The SAC Higg Index

April 27th, 2017 Karin Ekberg Agenda 2

• Intro about SAC and overview of the Higg index • Where do the SAC Higg tools fit into your program? • Materiality & Strategy – Brand & Retailer level • • Product & Materials • Reporting • Q&A • Wrapping up

Intro about SAC and overview of the Higg index

Our Vision 4

An apparel, footwear, and home textiles industry that produces no unnecessary environmental harm and has a positive impact on the people and communities associated with its activities. The Coalition Stakeholders 5 Brands

Retailers Manufacturers

Government Industry Associations

Nonprofits Service Providers

Academia Diverse Global Membership 6 Brands & Retailers Manufacturers

Industry Affiliates Nonprofit, Academia, Government Building the Higg Index: How We are Structured 7

We develop tools. We support adoption of tools. We enable on results. 8

SUITE OF TOOLS

Facilities Brand/Retail Product Modules Modules Modules

Materials Index Facilities Environment Module Brand Environment Module (MSI) (FEM) VERIFICATION 2016 (BEM) VERIFICATION 2018 Facilities Social/Labor Module Apparel & Footwear Brand Social/Labor Module Design & Development (FSLM) VERIFICATION 2018 Module (DDM) (BSLM) VERIFICATION 2018 Brand & Retail Module *2018 Product Environmental Footprint Tool *2018 Higg Tools for each step along the Value Chain 9 RAW MATERIALS Materials Sustainability Index DESIGN & PRODUCTION (MSI) Design & Developments Data Contributor Module (DDM) Data Explorer MANUFACTURERS CONSUMERS & COMMUNITIES Facilities Environment Module Product Environmental Footprint (FEM) (due 2018) Facilities Social/Labor Module (FSLM) RETAIL BRAND Brand & Retail Module Pilot Brand Environment Module (BEM) (due 2018) Brand Social/Labor Module (BSLM)

Where do the Higg tools fit into your program?

Brand & Retailer: Materiality & Strategy

What is the process to develop a sustainability strategy? 12

Sustainability Performance Explore the need Materiality Strategy Implementation Assessment & / Review Assessment Development Reporting Materiality – Value Chain Approach 13

Management Processes Business processes

Product Innovation Marketing Design Concept Sourcing Development

Supply Chain Use Manufacturing Distribution Sales End of Life Management (external)

Support Processes Human Resources Communication IT Finance Which sustainability aspects to pick? 14

Trends Energy & Water Conservation GRI Environmental Management SASB CDP

SDG – Sustainable Community Involvement Development Goals Climate Change Mitigation ISO 26000 Infrastructure Resilience Global Compact Capacity Building Aspects generated by your business strategy

Corruption Assessment matrix – Hot Spots 15

Support Business Sustainability Own Manu- Ware- processes Strategy & Innovation Suppliers Transport Use End of Life facturing housing (comm; Management aspects HR;IT) Sustainability practices

Environment - process

EMS; ISO 14001

Energy consumption & Carbon Environment - product

Ethics/social

Ethics

Human rights, social

Significant potential Neutral; some potential; Significant impacts, etc., Not relevant/ not Less relevant and very good programs assessed implemented Brand Modules – Areas of Assessment 16

Brand/Retail Modules

ENVIRONMENT SOCIAL / LABOR

1. Management 1. Internal S/L Performance 2. Materials Management 3. Packaging 2. S/L Performance Management 4. Manufacturing System for Partners in Value Chain 5. Transportation 3. External Engagement; Community 6. Product Care & Impact; Transparency & Public Repair Disclosure 7. End of Use

Assessing all Brands’ sustainability policies and practices Strategy Development – What do sustainability leaders do? 17 % of respondents Sustainability leaders, n= 264 Organizational characteristics that are true of the respondents’ companies 1 All other respondents, n=2 370 53 We set aggressive external targets or goals 11 for our sustainability initiatives 4.8x We have a unified sustainability strategy with clearly 69 articulated strategic priorities (eg. no more than 5 focus areas) 19 3.6x We set aggressive internal targets or goals 60 for our sustainability initiatives 17 3.5x A broad leadership coalition is involved in shaping or co-creating the sustainability strategy, goals and milestones 65 19 The financial benefits of sustainability are clearly 3.4x understood across the organization 51 18 1. Out of 12 characteristics that were presented as answer choices in the question. 2.8x Source:Sustainability’s strategic worth: McKinsey Global Survey results. McKinsey&Company.

Examples of a strategy program 18

Support Business Sustainability Own Manu- Ware- processes Strategy & Innovation Suppliers Transport Use End of Life facturing housing (comm; Management aspects HR;IT) Sustainability practices Management system & Sustainability communication

Environment - process

EMS; ISO 14001 ISO 14001 ISO 14001 Supplier ISO 14001 ISO 14001 ISO 14001 ISO 14001; for all manage- trans- Software business ment porters processes Energy consumption Corporate New manu- Energy Energy Corporate & Carbon energy facturing program program energy program processes program Environment - product Product Energy LCA / Collection index Water sustainable program Chemicals products Ethics/social

Ethics Anti- Code of corruption Conduct program Human rights, social Diversity Supplier program manage- ment

Supply chain level & For manufacturers

Sustainable Supply Chain Challenges 20

• Need to reach beyond Tier 1 in the supply chain to manage environmental, health & safety risks • Different standards: • SAC (Sustainable Apparel Coalition) Higg Index – Self – Assessment and Verification • ZDHC (Zero Discharge of Hazardous Chemicals) protocol - audit approach • BEPI, GSCP, FWF, FLA • Fast – changing supply chain and lack of visibility • Joint purchasing power isn’t leveraged in working together with other Brands • Multiple buyers at a single supplier lead to multiple at that supplier; audit fatigue • Technical complexity of manufacturing is significant • Joint supplier engagement platform is not available • Need to integrate several topics relevant to the supply chain: environment, chemicals management, H&S, labor, compliance, etc. Supply chain assessment matrix – Hot Spots 21

Sustainability Accessories Materials Materials Materials Apparel T1 Apparel T2 Accessories T2 aspects T1 cotton polyester silk

Sustainability practices

Environment - process

EMS; ISO 14001

Energy consumption & Carbon Environment - product

Ethics/social

Ethics

Human rights, social

Significant potential Neutral; some potential; Significant impacts, etc., Not relevant/ not Less relevant and very good programs assessed implemented Higg Facilities Modules - Areas of Assessment 22

Facilities Modules

ENVIRONMENT SOCIAL / LABOR 1. Environmental 1. Recruitment & Hiring Management System 2. Compensation 2. Energy Use & GHG 3. Hours of Work Emissions 4. Worker Involvement & Communications 3. Water Use 5. Worker Treatment & Development 4. Wastewater/ Effluent 6. Health & Safety 5. Emissions to Air 7. Termination & Retrenchment 6. Waste Management 8. Value Chain Performance 7. Chemicals 9. External Engagement; Assessing all Facilities’ sustainability Community Impact; policies and practices Transparency & Public Disclosure

Product & materials

Strategic decisions at product level 24

• Assessing the fabrics used and selecting preferable fabrics • Product Indexing • Footprinting and LCA (Lifecycle assessments) MSI – Materials Sustainability Index 25 The Product Life Cycle 26

Design

80% of a product’s environmental impact is Material Suppliers determined at the concept and design phase - Sustainable Development, Energy and the City Consumers & Communities Manufacturers

Retail Logistics

Strategy from Design & Iterative Concept/Brief Production Mgmt Development Samples/Proto

Data to Drive Change: How Higg Assesses Impact at All Stages of the Product Lifecycle Introducing the Design and Development Module (DDM) 27

Goal: Design Negative Environmental Impacts out of products Target User: Designers/Product Developers How: Assess concept early in product creation. Focus on action and education What: Internal-facing score, not for external communication Business Value: Prepare companies to evaluate and address critical impact areas to be evaluated for public-communication in Footprinting

Materials Care & Repair Quality & Lifetime

Manufacturing End of Use Create A Custom Product Library (I) 28 Create A Custom Product Library (II) 29 Compare Product Designs For Environmental Impact (I) 30 Compare Product Designs For Environmental Impact (II) 31 EU Product Environmental Footprint – Pilot Project 32

Reporting

Market Test and Pilots 2016 34

Pilot Objectives 1. Test a standard for the industry to measure and communicate the environmental impact of products to consumers to enable informed purchase decisions 2. Test if communicating environmental information to consumers may trigger an improvement in the overall environmental performance of products:

Pilot Approach for Market Test • Testing a label on selected footwear products in brick and mortar stores and online • Testing through 6 focus groups • In UK, Spain, Poland • 300 in-store interviews (100 per country) • Online surveys (on brand websites)

Discussion & Questions

Wrapping up

About Leadership & Sustainability 37

“Sustainable Innovation for Industries, Corporations and Organizations” We promote • Sustainability as Corporate Strategy • Sustainability as Business Model • Sustainability as Leadership quality Leadership & Sustainability combines sustainability expertise with leadership capabilities – to support you in becoming a true Leader in Sustainability. • Our platform of solutions covers Consulting, Empowerment, Sustainable Business Models and Software & Tools. Our Expertise, Outreach and Partnerships are global, with anchors in Europe, Asia and America. • Our mission is transformation and embedding of sustainability into business processes over the entire value chain. SAC related services 38

• Materiality assessment & Strategies • Higg index verification and audit practices; management of audit programs • EHS & energy management systems. Chemicals management and implementation according to „ZDHC protocol“ and / or the German partnership (Textilbündnis) • Good manufacturing practices • Product portfolio strategy • KPIs & Performance improvements • Training packages (L&S is an approved SAC trainer) • On the above topics • Training / Supervision of auditors on site • Supplier trainings

Leadership & Sustainability Project examples 39

• Materiality assessment, benchmarking and strategy development • Chemicals management consulting • Training on how brands are organised • project, including audits • Supply chain management: materiality, EH&S guidelines, audit approach, etc. • Workshop about sustainability strategy • ISO workshop • Software for supply chain management • SAC FEM3.0 Verification • EIA – Environmental Impact Assessment

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