Environmental Sustainability: Impacts on Business Performance in Apparel Industry

Date

2021-05

Authors

Truong, Huong "Katie"

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Abstract

From 2020 to 2025, the global apparel market expects to grow from $1.46 trillion to $2.25 trillion. Moreover, the apparel industry exists within the broader fashion industry, a $2.5 trillion industry that employs 430 million people worldwide. For perspective, 1 out of 8 participants in the global workforce works to support the fashion industry. As a major economic force, the fashion industry has an outsized capacity to inflict environmental damage. Currently, the fashion industry emits 2.1 billion metric ton of carbon, consumes 79 billion cubic meters of water, and produces 92 million tons of textile waste per year. Given these statistics, the industry ranks second in terms of its carbon footprint, water consumption, and pollution output.

With this industry backdrop, how can businesses support their bottom-line and mitigate their adverse environmental impact? I rely on two methods for detangling the relationship between business performance and environmentally sustainable practices. Using profitability as a proxy for business performance, I decompose profit into revenue and cost. Under the first method, I break down the underlying components of revenue, delving into how shifts in price and volume affect profitability and sustainability. Under the second method, I conduct a value chain analysis with a focus on cost. Ultimately, I learn that consumers expect eco-friendly products to command higher prices and are increasingly willing to pay more. Consequently, businesses can increase revenue through higher prices but should not necessarily aim to increase volume, which exacerbates the problem of overconsumption. Although sustainable practices often impose higher upfront costs, businesses have the opportunity at various points in the value chain to adopt sustainable practices that generate cost savings in the long run.

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