Are shareholders standing in the way of fashion’s sustainability efforts?
Despite myriad commitments and goals from brands, proponents of systemic change in fashion say there’s a key obstacle preventing true reform: corporations’ obligations to their shareholders, who are paid a share of profits, known as dividends, often usurping sustainability investments.
This way of thinking — dubbed shareholder primacy — has dominated corporate governance in the last 40 years. In the US during the early ’80s, less than half of corporate profits were dedicated to shareholders, with the remainder being reinvested back into the business. That has since skyrocketed to a high of 93 per cent in 2016. In 2022, the UK’s Trade Union Congress reported that shareholder payouts were growing three times faster than wages. Oxfam reports that payouts grew by 45 per cent (to $195 billion) from 2022 to 2023, across 31 countries. In the same period, wages grew by just 3 per cent.
It’s not just shareholder dividends — this mentality trickles down to other forms of inequality, too. Now tied firmly to shareholder value, the ratio of CEO-to-typical-worker compensation has grown from 20-to-1 (1965), to 59-to-1 (1989) and 399-to-1 (2021), according to the Economic Policy Institute. The result is a corporate environment that ties the strategic prominence of social and environmental responsibility to market performance, as directors and executives are incentivised to prioritise decisions that serve the bottom line rather than the wider good.
The shift in the flow of capital tracks neatly with fashion’s strategic transformation. Moves such as shuttering domestic brand-owned factories to subcontract cheap offshore labour, increasing the use of cheaper synthetic fibres and selling lower price products in higher volumes, all serve to cut operating costs and increase profit margins (and dividends). At the same time, these changes contribute to the consistently low wages, waste and pollution that plague the modern industry. Like so many other facets of fashion — from labour rights to transparency — a reform of shareholder primacy will require more than voluntary efforts. What can change?
Board-level changes
To avoid social and environmental goals falling by the wayside in favour of duty to shareholders, some brands are making radical board-level changes to ensure their company values outlive those of their founder. In 2022, Yvon Chouinard and his family transferred all ownership of outdoor apparel brand Patagonia over to the Patagonia Purpose Trust and the Holdfast Collection. Every dollar not reinvested back into the company will be distributed as dividends to the planet via the latter non-profit.
In 2020, the board of directors for family-run luxury brand Brunello Cucinelli approved the establishment of a Council for Human Sustainability and Humanistic Capitalism. The council’s role is to assist the board in integrating socially and environmentally responsible strategies. The brand also ties 50 per cent of performance targets — and linked remuneration — to ESG targets such as the development of a life cycle assessment for cotton, cashmere and leather for at least five suppliers, as well as the execution of stakeholder engagement activities.
Other brands have tried to enshrine social and environmental responsibility by legally appointing nature to the board, including UK personal care brand Faith in Nature in 2022 and London-based interiors brand House of Hackney in 2023. The move entails a non-executive director joining board meetings and speaking — and voting — on behalf of nature. Both House of Hackney and Faith in Nature also updated their governance structures to lock corporate strategy to their obligation to nature.
“[Change] needs to start at the board level, because they set the strategic direction. It needs to be integrated into the decision-making and the makeup of how the business is run,” says Dr Andrea Werner, associate professor of business ethics at Middlesex University and project partner of the Centre for Sustainable Fashion’s Governance for Tomorrow programme.
A legal transformation
Incidentally, both Faith in Nature and House of Hackney are B Corp certified, denoting the certification’s potential as a catalyst for change.
To date, 9,400 companies globally have taken this path, a key part of which involves the B Lab Legal Requirement. Usually in the form of an update to a business’ Articles of Incorporation or Articles of Association, it means a company is legally bound to consider the impact of their decisions on all stakeholders, which can include a wide range of groups and individuals such as customers, workers in the supply chain, company employees and members of the community in which a business is based. “The legal requirement is like the secret sauce of B Corp certification,” says B Lab UK executive director Chris Turner. “If you’re doing it all from a compliance perspective, then it becomes a tick box perspective. But [with B Corp certification], a business is fundamentally saying we exist to benefit a wider set of stakeholders.”
Turner doesn’t believe every business needs to become a B Corp, however. “It won’t be right for every business. But what we do need is for every business to agree on why they exist, which is to be a positive force in the world and advance the interests of all their stakeholders,” he says.
Like any certification, it’s not perfect. In October 2024, a group of 22 B Corp advertising agencies submitted an official complaint letter to B Lab, requesting it apply the same criteria to B Corp advertising and PR agencies with fossil fuel and high-polluting clients as it would apply to fossil fuel and high-polluting companies themselves.
Though on the surface the responsibilities added by becoming a B Corp, from operating transparently to periodically recertifying, may ostensibly complicate the matters of business, Turner argues the opposite. “If you have shareholder primacy showing up in the governance layer of a business, the director is being pulled in two different directions, because their core governing articles are saying put our shareholders first, whereas their customers — and increasingly, regulation and legislation — are saying put planet and people first,” he says.
While making the case for stakeholder interests may be easier after the legal change, the change itself can be complex. Corporate law varies greatly between countries and in fact some (including Georgia, China and Greece) do not allow or clearly permit voluntary stakeholder governance at all.
Mandating stakeholder governance
There has been a groundswell of smaller brands defying the dominant model and prioritising stakeholders over shareholders. Seventy-eight per cent of UK B Corps are either micro-sized (zero to nine employees) or small (10 to 49 employees), according to data shared with Vogue Business by B Lab UK.
While smaller businesses dominate the B Corp landscape, multinationals are beginning to follow suit, encouraged by B Lab’s B Movement Builders initiative. Launched in 2020, it caters to multinational companies with at least $1 billion in annual revenue, creating a pathway towards certification, with mentoring available from the likes of food and beverage corporation Danone and cosmetics company Natura&Co. But the environmental and social challenges humanity faces collectively, from extreme poverty to the climate breakdown, are too great to wait for the pack to catch up.
To expedite progress beyond voluntary measures, the Better Business Act in the UK aims to isolate stakeholder interests from the whims of the markets or business theorists by making companies legally responsible for benefitting workers, customers, communities and the environment, alongside delivering profit. Over 2,500 British businesses support the act, a move Turner attributes to a desire to break with orthodoxy and try something new. “The Better Business Act establishes a floor; it unleashes business in pursuit of all of our shared challenges,” he says.
It’s an echo of US Senator Elizabeth Warren’s proposed Accountable Capitalism Act, which called for corporations with revenues over $1 billion to obtain a federal charter as a ‘United States corporation’, obligating company directors to consider the interests of all corporate stakeholders. It has not yet made it through the legislative process, and is now unlikely to do so under an anti-regulation Trump administration.
The attitude shift — if not yet quite a legal one — is a boon for the future of stakeholder governance, but Werner believes the fashion industry specifically has a long way to go. “The fashion industry has a particular challenge here. The underlying premise of the industry, to constantly consume, aligns so well with the capitalist mantra of growth,” she says. “So, fashion must say, what vision of fashion do we want to promote?”
Correction: A previous version of this article quoted Chris Turner as saying that B Corp brands could “advance the interests of all their shareholders” rather than “stakeholders”. (31/01/2025)
Sign up to receive the Vogue Business newsletter for the latest luxury news and insights, plus exclusive membership discounts.
Comments, questions or feedback? Email us at feedback@voguebusiness.com.
