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Evaluating a company's impact (the case of Inditex)

A deep dive into Inditex's environmental and social impact

This week’s read time: 3 minutes

You are reading Green Digest Impact, a weekly newsletter that provides in-depth analyses of companies’ environmental and social impact.

OUR APPROACH

Central to our narrative is the principle of double-materiality, which recognizes that a company's impact is twofold: it affects both the environment and society at large, and in turn, these external factors influence the company's financial and operational performance.

While traditional ESG assessments focus on the latter, we aim to examine companies' direct impacts on these factors. In pursuit of this, we introduce a unique scoring system that quantifies a company's impact.

The insights and analyses presented in Green Digest Impact are brought to you by a partnership between Green Digest and Impaakt, a Swiss-based impact data provider. Contact Impaakt here to explore how they can assist you.

THIS WEEK’S COMPANY

Inditex

This week we dive deep into Inditex’s environmental and social impact.

Inditex is one of the world's largest fashion retailers, best known for its fast-fashion brands, including Zara, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home, etc.

Some interesting facts:

  • Inditex’s flagship brand, Zara, can design, produce, and distribute new garments to stores in as little as two weeks, significantly faster than the industry average of six months. Even though it offers affordable items, this rapid design-to-retail model fuels fast fashion, driving overconsumption with frequent purchases of trendy, short-lived products—often at the cost of sustainability.

  • Unlike many competitors, Inditex invests minimally in traditional advertising. Instead, the company allocates resources to opening new stores and enhancing prime retail locations, relying on store visibility and word-of-mouth to attract customers.

Inditex’s brands | Source: Shutterstock

COMPANY’S IMPACT

Inditex’s overall impact score

Inditex has a general impact score of -0.27 (on a scale from -5 to +5). Its impact is spread across 10 UN Sustainable Development Goals (SDGs) and 13 topics, split between positive and negative analyses.

In the socio-economic sphere,

Inditex’s global footprint reflects both its vast scale and the challenges of fast fashion. With 5,692 stores across 213 markets, Inditex leverages a vertically integrated model to maintain its agility and responsiveness to fashion trends. Zara, its flagship brand, accounts for 73% of sales and produces 12,000 new designs annually, offering diverse, trend-driven options that empower customers to express their individuality. In 2023, Inditex attracted 6.5 billion online visits, engaged 152 million active app users, and connected with 251 million social media followers, supported by a workforce of 160,000 employees from 174 nationalities. Its supply chain reaches far and wide, involving 1,733 direct suppliers in 45 markets and sustaining over 3 million jobs across 8,123 factories.

Zara’s success lies in its unique blend of affordability, quality, and trend-driven designs, capturing the imaginations of a global customer base. Initiatives like the “Ungendered” collection and anti-racism campaigns underscore a commitment to inclusivity, while Lefties, its outlet brand, brings Zara’s designs to more cost-conscious customers, serving 5 million shoppers in Spain alone.

Yet, this relentless drive for trend-setting comes at a cost: Zara’s 24 collections a year, with new items arriving twice a week, drive a “buy it now” culture that fuels overconsumption and a disposable fashion mindset. In 2023, Zara’s output reached 450 million items, equivalent to 620,000 tonnes of products, exemplifying the environmental challenges of fast fashion. The company’s sustainability efforts are also shadowed by persistent allegations of forced labor in Xinjiang, China, and exploitative practices in Bangladesh and Brazil. These challenges expose the tension between Inditex’s ambitious scale and its ethical aspirations, reminding us that fast fashion’s impact extends far beyond the shopping bag.

Environmentally,

Inditex emits around 17 million tonnes of CO2 equivalent annually, which is roughly comparable to the annual electricity usage of over 3.5 million homes. It also consumes around 1.8 million m3 of water annually across its facilities, with 27% of its operations located in high and medium-high water-stressed areas. Additionally, Inditex generates 21,000 tonnes of waste annually, with 94% sustainably managed through recycling, reuse, and waste-to-energy initiatives.

*The impact score is current as of December 2024 and may be subject to changes as it is continuously updated.
**You can find details about the scoring methodology here and the information sources here.

ESG VS IMPACT SCORE

What is Inditex’s ESG rating?

For comparison, Inditex has an AA rating in MSCI's ESG evaluation.

However, ESG Ratings from MSCI ESG Research are designed to measure a company’s resilience to financially material ESG risks and they provide a window into one facet of risk to financial performance. They measure how effectively companies manage ESG risks, not their impact on these factors.

SCORES BY SDG

Inditex’s impact scores by SDG

Positively (and by weight), the company scores the highest in the No Poverty SDG (+2.87), followed by Partnership for the Goals (+3.05), and Reduced Inequalities (+0.46).

Negatively, the company scores the worst in the Responsible Consumption and Production SDG (-3.06), followed by Decent Work and Economic Growth (-0.33), and Climate Action (-3.01).

*the analysis takes into account the weight of the SDGs

Inditex’s impact on SDG 8 (Decent Work and Economic Growth) is mixed. While it contributes to economic growth by creating substantial job opportunities, allegations of forced and child labor, as well as unfair treatment of workers in its supply chain, reveal significant gaps in labor rights enforcement.

CONCLUSION

Materiality Map & Final Words

So, Inditex’s key social and environmental impact lies in …

its dual role as a global fashion powerhouse and a contributor to the challenges of fast fashion. Its vast scale and vertical integration drive economic contributions and customer empowerment, exemplified by its ability to rapidly adapt to trends and offer diverse, affordable options. Initiatives like gender-neutral collections and outreach to cost-conscious shoppers reflect a commitment to inclusivity and accessibility.

However, these successes are overshadowed by the environmental and social toll of its model. With 450 million items produced annually, Inditex fuels overconsumption and a disposable fashion mindset, contributing to significant environmental challenges, including 17 million tonnes of CO2 emissions and high water consumption in stress-prone areas. Allegations of forced labor and exploitative practices further highlight the ethical issues embedded in its operations.

The company’s overall score of -0.27 highlights the need for Inditex to balance its scale and agility with stronger ethical and environmental practices.

If you’d like to delve deeper into Inditex’s impact, you can explore it here.

If you'd like to learn more about the scoring methodology, you can do so here.

Do you have a specific company you'd like us to cover? Send your suggestions to [email protected]

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