Sustainability Drives Growth & Profitability
Businesses going green
“We did not inherit the earth from our ancestors; we borrowed it from our children”. This quote emphasises the intergenerational responsibility of the people and advocates for sustainability. The term “sustainability” implies meeting the requirements of the current generation without compromising the needs of future generations. This means, it should not be limited to only environmental impact but also consider financial and social indicators. Globally the nations committed to the Paris Agreement to address emissions from polluting industries, leading them to the formulation of stringent policies, rules, and regulations. This regulatory landscape, in conjunction with the Sustainable Development Goals (SDGs), mandates a strategic shift towards sustainability across industries.
In the textiles industry, the trend of fast fashion is on the rise where cheap, trendy clothing pieces are copied from catwalks, celebrity couture, or straight from the fashion walks in Paris or Milan. The idea is to get the newest styles on the market at affordable prices and in the hands of ever-excited trendy and weekly shoppers before a new trend starts burgeoning. Repeating clothes has become a fashion faux pas and thus, consumers are lining up their cupboards with duplicates of Sabyasachi or Manish Malhotra lehanga from lanes of Chandini Chowk. This toxic overproduction, overconsumption, and dynamic shift from quality to quantity of textiles have made it the largest polluter leading to the depletion of non-renewable resources, using massive amounts of water and energy, and increasing GHG emissions. This industry of fast fashion is estimated to be growing at a CAGR of 7.70% from 2023 to 2030, as forecasted by King's research. But, they also estimated that the sustainable fashion market will grow at a CAGR of 8.58% from 2023 to 2031. This can be attributed to the fact that eight out of ten consumers are actively making purchase decisions based on sustainability considerations.
According to the Morgan Stanley Survey 2024on investors’ interests and priorities found that 77% of investors reported being interested in sustainable investing1 among which 54% expect to increase the percentage of their portfolios allocated to sustainable investments within the next 12 months. The top investors’ ESG priorities for investment in sustainability are efforts to reduce waste, pollution, water usage, use of natural resources, and its governance practices.
1The study surveyed over 2,800 investors with over $100,000 in investable assets across the U.S., UK, France, Germany, Switzerland and Japan. The report can be accessed at: Sustainable Signals: Understanding Individual Investors’ Interests and Priorities
Further, to attract investments, even CEOs of the companies are adopting various measures to tackle the risks associated with climate change. According to PwC Global CEO Survey 2023, more than 50% of the CEOs are innovating new climate-friendly products and improving energy efficiency. This pace of adoption of climate-friendly measures is a slower tempo, thus, with the shifting global focus and demand for sustainable products, and investing, businesses must incorporate sustainability into their economic strategy for revenue growth and lower costs. However, companies associate sustainability with higher costs, but various research studies have shown that the opposite is true. According to a McKinsey study, companies that achieve better growth and profitability than their peers while improving sustainability and ESG outgrow their peers and exceed them in shareholder returns. These companies are considered ‘triple outperformers’, focusing on revenue growth and economic profit while incorporating ESG indicators in their strategy. They have recorded an increase in revenues at a median rate of 11 percent per year.
The companies have adopted various measures to make their business supply chain more sustainable such as divesting the carbon-emitting entities, integrating ESG criteria into mergers & acquisitions, ensuring transparency in the operations through public display of the progress of ESG metrics in the company’s operations and embedding ESG strategies into internal processes of the company. Such measures have not only reduced their costs but have increased the returns to shareholders as high as 25% in a year. This presents a golden opportunity for businesses to pivot towards eco-friendly practices, mitigate their carbon footprint, and explore the lucrative avenues of transitioning to sustainable business models.
The following three case studies look into the sustainable initiatives undertaken by textile companies in India and analyze the impact of these actions on their manufacturing costs and revenue annually.
Sutlej textiles’ initiatives driving growth
Sutlej Textiles started in 1934 has emerged as one of the largest textile manufacturing companies operating into two segments - yarn and home textiles. This global company generates more than 40% of its revenue from international operations. The company has pivoted towards sustainable initiatives in recent years due to the increased demand for eco-friendly products. The company is:
- Producing green fiber by extracting Polyester Staple Fibre by recycling PET bottles: with a capacity of 120 tons/day.
- Generating renewable energy through 2.717 MWp rooftop solar power plant.
- All manufacturing facilities have Zero liquid discharge systems wherein 100% effluent from dye house and sewage is treated, recycled, and used in their plants
In addition to the mentioned measures, energy-saving initiatives like efficient motors, solar water heaters, digital timers, and optimizing humidification plants are yearly components of our sustainability strategy. These efforts have significantly reduced production costs by over Rs 2.1 crores and Rs 3.8 crores2 annually for FY’22 and FY’21 respectively, with a capital investment of Rs 1.5 crores and Rs 1.3 crore for the same periods.
2The cost calculated does not included producing green fiber, generating solar energy and waste treatment. It included only the other measures. Manufacturing costs are calculated from the financial statements available in the annual reports for FY’23, FY’22, FY’20
FY'23 saw revenue from operations at Rs 3,063 crore, up by 18.3% from Rs 2,588 crore in FY'19. Manufacturing costs for FY'23 decreased to Rs 1634 crore from Rs 2858 crore in FY'19, a 42.79% reduction attributed to backward integration with green fiber manufacturing and consuming 99% of it in the company. The company's solar power plant generated over 41 lakh units in FY'23, marking a 20% increase from FY'19.
Greener Initiatives of Faze Three Limited
Faze Three Limited is a home textile and automotive fabric manufacturing company in India having clientele in over 15 countries globally with 90% of the revenue coming from international orders. The company has diversified into sustainable manufacturing practices which include3
- 25% of total cotton yarn is sourced from Better Cotton Initiative (BCI), which is 5% more efficient than conventional
- Energy-saving initiatives such as the installation of LED lights, servo motor machines, and turbo ventilators have saved the release of 5.62 lakh, CO2 emissions per annum.
- 100% shift towards recyclable packaging material has led to 0% plastic waste
- 250 tons of recycled polyester are being consumed by the units
3Sustainability in Textile Industry: How Faze Three has stepped towards Better Future
In FY'23, revenue from operations for the company increased by 108% to Rs 558.18 crore compared to FY'19, while manufacturing costs rose by 104% over the same period. To address energy consumption, a rooftop solar plant was installed in FY'23, with a capital investment of Rs 7.5 crore, supplying over 40% of electricity needs for the Silvassa unit. Additionally, the company shifted to gas and biofuel exclusively for textile processing in its Panipat unit in FY'23, despite higher operational costs compared to coal
4Manufacturing costs and revenue from operations are taken from Annual Financial Reports of FY’23, FY’22, FY’21, FY’20
Future Prospects
After analysing the aforementioned case studies, it becomes evident that small and medium enterprises (SMEs) are still falling behind in embracing sustainable initiatives, which are crucial for meeting global commitments such as those outlined in the Paris Agreement aimed at limiting global warming to under 1.5 degrees Celsius. Consequently, the following measures represent viable options for SMEs to adopt in their initial stages and steer their companies toward sustainability:
Cost-effective sustainable initiatives: Reducing steam dyeing ratios, utilising supply air fans for humidity control, addressing air leakages to enhance boiler efficiency, transitioning to LED lighting from less efficient options, and employing energy-efficient pumps are among the measures that are either cost-neutral or requiring minimal capital investment, yet yield high cost and energy savings. An exemplary case is Sutlej Textiles, which achieved a remarkable cost-saving of Rs 283.47 crore in FY’22 through the implementation of cost-free measures, simultaneously conserving 2896 kWh/day of energy and 831.3 tons of pet coke daily. Building on this success, they further saved Rs. 92.48 crore in FY’23 from the cost-free measures, preserving 680 kWh/day of energy and 357.53 tons of pet coke per day.
Sustainable backward supply chain integration: Companies can control their supply chains through backward integration and reduce their Scope 3 emissions significantly. For instance, to reduce coal consumption and safeguard the supply of briquettes for year-round use, Arvind Ltd. procures agro waste (cotton stalk) from the farmers and processes it to create briquettes which is a decent substitute for coal.
Reporting and communicating sustainability initiatives: SMEs can communicate and regularly monitor their emissions by undertaking practices such as carbon accounting, setting clearly defined targets with science-based target initiatives which help in regularly monitoring the targets achieved and even display the progress made by other companies in different sectors.
Moreover, the SMEs can use software and AI tools such as GreenSitch which is carbon accounting software, and track their emissions in the supply chain accounting for all Scope 1, Scope 2, and Scope 3 emissions. Aligning with such companies may also guide how to make one organization carbon-neutral. As reported by the Morgan Stanley survey 2024 8 out of 10 investors consider a company’s reporting on sustainability practices, carbon footprint, and emissions reduction commitments when making a new investment.
Companies must gauge the GHG emissions from their operations due to increased responsible purchases by consumers and investors and strict laws by regulators. Beyond emissions, the effects on water resources and biodiversity are equally crucial for maintaining a balanced ecosystem. Thus, they should incorporate sustainability strategy into the external and internal operations. Prioritizing ESG factors in mergers & acquisitions and collaborations, corporate governance practices, raw material sourcing, and product carbon footprint support the long-term sustainability and resilience of the company.
Given the increased consumer confidence as a product of strong investment activity, growing domestic demand, and improving infrastructure, the opportunities for Indian enterprises in the global market will be immense in terms of increased demand. Thus, it is significant for companies to become triple outperformers in the fashion and textiles market to tap the unmet demand posed by the global world.