Boost your Higg Index and Carbon Disclosure Project Rating: Challenges and Way Forward

The textile and garment sector is estimated to produce 10% of global carbon emissions of 1.7 billion tonnes per year owing to increased fast fashion and manufacturing. This has increased the “carbon footprint” of textile companies globally and supply chains have been contaminated with greenhouse gases. Witnessing this climate change, investors started an interest in the company’s environmental performance before making a major financial decision and consumers started preferring to buy more eco-friendly products. Figures state that eight out of ten consumers actively make purchase decisions based on sustainability considerations and 77% of investors reported being interested in sustainable investing among which 54% expect to increase the percentage of their portfolios allocated to sustainable investments within the next 12 months.

The Carbon Disclosure Project (CDP) was introduced in 2000 to encourage companies to report the steps they are making to make their operations sustainable. A decade later, fashion companies, retailers, manufacturers, service providers, trade associations, nonprofits, NGOs, and academic institutions came together to develop a reporting framework, especially for textiles, apparel, and fashion companies that would be uniform across the industry for textiles. This led to the development of the Higg Index by this group of stakeholders which is now called the Supply Apparel Coalition (SAC)¹.

Higg Index has been developed for textile companies to use to measure, track, and improve the companies’ progress on various “fashion ESG” metrics to achieve their sustainability targets. It is a suite of five tools, developed especially for apparel, footwear, home textiles and furnishings, hard goods, accessories, and companies that assess and measure the social and environmental performance of the value chain, and the environmental impacts of products. Each tool of the Higg Index has separate questionnaires that are to be filled out by the companies themselves. The choice of questionnaire depends on the purpose that a company is willing to serve. As of today, more than 24,000 companies are registered under the Higg Index for self-assessing their sustainable performance. The following table describes different Higg indexes.

Carbon Disclosure Project (CDP)²(CDP) is an investor-led nonprofit, that not only helps companies from all sectors, but is extended to cities, states, and regions to measure and manage their risks and opportunities on climate change, water security, and deforestation. CDP allows customers and investors to ask a company to disclose its environmental data formally. This self assessment tool require companies and their manufacturing facilities to fill out a questionnaire pre-designed by CDP containing questions majorly relating to various environmental indicators. Though there are separate questionnaires for social and governance indicators. Failure to provide such data on request by any stakeholder will result in a score of ‘F’. More than 23,000 companies are using CDP for “fashion ESG” metrices measurement and progress.

Higg and CDP are both highly popular tools and trustworthy. These tools ensure data credibility to the investors and consumers by verifying by trusted third parties by CDP and Higg. The services these third parties provide include third-party certification, verification, and climate or sustainability data assurance.

Why disclose to Higg and CDP?

Higg and CDP have provided a common language of assessment for customers and investors. All units in textile businesses can avoid high costs and inturn increase their profitability in the long run. These tools enable a company to create a detailed assessment of its carbon inventory which can prepare it for ever-changing regulations. It also helps in identifying hotspots and encourages companies to take steps to mitigate those. Disclosing data with these self-assessment methods future proves a company against climate risks and growing stringent regulations such as CBAM, CSRD reporting, etc since these are aligned with the latest regulations and disclosure requirements. Further, CDP has become a favorite among investors and was ranked first in usefulness and second in quality, establishing itself as a gold standard for over two decades³. Not only does CDP comprehensively cover impact areas, but both Higg and CDP ensure the credibility of their data through third-party audits making them trusted sources for obtaining data on environmental impact for investors.

The increased high-quality reporting of “fashion ESG” indicators boosts stakeholder confidence, improves credit rating, and enhances a company's reputation. 76% of organisations said disclosing through CDP helps boost their competitive advantage⁴. Early adoption of these indexes can provide a competitive advantage over peers. Moreover, with the Higg index businesses can benchmark the performance of their manufacturing facilities on the indicators across carbon, water, waste, and working conditions. This allows them to compare their environmental and social impact within their value chain and against industry peers. This will give businesses a new perspective on their performance and they are able to identify new opportunities to meet sustainability goals. It was reported that 225 companies identified potential climate-related opportunities worth $2.1 trillion, and 270 companies are recognized as climate leaders outperforming in the market.⁵

Challenges to businesses in Higg and CDP reporting

Textiles businesses, reporting for the first time face numerous challenges in this format of “fashion ESG” reporting due to the unavailability of data on many indicators, untrained company personnel, and lack of resources and information. Facts and figures demonstrate this. Only 400 (2%) companies scored grade A out of more than 21000 companies⁶ with only 140 companies mentioning about adverse impact metrics captured by CDP under the CDP scoring system for high environmental data. But the number is still less for Scope 3 emissions where only 56% of companies disclosed Scope 3 emissions vs. 74% for Scope 1 and Scope 2 emissions⁷. Though disclosures are growing each year, still there are discrepancies in the reporting “carbon emission data”. To increase the company’s ranking, it needs to overcome some challenges:

Comprehensive questionnaires: Higg FEM index contains a total of 82 questions across three levels and it will take facilities between 3-6 weeks to complete the full module, accounting for time to have internal discussions and review. CDP questionnaires comprise more than 200 questions across 13 modules in a full corporate questionnaire making it more than 88 pager document, which takes 4-5 weeks for a team to complete. These questionnaires cover wide aspects such as water, forests, and biodiversity, which are directly affected by textile operations.

Data lags due to time frame: The Higg questionnaire requires companies' manufacturing facilities to fill out data for the previous year. This creates data lag and it can be a problem because of:

• Missing Data: Facilities may not have readily available or well-maintained data from the previous year. This creates gaps that make it impossible to accurately measure a company's sustainability performance.
• Data Graveyard: Even if data is stored, the lack of quality checks means it might not be reliable. Companies might struggle to monitor the data's accuracy or ensure it aligns with the assessment's specific needs.

Continuous changes in questionnaires: Higg and CDP change according to the latest legislations and regulations which require companies to report new data points. The inability of companies to maintain data on newly added indicators hinders their progress in measuring their sustainability efforts. Such inefficiencies are addressed by Greenstitch’s AI software which maintains data on various indicators as required by not only Higg and CDP but also CSRD, BRSR, GRI, SASB etc making it a comprehensive platform for a company to choose to start their sustainability journey.

Complex data points: Both indexes' data disclosure requirements are very high. Each indicator is thoroughly detailed, and the meaning of each question is mentioned. These hundreds of data points have to be verified, scored, and justified with the correct method of estimation, thus making it pertinent to have very high-quality data with solid proof. For instance, higg asks the organisation to track ‘the quantity of energy/fuel consumption for all energy sources used for company owned and controlled vehicles’ for which it verifies data from initial data collection processes (invoices, on-site meters, metering logs, etc) and process and tools used to aggregate the data (e.g., spreadsheet calculations, unit conversions, etc.)

Data about supply chain partners: A report has observed that 85% of businesses do not commit to cut supply chain emissions and only 20% of EU-based companies have supply chain “carbon emission data”, that is “tracking scope 3 emissions” capable of meeting financial audit quality requirements by 2024. Lack of personal communication and relations with supply chain partners, and lack of initiative to help them in calculating their carbon emissions are generally the challenge for “tracking Scope 3 emissions”. On average, apparel companies’ Scope 3 emissions are up to 25 times greater than their Scope 1 and 2 emissions combined, and in many cases, Scope 3 accounts for at least 95% of a fashion company’s total “carbon footprint”⁸, yet companies are not discussing them.

Maintain high quality of data: The higg index clearly defines how the data should be measured and verified by assurance service providers. It also details the number of points to be awarded to the facilities in case of full and partial answers. For instance, the facility’s waste treatment plant will be verified with the availability of flow charts and hydraulic diagrams and on-field inspections and interviews by assurance providers. Another example includes - ‘maintaining data quality of energy used’. Higg advises corporations to have tracking and reporting energy use mechanisms mentioning all energy and fuel sources to account for any hotspots that can be improved.

Absence of key contacts with the Higg: The Higg index requires the contact information of the representative from manufacturing facilities who is seeking the Higg index score. At times it is observed that emails and contacts with the higg become outdated hampering the cadence period⁹ of the Higg FEM.

Limited expertise and resources: Most companies and SMEs lack personnel trained in sustainability risk analysis and are unable to track, maintain, and monitor the GHG emissions from their company’s operations. Gathering and analyzing climate risk information can be taxing for both the company and its staff. Here, experts from Greenstitch can help generate automated reports by reducing manual efforts while using their AI software. These reports can be tailored to the needs of the textile companies.

Cross-departmental coordination: These indexes require data from all departments of an organisation such as HR, legal, administrative, operations, etc. for which good inter-departmental coordination and a centralised system of data collection are essential.

A “carbon accounting”, and “carbon footprint” calculation of its supply chain will be viable for an organisation to meet the data requirements under these reporting systems. Further, getting a specialized team on board will help in collecting the data, and maintaining it will reduce the hassle for the organisation.

How can a company increase its sustainability rating with Greenstitch?

Greenstitch is a “carbon accounting” software, specially designed for textiles businesses, offering tailored solutions to your sustainability reporting issues. The software aims to reduce the data gaps with automation, decreasing manual efforts on the part of organizations. By using the services of Greenstitch, companies can significantly reduce their personnel requirements and use their expert opinion to know how to start with “fashion ESG” reporting. It specializes in the following areas:

Systematised “carbon emission data” collection: Greenstitch specialises in collecting data for textile companies. Not only does it collect Scope 1, and 2 emissions but also equipped for “tracking scope 3 emissions” by including the data from your supply chains. It further streamlines old “carbon emissions database” and sustainability reports into their software to make future assumptions and calculations. It also helps in generating audit-grade reports.

Product “Life Cycle Analysis”: With Greenstitch software, companies can conduct “life cycle analysis” of textile and fashion products from raw materials to the warehouse, and precisely measure their environmental impact, including “scope 1, 2, and 3 emissions”, water consumption, and land use footprints, even with minimal “carbon emission data”. Further, it can do a proper life cycle analysis of the textile products and identify the hotspots where carbon emissions reduction is to be targeted.

ESG compliant: Greenstitch’s “fashion ESG” compliance module helps in staying compliant with evolving global and regional sustainability regulations. They collaborate with international teams to create comprehensive ESG and compliance reports tailored for the fashion industry, incorporating CSRD, BRSR, GRI, CDP, and SASB standards.

“One Stop Shop” tool: Greenstitch’s AI tool creates multiple data points compatible with many “fashion ESG” reporting requirements of CSRD, SASB, BRSR, CDP, and Higg. This saves the need to juggle multiple frameworks and act as a central hub for all ESG data. It empowers a company to generate reports that precisely match the requirements of each disclosure platform, freeing up valuable time and resources that otherwise can be used for major strategic decision-making.

Traceability of products: The software can showcase environmental footprints and benefits through digital product passports, smart widgets, and QR codes integrated smartly into the company’s product. This would give insights to the customers of places where the products’ raw material is extracted, dyed, knitted, spun, and assembled, how much of the recycled products have been used, the type of raw material used, etc to the customers.

Supply chain decarbonisation: With Greenstitch, companies can quickly identify their hotspots and devise “ways to reduce the carbon footprint”. They can foresee textile trends and get an overall snapshot of their organization against the industry.

References

1. Sustainable Apparel Coalition
2. Carbon Disclosure Project
3. Rate the Raters ESG ratings at crossroads, The SustAinability Institute by ERM, 2023
4. Disclosing through CDP: Business Benefits, CDP, 2022
5. Disclosing through CDP: Business Benefits, CDP, 2022
6. Rising disclosure numbers show more companies considering climate and nature impacts, but just under 400 reporting data aligned with CDP’s highest benchmark, CDP, 2024
7. Accelerating UK Corporate Decarbonisation: Linking action with business strategy, CDP, Bain & Company, 2024
8. Why it’s so hard to track the fashion industry’s emissions, Times of India, 2024
9. A cadence is the period a brand or retailer provides its manufacturing facilities to complete a Higg Index assessment