Urban Outfitters Report

Urban Outfitters ESG Foundations Project Report An evaluation of a company’s ESG reporting will provide stakeholders with transparency on a company’s sustainability and social equity efforts. The information will be useful in determining potential risks for external users. This memo will take a deeper look at Urban Outfitters ESG reporting, how it affects external users, and potential red flags for investors to look out for. ESG Reporting Analysis Urban Outfitters does not follow a specific ESG reporting standard. They do not have a published sustainability report to refer to other than promises they make on their website. They combine each of the three metrics on their website by listing changes they intend to make like reducing plastic, energy consumption, and making social changes. Urban first lists focusing on the impact that their products have on the environment with packaging and in the supply chain. In regard to energy consumption, URBN lists ways they plan to reduce their energy consumption by using solar panels, fuel cells, etc. URBN doesn’t report the current numbers about their environmental impact, they just report what they want to accomplish in the future and initiatives they have taken in the past1. Urban Outfitters reports on the social issues they are involved with by reporting the companies that it works with to enact change in the community. URBN lists 18 different companies that they work with and the contributions that they have made to these companies. URBN also reports upcoming brands that they collaborate with to help support small businesses2. Urban does not report anything to do with the “G” in ESG on their website. Impact to Investors, Media, and Competitors Urban Outfitters’ ESG disclosures have had a differential impact on several groups of external users. The impact of these disclosures has been highest among stockholders, media, consumers, and competitors. Based on CSR industry wide rankings for ESG, Urban Outfitters ranks in the 60th percentile among 27559 companies in the retail apparel industry. The company’s initiative to substitute the virgin polyester with recycled cotton in several clothing lines was well received by the consumers and external environmental advocates. Further, these sustainability initiatives boosted the company’s environmental standing to the 70th percentile in the industry. Further, in the Fiscal year of 2021 Urban Outfitters retail sales reached a record high of $1.16 Billion due to spread among the sustainable consumer demographic. The quick expansion led to a 19.4% jump in the company’s stock valuation and a 45% surge in demand for stock options3. At the end of Q2, certain expectations have projected that gross profit margins will improve, and stock prices will continue to climb. Competitors have also jumped on the sustainable clothing initiative to improve public environmental and social standing. For instance, UNRL and H&M have released a new sustainable clothing product line made from polyester-cotton biosynthetics and recycled polyester respectively4. Figure 1 On the other side of the spectrum, recent issues with corporate governance and social campaigns have marred Urban Outfitters’ reputation with the stockholders and media. URBN approved Truly Organic products for sale in their retail store. Truly Organic products faced backlash for falsely labeling products as organic or vegan and had to pay $1.76 million in punitive damages and Urban outfitters had to pay out customers for compensatory damages5. This damaged the ‘sustainable’ and ‘environment friendly’ brand image that the company had constructed, driving away potential Socially Responsible Investors. Further, with the onset of November 2021, Urban Outfitters retail store policy attempting to address shoplifting led to severe racial profiling; amidst political unrest Urban Outfitters faced social criticism and consumer boycotts. The company’s diversity and inclusion claims were weakened by their ‘racial’ policies and resources had to be diverted to help renew the brand image while competitors sprinted ahead 6. This has caused a decrease in the market valuation of the URBN stock as shown in Fig 17. Red Flags for Urban Outfitters When looking at Urban Outfitter’s ESG reports along with the buzz surrounding their ethical practices, there are multiple red flags displayed. Urban Outfitters shows no evidence of minimizing textile waste, reducing hazardous chemicals, and implementing water reduction initiatives. Furthermore, they continue to use leather, wool, and exotic animal hair for their products. Urban Outfitters has also been involved in a scandal in the past involving working their workers for free. While they claim that their UO Community Cares program helps give back to the community, there has been little proof of that, along with little proof of Urban Outfitter treating their workers better8. Scandals and poorly reported ESG standards have plagued urban outfitters and made the company in desperate need of ESG consulting. Urban needs to be more concise and transparent with their ESG reporting to appeal to new investors.