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Asia apparel hubs face $65 billion export hit from extreme weather, study shows

Published 09/12/2023, 07:15 PM
Updated 09/13/2023, 04:57 AM
© Reuters. FILE PHOTO: Commuters and vehicles move on a flooded street after rain in Dhaka, Bangladesh, August 4, 2023. REUTERS/Mohammad Ponir Hossain/File Photo

By Tommy Wilkes

LONDON (Reuters) - Extreme heat and flooding could erase $65 billion in apparel export earnings from four Asian countries by 2030, as workers struggle under high temperatures and factories close, research from Schroders (LON:SDR) and Cornell University showed on Wednesday.

The study also mapped out the supply chains of six unidentified global apparel brands operating in the four countries studied - Bangladesh, Cambodia, Pakistan and Vietnam - and found all six would be hit materially. For one sample brand that could amount to 5% of annual group operating profits.

The findings should act as a wake-up call to both an apparel industry facing significant financial costs, and to investors confronted with sparse information on companies' exposures, the report's authors told Reuters.

"Among the suppliers and the buyers we talked to, not one had their eye on these two issues (heat and flooding)," said Jason Judd, executive director of Cornell Global Labor Institute.

"The climate response by the industry is all about mitigation, about emissions and recycling, and little or nothing with respect to flooding and heat," Judd said.

Understanding climate-related physical risks to companies in a warming world is critical, but the process is in its infancy with few businesses disclosing enough information and few investors undertaking proper assessments.

"There is so little data on this ... There are some [apparel] brands not disclosing the factory locations of their suppliers," said Angus Bauer, Schroders' head of sustainable investment research.

Bauer said Schroders, which manages more than 700 billion pounds ($874 billion) in assets, would increase engagement with companies over their disclosures and he called on firms to work with suppliers and policymakers to build adaptation strategies that consider the impact on workers.

Using projections, the researchers analysed future heat and flooding levels to estimate what would happen under a "climate adaptive" scenario and a "high heat and flooding" scenario.

Under the second, workers would suffer more "heat stress", with worker output declining as the wet-bulb globe temperature, which measures heat and humidity, rises.

Flooding will also force factories to close in the four countries, which account for 18% of global apparel exports and employ 10.6 million workers in apparel and footwear factories.

The overall fall in productivity would lead to a $65 billion shortfall in projected earnings between 2025 and 2030 - equivalent to a 22% decline - and 950,000 fewer jobs being created, the study found.

© Reuters. FILE PHOTO: Commuters and vehicles move on a flooded street after rain in Dhaka, Bangladesh, August 4, 2023. REUTERS/Mohammad Ponir Hossain/File Photo

By 2050, lost export earnings would reach 68.6% and there would be 8.64 million fewer jobs.

($1 = 0.8007 pounds)

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