How Fashion Companies Should Define Material Topics

In today’s fashion landscape, sustainability is no longer optional, it's an essential part of corporate responsibility. Fashion companies are under growing pressure from consumers, investors, and regulators to identify and address their environmental, social, and governance (ESG) impacts. But how can they determine which of these issues are most relevant, or “material”, to them? This article describes efficient ways to identify material topics for fashion companies based on existing requirements and best corporate practices.

Materiality Assessment

According to the Global Reporting Initiative (GRI), material topics represent an organisation’s most significant impacts on the economy, environment, and people, including their impact on human rights. The most systematic approach to identifying these topics is through a materiality assessment. GRI suggests the following major steps for this process:?

1. Understand the organisation’s context.
2. Identify actual and potential impacts.
3. Assess the significance of the impacts.
4. Prioritise the most significant impacts for reporting.

In Step 1, the company should identify its stakeholders, and in Steps 2 and 3, engage with them. Common categories of stakeholders, according to GRI, include business partners, civil society organisations, consumers, customers, employees and other workers, governments, local communities, non-governmental organisations, shareholders and other investors, suppliers, trade unions, and vulnerable groups. Different stakeholder lists can be created for each activity, project, product, service, or other classification relevant to the company.

During the materiality assessment process, a company should conduct research, surveys, and interviews to identify topics that align with the expectations of its stakeholders.

That’s, for example, the Swatch Group’s approach to stakeholder engagement (derived from Swatch Group 2023 Sustainability Report):

Swatch Group is in direct contact with people from various stakeholder groups using different channels and means of interacting, such as talking to customers in boutiques, holding dialogue with suppliers and employees, and providing ways to receive direct feedback and communicate online.

In parallel, a company should assess its actual and potential impacts on the economy, environment, and people, including negative and positive impacts, short-term and long-term effects, etc. These impacts should be grouped into topics related to the most important issues for stakeholders. Although it is not currently required, many organisations, including fashion companies, create a materiality matrix, where one axis typically represents stakeholders’ expectations and the other axis shows the importance of the company’s impacts on its development.

For Kering, the parent company of Yves Saint Laurent, Gucci, Balenciaga, and other luxury brands, the most crucial point in both dimensions is Climate Change, according to the company’s materiality matrix published in the 2023 Annual Report.

Materiality matrices that outline stakeholders’ expectations are still prevalent in reports. Still, fashion companies should prepare for new types of matrices based on double materiality, as requested by the Corporate Sustainability Reporting Directive (CSRD). This assessment evaluates both the impact of ESG factors on the company and the company’s impact on society and the environment.

Puma conducted its first double materiality assessment in 2023 and presented its first Double Materiality Matrix in the 2023 Annual Report. According to this analysis, the most important topics for the company are Worker Wages and Labour Conditions. As the company explains, “A total of 25 sustainability topics were selected after the horizon scanning stage to be evaluated by stakeholders. Seven topics were identified by our stakeholders as being financially material to PUMA.”

Since every company is unique, their material topics can differ and are not predefined. Each company can produce its materiality matrix, based on its mission and operational challenges. The main problem with this approach is that it is labour and time-intensive. The process of materiality assessment involves in-depth research, internal and external surveys, and interviews with key stakeholders. Depending on the company's size and complexity, this assessment can take up to several months to complete.

SASB Material Topics

The Sustainability Accounting Standards Board (SASB) proposes a slightly more straightforward approach to materiality. Their standards already have predefined material topics for Apparel, Accessories, and footwear producers. These topics are widely recognised within the fashion industry, although they are not mandatory to disclose. They are divided into four main groups, each with a few metrics inside.?

• Management of Chemicals in Products. This topic focuses on how fashion companies manage the use of chemicals in their products to ensure safety and compliance with regulations.

The SASB’s rationale behind this topic is that it helps mitigate regulatory risks and protect brand reputation. Proactive investment in R&D and collaboration on safer alternatives can open new market opportunities and reduce the likelihood of product recalls or legal liabilities. As regulations and consumer expectations tighten, companies with solid chemical management systems are better positioned to avoid fines, reputational damage, and long-term sales declines.

• Environmental Impacts in the Supply Chain. This topic focuses on how companies monitor, manage, and reduce the environmental impacts associated with their supply chains. Key areas include water pollution, waste management, energy use, and other ecological concerns.

As regulations tighten and environmental concerns grow, companies collaborating with suppliers to improve efficiency and limit pollution are better positioned to avoid fines, production disruptions, and rising energy costs. These practices result in cost savings and enhance brand reputation, potentially increasing market share.

• Labour Conditions in the Supply Chain. This topic focuses on how companies monitor, manage, and improve working conditions throughout their global supply chains. Companies must have a labour code of conduct—standards and guidelines that define acceptable working conditions, wages, hours, safety measures, and workers’ rights in a company’s supply chain. Audits should be conducted to ensure that supplier facilities adhere to these standards.

Poor labour conditions, such as unsafe workplaces or worker strikes, can lead to operational risks like production disruptions, increased costs, and damage to brand reputation. Proactively managing labour issues and improving disclosure on audits and corrective actions helps companies reduce these risks, maintain stability in the supply chain, and protect their market share and revenue growth over time.

• Raw Materials Sourcing is arguably the most critical topic, as extraction, processing, and production of raw materials often have significant impacts on ecosystems, labour conditions, and the overall sustainability of fashion companies’ supply chains. This topic involves assessing risks and opportunities related to raw materials, ensuring responsible sourcing practices, and maintaining compliance with third-party certifications.

Climate change, water scarcity, and environmental degradation can disrupt raw material supplies, leading to production delays, price volatility, and increased costs. If passed on to consumers, these risks can affect company margins and limit revenue growth. By investing in R&D for alternative materials and increasing transparency in the supply chain, companies can reduce these risks while enhancing brand value and justifying price premiums. Disclosing the percentage of certified raw materials allows investors to assess how well companies manage sourcing risks and ensure supply chain resilience.

Let’s see how disclosure of specific SASB topics looks in practice. For example, the “Raw Material Sourcing” topic requires a list of priority raw materials, each amount, and the amount of certified priority raw materials. Capri Holdings Limited (a parent company of Versace, Michael Kors, and others) addresses this issue in their SASB Index Table of the 2023 Sustainability Report, disclosing the following:

Footwear and accessories represented over 72% of our company’s revenues in Fiscal Year 2023. Leather is a key raw material used to craft these products, representing a significant portion of the raw materials used across these two categories. Leather represents 22% of our Fiscal Year 2023 raw material consumption (by weight) and drives more than half of our 2023 raw material GHG emissions footprint. During the fiscal year, 89% of our leather was sourced from tanneries receiving LWG Gold- or Silver certification (with 94% of our leather volume coming from LWG-audited tanneries).

The company also includes infographics of raw material use and certified priority raw materials in the main section of its report, making this information easier for readers to digest.

Many large fashion companies include a SASB Index addressing each of the topics and metrics in their sustainability reports. Below, for example, is an extract from Nike’s 2023 Annual Report. Here, you can see how the company addresses data requirements and which sections of the report contain more details about required topics.

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Another option is to include the answers directly in the SASB Index table, as the Canadian fashion brand Canada Goose has done.

Combination of methods

Materiality assessments are customised to fit each company's specific needs, while SASB’s predefined topics provide a simpler, more standardised way to measure critical issues. Many fashion companies use a combination of both.?

Combining both approaches ensures that a company addresses its specific challenges and meets widely accepted standards, enhancing transparency and credibility. A company beginning its sustainability journey can gain valuable insights by reviewing materiality approaches in peer reports. etOso offers access to over?25,000 sustainability reports, including those of fashion companies, to support this process.

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