Patagonia’s Take on the SAC

By Rick Ridgeway, Jill Dumain 13 December, 2011

China Water Risk talks to Patagonia about the origins of the Sustainability Apparel Coalition Index and its vision.

China Water Risk spoke to Rick Ridgeway, Chairman of the Sustainable Apparel Coalition in his capacity as Patagonia’s VP of Environmental Initiatives. Also included in the conversation was Jill Dumain, Director of Environmental Strategy at Patagonia, which is a longtime leader in sustainable manufacturing, founded by environmentalist Yvon Chouinard in 1973.

The Sustainable Apparel Coalition (SAC) is an informally governed coalition with an initial goal of developing and road testing a sustainability index. Participating organizations formed SAC believing there was opportunity for a more sustainable and innovative apparel and footwear industry that could not be achieved without collaboration and collective action. For a summary of SAC’s vision and purpose and a review of the Sustainable Apparel Index, click here.

Current members include: Adidas, Arvind Mills, C&A, Duke Center for Sustainability and Commerce, Environmental Defense Fund, Esprit, Esquel, Gap Inc., H&M, HanesBrands, Intradeco, JC Penney, Kohl’s Department Stores, Lenzing, Levi Strauss & Co., LF USA, a division of Li & Fung Limited, Marks & Spencer, Mountain Equipment Co-op, New Balance, Nike, Nordstrom, Otto Group, Outdoor Industry Association, Patagonia, Pentland Brands, REI, TAL Apparel, Target, Timberland, U.S. Environmental Protection Agency, Verité, VF Corp, and Walmart.

CWR: Tell me about the formation of SAC and the motivation behind its creation

Rick: SAC had its origins in Patagonia and there were two existing indexes. Concurrent to the development of the initial SAC index we at Patagonia had been working with WalMart to help develop their sustainability index. We first helped with interest they had in adding organically grown cotton to their apparel product.  That relationship was developing and we thought about how that effort might be extended.

We decided to invite WalMart and several other companies into a coalition that might commit to a uniform sustainability index. WalMart agreed and sent out an invitation to a carefully selected group in October 2009. We wanted to make sure that there would be no one negative in the room, no one to try to shut us down, or dumb us down. We wanted to have companies that would do the opposite.

There were 17 of us in April 2010 aligned around the common goal of a uniform sustainability index.  We didn’t want to just adopt the Outdoor Industry Association Index, but to use that as a framework and create something that was robust for the SAC. The coalition organized a working group in June aligned around the idea of building from the OIA index and also the Nike index and adding knowledge from other companies like WalMart. We believed this would be more robust than anything else.

The tool was roughed out by the fall of last year and we have engaged in refinements since then. This is in the stakeholder review process among member companies. We will incorporate learning throughout the summer and have a refined tool in September. Then there will be beta testing throughout the rest of the calendar year. Of course now we have incorporated more companies.

Jill: On the Index, the important thing was to get across  how complete the framework is – the full supply chain. We wanted to be looking at the process from the beginning, from the raw material production, whether that’s the farm, the manufacturing or whatever is the starting point. We wanted then to look at every phase that a garment will go through, including recycling, transportation, packaging. On the other side, we wanted to consider how a company might engage with this, from the starting point of whether the company has an environmental management system in place, is using recycled content in packaging then on to the indicator level, which involves more specific questions including for example the percent of recycled materials used in packaging.  Indicators should be able to show the path of progress – if the company chooses to move forward in the process to the metrics, the carbon and water footprint, the greenhouse gases associated with production for example. The progress is designed to be modular so a company can start in one segment of a lifecycle then slowly move on into indicators and metrics.

Rick: The categories of impact have several desired outcomes. They are put into buckets such as water use, quality, energy, greenhouse gas emissions, chemicals and labor. The Coalition is unified in its ambition to win favorable outcomes.

CWR: Are companies thinking the index makes business sense?

Rick: The companies in the coalition have individual ideas about the benefits of what we are doing – everyone understands there are efficiencies to be gained that will lower costs as well as improve environmental footprints. Everybody also recognizes that a tool like this has the potential to help manage risk and exposure, to manage reputational risk.

Regulation is also a factor. We don’t have a real vision of how this might happen but we can’t help but think this will get companies ahead of regulation. The companies involved will be ahead of the game when regulation is more rigorous. We also believe it is likely that our efforts will actually influence regulation that it will be more robust than even what the EU is developing at the moment. With the group that we have now, there is interest in doing the right thing, there is a strong sense that we are all in this together. Everyone knows that a healthy planet in the interest of us all. Companies are increasingly aware of our inter-connectedness and more resolved to get on board.

CWR: You mention reputational risk. Do you feel that is a motivating factor?

Rick: We have some suppliers in the room, as part of the SAC. We would expect that suppliers would feel some of the same drivers

Jill: some of the idea of going into the supply chain is to bring change there and then impact to brands, which would like to see a level playing field worldwide. If there are better environmental practices worldwide it does even things out. If we can bring more suppliers into that work and they see the benefits themselves in terms of water, chemical use, wastewater treatment, control equipment, that would be significant.

Rick: Patagonia is a curious company and is as close to a non-profit as a for-profit company could be. It’s a private company. The owners are not in the business to get wealthy. Most of the profits our company makes go back to support environmental organizations. The main mission of our company is environmental. Our Mission is to make the best products we can with no harm to our environment. We try to implement solutions to the environmental crisis by cleaning up our own act and improving our supply chain, influencing other companies.  Our mission statement is used to guide decisions and options.  Our company is in business to achieve those goals.

Jill: In 1990 we started looking at what our production might be doing in terms of environmental impact. Previously, we had been known as an environmental company but it wasn’t until then that we started to look at what we were doing. By 2003 we were doing a good job on raw materials, sourcing organic cotton, recycled nylon etc but the area escaping us was dying and finishing. This area is the most toxic and among the heaviest water and energy users. We are trying to watch other companies with a reduced substance list and learn but so far we just haven’t been able to enforce that. We have no teeth to go there. For 14 years, I managed the fabric department sourcing fabrics, making sure we were doing so in the best way that we could. We were introduced to Blue Sign in 2000 and it has proven to be a successful program with more aggressive goals than other certifications. We aim to be fully Blue Sign certified. We started with direct contact with our supply chain four years ago. We had talked about this previously but were not directly involved until then.

CWR: Are you feeling pressure from consumers to make change?

Rick: The potential for a cohort of our customers interested in these issues to emerge is significant. For WalMart and Target, their customer base is different. They are interested in how we can turn this into a consumer-facing rating. We are laying the requirements to do that with the index we are creating. A consumer-facing rating should be uniform across the brand and should be really meaningful based on data that realistically measures impact so that it is not weak or misleading. The Index provides these two preconditions. But we are not spending time on that part right now because it would take away from the index itself, which is anyway a necessary step toward that

Jill: This has allowed us to put in place a more robust framework. If it is not consumer facing we can take our time. It’s a slimmer profile because we wanted it developed quickly. Consumers buy more products that have a more fully evolved environmental story but we don’t necessarily see a direct correlation. That said, the questions from customers have gotten better. They are more savvy to nuance. We used to get asked why do you do business in china now we get asked, why do you do business in China because most of their energy comes from coal.

CWR: Do you believe that the SAC Index can bring change?

Jill: I am definitely optimistic

Rick: No one can predict accurately where SAC will land. We can see that there are changes that we can drive in our supply chains, that we can be a bigger driver of more significant change. We are recognizing that we may impact other drivers also. We are also having discussions with equity fund management on metrics-driven analysis of investment potential. Everyone in SRI investing has told me that when we are up and running this index will provide an important analytic tool that will inform the valuation of companies. We are moving ahead on this and this could be a more potent driver of change than consumers.

For more on Patagonia’s corporate policy on environmentalism … Click here.