INDIAN INSTITUTE OF MANAGEMENT BANGALORE

SESSION 2022-23
TERM - 5

Green Business Management: Case Submission

Nov 7, 2022

Submitted to:

Prof. Achal Raghavan

Submitted by: Group 3

21E5004 ALICE LAUNE

2111273 SITANSHU PATIL
2111069 JIVITESH WAGH
2111038 HIMALAY NAIK
2111027 KRISHNANAND MURMU
Critically evaluate H & M Group's strategy for sustainable business, on the following lines:

• Is the strategy well-aligned with sustainability?

H&M claims to be open-minded, inclusive, diverse, simple and with integrity. Indeed, the brand has set
itself the challenge that by 2030, it will use 100% eco-responsible materials. It also hopes that it will
be able to operate entirely with a circular value chain and climate-positive fashion industry.

The scaling of the circular ecosystem approach, coupled with maximising the product life cycle, has
pushed the firm into enabling sustainable mechanisms to focus on durability, recyclability meanwhile
incorporating it all in its value chain for
the ultimate impact.
As a result, the promise of H&M to
create a sustainable impact is centred
around the following strategies-

Chemicals – They perform regular tests

to ensure that the suppliers comply with
all the regulatory standard being stricter
in the margin gap between the
regulations and achieved during
production. H&M has also adopted a
method called Screened Chemistry to
minimize hazardous chemicals used in the design stage.

Transport – Although transport throughout the supply chain of H&M is responsible only for about 2-
3% of the impact on the environment, it is still a huge number to be minimized. Maersk, one of the
biggest transport companies in the world has helped create a biofuel blend to reduce the impact of ocean
shipping. Smarter logistics, EV electrification, and biofuels are a few ways to get there.

Packaging – H&M has switched from plastic bags to paper bags to reduce the damage from plastic in
the packaging millions of products from the start of the supply chain to the delivered product to the
customer. Additionally, they also offer adorable reusable shopping bags made of recycled polyester or
organic cotton.

Reliance on renewable energy- The company does not accept new suppliers or supplier factories into
its supply chain if they have on-site coal boilers in their factories, as part of a long-term goal to phase
out coal from our supply chain, with 95% of its activities running on renewable electricity.

Optimizing resource use: – If a product isn't working as expected, the company prioritises selling it
through its core sales channels before using it in internal circular projects, and it also provides an
additional way for customers to discuss garments. After reviewing all internal uses, they seek solutions
through trustworthy business partners such as charity and shops. Some returns that cannot be resold
through the original sales channel are then sold through an online-sales platform.

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Looking at the above core centre of the strategic approach, the lens of the strategic value framework

It can be seen that the strategy of H&M’s sustainable strategies is on track as it not only falls
into a dimension of product stewardship where the firm is offering multiple microfibre
innovations along with design and packaging to stand true to its sustainability goals, but also
intruding into the clean tech strategy domains with the help of Circulation innovation lab,
that for instance aided the utilization of both natural and manmade techniques to remove GHGs
from the atmosphere and many of such clean tech initiatives to rely on.

• What are the strengths and weaknesses of the strategy?

Through its sustainability disclosure, they have communicated to reduce their carbon emissions by
100% by the year 2030. H&M has done 27.8% reduction in plastic packaging and 22% absolute
reduction in scope 1 & 2 CO2e emissions. H&M has also set to design all their products for circularity
by 2025. One of the strengths of their strategy is their transparency enabling them to have a greater
oversight and control of their impacts. The strategy can help in improving the brand image of the
company also improving customer retention. By incorporating sustainability into the organization,
H&M will be better positioned to satisfy new standards on time. However, H&M depends overtly on
outsourcing. Overseas factories are a major reason for viscose pollution. Import and exports are a
source of transportation emissions. H&M’s sustainability strategy is very concentrated in specific
markets. Thus, implementing the system in a broad spectrum is one of the challenges for the company
to reach its sustainability goal. The company also suffers from significant return rates, a problem faced
by other e-commerce apparel companies. The product returns add up to the transport emissions
inhibiting the company to produce a sustainable environment.

• What are the chances of its success or failure?

The communication of the strategy is good and the company is well established in the clothing market.
Its global presence and sustainable strategy are a strength for success.

3-Way Test

3- Way Test
Customer • 2/3rd of US citizens Growing trust gap Yes, customers
willingness to pay willing to pay for between consumers and are willing to pay
sustainable corporations. for sustainable
products. products.
• Reduction in sales
not significant.
Clear • H&M believes in Accusations of Yes, H&M is
communication of transparency and all greenwashing breaks clear in its
value information is trust communication,
shared. greenwashing
• openness and accusations are
consistency growing.
Easily copied Can be copied with Yes, its strategy
ample resources is easily being
copied by other
fast fashion
players

In accordance with the second Business of Sustainability Index by GreenPrint, a PDI subsidiary, 66 %
of US customers and 80 % of young US individuals (years 18-34) questioned are ready to pay extra for

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sustainable products vs less sustainable rivals. Looking at the sale for the past 15 years’ data, it is evident
that the customer willingness to pay is high at all the times. The decreasing sale can be attributed to the
scandal of H&M; however, the reduction is not significant either. Though H&M does keep its
communication clear. However recent accusation of greenwashing by the company breaks the trust of
the consumers.
The sustainable strategy by the company however is not very unique and similar strategies are being
applied by other fast fashion giants such as Zara and Levis.
H&M being a fast fashion supplier, it's hard to be sustainable in fast fashion. There are a lot of
consumers and mass production and consumption can hardly be sustainable. The challenge is difficult
to achieve. Moreover, the scandals and allegations have shown the limits of H&M's strategy. H&M
used a scoring system to notify customers about every product's environmental friendliness but removed
the scorecard when Quartz put out a report claiming they had falsified their scorecard.
Allegations of greenwashing and activities causing bad publicity is a danger to the long-term growth of
the company and its sustainable strategy. Although the company has weak chances of failure but
nonetheless it should work on gaining trust of its customers and improve its diluted trust.

Recommendations

1. Scaling
Though H&M Group is a global fashion and design company with 57 online markets and stores in 77
markets and it has deployed many sustainable endeavors and initiatives throughout its value chain and
product line, but yet the markets covered by them have been concentrated in very few geographies; for
instance, the rental service offered by H&M, that belongs to one of the many great initiatives that the
brand has deployed within confined geographies, still belongs within the boundaries of Amsterdam and
Berlin and that too in limited stores.

A need to scale the sustainable initiatives and tools across the stores and geographies is critical not only
to ensure that the sustainability KPIs like the percentage of recycled materials, the percentage reduction
in production water use and absolute reduction in CO2e emissions are on track but also to aid the
business in ushering trust among consumers worldwide which has been a bit of a concern for the brand
as evident from the three-way test stated in the report where allegations and lawsuits around
greenwashing are diluting the brand's image and sustainability efforts.

Challenges to scale
Because various stakeholders are involved, each with their own set of obstacles and opportunities,
scaling up these and other successful solutions is a vital task for a sustainable transformation. Profit
motives imposed by market rivalry and financial markets limit the firm's ability to scale up more
sustainable operations. Governments can also impose regulatory constraints within their boundaries,
which can lead to internal societal unrest.

Implementation to upscale the Strategies

1) Increasing comprehension and awareness among a critical mass of stakeholders
2) Providing motivation and incentives for new behaviours by incorporating them into institutional
and policy standards
3) Developing ability to apply new practises across stores and geographies at a socially acceptable
cost.
2. Using AR (Augmented Reality)

With H&M being focused towards progressing the mission of globalizing access to fashion, clothing
and design in ways that benefit society at large, the environment and the success of the company, they
have worked on multiple fronts to achieve the sustainability goals. However, to reduce products being
returned to the value chain, one of the reasons being faulty in size expectations which in turn produces
transport emissions, AR (Augmented Reality) can be used to mitigate this issue and move forward in
achieving sustainability. Customers may try out things in a virtual space from the convenience of their

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house. AR can assist customers in understanding what they are purchasing, thereby making it simpler
to match customer demand. Enabling clients to test the merchandise in an augmented reality
environment enables them to determine if they they will buy it or not. AR product visualization will
assist the firm in reducing return rates to a significant number.

Challenges
Because the technology is still in its early phases of commercialization. Without standards, it is hard
to find cohesive solutions, which hinders overall technological advancement. Improvement in AR
App Design becomes a significant challenge. Other challenges come under implementation of how
and where to use the technology to better benefit the company.

Implementation
1. Virtual try-ons to allow buyers to receive a realistic understanding of the product's
appearance, size, and experience
2. Using VRF (Virtual Fitting Room) Customers may try on clothing, shoes, and other items on
a 3D avatar without having to wear the products.
3. A virtual tailor employing several machine learning technologies to give consumers with very
accurate and exact body measurements.

3. Using Blockchain to be more sustainable

According to a study from McKinsey, 75% of customers consider trust and transparency to be an
important purchasing factor. Be it the supply chain or raw materials, transparency has always been a
core part of H&M’s sustainability strategy. This is where blockchain can assist H&M to increase the
trust and transparency factor. Currently, it is a cumbersome effort for a customer to find the source of
raw material. But, by using blockchain, NFC, and IoT systems together, H&M can give each piece of
clothing a unique digital identity. This will give H&M brand the confidence to stand behind the
products. By showing how products are made from start to finish, counterfeiting can be stopped while
fair working environment and ethically sourced raw materials are supported. Also, every
product's(raw material’s) ownership can be registered on such a blockchain platform, where just about
every transaction is securely recorded and can be viewed by customers on their smartphone. This
makes it easier to check information about the supply chain and shows that product claims are a safe,
unalterable record. So, customers can save time and cut down on efforts in the overall process
meanwhile instilling further trust in the brand.

Challenges
For this system to work, the blockchain technology should be operational and used at every stage of
supply chain. Also, driving the penetration of blockchain will require improving digital infrastructure.
Other challenges come under implementation and training the personnel to adopt to this new system.
Implementation
1. Company should start the blockchain platform from the channel points near
consumers(retail stores) and move their way down in the supply chain
2. The employees and the supply chain partners should be trained for efficient functioning of
this platform
3. Creating the ability to implement new practices at a cost that is socially acceptable in all
stores and locations.
4. Educate the customers through new brand campaigns about the blockchain platform and
why they should trust H&M

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References

1. https://sustainablebrands.com/read/marketing-and-comms/majority-of-us-
consumers-say-they-will-pay-more-for-sustainable-products
2. https://www.forbes.com/sites/retailwire/2022/07/13/hm-case-shows-how-
greenwashing-breaks-brand-promise/?sh=7b7764261171
3. https://qz.com/2180075/hm-showed-bogus-environmental-higg-index-scores-for-
its-clothing
4. https://www.brandingmag.com/2019/12/12/hms-greenwashing-short-sighted-
and-unethical/
5. https://textilelearner.net/augmented-reality-in-fashion-industry/#more-10981
6. https://www.sciencedirect.com/science/article/pii/S2590332220302992
7. https://hmgroup.com/about-us/markets-and-expansion/market-overview/
8. https://www.mckinsey.com/industries/retail/our-insights/survey-consumer-
sentiment-on-sustainability-in-fashion