Welcome to this column within our broader sustainability section which focuses on what fashion retailing is doing to address the issues in its industry.
This month’s column asks whether environmental standards in fashion can be used as levers in executive pay packages to effect change from above. Brought to you by Retail Insider with Clipper and Give Back Box.
It’s not often that fast fashion company Boohoo seems to be on-trend with regard to the environment but Boohoo could begin to see advantages on multiple fronts in linking its top executives’ pay to future environmental, social or governance (ESG) targets.
It looks set to be part of a growing trend towards remuneration committees encouraging management buy-in to ESG initiatives by focusing on hard targets and hard cash in the board’s pay-packets. Indeed, according to a recent report by PwC and the London School of Economics, around half of all FTSE 100 companies now have pay-outs linked to ESG targets.
This certainly looks like a rather sensible approach to achieving both increases in management remuneration and delivering a more positive impact on the environment. This looks to be a more sound way to make such changes on the latter rather than the push coming from consumers – particularly when it comes to the faster end of fashion.
Boohoo has not yet released its full-year figures for 2020 – they will come in May – when we will have hard numbers on whether its core customers were put off by the slavery allegations. I forecast that the impact will be negligible.
The lesson for Boohoo so far seems to be that if a brand’s consumers are not overly bothered by ESG-related requirements then a combined remuneration package linked to ESG might be the best route. It certainly focuses the mind of senior executives on such activity. Fashion companies, and others, can avoid further shareholder protests by using enhanced pay to ensure deforestation or pollution are being removed from a supply chain.
Financial institutions can also make very direct interventions for good as in the case of a new breed of so-called ‘cause capital’ venture capital funds. A good example is The Craftory which specialises in providing capital for mission-driven, disruptor consumer brands including fashion brand TomboyX – it has hundreds of millions of dollars at its disposal and targets the 20-30% (in its estimation) of consumers who care more about what their clothing is made of than how much it costs.
So often held up as all that is wrong with capitalism and its excesses, it is time to acknowledge the very positive impact that shareholders, institutional investors and venture capital funds can have in forcing change where consumers and parliament do not. The investment system (in both companies and executives) can positively bring about higher environmental and societal standards.
Back in June 2020, when claims of modern slavery emerged around Boohoo and its supply chain, £1.5 billion was taken off the share price in a matter of hours – this is a drastic lesson for any company who might think that environmental and social targets are irrelevant. Furthermore, it shows us a way in which the oft-reviled remuneration committee could take the lead on positively linking ESG targets to the pay of those charged with meeting them.