03 February 2021

The tannery and ESG

The discussion that is raging in investment circles around ESG investments seems far away from everyday life to the tanner struggling with the issues of avoiding loose or cracking grain and trying to make a margin in an exceptional business climate.  Sales are less predictable than ever and yet pressures surround many raw material areas.

Amidst all this we are seeing a growing trend for top tanneries to expand, merge, acquire or seek investment from private equity groups. Scale is required to meet the demands of a large programme in many markets and even greater scale is needed to balance the conversation with a powerful brand trying to squeeze prices down.  Given that tanneries will come through the pandemic with quite varying looking balance sheets we can expect to see more such moves in coming months. Expect acquisitions, equity investments, IPOs and other “events” more frequently over the next two years. It is no surprise that at this a time when the fashion world, the luxury world and almost every other sector is focused on sustainability ESG investing becomes a key investment consideration.

ESG stands for Environment, Social and Governance and is the term used by investors and the finance industry to measure and consider their investments. Results from Morningstar and Al Gore’s Generation fund indicates that investing in what they define as ESG stocks have done better than the mainstream averages. This positive view has been welcomed at a time when it is becoming widely accepted that business has to work for a greater purpose than only to benefit the shareholders, a route which has led to quite a dramatic divergence between the rich and the poor in many countries over the last three decades and more.

There is a risk in oversimplifying all this. In the last year ESG stocks have outperformed largely because oil companies have struggled while the big Internet have soared.  But do we really think that Social Media companies are so good? Governance, willingness to pay tax, use of our data and giving access to illegal and abhorrent views all fall into ESG, or should do.  Equally Tesla has been an outstanding winner, but it is a start-up and should a thoughtful ESG fund not also consider the impact of those major car makers who have committed to change. GM, for example, now say they will be all electric by 2035. They make 7.7m cars. An even better ESG consideration might be Toyota, who make over 10 m cars a year and are pushing down a hydrogen fuel route. Hydrogen is something that can be produced from the cattle slurry from the intensive cattle units to be found in the USA and many think will be a better solution for sectors like automobiles.

Perhaps some will remember when we used to work on “Fuzzy Logic” with questions like “when does an apple become a core?” and “what is the real colour of grass?”. One major learning was that we should not view matters as black and white, but of course so many of us learn all our facts in 280 or less character headlines (most Tweets are no more than 33 characters) there is little room for levelheaded consideration or anything grey. Another danger of Social Media.

Hence a read of Al Gore’s studies in his Generation investment programme shows that he has been using his influence for over a decade to condemn eating meat, and many associated agricultural practises, while making huge bets on artificial meat companies. His company is the largest investor in Beyond Meat, a favoured ESG stock. Some papers he has been promoting have apparently been produced with headlines along the lines that changing agriculture alone could achieve the Paris targets. I do not know the details of the 2015 Carnegie Mellon study but it apparently found that vegetarian diets are three times “more harmful to the environment.” Certainly we hear of a wide range of crops being needed to produce the alternates and high levels of processing, with large amounts of water and energy involved.

This is all a big message for the wider leather industry. Leather and livestock get condemned out of hand based on historic or dishonest information, and it is not helped when people we think are well intentioned are quietly rushing to become billionaires out of the alternates. It is similar with alternates for leather as most materials marked as “vegan” are plastics and very dreadful alternates in terms of proper environmental calculations. Leather cannot complain about alternate materials, as the supply of leather is limited and we need textiles and others to fill the gap. We just ask that they be honest about their performance and their footprint.

So ESG is not something separate from the leather industry, it is something we are closely involved in. Leather is not bad in terms of agriculture or of tannery processing as long as both are done responsibly and leather is fantastic in terms of longevity, ease of maintenance, ease of repair, ease of refurbishment and reuse into other items at end of life. With well-designed leather articles it can be decades before they reach their end of life and even then they can be used for leatherboard or, after treatment, for fertiliser. In landfill they will biodegrade within about fifty years unless buried in perfect condition when they can last undamaged, harmless, for centuries. That is why so much of our ancient history has been understood through leather articles which are now to be found in so many museums.

As well as being a wonderful material, tanneries are sedentary operations to the extent that unlike shoemaking or garment production which are labour intensive they are not so easily moved. In the 20th century most of the US and European tanneries that closed to be replaced by tanneries in developing countries in China, India and Korea for example were elderly plants in city sites no longer suitable for manufacturing. They would have to have been closed and rebuilt somewhere.  Many had been in existing for over 80 or 100 hundred years some back to the mid 19th century when the leather industry moved into factory sites.

What was clear about tanneries then, as now, is that being permanent they form part of the community and if they do well the community prospers. When we here about ESG being more than only environmental matters then a well run tannery embedded in its community will normally offer a perfect example of a business that fits well with ESG thinking in all aspects.


About APLF

We bring leather, material and fashion businesses together: an opportunity to meet and greet face to face. We bring them from all parts of the world so that they can find fresh partners, discover new customers or suppliers and keep ahead of industry developments.


We organise a number of trade exhibitions which focus on fashion and lifestyle: sectors that are constantly in flux, so visitors and exhibitors alike need to be constantly aware both of the changes around them and those forecast for coming seasons.


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