Higher ground: how fashion supply chains are being impacted by extreme heat and flooding
Our latest research has found that apparel manufacturers in some climate vulnerable countries could face a 22% shortfall in export earnings, or missing out on $65 billion, by 2030. We argue for greater focus on adaptation measures.
A new study, released today by Cornell University’s Global Labor Institute (GLI) and Schroders, reveals extreme heat and flooding are threatening key apparel production hubs.
Four countries vital for fashion production – Bangladesh, Cambodia, Pakistan and Vietnam – risk missing out on $65 billion in export earnings and almost 1 million new jobs.
Our collaboration with Cornell University’s GLI sought to analyse climate vulnerability of 32 production hubs and found exposure to heat and flooding risk is widespread.
Several other production centres stood out for their vulnerability to both, most notably Colombo (Sri Lanka), Managua (Nicaragua), Chittagong (Bangladesh), Port Louis (Mauritius), Yangon (Myanmar), Delhi, Bangkok and the Dongguan-Guangdong-Shenzhen regions of China.
To read the research in full, click below or visit the GLI website here:
- Higher Ground? Executive summary
- Higher Ground? Part 1 – Fashion’s climate breakdown and its effect for workers
- Higher Ground? Part 2 – Climate resilience and fashion’s costs of adaptation
- Higher Ground? List of references
What are the key findings on the impact of climate change on fashion manufacturing and its workers?
Collectively the four focus countries analysed – Bangladesh, Cambodia, Pakistan and Vietnam – are home to around 10,000 apparel and footwear factories and employ over 10.6 million workers in the industry.
We chose these four countries for their prominence in apparel and footwear production and, in the case of Pakistan, textile production. Together, these four represent 18% of global apparel exports, house approximately 10,000 apparel and footwear factories and employ 10.6 million workers.
These countries’ major production centres – Dhaka, Phnom Penh, Karachi and Lahore, Ho Chi Minh and Hanoi – are already confronting extreme heat and humidity. And all of these cities are also likely to experience significant flooding. We also chose these centres because they are at different stages of evolution as apparel and footwear producers. They include local and foreign-owned manufacturers, and they sell to a mix of fashion brands and retailers.
In our first report, using projections to analyse coastal and riverine flooding and wet-bulb globe temperature readings, researchers analysed future heat and flooding. This data was then used to predict industry-level shortfalls for 2030 and 2050 by comparing a ‘”climate adaptive” scenario with a “high heat and flooding” scenario. The results suggested a loss of 1 new million jobs and $65 billion in missed export earnings.
These projections rise significantly for 2050, amounting to a potential 65-70% shortfall in export earnings and 8-9 million fewer new jobs under the “high heat and flooding” scenario.
Both scenarios interrupt factory production, reduce workers' productivity and jeopardise their health, and may represent risks to the fashion industry.
Why is it important the business of fashion focuses on the costs of climate adaptation?
In our second report, we looked at impacts for a cross-section of six global brands in our four focus countries.
We examined company-level climate risk, costs and financing for adaptation and “just resilience”, i.e. the principle that less developed communities will require support to adapt to climate pressures.
We found that workers and manufacturers for all six brands could face significant productivity impacts from extreme heat. Ho Chi Minh in Vietnam was found to have the largest proportion of brands’ supplier locations affected by riverine flooding. But brands with significant production in Dhaka, Bangladesh, were also found to be vulnerable to physical flood impacts.
Looking specifically at how the disruption translates to production, we estimated the productivity losses for heat and flooding impacts for one sample brand as an example. The analysis suggests that the potential productivity headwind of heat stress and flood impacts in Ho Chi Minh and Cambodia’s Phnom Penh alone could equate to five percent of group operating profits.
With this research, we aimed to measure and understand fashion’s exposure to extreme heat and flooding. We found investment and transition finance strategies for the apparel industry must write new costs into their plans.
This sets the foundations for industry actors to formulate, negotiate and enact adaptation strategies that are large-scale and fit for purpose.
These issues pose material risks for brands, retailers and investors as they manifest either through productivity losses, stranded assets or both. This research highlights the urgent need for action. Investors must begin to engage with apparel companies and their stakeholders to ensure they start to measure and address the significant challenges of physical climate impacts on workers and business models.
Furthermore, apparel companies must look to partner with suppliers, and work with peers, worker organisations and policymakers to design suitable adaptation strategies that consider the impact on workers. Adaptation planning could have positive returns on investment for the industry and is a critical addition to mitigation efforts.
Multiple stakeholders – government, suppliers and their workers, brands and their investors – will benefit from an increased focus on adaptation.
Building a greater understanding of company exposures to the effects of acute heat and flooding sets the stage for enhanced analysis of company productivity and value, as well as creating engagement opportunities across the value chain.
Investors need to engage with apparel companies and their stakeholders as adaptation measures aren’t prioritised enough in risk plans because the industry is focused on mitigation.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.