15 September 2014 – CLSA issues report titled “Dirty Thirsty Fashion: Blindsided by China’s water wars”. China Water Risk guest authored this report for CLSA U®, which examines how China’s water risks could blindside the global fashion industry.

The report warns whilst some industries will face minor business disruptions as water enforcement tightens, for the US$1.7 trillion global fashion industry, China’s “lack of clean water poses an existential threat”. 

Key areas of concerns are:

• China’s limited water resources and the need to hold the “Three Red Lines” on water (pollution, use &  efficiency) is driving the country towards a “business unusual” future;
• Fashion is not only dirty, it is thirsty and since China has declared “war on pollution” to protect its limited water resources, fashion faces unprecedented pressures;
• Global fashion’s reliance on China means that it is particularly vulnerable – China produces around half of the world’s textiles;
• There are 5 strong environmental, strategic and economic reasons why China has to rehaul Made in China; and
• Reputational risk is at an all-time high. All brands, from sportswear to luxury are facing brand damage from continued pressure from global & local Chinese NGOs’ focus on the supply chain and brand rankings are examined.

The report also looks at listed OEM violations, which should give an indication of who’s likely in line for large fines in 2015, when the amended environmental protection law comes into effect. It also argues that it’s not water tariff hikes that will hurt but new standards in place for the textile and leather sectors which are now realigned so it no longer pay-to-pollute. Analysis of pollution treatment equipment CAPEX & OPEX (required for compliance) against margins exposes weakness of SME-conomics of the sector.

Moreover, fashion also faces ‘upstream’ risks: 80%-90% of yarn, cloth and chemical fibres are made in water scarce & stressed regions in China plus 25% of cotton is grown in the North China Plain brings to mind cotton vs food issues.

Click here to access the report. Please note that the report is accessible to professional investors only.

We shall review the report in our newsletter next month… sign up now!

CLSA Contact

Charles Yonts, Head of Sustainable Research
[email protected]

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Debra Tan on the Future of Fashion hosted by Redress, January 2014:

“A business-as-usual approach will see fashion blindsided by water risks in China & India. With around 50% of cotton grown in India and China (the number one and two most water stressed counties globally), brands may have no choice but to look for new materials that require less energy & water to make, recycling of textile waste and clothes. And it’s not just cotton but leather as well. Across the apparel and footwear industries, we expect to see more focus on the selection of materials at the design stage that use and pollute less water and tools developed like the MSI (Materials Sustainability Index) should help.

With increasing NGO pressure on pollution in the supply chain, we should also see more focus on the selection water-friendly chemicals for dyeing & finishing, a bias towards ‘green’ manufacturers and commitment to zero-liquid discharge.

Limited water resources will no doubt shape fashion’s choice of raw materials. Brands should do well to mitigate water risks with a corporate water strategy.”