New strategy brings rigor, sustainability and passion to engaging with fashion

Robeco’s new Fashion Engagement Equity strategy wants to invest in fashion’s future. For a team made up of both investment and engagement professionals, that means investing in high-quality stocks but also pushing fashion companies to adopt more sustainable practices.

That will be no easy task given fashion’s figures on water, air and soil pollution are far from flattering. It also struggles with worker rights and wages in many regions. For critics, making it more sustainable is like threading a needle in a sandstorm. Still, team members believe they can deliver sustainable change with a pioneering approach.

“We’ve got high ambitions and achieving them requires bolder tactics. Instead of following convention where engagement takes place post-investment, we integrate it at the outset. Input from engagement specialists inform portfolio construction while the investment team steers the engagement agenda and dialogues with companies.”

Intensified collaboration in stock selection and portfolio construction is just one feature of the new approach; 100% portfolio engagement is another. “While traditional engagement covers just a fraction of the stocks in a portfolio, we aim to engage with every single holding. Focused and frequent interactions with company management and sustainability experts should prompt accelerated action on key sustainability challenges in ways that more generalized active ownership activities cannot.”

“We also believe our efforts can create a ripple effect between investee companies and their upstream and downstream partners in the supply chain.” 

Engagement is a critical piece of the mandate but, as with investment returns, successful outcomes can’t be guaranteed. The team says this reality has shaped the design of the engagement process which features robust research, consistent application, and customization to create a program that is ambitious but not impossible for companies to achieve over the investment timeframe.

“Our proprietary engagement framework guides the process. Each engagement case is informed by sector-specific sustainability research, in-depth company profiles, a rich engagement history as well as Robeco’s SDG, biodiversity, and climate performance metrics. That has helped streamline the engagement focus on five key sustainability challenges – decent work, natural resource stewardship, circular models, stakeholder management, and governance & policies – which are all critical to address for a sustainable fashion future.”

In practice that can mean encouraging reduction of freshwater and pesticide use on crops, pressing manufacturers on wages and worker rights, pushing brands to improve transparency on source materials, or nudging retailers to introduce circular business models that reduce waste.

Though the elements of the process are the same, that doesn’t mean companies are treated equally. The team explains that this is necessary given that “companies face a myriad of unique constraints including access to financial resources, know-how, and technology based on their geographic location or position on the supply chain.” With this in mind, they adjust engagement expectations based on companies’ initial level of sustainability integration.

Engagements will typically last five years and will be considered successful if companies achieve three out of five sustainability goals. But sustainability is not ‘a one and done’ process. Successful closure makes companies candidates to graduate to a more stringent engagement category with higher sustainability targets.

Moreover, interim milestones have been set to keep progress on track and increase the probability of successful outcomes. “If companies are unresponsive to reporting requests or struggling to hit targets, it signals the need for more collaboration,” they say.

They’ve also built a divestment scenario into the strategy’s design but emphasize it’s a tool of last resort when companies are stonewalling and progress is improbable. “We’re convinced that executing ‘Plan D’ will rarely be necessary in practice based on our selection criteria. This is a high-conviction strategy grounded in extensive fundamental and sustainability analysis; we select stocks where we see upsides for growth and sustainability.”

The team says the goal is to work with companies to help them achieve that sustainability potential which should also help reduce risks and support long-term shareholder value.

In addition to engagement, exclusions and ESG integration are also used to enhance the strategy’s overall sustainability. But the team insists that these other tools will work in concert with engagement. “We aren’t looking for companies to reach a pre-established ESG score. We’re aiming for change on material issues that not only benefit society and the environment but also their bottom line. That means facilitating progress toward living wages for workers in vulnerable regions, more recycling of end-of-life products, and instituting policies that include sustainability KPIs tied to executive remuneration.”

Robeco’s SDG framework is also used to gauge how holdings are performing on critical real-world challenges. The aim is to have at least a third of holdings making positive progress on the SDGs.

The team contends that measuring engagement progress will be increasingly necessary to guard against greenwashing and to comply with stricter regulations. “As we are anticipating change, we’re working with a team of in-house sustainability experts to create an impact attribution framework that will allow us to quantify and measure the efficacy of our engagements.”

But is one strategy with 40-50 holdings enough to drive sustainability in a nearly three trillion-dollar global industry? While acknowledging the enormity of the task, the team believes engagements can extend well beyond individual investee companies. “We’re investing and engaging with large, publicly listed companies with resources, networks and influence in their supply chains. Changing their sustainability practices should also impact the players in their radius.” 

“In addition to engagement efforts with holdings, we’re also partnering with investor coalitions which should help amplify our demands and intensify industry pressure in a way that no single strategy ever could.”