After Inditex saw its investors demand greater transparency regarding the factories where it produces its garments, listed fashion companies are now also facing questions from impact investors. Their aim: to encourage companies to adopt processes that are more respectful of workers and the environment. Johanna Schmidt is an investment strategist at Triodos Investment Management, which manages €5.7 billion in assets in more than 130 listed companies, has shares in Nike and has in the past invested in H&M and Inditex, and owns Adidas and Kering bonds. This specialist in the textile sector, who also represents her company on the Platform Living Wage Financials (PLWF), spoke to FashionNetwork.com about the developments seen in recent years.
FashionNetwork.com: As an impact investor, you offer a portfolio of socially and environmentally responsible companies. How do you select these companies?
Johanna Schmidt: As an impact investor, we first select listed companies that contribute to the transition towards a sustainable economy and society. Then we have our exclusion process, which concerns the oil and arms sectors, for example, but also financial services. In fashion, we have decided not to invest in fast-fashion because we don’t see any positive medium-term impact. Then, at the third level, we look at access to information and the quality of exchanges. With the companies in our portfolio, we can ask financial questions and find out about their commitments in terms of respect for human rights and the environment.
FNW: What is your approach to the companies in which you are a shareholder?
JS: We ask company management teams questions about the responsible nature of their strategy, their commitments or their efforts to ensure a living wage in their supply chain. And we seek to influence other investors by highlighting the cost to capital if companies don’t make the effort to move towards a more responsible model. We do this as Triodos Investment Management, but also collectively with the PLWF coalition, whose impact is even more powerful.
In addition, as shareholders, we take part in votes at general meetings. We can for instance vote against the presence on the board of directors if they, in our view, are not committed to a responsible agenda.
FNW: But how much weight can you bring to bear against very large investment firms?
JS: We are still a niche shareholder within these large groups, so we don’t have the direct impact on the company’s decisions that a majority shareholder might have. But that does allow us to raise strategic issues. For example, we ask the question “Will fast fashion one day be able to pay the cost of the living wage in its supply chain? These questions bring the subject to the attention of other investors, because the fast-fashion model is based on low prices… and low wages. We don’t have the same objectives as the very large funds, but when a strong investor has questions of its own, it helps to raise issues with boards of directors.
FNW: Over the last few years, have you seen any developments in the finance and fashion sectors?
JS: For example, we have increasingly constructive discussions with one of the major Dutch pension funds. Changes in European legislation mean that investment players are paying more and more attention to these issues, both in Europe and in the United States. Companies have more and more specialists and data on these issues. But we are still faced with obstacles. If a company does not wish to communicate information to its shareholders, our action is limited. This was the case, for example, with Inditex, which we exited as Triodos Investment Management. The questions raised by PLWF about the need for transparency in the list of the group’s factories have not been answered. The company has a history of not sharing information. But there comes a time when this scares off investors. Through expertise and very pertinent questions we can move the lines and distinguish between action and communication.
FNW: Some companies, whether listed or not, seem to be communicating their environmental performance, but are very discreet about their social commitments. Why is this?
JS: It’s very easy to calculate a carbon footprint. It’s quantifiable data, so companies can set targets and put a value on them if they are achieved. They can communicate. The human aspect is much more complex, with variables in different countries, different professions, different levels of subcontracting, etc. There is work being done to improve the evaluation of companies’ actions, but it’s a more complicated subject to quantify.
FNW: With the development of impact investing, have you seen any changes in workers’ living conditions?
JS: That’s a complex question. The subject has been raised by companies. H&M made some announcements along these lines… but very little has been achieved. Overall, we found that with the Covid pandemic, there have been significant steps backwards on these issues. For example, some companies used to publish their salary data, but no longer do. Yet for investors, the capital risk on these issues is significant.
FNW: However, stock market news seems to be resisting this trend. The planned IPO of the Chinese company Shein, widely criticised for the negative social impact of its business model, is whetting investors’ appetites. Doesn’t that demoralise you?
JS: Of course there are always investors attracted by a quick buck. But beware, it can happen very quickly. Look at what happened with Boohoo when the scandal broke over its workshops in the UK. The company’s value plummeted. Fashion is not in the leading sectors when it comes to responsible transformation. With models whose social commitments are questionable, these are particularly exposed investments today.
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