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Rajiv Sharma, Chief Executive Officer, Coats Marjorie Yang, Chairman, Esquel Group Moderated By Claire Zillman, Fortune 

Innovation Forum 2024: Sustainable Supply Chains

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So we're here to talk about sustainability in the textile industry. Um And the industry itself, apparel and footwear are responsible for between eight and 10% of global emissions. So that's, that's more than aviation, more than shipping. So if I I want to start by identifying a few of the culprits here, so we have energy use, water use and the materials that go into these goods, a lot of which are oil based. So I'm wondering Raje if you could start by sort of picking one of those and talking about some of the solutions that coats has come up with to address, you know, the emissions and waste involved in, in those components of the industry. All right, I guess before we get to the solution, I just want to quantify the problem that we have. Right. So uh um there are about 100 to 150 billion garments manufactured in the world. There are about 8 billion people on this planet and the West consumes far more garments than the East. Alright, even though the majority of the garments are manufactured in the East, but the West uh produces a lot, the other thing that's happening is uh in the last 20 years, the advent of online retailers and the growth of fast fashion brands has generated a lot of consumerism and a lot of sales at the retail level. This cheap garments pro and you sort of culture uh became very prevalent in, in the early 20 you know, two thousands and uh and the last decade and this is an industry where one garbage truck of garments is dumped into the ground or burnt every second, every second. So you can imagine the extent. The other thing is one third of the microplastic waste in the oceans is generated from textiles. So all the fish and the and the, and the sea life eats a lot of the plastics and that ends up on, on your dinner table, which is not really good because you're eating sort of microplastics along with that. So we have a big problem that needs to be solved and um the solution will have to come through multiple stakeholders. I think it starts with consumers. Consumers need to figure out a way to reduce consumption. And me coming from the industry, it's counterintuitive for me to say, buy less, right? But if I put my sustainability hat on. Absolutely. You've got to start with responsible consumption. The second thing is reuse or extend the life of garments. It can be done by repair, it can be, you know, you know, sort of resale, et cetera and the third thing is recycle. So that's on the consumer side, the industry has a role to play, especially around material transition, chemical transition. This is an industry that is heavily dependent on oil based materials, whether it's chemicals, dyes, et cetera, et cetera. Even if you look at cotton, actually, I got an interesting data. A simple T shirt, a regular cotton t-shirt consumes about 2200 L of water to manufacture. And that's roughly about the water consumption of one individual for 2.5 years and that's just one t-shirt. So, you know, this is a very resource intensive industry. We have to find new materials, new manufacturing processes. And I think we are, we are at a stage where incrementalism is not going to work. You need breakthroughs, you know, technological breakthroughs, regulatory breakthroughs. I think governments have have a role to play here and Europe is taking a leading role in terms of finding ways to uh you know, either tax consumers or tax the industry. There is, you know, there are talks of carbon tax, et cetera. But overall, I would say that between governments, consumers and the industry, each one has a role to play. And um it's, it's gonna be a long hard road, it will take time, but we have to start. And so what are some of the solutions that, that you've come up with at coast? Can you just talk about one specifically? So we consume a lot of water, uh we are investing in water that dying. So, essentially disrupting our own manufacturing processes and using technology to help us um you know, apply color on threads without the use of water. That's one, the second thing is we are working with suppliers, especially the upstream suppliers at the polymer level, the fiber and filament polymer. So in basic chemistry, if you can make changes, then you use less chemicals. And I think the whole purpose is to use less chemicals, less water, less time. Uh And that's going to be important. The other thing is then around, you know, you know, material transition, what we are looking at is how do you use post consumer uh industrial waste. So all the garments that everyone's wearing, what happens at the end of life, if you can just recycle that bring it back into the supply chain, that will be great today, only 1% of the apparel comes back into the supply chain. So there's a huge opportunity in terms of recycling and Margie, you've um SCL has innovated with waterless dying too. Am I right about that? But um first I wanted to correct one statement. Sure. Um Thank you so much for saying that we are the um the world's number one largest shirtmaker. Actually, we no longer number two or after, you know, having one of our subsidiaries put on the entity list. Um Most of our customers, us customers ran for the hill. So we are only half our original size. So that's one way to make a company cut carbon emission and order water utilization. However, we checked. So our water consumption or energy consumption doesn't go to half per unit. Energy and water consumption has actually gone up really because when your capacity is at a certain stage and then you abruptly cut it your unit because you're no longer efficiently using your asset. This is actually very dangerous with so much geopolitics happening. But this is collateral damage in a way geopolitics is hurting our fight to uh against climate change. Just wanted to bring that up. But let's go back to water. I think we both agree that in our industry, water is the most challenging. So as K started by um reducing, reducing the use of water through better management, so we manage better, we can reduce wastage and then reducing wastage means that you can, you've actually reduced water consumption. So we were able to reduce it to about 65% of our original unit consumption. Um Then we use the water. So now we have a big water treatment plant and we are able to reuse some of the water. Our water treatment plant is about 38,000 tons capacity and we can reuse some of that water finally is, as you are saying, replace the use of water. Now, um they're working a lot on synthetics. We because we are a Cotton House. We couldn't use the technology that was developed for synthetics. So we had to um uh we spent 10 years coming up with a way to replace water, which is only a carrier. Remember, water is only a carrier in a dying process. But that takes up about 95% of the total water consumption. And then we replaced it with solvents that can be reused. We can collect about 99.8% of the solvent that is used. So essentially um reducing the use of water in the whole supply chain production and at least in the industrial supply chain to about uh reduce cut out 95%. And then going to recycling, which is a very challenging but a great opportunity. So what we did is we started with our uniform and we used to have 58,000 people. We now only have 28,000 people, but still 28,000 people. Uniform is still quite a good exercise and we use it as an exercise because then we learn from that. It's not so easy to recycle just any garment. Um It has to be designed initially, for example, the label, the the thread because they are all different materials. And then how do you um design with the intention of recycling? We learned even with the uniform where we can have complete control, you have to learn to do that. And then um we have a, a project called loopy where we have 30% reuse uh yarn recycled yarn, but the yarn is a lot weaker. So you're trying to um knit or knit knit shirt, for example, with 30% yarn that is of a different strength than the 70 70% virgin yarn. So these are a lot of interesting challenges. But I, I think as we, you know, as we are in the industry, we are all um moving ahead with innovations to resolve these problems, right? It's interesting what you say about the recycling process actually starting at the design process. Yeah, that's, that's really interesting. Another component of this is transportation that a lot of these garments are shipped from one side of the world to another for the different stages of the production process. I mean, how do you start to, to cut down on that? Do you, I think, I think uh going forward, there'll be shorter supply supply chain. So it's not going to be the long supply chains. Uh speed to market is becoming important. So you need to be within a four or five hour or either uh either flight or truck route to your to your end market. You can't be six weeks away or 10 weeks away from your, from your point of consumption. So short of supply chains, uh improvements in manufacturing technologies, better forecasting accuracy by the brands. The brands are investing a lot of money in terms of trying to understand consumer demand and what, you know, what kind of products they want, et cetera. And I think Sheen is a good example. So Sheen considers themselves to be a big tech, big data company rather than apparel company. And they use consumer insights from that, you know, from tiktok to actually design new products. And they have a two week, two week cycle from, from design to actually the garment being shipped to the consumer. Um So that speed to market is becoming important. And what's happening is this is an industry for the last 3040 years was built for two things and two things. Only maximum production at the lowest unit cost. That was the only thing that mattered in our industry. How much more can you produce? And what's the lowest price you can give me going forward? It's more about how fast can you deliver. What is your compliance? How are you doing on innovation? What's your sustainability track record? How can you help me differentiate my product in the eyes of consumers? So I can charge 5% more. So things like that. So I think we, we are at a very interesting crossroad, but the industry has this legacy model which will take time to unwind and, and one of the, the topics that often comes up in the conversation about sustainably is cost and that if you're going to go green, someone has to pay for it. Um Margie, what's been your experience with that? Do you find your, are you, you know who's paying for this? In your case? Is it the end consumer, consumers never pay more for sustainability? This is just a fact that we've learned over the years. But um there are ways to save money. So I was just teaching, you know, a class in ESG and I was explaining to them that I come, I come from uh the, I shouldn't call the dark school of business management. I was taught that unless you can make money from it, you can't, it can't be sustained. So there is always you have to find cleverer ways of doing things. So sustainability, we saved money. I'll give you an example. I I agree, completely agree with having better use of data, which is, you know, the whole idea of A I is to have better data and then reduce the wastage in the market. Here are some very simple things if you can get the whole company to focus on sustainability, on transportation. So in the industry, the standard is that everybody ships fabric to garment factory in lengths. So the same length, let's say 1000 yards one day, one of our teams said, ah as scout ships fabric from to our own garment factories, why do we make it into the same diameter instead of the same length turns out, you save a lot of transportation costs, you save a lot of packaging cost. Now you say that this is small money, but this is where I think sustainability when you can try get everyone in the company excited about doing it. So you get the benefit of the um the dollars, but you also get the excitement and the sense of pride from the entire workforce and that's worth a lot of money. And Margie, you mean, you brought this up earlier about um being on the, the US entities list and this is something that the company has denied. Um This is over claims of forced labor. Um But you know, in the denial you, you talk about, you know, so being vertically integrated, can you just talk about, you know why that's key to disapproving those claims and sort of how that benefits the business. Otherwise, I don't know how many people know about. Um that is a spinning mill. I don't know if you ever looked into our case, but it's not a garment factory. In fact, it is the most automated spinning bill in our group. Recently. We had a bunch of V CS go, go to Xinjiang because we had to close one of our other mills because of we don't have enough orders. And so we have an innovation village there now and then they went to see visit the mill that was put on the entity list. This is a highly automated air conditioned spinning milk. Why would anybody want to use forced labor? People are dying to come and work there. In fact that the accusation was that we went to a job fair. Well, what is wrong with the government inviting some of your best employers to come and provide opportunities for ethnic minority? So it's, it's really nothing to do with, um, the supply chain. It's, it's more to do with, sometimes if you get caught in a situation, suck it up and move on and that's what we decided to do. We have to eat. And so after that, um as we mentioned, half our um business is gone. But the good thing is for many years as Carol has been talking about climbing the Smiley curve and moving away from being just an OEM all of a sudden this happened. Well, on the one hand, we're still appealing trying to get and in fact, we got a conditional removal because when, when we, the reason we had to file a lawsuit was because our appeal was just pending and it was pending for such a long time, we had to give, give them hello a wake up call. So we filed a legal suit. But in the meantime, we lost a lot of business. We had to, we start to make um change the market change, our market start to sell. Look at um climbing the learning curve. I mean climbing this learning curve. Interesting thing. We've been talking about that for 10 years, how we're gonna transform and we keep talking about it until we get hit with the ent dealers. All of a sudden everybody could do things lead time. As cal I think, you know, we're one of their customers is famous for being very rigid in lead time. Now, the lead time is all of a sudden cut to like a third. Now, I asked my colleagues, how come you, how can you do this? Are you forcing people to do this? They say no boss. This is because we have to eat. So we're gonna, we're innovating all of a sudden, the whole people became a lot more agile rather than being very successful uh in whatever you're doing for a long time. Now that you're under stress, um, you innovate. So it's very interesting. It's, it's been a very, um interesting, I mean, it's very painful. I wouldn't recommend for anybody here. Um But um when you do go through that experience, my recommendation is don't cry over spilled milk. Go and find something else to eat. Wow. And innovating the whole time. Yes. Yes. Well, thank you to, to both of you for joining us. A lot of um solutions that we talked about here and it makes me optimistic that, that this industry can really uh cut its carbon footprint. Yeah. Thank you so much. Thank you very much.

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