retailer sustainability vendor requirements & benefits to

Retailer Sustainability Vendor Requirements & Benefits to Green Marketing for Guatemalan Textile and Apparel Association

September 25, 2014 Guatemala

Agenda 1. Overview 2. Recognizing Risks within the Supply Chain 3. Retailer and Brand Sustainability Initiatives A. Abercrombie & Fitch B. Gap Inc. C. Ralph Lauren D. Adidas E. Nike F. Target G. Walmart 4. Industry Consortia 5. Labels & Examples in Green Marketing 6. How Can You Prepare 6. Questions & Wrap up

Gretchen Dudon

Overview 1. Basic Concepts 2. Key Drivers 3. Develop an Approach & Communicate Results

Gretchen Dudon

Basic Concepts

• Term “sustainability”

• Impetus behind sustainability movement

- limitation of natural resources

- global climate change

- consumer demand

- managing risks

Key Drivers

• Consumer value

• Compliance

• Retailers

• GHG emissions

Develop an Approach & Communicate Results

• Understand the impacts of your business

• Track facility information (energy, water, waste)

• Set target reduction goals & identify initiatives to meet those goals

• Initiate projects & track progress

• Report to your customers, make information available

Recognzing Risks within the Supply Chain

Supply Chain Risk Examples “increasingly companies are focusing on sustainability in their supply chains to manage risk”

1. Tsunamis in Japan & Thailand shut down factories & hurt profits in automotive and electronic companies half way around the world 2. Protesters dressed as Ken & Barbie stalked Mattel’s HQ, saying the company’s toy packaging was promoting the destruction of the rainforests 3. Apple was accused of funding rape in Eastern Congo by sourcing components containing minerals controlled by warlords 4. Fires and the collapse of Rana Plaza in Bangladesh killed more than 1,000, injured more than 2,500 people & exposed several apparel brands’ social compliance transparency risks

Gretchen Dudon

A recent survey of supply chain experts from PwC, found 4 mains reasons for investing in sustainable supply chain management 1. To manage the risk of unintended environmental or social damage 2. To manage a company’s reputation & the expectations of its shareholders 3. To reduce costs & realize productivity improvements 4. To create sustainable products, thereby increasing revenues & enhancing the corporate brand

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The Obstacles

1. supply chains can be complex 2. supplier engagement is more art than science 3. data challenges Follow the Golden Rule – A company cannot hold its suppliers to standards it does not itself uphold

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Clients Need to Have Good Data

How Suppliers Provide Sustainability Information

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Standards are Emerging

Gretchen Dudon

Start by Setting Goals To get results companies are setting goals to improve sustainability within their supply chains 1. Nike has set supply chain goals for reduction of GHG, H2O use, waste & discharge of hazardous chemicals 2. Puma has a goal to reduce CO2 emissions in the factories that supply it directly 3. Walmart has set category goals & developed buyer incentives to reward employees in merchandizing who deliver improved environmental perfomance within their category 4. Gap Inc. has established a Preferred Mill Program which requires implementation of measurement technologies at key mills & will monitor investments in cleaner production technologies 5. Target is using HIGG Index scores as part of vendor annual scorecards 6. A&F asked key suppliers to complete HIGG self-assessment

Gretchen Dudon

Educate Suppliers sharing knowledge about sustainability best practices with suppliers is becoming more important 1. Kohl’s conducts webinars for its suppliers to teach tactics around improving energy efficiency 2. Walmart has provided energy efficiency training to factory managers 3. Walmart has hosted roundtables for factory and supplier representatives to share best practices & discuss how to execute an energy efficiency program 4. Gap Inc. has provided information to their suppliers on how to report on sustainability, where to find additional resources, and whom to contact at Gap should a supplier want to learn more about the reporting process.

Gretchen Dudon

Leverage Industry Standards

to combat supplier survey fatigue & to help raise the quality of sustainability data collected 1. CDP Supply Chain process to obtain GHG emissions 2. EICC questionnaires to gather info on conflict minerals 3. SAC – HIGG Index 4. In-house company developed questionnaires (Walmart/ Target/ P&G) 5. The Sustainability Consortium (TSC)

Gretchen Dudon

Using Scorecards for years corporate buyers have used vendor scorecards to rate & rank suppliers based on price, quality, performance, delivery time AND now are integrating sustainability into purchasing decisions as well 1. Nike Materials Sustainability Index - helps designers choose materials w/ appropriate environmental performance 2. Nike Manufacturing Index - to help assess manufacturers 3. Target Sustainability Scorecard – to rank suppliers 4. Walmart Sustainability Scorecard – to rank products Walmart recenly pledged that it will buy 70% of the goods it sells in US stores only from suppliers that use it’s Sustainability Index to evaluate & share the sustainability of their products

Gretchen Dudon

Build Industry Knowledge & Capacity improving sustainability in the supply chain requires a collaborative approach 1. Nike developed a H2O management tool called H2O Insight to support its own water program & then worked with a 3rd party to make it available to other companies 2. Many SAC Founding Members to help share industry knowledge of it’s factories – GAP Inc, Target, Nike 3. Roadmap to Zero – a zero discharge program of hazardous chemicals from supply chain by 2020 – H&M, Puma, Adidas, GAP Inc., Marks & Spencer, PVH, Benetton, Inditex and Nike 4. NRDC’s Clean by Design Program helps to improve efficiencies in the textile supply chain – Walmart, Nike and Target

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Retailer and Brand Sustainability Initiatives

Abercrombie & Fitch

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Kim Harr, Director of Sustainability

Published Corporate Sustainability Report

Published Sustainability Goals

CSR Hub Ranking 52/100

Focused on eliminating logo attire from its US stores by 2015

Commitments

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Reducing GHG emissions for US operations by 8% from 2008-2018

Advocate for greater attention to environmental stewardship with all companies they work with

Intend to implement practices which reduce their environmental footprint

Want to promote long-term sustainable partnerships throughout the world

Strategy

Gretchen Dudon

Reduce waste through conservation, collaboration, industry partners, and carbon emissions programs

Three R’s as a company policy – Reduce, Reuse, Recycle

Focusing on reducing energy use, internally and externally within supply chain

Tracking GHG emissions through the Carbon Disclosure Project

Initiatives

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H2O Management: Complete water footprint of supply chain

Zero Discharge of hazardous chemicals from supply chain

2011 Implemented A&F’s Master Vendor Agreement (MVA) which includes language specific to RSL

2011 Published a new RSL online and sent a copy to all A&F suppliers

2012 Suppliers to provide a Letter of Guarantee stating their chemicals suppliers’ products will comply with RSL

2012 Verify ISO 14001 certification status for key suppliers

2013 Require key suppliers to complete Higg Index environmental self assessment

Reduce energy use at HQ, offices, retail stores and DC’s

Supply Chain Gretchen Dudon

Vendor Code of Conduct

Environmental Code of Conduct focuses on compliance with all relevant local laws & regulations

CA Transparency in Supply Chain Act

No Uzbek cotton

Conflict Minerals Policy

No Sandblasting

All Bangladesh factories required to go through an electrical audit w/ 3rd party monitoring firm

Audit Lifecycle

Factory Approval

Monitoring

Rating

Correction Action

Follow up

How Engage Suppliers Gretchen Dudon

3rd party monitoring firms audit factory

2 week audit notification and performed 1x per year

A&F’s sustainability team monitors each audit report & assigns the factory a rating. Tracks factory progress to help support those in greater need than others

VIP (Vendor Infrastructure Program) in place to work directly with factories to ensure compliance with Code of Conduct and local laws

Brand Collaboration Working Group implemented to decrease survey & audit fatigue

Conflict Mineral due diligence process 1x per year to ensure supply chain is reporting data pertaining to the source of its conflict minerals

Gap Inc.

Gretchen Dudon

Melissa Fifield, Director of Sustainable Innovation

Published Corporate Social Responsibility Report

Published Sustainability Goals


Focused on “Do More” Than Sell Clothes campaign Founding member of the SAC

Commitments

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Do More Than Sell Clothes campaign Reduce GHG emissions PACE program Volunteerism Human Rights Environment Reporting via Carbon Disclosure Project, Clinton Global Initiative,

Ethical Trading Initiative, UN Global Compact, Social Accountability International, and GAP’s public report

Strategy

Gretchen Dudon

Energy efficiency in US Stores & DC’s – lighting retrofits & solar energy

Waste reduction – paperless paystub program saved 400 miles of paper in 2012

Field Teams Grants - $817K in 2012 for various community organizations

Camp Old Navy

Partnership with International Labor Organization which led to development of the global Better Work Program

Completed supply chain footprint assessment – what gets measured gets managed

SAC Founding members

Strategy (cont.)

Gretchen Dudon

Created Sustainable Fiber Toolkit for designers & merchants

Advance H2O quality & conservation initiatives within supply chain

GAP’s internal Environmental Council meets quarterly to assess GAP’s impact on the environment

Utilize Higg Index in Brand, Product and Facility

Wise Wash Denim - jeans use 25% less H2O, electricity, and chemicals

Wish Wash program came out of findings from Higg

Refers to a manufacturing process that uses low impact manufacturing techniques

Initiatives

Gretchen Dudon

Align with UN’s Guiding Principals on Business & Human Rights

2011 created Brand Integration & Vendor Performance project

team to help GAP better leverage vendor data to drive business decisions, including order placement

Mill Engagement Program – social & environmental practices in fabric mills

Train all new GAP sourcing employees on the importance of responsible purchasing practices

Highlight case studies

Ensure factory orders are made w/ full understanding of impact on workers

Reduce absolute GHG emissions 20% by 2015

Supply Chain

Gretchen Dudon

Work with smaller, consolidated vendor base to facilitate deeper relationships

Complete supply chain H2O mapping and create a supply chain H2O strategy

Zero Discharge of hazardous chemicals by 2020

Preferred Mill Program

currently partnered with 3 key mills

extending to 15 more mills over the next 3 yrs

Rate factories performance against Code of Vendor Conduct to maximize understanding & improve factory performance

234 factories in 21 countries participated in environmental footprint assessment through partnership w/ NRDC

GAP Factory Approval 2012 by Geography

GAP Factory Ratings 2011

GAP Factory Ratings 2012

How Engage Suppliers

Gretchen Dudon

Supplier Reporting has been encouraged to all suppliers

GAP sent a letter to all suppliers encouraging them to issue public sustainability reports

GAP provides info on how to report, where to find additional resources, & whom to contact at GAP if you want to learn more about reporting processes

Public sustainability reporting earns best practice credit on GAP’s Code of Conduct ratings

GAP “provides our own Social and Environmental Responsibility Report and so should our suppliers”

Ralph Lauren

Gretchen Dudon

Caren Mintz, Director of Environmental Sustainability

Published 1st Citizenship Report in 2014 due to pressure from a major investor

No Published Sustainability Goals


Focused on integrating sustainability into all business decisions

Commitments

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Environment

Energy & Climate

Materials & Recycling

Engagement Practices

Responsible Sourcing

Manufacturing of products

Vendor selection

Product safety & social compliance practices

Employees

Community

Strategy Gretchen Dudon

Carbon Footprint – measured & tracking scope 1 & 2 emissions

Materials and Recycling

Selecting different ways to transport products

Shipping more ocean and rail vs. air to reduce emissions

Shipment consolidation

98% of company controlled ground shipment moving via EPA’s SmartWay carrier

Utilizing efficient routing via end-end visibility & forecasting tools

100% of ocean carries are Clean Cargo Working Group

Initiatives

Gretchen Dudon

Recyclable packaging and packing materials that incorporate recycled content

Environmental preferred purchasing guideline

Recycling programs in all corporate offices

Monitoring progress

Advertising using FSC certified mailers and increased soy & veggie based inks

CA Transparency Supply Chain Act

Sourcing working closely with Global Human Rights Compliance (GHRC) department for selection of new business partners

Collaboration with other like-minded companies working within same factories to reduce audit fatigue

Supply Chain

Gretchen Dudon

Over 700 manufacturers worldwide with no one manufacturer providing more than approx 4% of RL’s total production

Regional sourcing breakdown: 9% Americas, 10% EMEA, 81% Asia

All vendors sigh RL’s Code of Ethical Conduct

All vendors agree to comply with Vendor Compliance Packet

local law adherence

Restricted Substance adherence with full transparency of records (Supplier Transparency Initiative)

Testing and production protocols of Global Testing & Quality Assurance Program

Supply Chain (cont.)

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Environmental Sustainability must be integrated into all partners’ business decisions

Natural resources

Pollution prevention

Utilization of green technologies

Promote factory efficiency trainings to create greater ownership within production process


Gretchen Dudon

Vendor Scorecard – rates vendors via on-site evaluations before becoming a vendor

Factories undergo scheduled audits via 3rd party social audits

Key vendors undergo audits annually

Engage suppliers in Continuous Improvement Programs with 3rd party consultants

Nike

Gretchen Dudon

Hannah Jones, Corporate Sustainability Officer and VP of Innovation Accelerator

Publish Nike Responsibility Report Yearly

Publish Sustainability Goals


Founding member of SAC Reducing environmental impact while continuing to grow in

revenue each year Introduced 1st product with ColorDry technology in June 2014

Targets & Commitments

Gretchen Dudon

Cut Energy

Empower Workers

Reject Toxics – Zero Discharge by 2020

Slash Water Use

Reduce Waste

Support Communities

Strategy

Gretchen Dudon

Nike Materials Sustainability Index – helps Nike choose materials with appropriate environmental performance

Nike Sourcing and Manufacturing Sustainability Index – used to assess manufacturers

Zero Discharge of Hazardous Chemicals

Energy and Carbon Program

Factory Code of Conduct includes environmental impacts minimized

Nike Colordry

Bluesign Bluefinder

The Making App

FlyKnit

Materials - Largest Impact

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Used throughout value chain relates to materials – agriculture, processing & finishing; 21% from growing, raising, extraction or harvesting, 33% in processing and finishing

Of value chain water consumption relates to materials

1,500 different material vendors 57% of apparel material vendors

have signed commitments to green

Nike Materials Sustainability Index

Gretchen Dudon

Sourcing & Manufacturing Sustainability Index

Single evaluation system for manufacturing across all products and all brands

The MI integrates scores from key performance areas – quality, cost, delivery and sustainability – into a single dashboard rating

Groups factories as gold, silver, bronze, yellow or red The MI creates 1 overall score for each contract factory

Measuring Sustainability In Sourcing & Manufacturing

• Sustainability is incorporated into the MI as 1 component

• Nike assesses sustainability through the Sourcing & Manufacturing Sustainability Index (SMSI)

• Target is to source all products from factories reaching a minimum BRONZE standard

• In FY13, 309 apparel factories met bronze or higher out of 452 = 68% of factories

• The SMSI also gives a platform to incentivize performance improvements

• Factories that rate below bronze are required to pay for 3rd party audits until their performance improves

Zero Discharge of Hazardous Chemicals (ZDHC)

2012 launched Zero discharge goal by 2020 Working with other brands to create a roadmap to

achieve goal Raodmaptozero.com Continue to maintain RSL 2013 Nike formed a strategic relationship with

bluesign to provide Nike suppliers access to extensive information about more sustainable materials & chemistries

4,300 pre-screened blusign-certified textile chemical formulations (dye systems, detergents & other chemicals used in manufacturing)

69% of apparel material vendors have signed the commitment to writing green chemistry practices

Energy and Carbon Program

ColorDry

A resourceful invention to reduce H2O use Investment with Dutch DyeCoo Textile Systems High-tech equipment that eliminates use of H2O &

process chemicals from fabric dyeing with replaceable CO2 Traditional dyeing process uses an est. 100-150 liters of

H2O to process 1 kg of textiles – or about 30 liters of water to dye a single t-shirt industry analysts estimate that more than 39M tons of

polyester will be dyed annually by 2015

The MAKING App

Informed decisions lead to more sustainable design Powered by Nike MSI

(Material Sustainability Index) 4 key impact areas: chemistry,

energy/GHG, water/land, & physical waste

Discovery tool for designers & creators to make informed decisions in the materials they use

Make with Less

Gretchen Dudon

Used per unit of footwear made over 5 yrs ending FY13

Used per pair in footwear manufacturing from FY11 – FY13

* 57% of apparel materials vendors have signed commitments to green

Reuse

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Pairs of shoes processed through Reuse-A-Shoe and turned into Nike Grind since 1990

Of cardboard used in Nike shoebox is recycled content

28 Million

Adidas Group

Gretchen Dudon

Frank Henke, Global Director of Social and Environmental Affairs

Publish Sustainability Report



Member of the SAC

Social and Environmental Affairs (SEA) Team solely focused on ensuring environmental compliance & implementation of environmental initiatives within supply chain Implemented a SMS texting program for factory workers

Targets & Commitments

Gretchen Dudon

People: 60% of all direct suppliers to meet 3C (good) or better and 80% of strategic suppliers to meet 3C or better

Product: DryDye technology uses zero H2O, 50% fewer chemicals & 50% less energy compared to conventional fabric dyeing, using virtual images in place of physical samples helps reduce natural resource use in sample production.

1.5M fewer physical samples were made using virtual imagery

Planet: increase ISO certifications within supply chain and focus on more rigorous audits to help suppliers address most significant environmental impacts

Partnership: creating an industry wide audit tool

Supply Chain

31% of supplier training sessions focused on sustainability in 2013

Sustainability training based on needs assessments

2013 Guatemala - 4 Adidas supplier factories out of 1,214

2013, Adidas performed 1,489 factory audits, visits & training sessions

2013 Guatemala had 2 initial assessments

Not only do we try to reduce the environmental footprint from our own sites, we encourage our suppliers to do the same. We want them to tackle the environmental impacts from the manufacturing process and be smart in their use

Supply Chain Environmental Guidelines

Gretchen Dudon

Measure and assess the environmental performance & risks at

factories Follow Legal Requirements & Environmental Permits for

Guatemala Adopt Environmental Management System Sustainable Resource Use water conservation, energy efficiency, material efficiency, waste

management Reduce emissions Monitor Manage Calculate a carbon footprint

Measure and Report http://www.adidas-

group.com/media/filer_public/2013/07/31/environmental_guidelines_english.pdf

http://www.adidas-group.com/media/filer_public/2013/07/31/environmental_guidelines_english.pdf




Product Sustainability

Gretchen Dudon

40% Better Cotton use by 2015 and 100% Better Cotton use by 2018

50% reduction in colors used within the Sports Performance division

Virtualization project to drive reduction in samples in design process

Optimize packaging solutions

Establish full transparency of more sustainable materials – continue to monitor process of suppliers’ compliance and set clear strategy to implement Adidas’ Sustainable Material Tracking Tool to suppliers

Support SAC and integration of Higg Index into Adidas Better Place tools


Gretchen Dudon

Multi-level monitoring & enforcement process

Rating system for assessment of suppliers

Rating results shared with Sourcing to decide how many future orders to give factory

SMS texting program to provide open communication for factory workers and Adidas Group

Supplier Training Programs for sustainability

Use of letters to take action over poor factory performance

1st letter warning – fix problems

2nd letter if problems aren’t fixed – stop orders

3rd letter – Sourcing Team stops working with factory and a letter goes out to the local government

Target

Gretchen Dudon

Kate Heiny, Corporate Social Responsibility Executive

Publish Corporate Social Responsibility Report



Founding member of the SAC

Recent news Target and Walmart join forces on supply chain sustainability to drive innovation & remove harsh chemicals from household cleaners, personal care & beauty, and baby care products Developing a Sustainable Product Standard

Commitments

Gretchen Dudon

Education

Sustainability – goals mainly focused on efficient operations, transportation, packaging, sustainable living, organic food, sustainable seafood, and sustainable products

Health and Well-Being

Responsible Sourcing – supply chain goals are focused around increasing Higg participation from suppliers

Safety and Preparedness

Team Members

Volunteerism

Strategy

Gretchen Dudon

2013 Global Reporting Initiative (GRI) reporting

Materiality – formalized their assessment to prioritize top corporate sustainability issues for Target and stakeholders

Performed LCA on Target brand made garments

Founding member of the SAC and played a key role in developing the Higg Index

Clean by Design – NRDC’s best practices for dyeing

Initiatives

Gretchen Dudon

Big campaign around washing in cold H2O – Target found growing, harvesting, spinning raw materials and consumer laundering have the greatest impact on H2O and Energy

2013 added a reminder to labels of Target brand apparel “consider cold-water wash” to save energy and $

Switched Target labels to polyester made from recycled H2O bottles

Reducing carbon footprint within supply chain via product development, packaging and transportation

2012 Target began asking vendors & Target brand factories to use the Higg Index

2013 a second round of Higg surveys were completed with 97% response rate

Supply Chain

Gretchen Dudon

Using Higg Index scores as part of vendor annual scorecards

2012 Clean by Design piloted in 3 high volume textile mills in China for 1 year – savings found in water, energy & materials

Expanding Clean by Design best practices to 2 more cities in China in 2013

Conflict mineral transparency policy

Standards of Vendor Engagement in which all vendors, sub-contractors, and suppliers are required to uphold

Vendor Performance Overviews (VPO) as a tool to make educated sourcing decisions

Adopted a “coaching stance” with suppliers to recognize progress, inquire about obstacles, & encourage improvement


Gretchen Dudon

Offers web-based training programs on topics like preventing underage labor, working hours, & health and safety management

Provide self audit forms to help vendors improve their performance

Intensive compliance, education, evaluation, and execution program for a limited number of vendors to improve their audit results

Target scorecard is in a spreadsheet format – when answers are updated your score changes immediately

Walmart

Gretchen Dudon

Jeff Rice, Senior Director of Sustainability

Launched the Sustainability Index in 2009 in collaboration with The Sustainability Consortium (TSC)

Publish Supplier Sustainability Goals


Recent news Target and Walmart join forces on supply chain sustainability to drive innovation & remove harsh chemicals from household cleaners, personal care & beauty, and baby care products Developing a Sustainable Product Standard

Commitments

Gretchen Dudon

Energy

Targeting Zero Waste

Sustainability Index

Water

Truck Fleet

Sustainable Food

Greenhouse Gas Emissions (GHG)

Acres for America

US Manufacturing

Strategy

Gretchen Dudon

By Dec. 31, 2020 procure 7 billion kWh of renewable energy

Reduce use of plastic shopping bags

By end of 2013 reduced plastic bag waste by 38%

= 10 billion bags annually

Responsible packaging – Reduce, Reuse, Recycle AND Rethink to develop product packaging solutions that cut unnecessary waste and save $

Launches The Sustainability Consortium in China to set supplier targets

2013 Walmart requires buyers to set specific sustainability objectives that will be tied to their annual reviews

Initiatives

Gretchen Dudon

More than 500 suppliers to participate in the Sustainability Index

NRDC Clean by Design “best practice” mill implementations

Track scope 1, 2 and 3 emissions

GHG emissions (scope 3) from supply chain are > than corporate emissions (scope 1 & 2)

Committed to eliminate 20 million MTCO2e rom global supply chain by the end of 2015

Use the Sustainability Index to spur innovation, track & measure GHG emissions, and create accountability

Target zero waste

Initiatives (cont.)

Gretchen Dudon

Improve water efficiency through better facility design and operational improvements

Jan 2013, Walmart pledged over the next 10 yrs to invest $250B in products that support American jobs

Effort to grow US manufacturing

Encourage the creation of US jobs

Acres for America in partnership with the National Fish and Wildlife Foundation 10 yr commitment

Invest $35M to purchase and preserve 1 acre of wildlife habitat in US for every 1 acre of land developed

Supply Chain

Gretchen Dudon

Recently pledge that Walmart and Sam’s Club will buy 70% of the goods it sells in US stores only from suppliers that use the Sustainability Index

More than 700 categories covered by the Index

Index score improvements year over year in all major business units

Responsible Sourcing Program to include transparent supply chain

Buyers are now incentivized in their annual reviews (5% of a buyer’s bonus) to source more sustainable products and set specific category sustainability objectives

Supply Chain (cont.)

Gretchen Dudon

Increase the use of recyclable plastics

Remove harsh chemicals from health & beauty, household cleaners and baby products

Reduce fertilizer use in agriculture

Expand Sustainability Index to international markets

Improve energy efficiency of supply chain partners with shared projects


Gretchen Dudon

Sustainability Index initiative in collaboration with The Sustainability Consortium

Sustainability HUB

Resources & tools

Learn how to get started with the Sustainability Index

Ask questions

Share success stories

Developing buyer incentives around improving environmental performance in their category

Adding specific sustainability objectives to its global sourcing merchants’ annual evaluations

Based on KPIs developed by the TSC dependent on product category

Implemented by buyers within their product category

KPI’s address issues up and down the supply chain

Index constantly evolving Index launched 1x per year – Feb. 2015 next

launch intent is to see incremental progress

from suppliers over time 70% of all categories covered except apparel

The Sustainability Index

“If we work together, we can create a new retail standard for the 21st

century."

Sustainability Industry Consortia

Industry Groups & Consortia

Multi-Stakeholder group

Evaluates factory facilities, products & brands in different modules

Focus is on the Higg Index – a suite of assessment tools that standardizes measurement of environmental and social impacts in value chain

Registration is Free, easy to set up an account Self-assessment tool (scoring based out of 100 total points and

each module is scored independently) to help guide & improve

Attempts to be a single industry standard

Data is not shared – you own your Higg Index data

Sustainable Apparel Coalition

Members:

Adidas Group Hanes

Levi’s Columbia

Nike Adidas

GAP Inc. A&F PPR

VF Corp H&M

Inditex Khol’s

Nordstrom Target

Walmart


Members:

Adidas Group Hanes

Levi’s Columbia

Nike Adidas

GAP Inc. A&F PPR

VF Corp H&M

Inditex Khol’s

Nordstrom Target

Walmart


Members:

Operational Focus Area Weighted Scoring

Environmental Management System 14.3%

Energy Use & (GHG) Emissions 14.3%

Water Use 14.3%

Wastewater/Effluent 14.3%

Emissions to air 14.3%

Waste Management 14.3%

Pollution Prevention/Potentially Hazardous Substances

14.3%

Supplier Facility Module Questionnaire Adidas

Group Hanes Levi’s

Columbia Nike

Adidas GAP Inc.

A&F PPR

VF Corp H&M

Inditex Khol’s

Nordstrom Target

Walmart

Sustainable Apparel Coalition (SAC)

Gretchen Dudon

Rapid Design Module – beta was released in 2013

Streamlined version of the Product Module from Higg Index 1.0

Used to help designers during product creation make more informed decisions about the potential environmental impacts of their designs

Assesses materials through the MSI (Material Sustainability Index – based on Nike’s original tool creation)

New and Current Changes

SAC’s RDM

Multi-Stakeholder Membership – 80 members

Addressing sustainability on all product categories

Focused on building a scientific foundation to drive innovation & improve consumer product sustainability

2 Tools Category Sustainability Profile (CSP): summary of

the best available, scientific info on a product over its entire lifecycle

Key Performance Indicator (KPI): questions retailers can use to assess & tack the performance of brand manufacturers on critical sustainability issues

Clothing, Footwear & Textiles working group – Feb 2013

Members:

The Sustainability Consortium

Clothing, Footwear and Textiles Working Group (CFT)

Members:

Focused categories Nylon, polyester, rayon, & cotton clothing 1st working group having research conducted in

China 2 Product Sustainability Toolkit Cotton – CSP & KPI’s Cotton textiles – CSP & KPI’s

Examples of other product categories include Air freshener, apples, butter, bread, cheese, CD’s &

DVD’s, board games, beef, bananas, beans/lentils/peas, baby wipes, baby diapers, eggs, dairy, display monitors, hand tools, plastic toys

Carbon Disclosure Project (CDP)

International non-profit organization

Provides a global platform to measure, disclose, manage & disclose environmental information

A tool to quantify & compare companies’ carbon emissions management & strategies

Works with investors, companies, cities, & governments

Climate Change program

Supply Chain program

Water program

Forests program

Carbon Disclosure Project (CDP)

Supply Chain Program

“CDP offers our suppliers an industry standard global platform for reporting their climate strategies, and data, improve supplier scores on the sustainability index and empowers Walmart to efficiently capture the positive impact that the company and our suppliers’ efforts are having in our supply chain”. Jeff Rice, Senior Director, Sustainability, Walmart

Supply Chain Statistics

Carbon Disclosure Project Signatories

Current Apparel Companies utilizing CDP for tracking & reporting on climate change (carbon emissions), water, & or forests

Nike

Adidas

Target

Wal-Mart (AND Supply Chain Member)

Abercrombie & Fitch

Gap Inc.

Climate change program engages 767 signatories with assets of US $92 Trillion Water program engages 573 signatories with assets of US $60 Trillion

Clean by Design

Mill Engagement Program

California Transparency in Supply Chains Act (SB 657)

Gretchen Dudon

Effective: Jan. 1, 2012 (signed into law by Governor Schwarzenegger in Sept. 2010)

Purpose: Law requires large retail sellers & manufacturers doing business in California (global sales > $100M) to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains for tangible goods offered for sale

Disclosure must be placed on website for public to see


Gretchen Dudon

Vendor Requirements: Be prepared for announced & unannounced audits to

evaluate & address risks of human trafficking & slavery. Obtain certification from suppliers that materials used to

manufacture products are not produced with slave labor, are not connected with human trafficking, and comply with laws of the country in which you are doing business.

Provide certification that your products sold are not produced with slave labor, are not connected with human trafficking, and comply with the country laws in which you are doing business.


Gretchen Dudon

“Verification of Product Supply Chains and Certification of Compliance with Laws (SB 657). At Target, we hold ourselves and our vendors accountable to high ethical standards wherever we do business. Target works diligently to ensure Target’s products are produced ethically by our suppliers and in accordance with Target’s Standards of Vendor Engagement(“Target’s Standards”) and Target’s Vendor Conduct Guide, which Target suppliers are subject to as a condition of doing business with Target. Target’s Standards expressly prohibit our suppliers from utilizing any forced or compulsory labor. They also mandate that workers receive fair wages and benefits in compliance with all applicable local laws. Target suppliers also warrant that all the products they supply to Target are manufactured in accordance with all applicable laws, regulations and standards – both of the United States as well as their country of origin”. http://m.target.com/HelpContent?help=/sites/html/TargetOnline/help/orders_and_shipping/more_help_with_orders/CA_SupplyChain_Act.html

http://hereforgood.target.com/learn-more/responsible-sourcing-policies/








Gretchen Dudon

“…. As part of our commitment to be a responsible company, the Ethical Sourcing

program was established in 1992. A key part of that program is our Standards for Suppliers, which are Walmart’s fundamental expectations of its suppliers on social and environmental practices. The Standards cover topics including: compliance with laws, voluntary labor, labor hours, hiring and employment practices, compensation, freedom of association and collective bargaining, dormitories and canteens, and the environment. Walmart requires every supplier to sign an agreement that they, their contractors and subcontractors will abide by these Standards. Factory audits are used to verify suppliers’ compliance with the Standards in those facilities producing merchandise for Walmart…. ” http://corporate.walmart.com/global-responsibility/ethical-sourcing/california-transparency-in-supply-chains-act

Corporate Disclosure in Compliance with SB 657 California Transparency in Supply Chains Act (Human Trafficking and Anti-Slavery)

Summary of Programs

Energy GHGs Water Waste Chemicals Social Natural

Resources

The Sustainability Consortium

SB 657 – CA Transparency in Supply Chain


NRDC

Nike (SMSI)

CDP

Labels & Marketing

Labels & Marketing

Product sustainability as a point of differentiation

Green Labels Eco Criteria

GoodGuide Green Marketing Guidelines (FTC)

Examples of Green Marketing

Product sustainability - Consumer Perspective Q. How do you know a product is green? Q. Are you searching for greener products? Q. Are you seriously searching for more sustainable apparel? Q. Where are you searching for more sustainable product?

Product Sustainability - Consumer Perspective

How do you know a product is green?

49% read product ingredients & statements about energy

reduction on the packaging

31% it’s made by a company with a strong environmental reputation

25% it’s been certified by an independent 3rd party


Are you searching for greener products? Greener defined as

more energy efficient, natural or sustainable? 70% responded yes in 2012 This is flat from 2011 where 70% of consumers also said yes

but trending upwards from 2009 where only 60% responded yes


Are you seriously searching for more sustainable apparel?

20% said yes – seriously to indicate a strong

commitment and intent in 2012 This number is down from 3 yrs ago, however

consumer behavior is generally trending downwards attributed to the economic recession


Where are you searching for more sustainable product? 38% Big box retailers (Target or Walmart) 22% Online 5% Specialty boutique (Patagonia or Aveda)

• Brands, Retailers, Investors and Shareholders are increasingly concerned about the effects of climate change and water scarcity to doing business. • What was the most costly natural disaster in the past 100 years? • With the reality of rising global population and resource constraints we must manufacture differently. Companies fear consumers perception if their success has consequential impacts.

Product sustainability – B2B Communications

Green Labels

Energy Star 55%

Green Good Housekeeping 29%

USDA Certified Organic 27%

Consumer Reports Greener Choices 23%

UL Environment 6%

MBDC Cradle to Cradle <1%

Vary by country you are selling into Common List

Eco Criteria

Eco Fashion is a holistic concept that refers to all fashion products that have been created in such a way to contribute to a healthier and more equal world

Vegan: products that have been made without the use of leather or animal tissue products

Ethically produced: ethical fashion that has been produced with respect for people & environment. This is an option for smaller companies who are taking significant action but don’t qualify for existing Organic and Fair Trade

Eco Criteria Fair Trade Certified: Organized movement that promotes standards for international labor, environmentalism, and social policy. Focuses on exports from developing countries to developed countries.

Organic: Natural fibers that have been grown without any pesticides and other toxic materials. The process of organic grown can be certified by various organizations. USDA Organic is common one in USA

Recycled: Anything made from already existing materials, fabrics, fibers or metals; often reclaimed from previously made clothing and reworked into new ones. Re-spun, re-purposed.

GoodGuide

Provides information on health, environment, and social impacts of consumer products

Search and browse over 200,000 products

Use scientific expertise and rating system based on 0-10 iPhone app available

Reviews products and categories – apparel category available

GoodGuide

Federal Trade Commission

Environmental Claims: DO’s DO specify environmental benefits when using seals or certifications DO use environmental certifications or seals that convey the basis for the certification DO have reliable scientific evidence to support carbon offset claims


Environmental Claims: DO’s DO be clear about your compostable claims and where your product can be composted DO ensure if you make degradable claims that your product will completely break down and return to nature within 1 year DO provide competent and reliable scientific evidence that your non-toxic claim is safe for both people and the environment


Environmental Claims: DO’s DO qualify recyclable claims when consumers have limited access to recycling facilities. DO make recycled content claims only for materials that have been recovered or diverted from the waste stream during the manufacturing process or after consumer use. DO qualify claims for products or packages made partly from recycled material ~ “made from 30% recycled material”.


Environmental Claims: DON’Ts DON’T make broad, unqualified environmental benefit claims, like ‘green’ or ‘eco-friendly’ ~ too difficult to substantiate DON’T claim “green, made with recycled content” unless you analyze the trade-offs ~ do the environmental benefits outweigh the risks and costs?


Environmental Claims: DON’Ts DON’T make unqualified renewable energy claims “made with renewable energy”, unless all, or virtually all, the significant manufacturing processes involved in making the product or package are powered with renewable energy or RECs DON’T make product or package reduction claims without a basis for comparison ~ “10% less waste than our previous product”

Examples of Green Marketing

Directly from your Client’s Corporate Sustainability Reports

“our paperless paystub program saved 400 miles of paper in 2012” GAP

“By recycling and composting at our San Francisco HQ, we diverted 75% of our building waste from going to landfill” GAP

“Since fiscal year 2009, we reduced our global air mix by more than 1/3, avoiding more than 20,000 metric tons of CO2 emissions in the latest fiscal year alone” Ralph Lauren

Examples of Green Marketing (cont.)

“Reducing our global air mix AVOIDED 20,000 MTCO2e of emissions from being released into the air, the equivalent of emissions from 18,000 homes’ energy use for 1 year” Ralph Lauren

“Through the use of intermodel solutions, we avoided emissions equal to to Co2 emissions from 390,000 gallons of gasoline” Ralph Lauren

“Making labels more sustainable by switching to a polyester made from recycled water bottles, diverted around 9 million water bottles from landfills each year” Target

Examples of Green Marketing (cont.)

“2 billion water bottles recycled in material used in Nike Brand apparel product since FY10 … equivalent to covering over 2,000 soccer fields” Nike

“Adidas has used more than 2M yards of DryDye fabric, saving 50 million liters of H2O, or 20 Olympic-sized swimming pools” Adidas

“A program evaluation from the International Center for Research on Women found that GAP PACE is changing women’s lives, with 1.5 times as many women saying they felt more confident in their ability to accomplish tasks at work and at home and nearly 50% more women reporting a higher level of self-esteem after they participated in the program” GAP

How Can You Prepare

Can Suppliers Meet Retailers’ Rising Sustainability Expectations

• Khol’s VP of Corporate Sustainability sees a clear segmentation among suppliers & their approach to sustainability

– “our vendors fall into 3 buckets” – John Fojut

• They either consider (sustainability) part of their core values

• They see it as something that gives them a competitive advantage

• They see it as something they have to comply with

Can Suppliers Meet Retailers’ Rising Sustainability Expectations

• A positive attitude – rooted in the realization that improved environmental & social performance can help make any business smarter, stronger, and more profitable

– Excellent foundation for future growth

– Long term viability depends on continuous improvement & innovation which includes sustainability

– Shifting from a compliance perspective to this can actually add value to my business

• Many of your client’s are adopting sustainability as a corporate directive

– What category will you fall into? Wait-and-see or act now and get ahead of the curve?

Act Now or Wait and See? Which are You?

• Despite mounting evidence that commitment to sustainability is deepening & accelerating in the retail world, many suppliers have been slow to out of shift neutral gear

• Some adopted the “wait-and-see” holding pattern

• reasoning that “once our customers sort out these requests, initiatives and standards, then we’ll start moving”

• Others made no secret of their plans to do as little as possible

• reasoning they assumed sustainability would fade in importance

• “we get a different buyer every few years; the next one probably won’t care about this”

• This is just another fad; retailers won’t care about this next year

Act Now or Wait and See?

A simple test to reveal whether the wait-and-see approach is right for you.

To assess the likelihood that retailers/brands will stop caring, lets ask 3 simple questions:

1. Is the customer of tomorrow likely to care more or care less about sustainability than the customer of today?

2. Are product contents and manufacturing locations likely to be more visible or less visible to retailers and the public 10 years from now?

3. Are costs of essential inputs like energy, clean water, and raw materials likely to increase or decrease for the foreseeable future?

Act Now

1.Build a Team

2.Assess your top client’s and percentage of business coming from each

3.Inquire about their supplier sustainability directives

1. How do you engage your suppliers?

2. Are you following a specific index?

3. How do you reward your compliant suppliers?

4. Do you have any educational / joint programs / resources for your suppliers?

4.Start measuring and understanding your environmental impact

1. Energy

2. Water

3. Waste

4. Chemicals

5. Social

Act Now

5.Put procedures in place to manage data

6.Create goals once you have measured and began tracking

7.Ask your operational managers and directors what they have already been doing (most likely your current operations are already following sustainability index initiatives)

8.Create a Corporate Sustainability Report

9.Share with your clients

10.Start small and make progress over time – baby steps

11.Keep it simple

12.Engage a sustainability consulting firm – ask for help and create the budget from operational savings

Wrap Up Gracias, Buena suerte!!!

Gretchen Dudon, President Dudonova Group and Associate Advisor with Walter Wilhelm and Advisors [email protected] +1 303.589.8760

mailto:[email protected]



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