Innovest Strategic Value Advisors Inc. has released its most recent report on the Textiles and Apparel Industry. The report assesses a wide spectrum of key industry trends and market activity associated with social, environmental, and corporate governance issues and their impacts on corporate bottom line and share price, utilizing Innovest's proprietary EcoValue'21 and Intangible Value Assessment (IVA) rating platforms.
As with the majority of the more than 50 industry sectors examined by Innovest, “sustainability” leaders in the textiles sector such substantially out-performed their industry competitors over a three-year period. Companies with above-average Innovest IVA(TM) ratings, including the three leaders, Adidas, Nike and Liz Claiborne, outperformed companies with below-average ratings as a group by approximately 23% at the end of three years from April 2000 to June 2003.
In addition to the results of the IVA(TM) analysis, positive results were also found in various business performance and market valuation ratios for Innovest's EcoValue'21(R) ratings:
Return on Equity, 14.94% versus 10.68%
Return on Assets, 7.36% versus 6.09%
Price to Book, 2.48 versus 2.27
Total Return -- 1 Year, 4.05% versus (9.4%)
Total Return -- 5 Years, 11.01% versus 6.89%
As a collaborator on this report, World Monitors Inc. prepared the chapter addressing social issues. World Monitors Inc. (WMI) is a consulting group based in New York City that provides expertise to multinational companies, non-governmental and multilateral organizations seeking to align business practices with human rights standards around the world. WMI's staff has extensive expertise in advising clients on issues affecting the textile and apparel industry, including supply chain management, global sourcing challenges, labor rights, worker health and safety issues, child labor and vendor compliance. On November 5th, 2002, WMI, together with Li & Fung, hosted “Making It Right: Lessons and Solutions in Global Sourcing and Labor Issues,” the first major conference to bring leading retail and apparel company CEOs, industry experts and monitoring groups together to discuss the new sourcing challenges.
The textile industry has been at the forefront of global news recently with international trade issues over sweatshop labor from emerging markets and the increasing threat of consumer activism related to corporate supply chain management. This one issue alone will have financial and reputational repercussions on companies competing in the industry for the next several years. Innovest's study of intangible risks and value drivers shows extreme reputational damage affecting the stock price of those companies that are not addressing this issue. Those firms that have received higher Innovest ratings, therefore, are best positioned to respond to these issues, with their investors poised to reap the benefits.
Best-practice companies in the sector have enhanced their performance by developing new products in the face of changing consumer demands, engaging with regulatory bodies and global organizations to create valuable stakeholder relations, and instituting corporate codes of conduct to operationalize ethics throughout their organizations. They also have lower exposure to regulatory risk, a greater capacity to manage complex stakeholder relations (consumer demands such as sweatshop-free clothing), superior supply chain management especially in emerging markets, and more proactive product development strategies that include environmentally-friendly product offerings through improved production processes.
This expertise translates into greater value added for customers through increased choice, reduction in labor interruptions and enhanced brand reputation.
In total, 19 global competitors in the sector were analyzed and benchmarked in the 160-page report. Companies from the U.S., UK, Europe, and Hong Kong were benchmarked based on their strategies to improve performance, reduce risk, and to develop new business opportunities. “An analysis of Innovest's IVA(TM) ratings compared to stock price performance demonstrates that, not only consumers, but investors as well are becoming increasingly concerned with a textile company's ability to proactively manage issues such as sweatshop labor and, to a lesser extent, the environmental impact of their products,” said Sue McGeachie, a senior analyst at Innovest and co-author of the new report.
Innovest Strategic Value Advisors is an internationally recognized, independent research firm specializing in non-traditional sources of investment risk and out performance, including companies' performance on governance, environmental, and social issues. Innovest's clients include leading institutional investors throughout the world. Founded in 1995 by Dr. Matthew Kiernan, Innovest has offices in New York, London, Paris and Toronto. The company is chaired by Jim Martin, former Chief Investment Officer for North America's largest pension fund, TIAA-CREF. For further information on Innovest, please visit www.innovestgroup.com .
