ExaminingESG: Peloton vs. Lululemon
Since ESG reports are not yet mandatory, company values can be found within what they report on - so which company this month values the "E" in ESG the most?
One of my favorite things to do is to workout. I know, you think I’m kidding.
My weekly routine includes Peloton classes, usually while wearing a pair of Lululemon leggings — sometimes a pair that I have had since college, making them over 10 years old.
I say this not to brag about the fact that they still fit, but to tell you that the high cost of Lululemon clothes is worth it. And quite frankly, after reading their Impact Report, I’m about to buy myself some more.
- I need your help at the end, please take my poll -
Quick note: Hi new subscribers, I’m excited you’re here! You can expect to receive a new email from me once a month, on the last Friday. If you have sustainability-minded friends who are open to adding one more email to their inbox, please share this with them.
Peloton + Lululemon, competitors or partners?
Both Lululemon and Peloton sell apparel and operate app-based workout classes, but both to different degrees.
At its core, Lululemon is an apparel brand, while Peloton is an online fitness community with their Peloton Bike as their main product. Intending to capitalize on the home workout necessity of 2020, Lululemon purchased Mirror. Now known as Lululemon Studio, users can stream classes via the mirror-like streaming device.
This put them as a more direct competitor of Peloton, who started with the Peloton Bike and on-demand classes, but then branched out to apparel.
Recently, however, both brands announced a partnership where Lululemon Studio will discontinue live classes and stop selling the Mirror by the end of this year. Mirror owners can access classes taught by Peloton instructors via their Mirror and both companies will sell co-branded apparel through Peloton.
So instead of being direct competitors going forward, this partnership is helping Lululemon ease out of the on-demand fitness world.
Peloton and Lululemon’s SASB Standards
If you’ve been reading since my first edition, I mentioned that I would not get too deep into the reporting standards side of ESG. Still, when writing about publically traded companies like Peloton and Lululemon, it is impossible not to get more technical. And if I’m honest, it gives me more of a reason to really dig into these reports.
Now, what is SASB you ask? The Sustainability Accounting Standards Board (SASB) is a non-profit that has created ESG reporting standards based on different industries. No, these standards are not mandatory and are not yet audited, but they are one of the most internationally recognized.
On a high level, they help outline the environmental factors that each company should be reporting on based on their industry, and both ESG reports say that they are reporting based on SASB standards.
According to SASB industry standards, Peloton falls under the Toys & Sporting Goods category, while Lululemon is Apparel, Accessories, and Footwear.
Important caveat: Peloton says they have only just “started to align” their reporting to internationally recognized SASB standards, so maybe the 2024 report will be more closely aligned. Lululemon also checks its information against GRI and TCFD standards, but I am focusing on SASB since they both follow SASB standards.
I tried to break down what you can expect to be reported on when measuring against SASB standards - you can find this information, and more detail about SASB categories, here.
SASB aside, how do their reports line up?
When it comes to compiling ESG reports, double materiality is the new standard. Double materiality means that companies should focus not only on how climate change will impact their bottom line but also on how their business operations are impacting the environment.
Lululemon does an incredible job at this. I carved out time on a Sunday to review their 2022 Impact Report and I intended this time to be tuned in. Due to life circumstances, I was very tired when reading this report and was so impressed by it, that it took me longer to read than I intended, and their climate change goals and progress just kept going. I’d scroll to a new page expecting to be done…and I was not, for a full 23 text-heavy pages.
The Lululemon report is what I wanted the Peloton report to be. As a company, they are acutely aware of every aspect of their business that can be affected by climate change, and their company’s impacts on the climate ranging from microfiber waste to chemical use.
My hope is that Peloton will be on this level in a few years.
The 2023 Peloton ESG Report
If you read last month’s newsletter, you’ll know I took an ESG fundamentals course via Terra.do. I based my final project on the Peloton 2023 ESG Report [Upgrade to paid if you want access to that…kidding]
I wanted to be thrilled about it, and I would have been if I had looked at the report from a lens of social and governance (the SG in ESG).
But as a climate science communications girly, I am strictly focusing on climate and sustainability metrics.
Peloton has a lot of space for improvement when it comes to its climate goals.
What stood out:
Peloton is beginning to align its reporting against SASB standards, so I might be a year too early to judge their reporting. I eagerly await next year’s ESG report drop.
Peloton recognizes that they have an opportunity to participate in a circular economy and have started a bike recycling program - but in another section of the report, they mention this as a part of expanding the affordability of their products. Inclusion is a great goal, but seems like it is double dipping for impact measurements.
I want the ability to add a hidden comment where I can expand on the definition of a circular economy without taking up space. Is someone at SubStack scanning this for ideas? I hope so.
Peloton does account for its GHG emissions, which Apex independently verifies. This is critical for measuring if the adoption of renewable energy leads to a reduction in emissions, or adds to overall energy use.
I had a note to myself this month to learn GHG accounting so that I can say something more tangible…. but, that is a lofty goal for one month. Stay tuned for future insights after my 2024 GHG accounting course.
They are setting valid climate-focused targets but these are not necessarily aligned with the SASB reporting standards nor do they detail what the baseline measurements are in an easy-to-find way.
***Big caveat, I spent probably 20 hours reviewing the Peloton report because of my homework, so I could be being extra harsh just due to the detailed review.
I think their biggest fault is that they are reporting on the “E” in ESG before they are ready to do so.
Also, none of the things that I say could be improved on are required under the SASB reporting standards for the Toys & Sporting Goods category, but they are what I believe should apply to their business since it is more than a bike.***
What could be improved:
Peloton mentions that 0% of production unit shipments were transported via freight, without saying what this transportation was replaced with and the emissions from this new source.
Nothing is mentioned about attempting to reduce their packaging waste for apparel or equipment shipments.
The 2022 ESG report actually has some good renewable energy goals. However, the 2023 report does not show any quantitative progress against the goals or a plan for reaching them.
Peloton mentions that they had a “decrease in Scope 1 emissions due to a shift of last-mile delivery from Peloton-operated to third-party…” Meaning, that the reduction of Scope 1 emissions was due to a shift of emissions to another source, not by due diligence of the company.
(@)Peloton, I have my list of suggested next steps if you want it. Peloton is one of my favorite companies, and to say that I want them to succeed in the climate space would be an understatement, I want them to excel.
The Lululemon 2022 Impact Report
This report was extremely in-depth and even though this is not a climate metric, I feel the need to call out their amazing graphs and visual representations throughout.
Lululemon breaks down a lot of complex numbers into equal parts necessary spreadsheets and easy-to-understand charts, like this Carbon Footprint graph below.
What stood out:
Lululemon has publicly committed to being net-zero by 2050, meaning their business will either emit no carbon dioxide and/or all of the CO2 that their operations emit into the atmosphere will be sequestered or removed. To put it more simply, eventually, their business will not add more carbon into the air.
They are signatories of the United Nations Fashion Industry Charter, which essentially helps signatories commit and track metrics that are in line with the Paris Climate Agreement — this charter recognizes that fashion has a huge impact on the environment, and it helps companies commit to reducing their environmental impact.
They are creating their own Nylon material using plant fiber. Lululemon recognizes that it can provide clothes within a circular(zero waste) economy.
There are also ample programs for customers to resell their lightly worn clothes or recycle them at Lululemon.
Lululemon has developed new packaging options, from paper-only packaging to creating a roadmap for reducing single-use plastic.
What was not ideal:
If they cannot reduce emissions, they plan to buy carbon credits - which have been shown to be more fantasy than a legitimate emissions reduction option. It's tough for this to be their backup option.
A lot of their textile goals are “encouraging” suppliers to switch and are not actually setting metrics in place. This is hard to do with a third-party supplier, but Lululemon has a lot of buying power, so companies will likely change their operations for a large buyer.
It is the same with some of their statements on water shortages and the use of harmful chemicals within its third-party manufacturing sources, yet acknowledging their impact on water stress and chemical use and attempting to reduce it is impressive.
Lululemon mentions that they are increasing the use of non-animal-based leather, but honestly, this isn’t always better than animal leather because vegan leather is made from fossil-fuel-produced plastic.
I really hope that the partnership between Lululemon and Peloton will help guide Peloton toward ways that can improve their ESG goals and actions.
Peloton’s mission is to empower people to be the best version of themselves anywhere, anytime. And their ESG report reflects this mission within all of the “SG” pages that I did not include. Lululmeon is ahead when it comes to double materiality and its initiatives covering all areas of ESG.
Next month, I’m not sure which companies I will focus on. I am considering Apple and Mircosoft, but I might bite off more than I can chew there. Help me decide.
Potential climate impacts on each business
According to feedback, people are not as interested in the climate impacts as me??? Or each company’s little FAQs?
That tracks.
So I moved them down here, after my business comparisons, where I can continue to scream into the void and at least write down these thoughts somewhere.
Both companies rely heavily on third-party manufacturers for their apparel and equipment production, which is where many of their climate stresses will come from.
Droughts and water stress can impact the ability of facilities to create clothing but also can hinder mining operations of metals for things like the Peloton Bike.
Severe weather like flooding or extreme heat can have an effect on manufacturers, even if they are continents away.
Power outages due to extreme weather events can impact stores, studios, and warehouses where product is stored.
Breakdown of each business
Peloton:
Founded in 2012 in New York City, Peloton now has filming studios in New York, the U.K., and Germany.
They earn revenue from equipment sales like bikes, row machines, treadmills, and apparel, and via app subscriptions and in-person classes.
They went public in 2019 and have been generating ESG reports since 2021.
Lululemon:
It was founded in 1998 in Vancouver, Canada, and is now a global brand.
Their business model focuses on apparel, their fitness studio, and online sales.
Lululmemon went public in 2007 — and congratulations to anyone who bought those early-day shares because that is an enviable stock price.
Like Peloton, Lululemon has also been generating ESG reports since 2021.
Until next time,
Ana