After Inditex saw its investors demand greater transparency regarding the factories where it produces its garments, publicly traded fashion companies are now also facing questions from impact investors. Its objective: 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 invested in H&M and Inditex in the past, and holds bonds in Adidas and Kering. This specialist in the textile sector, who also represents her company on the Platform Living Wage Financials (PLWF), spoke to FashionNetwork.com about the evolution of recent years.
FashionNetwork.com: As an impact investor, you offer a portfolio of socially and environmentally responsible companies. How are these companies selected?
Juana Schmidt: As an impact investor, we first select listed companies that contribute to the transition towards a sustainable economy and society. Then there is our exclusion process, which affects, for example, the oil and arms sectors, but also financial services. In fashion, we have decided not to invest in fast fashion because we do not see any positive impact in the medium term. Then, at the third level, we look at access to information and the quality of exchanges. With the companies in our portfolio we can carry out financial consultations and learn about their commitments regarding respect for human rights and the environment.
FNW: What is your approach to the companies in which you are a shareholder?
JS: We asked company management teams 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 do not 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.
Furthermore, as shareholders, we participate in voting at general meetings. We can, for example, vote against the presence on the board of directors if, in our opinion, they are not committed to a responsible agenda.
FNW: But what weight can you exert against very large investment companies?
JS: We remain a niche shareholder within these large groups, so we do not have the direct impact on the company's decisions that a majority shareholder might have. But that does allow us to raise strategic questions. For example, we ask ourselves: “Will fast fashion ever be able to pay the cost of the living wage in its supply chain? These questions draw the attention of other investors to the topic, because the fast fashion model is based on low prices.” . prices…and low salaries We don't have the same objectives as very large funds, but when a strong investor has his own doubts, he helps raise issues with the boards of directors.
FNW: In recent years, have you seen any developments in the finance and fashion sectors?
JS: For example, we are having increasingly constructive discussions with one of the leading Dutch pension funds. Changes in European legislation mean that investment players are paying increasing attention to these issues, both in Europe and in the United States. Companies have more and more specialists and data on these topics. But we still face obstacles. If a company does not wish to communicate information to its shareholders, our action is limited. This was the case, for example, of Inditex, from which we exited as Triodos Investment Management. 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 investors. Through knowledge and very relevant questions we can move the lines and distinguish between action and communication.
FNW: Some companies, listed or not, appear to be communicating their environmental performance, but are very discreet about their social commitments. Why is this?
JS: It is very easy to calculate the carbon footprint. It is quantifiable data, so companies can set objectives and evaluate them if they are achieved. Can communicate. The human aspect is much more complex, with variables in different countries, different professions, different levels of outsourcing, etc. Work is being done to improve the evaluation of companies' performance, but it is a more complicated issue to quantify.
FNW: With the development of impact investing, have you seen any changes in the living conditions of workers?
JS: That is a complex question. The issue has been raised by companies. H&M made some announcements along these lines… but very little has been achieved. In general, we discovered that with the Covid pandemic there have been significant setbacks on these issues. For example, some companies used to publish their salary data, but no longer do so. However, for investors, the capital risk in these issues is significant.
FNW: However, stock market news seems to buck this trend. The planned IPO of the Chinese company Shein, widely criticized for the negative social impact of its business model, is whetting the appetite of investors. Doesn't that demoralize you?
JS: Of course, there are always investors attracted by quick money. But be careful, it can happen very quickly. Look what happened to Boohoo when the scandal broke at his workshops in the UK. The company's value plummeted. Fashion is not among 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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