TCFD

 

Taskforce on Climate-Related Financial Disclosures (TCFD)

INTRODUCTION:

  • HanesBrands recognizes that climate change is creating both risks and opportunities for our organization. The impacts of climate change are real and we take them seriously. We will continue to analyze climate change and its potential effects.
  • We also aim to meet TCFD expectations; doing so is part of our overall commitment to transparency.

HANESBRANDS BUSINESS MODEL:

  • We are a truly global company with operations in dozens of countries. Unique in the apparel industry, we also own or control factories that produce about two-thirds of our total unit volume. These owned and controlled factories are spread across the Americas and Asia. We have particularly large owned capacity in the Dominican Republic, El Salvador, Honduras and Vietnam.
  • We source the remaining volume from contractors in the traditional apparel sourcing model.
  • We are diversified in all aspects of our business, giving us flexibility, resilience and market insight that is unparalleled in the industry. Our raw material supply and manufacturing are particularly well diversified, with risk management in mind.
  • We have optimized this model over time so that it is protected from and resilient to disruptions and provides us proper perspective and visibility across our value chain.

OUR APPROACH TO RISK:

  • HanesBrands has long had a detailed and comprehensive enterprise risk management (ERM) process that is overseen by our Audit Committee and reported to our Board of Directors.
  • Our Board and senior management teams have had direct oversight of our sustainability and corporate responsibility program for many years, and our Global Ethics and Compliance and factory compliance programs have historically been a key part of our ERM program. We added a broad sustainability review to our ERM program, including climate change risk.
  • As part of this sustainability risk work, we have begun and will continue to evaluate the actual and potential impacts of climate-related risks and opportunities on the organization’s business, strategy and financial planning.
  • In 2020, we engaged with Anthesis, a global sustainability consulting leader, to conduct a workshop with our senior ERM, supply chain, finance and sustainability leaders to map our most significant climate and weather-related risks and to begin the process of modeling the financial implications of different scenarios that were identified in this work.
  • Climate risk assessment will be an on-going risk evaluation process that, like all of our ERM activities, will be reported to the senior management team and Board of Directors.
  • For information on our sustainability governance structure, please click here.

CLIMATE RISK ANALYSIS:

Historical Analysis

  • We have been reporting to the Climate Disclosure Project (CDP) since 2010, with analysis on several specific instances of climate risk, including the potential financial impacts of business interruption at Dos Rios, one of our largest owned textile facilities.
  • We have noted in our CDP disclosures that tropical storms and strong winds and flooding are occurring more frequently in areas where we have significant operations, like the Caribbean.
  • To mitigate against physical losses, we design and construct our owned facilities around the globe to withstand strong storms and extreme events. They all also have emergency management/resilience plans to help them bounce back quickly. We maintain comprehensive insurance coverage for physical losses and business interruption.
  • Significant planning and quickly acting on our robust emergency management plans have allowed us to minimize disruption to operations as a result of storms over the years.
  • For more detail on the analysis that we have done on a hypothetical interruption at our Dos Rios facility, please see section C.2.3 of our 2020 CDP disclosure by clicking here.
  • You can also see full CDP Climate disclosures for the last four years by clicking here, and our progress on a range of environmental metrics by clicking here.

Analysis

  • With the assistance of Anthesis, we recently looked at a full-range of climate change risks to our business and determined that a more detailed analysis was warranted on the inherent risks associated with business interruption that could result from climate change effects in the future.
  • For our owned operations, and those of key suppliers, we assessed different scenarios including:
    1. Increased frequency and severity of big precipitation events;
    2. Droughts; and
    3. Interruptions to road infrastructure due to increased heat and precipitation.
  • We then used Resilient Analytics’ peer reviewed climate modeling methodology to analyze over 100 facility locations for two climate scenarios (RCP 4.5/“2 degrees” and RCP 8.5/“Business as Usual”) and two time horizons (2030 and 2050).

    To conduct this analysis, Resilient Analytics:

  • Compiled historic and projected data for each climate effect evaluated (cooling, transportation, heat stress, allergen, rainfall, and drought).
  • Calculated baseline and projected values for each effect using methodologies based on scientific research.
  • Calculated projected change from baseline over agreed upon time frames.
  • Determined risk rankings for each effect based on the highest risk intersection of impact and certainty on a risk-ranking matrix.
  • Developed an overall score for each location based on a scoring rubric that summed assigned risk points for each climate effect evaluated.
  • Modeled results with climate scenarios RCP 4.5 and RCP 8.5, for 2030 and 2050.

   Our key conclusions included the following:

  • Our locations for textile and garment manufacturing are well situated to minimize physical climate risks that could significantly disrupt our business.
  • Drought risk is more significant, relatively speaking, to our primary facilities than the other measured risks.
  • We see relatively little increased risk to our operations by 2030 but risks do potentially increase by 2050, particularly under scenario RCP 8.5.

MITIGATING AND MANAGING CLIMATE RISKS:

  • Mitigation is our first line of defense in loss control. While climate change is affecting the frequency and severity of big storms and resultant precipitation, these risks are not new or unfamiliar to us. We have managed these risks effectively for decades and continue to do so today.
  • We have optimized our owned facilities and supplier relationships toward that end and have mature emergency planning and recovery programs in place to limit damage and resume operations quickly.
  • We have comprehensive insurance coverage for property, plant, equipment, inventory and business interruption so that aggregate risk is limited to insurance deductibles. Our track record shows very limited losses over the last 20 years. We recognize that availability and cost of insurance is a potential future risk, and we have the capacity and previous experience to self-insure, if necessary.
  • We have made good choices over many years building a diverse and resilient supply chain. We make and source materials and goods not only from many different facilities and vendors, but also from many different regions of the world.
  • We believe that this supply chain will continue to serve us well under future climate scenarios. The same is true for our manufacturing partners. The redundancy built into this model will continue to enable us to effectively manage potential business interruption.

CONCLUSION:

  • We are committed to continuing to evaluate and model climate-related risks and opportunities and transparently disclosing the results of such analyses.
  • Our detailed work to-date on modelling business interruption risk to our manufacturing and other supply chain operations indicates a minimum of risk between now and 2030, with risks potentially growing by 2050 – especially those related to drought.
  • We believe we are well-placed to manage such risks given our decades of experience managing an owned supply chain, in-depth disaster planning and recovery protocols, appropriate insurance coverage, and an on-going commitment to a continued and formal internal focus on climate-related risks through our ERM and other processes.