GHG Emissions Management Audit Sustainable Product Waste Management Water Management CLOSING DISCUSSION ESG performance = ESG disclosure? TAKE-AWAYS OF TODAY’S SEMINAR Course introduction (assessment, structure and plan) Concepts of sustainability, corporate social responsibility, and ESG Trade-offs and alignments of triple bottom lines Profit vs People/Planet ESG definition ESG metrics (a system view) Bloomberg ESG scores (an example)