On 18 September 2024, lululemon released its latest annual Impact Report, including updates on its climate and energy performance. Here is our analysis of key updates and criteria for a strong Climate Plan, ensuring lululemon provides clear evidence of progress going forward.
Renewable electricity procurement
In the Impact Report, for its core tier one and two suppliers, lululemon has reported renewable electricity consumption increasing from 7% in 2022 to 14% in 2023. For the first time, the company states that it is working towards achieving 25% renewable electricity use among core suppliers by 2025 by supporting these suppliers to source clean energy through training, policy advocacy, and assessing procurement opportunities.
lululemon shares that it will meet this milestone using onsite solar, offsite procurement, and accounting methods called EACs (Energy Attribute Certificates). Notably, the company now indicates a ‘preference’ for high quality mechanisms such as PPAs (Power Purchase Agreement), together with onsite solar, but lululemon must demonstrate how this preference is turned into committed practice.
This is important because there is a substantial difference between the renewable electricity procurement methods lululemon lists. While PPAs can lead to a tangible increase in wind and solar power, evidence shows that ‘unbundled’ EACs fail to generate new clean energy, or reduce the use of fossil fuels.
Currently, lululemon does not publicly share a breakdown of its supply chain energy mix. Even in its own operations, only one example of a (virtual) PPA is highlighted in the latest Impact Report, and significant amounts of unbundled EACs were reported to CDP.
To demonstrate the credibility of its pathway to 2025 and beyond, the company needs to develop a more detailed renewable energy procurement policy, disclose the ratio of onsite solar to PPAs to EACs in its electricity mix, and share evidence of high quality clean energy procurement in its supply chain as integral parts of its upcoming Climate Plan.
Of course, there are real difficulties procuring high quality wind and solar in some of lululemon’s sourcing countries. Nonetheless, other sportswear companies are starting to show that it can be done, such as Nike, Puma and Adidas, which are pursuing PPAs in key countries where lululemon suppliers are located, including Vietnam and China.
Similarly, beyond the fashion sector, tech companies including Apple and Amazon have supported suppliers to source PPAs in many of lululemon’s Tier 1 and 2 countries, including Indonesia, South Korea and Japan. Tech companies, while themselves far from perfect, have also taken steps to put in place policies and processes to help suppliers broker PPAs.
lululemon acknowledges that it is “assessing opportunities to leverage PPAs where policy mechanisms exist or are evolving, including in Vietnam, where the government recently approved a decree to allow direct PPAs in July 2024”. This presents a key opportunity for lululemon, and we look forward to seeing evidence of PPA procurement in the future.
Heat vs. electricity
Throughout the campaign, we have been calling for lululemon to share a time-bound commitment to increase the share of renewable energy – not just electricity – in their supply chain.
This is important, because in textile and garment manufacturing, thermal heat, often from burning fossil fuels like coal, makes up a significant portion of total greenhouse gas emissions.
This means that lululemon’s goal of 25% renewable electricity use by 2025 does not cover thermal energy, which is used for processes such as dyeing fabrics.
Importantly, lululemon has pledged to move away from coal powered boilers by 2030, and shares how it is engaging suppliers to make this happen. However, the company has not ruled out a transition from coal to other polluting fuels like gas and biomass.
To reduce its emissions at the necessary pace, lululemon must combine efforts to source renewable electricity together with a commitment to electrifying thermal processes, such as through electric boilers and heat pumps.
In its previous impact report, lululemon shared that it is “working with experts and innovators to assess the potential for emerging technology solutions—including clean electrification.” To fully assess the situation, we need full transparency on lululemon’s thermal energy strategy for its supply chain in the upcoming Climate Plan..
Supply chain emissions
In this report, lululemon has announced a 31% reduction in its Scope 3 emissions intensity compared to a 2018 baseline, in part due to ‘supplier carbon-reduction activities’. ‘Emissions intensity’ for lululemon means tonnes of CO2 per million US$ of gross profit.
Unfortunately, emissions-intensity reductions are of little value, because it is perfectly possible for emissions intensity to reduce, while absolute emissions increase. A more credible indicator of progress would be to measure absolute emissions reduction.
In absolute terms, luluemon’s Scope 3 emissions, including all categories, have actually increased by 2.5%, from 1,691,009 tco2e in 2022 to 1,732,589 tco2e in 2023. Looking at just the ‘purchased goods and services’ category of Scope 3, which includes manufacturing, emissions have increased by almost 20%, from 771,994 tco2e in 2022 to 920,534 tco2e in 2023. (Source: Climate data supplement of 2022 report and 2023 report).
These numbers, hidden in the small print at the end of the report, are important to note considering misleading information elsewhere that suggests absolute emissions have reduced, with caveats.
For example, on page 35, a graph shows that the Scope 3 emissions within the Science-Based Target decreased from 1,093,901 in 2022 to 1,014,31 in 2023. On page 58, a table suggests that Scope 3 emissions excluding the use of sold products decreased from 1,354,069 in 2022 to 1,319,695 in 2023.
In the coming months, a clear, comprehensive and comparable breakdown of Scope 3 emissions across the entire supply chain will be necessary to fully understand lululemon’s path forward.
Funding the transition
Decarbonization efforts must be carried out in a fair way across the supply chain. This means that lululemon also needs a solid just transition and climate finance strategy, which would align with its commitments to support communities and promote wellbeing. A just transition for lululemon requires supporting a context-specific and equitable energy transition throughout its manufacturing facilities, which centers the needs of workers. Find out more here.
Currently, lululemon reports that it supports suppliers with decarbonisation by providing training programmes, such as GIZ’s To the Finish Line and CEBA’s Clean Energy Buying Academy. The company also points to its investment in Apparel Impact Institute’s Fashion Climate Fund, which provides funding to scale decarbonisation solutions. Recent research however suggests that while supplier training and venture capital are absolutely necessary mechanisms, brands must pursue additional supply chain financing initiatives in order to reach their climate goals.
lululemon shares that it is currently evaluating collaborative financing options that could further support carbon-reduction projects in its supply chain. We look forward to seeing more detail about these efforts as they develop over the coming months.
What next?
lululemon is working towards publishing a new Climate Plan and Impact Agenda in 2025. Together with our allies, we will continue to engage with the company and push for progress, further detail and increased ambition to be shared in this public plan.
Accessing high quality renewable energy in lululemon’s complex supply chain markets will require significant time, money and effort. However, to deliver on its brand promise, transparency about current actions and concrete plans for the future are crucial. The Climate Plan is an opportunity to get this right.
Thank you to everyone who has supported this campaign so far.
