Danish apparel sector natural capital account
Høst-Madsen N K, Damgaaard C K, Jørgensen R, Bartlett C, Bullock S, Richens J, de Saxcé M, Schmidt J H (2014)
Danish Environmental Protection Agency, October 2014
The Danish apparel sector is globally recognised and economically important to the Nordic region. The textile sector for Denmark had an estimated value of DKK 38.6bn in 2012 (DMOGT, 2013), including apparel and other textiles. Like most apparel, it is associated with environmental impacts across supply chains worldwide. The Danish Environmental Protection Agency commissioned Niras, 2.-0 LCA consultants and Trucost to conduct a triple-level natural capital valuation to determine the impacts of apparel production , where they occur and what the significant impacts are in monetary terms. The analysis focuses on three levels of the apparel sector in Denmark. These are:
- National sector-level (including all apparel consumed within Denmark)
- Company-level (including all IC Group core brands)
- Fibre-level (agricultural/raw material production phase of individual fibre types)
This helps stakeholders to understand the natural capital dependencies throughout differing levels of the apparel sector supply chain, allowing better development of sourcing policies and interventions for improvements.
Natural capital accounting in the apparel sector is receiving increased interest, with the 2014 Global Leadership Award in Sustainable Apparel (GLASA) focussing on natural capital advancement in the sector (SFA, 2014). The relevance of natural capital accounting for apparel companies is being driven by factors such as water scarcity, which is threatening crop production as demonstrated by cotton slumps and price hikes following droughts in China and the US, and reputational risk, as witnessed by campaigns over factory working conditions and hazardous chemicals. The study captures greenhouse gas (GHG) emissions, air and water pollution and water consumption, as well as the impact of indirect land use change (ILUC). The study does not capture the direct land use change or other environmental aspects.
Over 80% of Danish apparel is imported as finished product, and most of the environmental impacts are associated with activity outside of the country. The figure shows the distribution of impacts across the three key import countries (Turkey, China and India) for finished apparel, along with impacts associated with the rest of the world (RoW).
As such, influencing reduction of impacts is more difficult to control, and opportunity exists through supplier engagement and sustainable procurement policies, as well as through consumption measures. Further to this, by using the sector level natural capital account, companies operating in the industry may be able to better understand where to focus their engagement and target improvement.
The results of the sector level natural capital account show that the most material impacts are associated with raw material production in Tier 5, and the final stages of tailoring apparel, Tier 1 (though this phase includes the whole supply chains of accessories and adornments/trims), and Tier 2. Impacts are dominated by GHG emissions, air pollution and water, though water is significantly more material within Tier 5 than other tiers, due to irrigation and farming requirements. Should the sector have to internalise natural capital costs of indirect land use change, water consumption, air and water pollution and GHG emissions, a total cost of DKK 3,390 m would be apparent, equivalent to 11.7% of total revenue for the sector. When considering average profit for the sector in 2012 was less than 6% of revenue (Deloitte, 2014), if the natural capital cost remained constant, this risk would equate to almost twice the profit margin of the year, resulting in a net loss for the sector.