Lessons from Lululemon: it’s all about Scope 3

The activewear brand Lululemon is under investigation by Canada’s Competition Bureau after accusations of greenwashing. UK businesses in the clothing industry should take this as a warning not to ignore Scope 3.

The legal complaint against Lululemon comes from environmental advocacy group Stand.earth. It focuses on the “Be Planet” strand of Lululemon’s ESG strategy. The argument is that Lululemon’s marketing of its green efforts “goes too far” by conveying the impression that the clothing brand is having a net positive effect on the planet. As the complaint states, “As one of the largest apparel companies in the world, Lululemon has a significant and growing climate and environmental footprint.”

The big lesson for companies in this sector is that almost none of Lululemon’s environmental impact is caused by its own employees or at sites the company owns. All the problems raised by Stand.earth are about the company’s value chain.

All emissions count

99.7% of Lululemon’s greenhouse gas emissions fall into the Scope 3 category. That is, they happen in the value chain either upstream or downstream of the company’s own activities. The UN Global Compact says that Scope 3 emissions are likely to make up over 70% of a company’s total, and evidence is growing that the norm is probably over 90%.

As well as being your biggest source of emissions, the Scope 3 category is also the biggest headache both to measure and reduce because you don’t have direct oversight of anything. No wonder it’s tempting to ignore them – a Bloomberg study found that only 20% of businesses disclosed them for the 2020 financial year.

Lululemon does report its Scope 3 emissions, but it also reports its Scope 3 figure minus “Use of Sold Products” as an alternative measure. This second figure is more palatable, at 73% of the original total. But it discounts emissions connected to the transport or waste disposal of its clothes once sold.

Stand.earth point out in their legal complaint that emissions for 2022 were 1,691,009 tonnes of CO₂ equivalent when you include all Scope 3 emissions. This means they have more than doubled since Lululemon launched “Be Planet” in 2020 (when they reported 829,456 tCO2e). They find no valid reason to exclude any category of Lululemon’s Scope 3 emissions from the total. If you are tempted to leave any emissions out of your reporting, ask yourself if this decision would stand up to scrutiny.

Seek transparency in your value chain

One of Lululemon’s green claims is that is working with suppliers to increase the use of renewable energy. But none of the main factories it uses do any reporting on their emissions or energy sourcing, so it is impossible to verify progress on this. However, we do know that most of its suppliers are located in countries such as Vietnam, Cambodia and Bangladesh. And we know that these countries based tend to rely heavily on fossil fuels for energy, particularly coal. The lack of transparency leaves Lululemon open to accusations of greenwash.

Businesses are used to leveraging their buying power to drive down supplier prices. It’s now time to use that power to seek increased transparency from the businesses doing your manufacturing.

Put your actions in context

Transport is usually a big driver of Scope 3 emissions, and for Lululemon it makes up 25% of their total carbon footprint. They state that they are “minimizing use of air freight and using lower emissions transportation modes”. However, a study cited in the legal complaint finds that Lululemon “stands out in particular” for its heavy use of air freight. Around 30% of the products made for Lululemon in Vietnam and Sri Lanka are transported by plane. Activewear rivals Nike and Adidas also use factories in Vietnam, but transport less than 5% of those products by air. For Puma it is just 0.5%.

Lululemon did reduce its use of air freight in 2022, but this context makes their claim to be “minimising” it ring hollow. Businesses need to put their actions in the context of their industry for their claims to be meaningful.  

Go beyond the minimum

The Science-Based Targets initiative is a good way for businesses to gain external validation for their carbon-cutting work. Lululemon signed up in 2019. The SBTi currently allows businesses to include just two-thirds of their Scope 3 emissions in their target, and this is what Lululemon have been doing. But the SBTi is currently reviewing this and things could change by the end of 2024.

If a scheme doesn’t require you to include all your emissions, it is tempting to leave some out for a lower total. But the direction of travel for almost all carbon reporting schemes, both mandatory and voluntary, is to become more strict. Businesses with SBTi targets may soon have to include previously excluded emissions and report a higher figure – which won’t feel fair if your emissions have actually stayed the same or gone down. The only way to futureproof against this is to go beyond the minimum and include everything now.

Start tackling Scope 3 now

The legal complaint raises other issues beyond carbon emissions, such as water consumption, microplastics and clothing waste. As with the emissions, none of these are directly caused by Lululemon’s employees or happening on sites it owns – but they are happening as a direct result of the business’s activities. The message is loud and clear: you are responsible for what happens in your value chain.

The biggest takeaway for UK businesses should be that you have to get a handle on Scope 3. Getting started with Scope 3 may seem daunting, but ignoring this huge category of emissions is no longer an option. And there are actually a surprising number of business benefits to reporting your Scope 3 emissions. This is a journey rather than a one-off action, but the best time to start is now.