Animal welfare

Nevertheless, pressure from animal rights activists and increasing consumer concerns about animal welfare, has made a number of luxury brands decide to go fur free. Additionally, several countries have already decided to ban fur or are in the process of phasing it out.

While fur and exotic skins used to be a by-product of animal husbandry and products made of animal skin lasted a lifetime, growing demand in the luxury segment means that more animals are needed to meet the demand. At the same time, synthetic alternatives are becoming increasingly available. These developments have fed the discussion about whether it is still justifiable to kill animals for their skin. Pro-fur campaigns heavily criticise the environmental impact of faux fur, whereas anti-fur campaigns often lead with ethical arguments. The environmental impact, however, encompasses a number of different inputs and this has not been researched extensively enough.

Generally speaking, it is safe to say that fur farming is not only a controversial issue, but also a complex one. Whilst we acknowledge that the fashion industry faces many challenges, such as water use, pollution and poor working conditions, our engagement is related to the production and use of fur and exotic skins.

Engagement activities

Investors may be hesitant about being exposed to companies that produce products containing fur and exotic skins due to environmental, social and governance (ESG) concerns. That is because the normative debate has shifted and there are potentially negative financial consequences for brands using these materials.

Over the course of two years, ACTIAM - based on its Fundamental Investment Principles - collaborated on engagements with five global listed luxury brands, to address the controversies relating to the topic of fur and exotic leather. The objectives of the engagement were to:

• understand how the company uses fur and exotic leather
• understand how the company deals with negative consumer sentiment around fur and with regulatory developments
• convince the company to commit to a phase out or stop the use of fur

Results

Great variance in responsible sourcing standards

Although fur farming practices vary considerably across the world, driven by different regulations and enforcement, we believe some regulations have evolved in tandem with changing societal perceptions. In general, the European Union can be considered to be quite advanced with its regulations: it not only regulates the humane treatment and slaughter of animals raised for food, but also for clothing. Fur farms in Europe are monitored routinely, and varying degrees of compliance can be observed. In other countries, such as China and Russia, there is minimal regulatory oversight and the demand for fur is even growing.

Moreover, there are standards such as the industry-initiated Welfur, Saga standards and the BSR Animal Sourcing Principles. These are often criticised because they were developed by the fur industry itself and sometimes still allow the industry to keep using small wire cages.

Most of the luxury brands have sourcing standards in place with provisions for ethical standards and traceability. However, enforcement of these standards seems insufficient in many cases. In addition, while standards are often created centrally, oversight is decentralised at brand level (especially as creative freedom and autonomy are considered key for all luxury fashion houses).

Use of alternatives

In recent years, many luxury fashion companies have announced that they are going to stop using fur and / or exotic leathers or they have committed themselves to not using animal products at all. While this is laudable from an animal welfare perspective, it raises questions about the synthetic alternatives that are being used.

One argument against synthetic fur is that it is often made from fossil fuels (such as petroleum, natural gas and coal). It is also argued that synthetic fur sheds fibres at microscopic level, which is harmful not only to the environment but also to our health. Environmental Profit & Loss (EP&L) assessments have indicated that the extraction and processing of oil into yarn is the most harmful impact of synthetic alternatives.

Furthermore, a life-cycle assessment (LCA) study performed by CE Delft concluded that mink fur is much more harmful to the environment than the second worst alternative: wool. In fact, mink fur scored worse in 17 of the 18 different environmental themes measured, including climate change, eutrophication, toxic emissions and ozone layer depletion. This is not entirely surprising, given that animals need to be kept, fed and slaughtered in a humane way. Moreover, the resulting stiff pelts need to be transformed into usable fur, which involves various chemical treatments. We should mention here that this life-cycle assessment study did not take account of water consumption for cleaning the cages, manure treatment and the energy needed to run a fur farm. The result is largely due to the negative environmental impact of feed. For example: making 1kg of fur requires on average 11 animals and approximately 563kg of feed . The environmental impact of this is therefore not always taken into account.

Although it seems like faux fur is a more environmentally friendly option, the useful life of the material should also be considered. When comparing natural fur to synthetic fur, it is argued that a faux fur coat has an estimated useful life of 6 years (whereas a natural fur coat has a useful life of on average 30 years) . This is, of course, dependent on the quality of the synthetic fur. Nevertheless, today's faux fur alternatives do appear to have a significantly shorter useful life than the alternative. However, there are eco-friendly alternatives available that appear to address most of the concerns with faux fur, for example: recycled plastic bottles, denim fur made from 100% cotton and hemp-based fur. There are also various plant-based leather products available, such as cork, pineapple leather or lab-cultivated leather, which do not need the toxic tanning process required for natural leather and are, therefore, a more preferable option in terms of health, environment and animal welfare.

Response of luxury brands engaged

The luxury brands that were engaged over the past few years have widely different approaches towards faux fur and the level of response to the engagement varied. While some aim to include state-of-the-art techniques in their collections and organise educational programmes together with tech universities, others state that the choice for materials in the collections is entirely up to the designers and it is a deliberate choice of the company leadership to keep distance from this topic. Furthermore, during the engagement several luxury brands committed to stopping using fur in their products. However, we are not aware of a ban on exotic leather by these brands.

Next steps

The conversations with these luxury brands provided insight into new developments and materials. It was especially helpful to analyse how aware the companies are when it comes to ESG risks and how innovative they are on the alternative option front. Laggards were those that do not have a long-term holistic view on this controversial issue, whereas the leaders surprised us with their in-depth and constructive dialogue. At the same time, to mitigate the ESG risk and generate ESG opportunities in the long term, companies can improve transparency and the traceability of raw materials and the environmental and social impacts in their supply chain.

As investors, we expect companies to set and communicate a strategy for the use of fur and exotic leather. Out of those companies that continue to use the products, full transparency is also expected on how and where the products are sourced. Moreover, we expect these companies to make a commitment to protect the Five Freedoms of Animals and to uphold the highest social and environmental standards. Finally, we expect companies to research, develop and use low-impact alternatives for fur and exotic leather and to take a holistic view on the overall environmental impact of the raw materials they use.

_{Source: ACTIAM, as per end of December 2019}