Are Shareholders Stalling Sustainability Progress?
By Flawless Magazine
In an era where climate accountability and ESG (Environmental, Social and Governance) targets dominate fashion’s corporate narratives, one question persists in the shadows: are shareholders obstructing progress?
Major fashion and beauty companies now tout ambitious climate commitments and publish glossy sustainability reports. Yet behind the scenes, growing shareholder payouts — in the form of dividends and stock buybacks — have left some insiders and analysts questioning whether these financial priorities are at odds with long-term environmental progress.
The Rise of the Shareholder Payout Economy
In the last decade, payouts to shareholders across publicly traded fashion companies have surged. Take LVMH and Inditex, which both delivered record returns in FY24 — despite mounting scrutiny over their environmental impact. While profitability is key to any business, the concern lies in how profits are distributed.
Some critics argue that funneling billions into dividends instead of scaling sustainable manufacturing, investing in regenerative agriculture, or developing low-impact materials reflects misplaced priorities. “There’s an illusion of sustainability progress when, in reality, long-term investments are sidelined for short-term financial wins,” says one sustainability consultant with knowledge of board-level decision-making at a major European brand.
ESG Fatigue Meets Financial Pressure
A growing number of investors voice support for ESG, but not all are aligned when it comes to action. Companies often face a tug-of-war between impact-oriented stakeholders and more traditional investors focused on financial performance. Sustainability officers are left navigating a complex landscape where the need to meet quarterly expectations can undermine climate commitments.
Moreover, ESG fatigue — a backlash against what some see as virtue-signalling or overreach — has emboldened sceptical shareholders. With regulatory changes on the horizon in the EU and backlash brewing in the US, companies are tempering their messaging to avoid pushback, even when internal teams advocate for stronger targets.
What Needs to Change?
Experts say rebalancing power within corporate governance is key. Boards and C-suites must integrate sustainability as a material business risk — not an optional add-on. This means embedding climate considerations in compensation structures, capital allocation, and investor engagement.
New models of shareholder stewardship are also gaining traction. Shareholder advocacy groups like Follow This or ShareAction are using their equity positions to push for stronger climate disclosures and emissions reduction plans. Meanwhile, some institutional investors are beginning to recognise that long-term financial stability requires environmental resilience.
Reframing the Business Case
The idea that sustainability competes with profitability is outdated. New research from MSCI, BlackRock and other financial institutions increasingly shows that strong ESG performance correlates with lower volatility, reputational strength and better long-term returns. But the fashion sector — fast-moving, trend-driven, and deeply tied to growth — has been slow to fully embrace this reframe.
To unlock real change, brands must shift from treating sustainability as a cost centre to recognising it as a driver of innovation and competitive advantage. That means resisting the pressure to over-distribute profits and instead investing in future-proofing the business.
Flawless Insight
Fashion must learn to design for longevity not just in garments, but in strategy. If sustainability is to be more than marketing, it must be protected from the volatility of short-term shareholder expectations. Governance reform, responsible reinvestment, and shareholder education could transform fashion’s bottom line — and its footprint.
After all, what’s the value of profit if the planet pays the price?
