Retail TouchPoints: Inside AEO’s Inaugural ESG Report – A Blueprint for a Better World 

By: Alicia Esposito | Link to article

American Eagle Outfitters, Inc. (AEO) has invested heavily in winning the hearts, minds and dollars of Gen Z consumers. From Roblox to Snap, the retailer is dedicated to not just being where this consumer is but also creating compelling experiences that drive engagement. However, the parent company of American Eagle and Aerie knows that to drive true loyalty, a strong purpose needs to be at the center. After all, 92% of Gen Z consumers said they would act in support of a purposeful brand, according to research from Zeno Group.

That is why AEO recently unveiled its inaugural ESG report. Titled Building a Better World, the report was designed to spotlight more than two decades of internal and external work, and it highlights ESG achievements that span across Planet (Environment), People (Social) and Practices (Governance). Key milestones shared included:

  • Planet: 3.5 billion gallons of water saved by jeans factories since 2017;
  • People: More than $46 million donated to charitable organizations championing mental health, youth empowerment, education and the environment since 2012; and
  • Practices: 88% of AEO’s Board of Directors are unaffiliated with the company (i.e. “independent board members”) and 50% are diverse, defined by gender and/or ethnicity.

To reaffirm its commitment to these pillars, AEO has created a formalized ESG strategy and established a cross-functional working group and steering committee overseen by the Board of Directors. As a result, the company has an updated list of sustainability goals and priorities, including committing to set a long-term net-zero target by 2024; reducing water use per jean by 50% by 2025; and sourcing 100% renewable energy for all owned and operated facilities by 2030.

In an interview with Retail TouchPoints, AEO Chief Operations Officer Michael Rempell and Chief Human Resources Officer Marisa Baldwin dug deeper into the report’s takeaways and what the future holds for American Eagle as well as Aerie.

Retail TouchPoints (RTP): Can you expand upon how AEO developed its cross-functional ESG working group and steering committee?  

Marisa Baldwin: As a company built on inclusivity, we know there is real opportunity to Build a Better World, as the report title says, by collaborating together to make a difference. As an organization, our cross-functional ESG working group and steering committee encourages diverse input and multiple points of view, which helped us establish our Planet (Environment), People (Social) and Practices (Governance) initiatives. Our ESG strategy is intentionally connected to the growth of our industry-leading brands, corporate strategy and culture in order to generate shareholder returns with a purpose. The ESG working group and steering committee ensure Planet, People and Practices touch every aspect of our organization, as building on these is key to our business success.

RTP: How is the success of this group and committee measured? Do they need to communicate and share progress with the board and broader organization?

Baldwin: Three board committees provide oversight of our ESG activities and measurement, each reporting quarterly to the full board. The Nominating, Governance and Corporate Social Responsibility Committee reviews environmental impact, culture/IDEA (inclusion, diversity, equity and access), human rights, charitable giving, board structure and governance issues and public policy. The Audit Committee monitors privacy and data security, anti-corruption and bribery, business ethics and integrity, responsible innovation, ESG measurement, controls and reporting. The Compensation Committee has oversight of human capital management disclosures, executive compensation and employee well-being.

RTP: How does AEO establish its sustainability goals and benchmarks? How do you ensure that you’re setting “moon shot” goals that are aggressive but can still, realistically, be achieved?

Michael Rempell: Our journey to protect our planet began many years ago. In 2013, we introduced our first set of targets to reduce greenhouse gas emissions within company-owned operations. In 2019, we expanded the scope and introduced specific, measurable climate goals for water, greenhouse gas reduction, raw materials and waste after an extensive review of the industry and our business practices. We believe it is important to set realistic yet meaningful goals that have a real impact on the environment, while also challenging us as a company to continuously do better. We frequently engage with our suppliers for their feedback and collaborate on any changes to improve processes and reach our goals.

In addition to benchmarking across industry indicators, we also surveyed thousands of our customers to gain an understanding of the issues they are most concerned about, and prioritized these learnings in the development of our goals. It is important to note that these goals are not static — they are meant to be revised as we learn more and progress through our sustainability journey. For instance, we reached our water goal two years early and are excited to continue growing efforts and pursuing even greater advances.

RTP: The “Real Good” label signifies products made using the company’s “highest environmental standards.” Can you expand upon what these standards are and what processes are implemented to ensure they’re being fulfilled?

Rempell: Real Good jeans are made in factories and mills that meet the requirements of our Water Leadership Program, which we launched in 2017 to set standards for our facilities, including criteria for water recycling, restriction of hazardous chemicals in wastewater, and water reduction in production. Real Good products make up more than 50% of AE and Aerie products and 95% of AE jeans, totaling 1.5 billion gallons of factory water savings in 2021 and the equivalent of 129 million plastic bottles in recycled polyester.

Each year, our expectations increase as we work with our factories toward meeting our overall water goals. Factories that meet our requirements receive higher scores on our vendor scorecard. They are prioritized for receiving our business and qualify for our Real Good label. This incentivizes our partners to focus on water-reduction investments such as computer-controlled washing machines that use a fraction of the water used by conventional washers and specialized treatment technologies.

RTP: What roles do mental health and wellness play in your ESG strategy? How do you see the focus on mental health and wellness changing over the next year and what efforts are being made to champion it within your organization?

Baldwin: Caring for our people is at the very heart of how we show up. Our company and brands celebrate individuality and amplify the unique voices of our associates, customers and partners.

The wellbeing, both mental and physical, of our associates, customers and communities has always been a top priority at AEO. We see ourselves continuing to grow our support in this space, ensuring that we are providing our associates with the tools and resources they need to take control of their mental health. We also believe in championing organizations that are paving the way for an overall better mental health experience.

We recently implemented new mental health benefits for AEO associates and their family members, globally, through Headspace. This membership is offered to all associates, free of charge, regardless of part- or full-time status. In addition, Bring Change to Mind (BC2M), a nonprofit dedicated to ending the stigma around mental illness, received the largest contribution in the charity’s history from AEO last year.

RTP: How are you measuring and responding to associate and corporate employee feedback to create an environment that is ethical, equitable and inspires progression and passion for the brand?

Baldwin: We place people at the center of all our decisions. We are continually reimagining connection and collaboration to empower our associates to feel confident in bringing their authentic selves to work every day. The culture we have built at AEO is one where associates feel a true sense of belonging and are given the opportunity to develop their careers.

One of the most exciting investments we’ve made for our associates, and to carry forward our vision for a more equal and inclusive society, was the creation of the REAL Change Scholarship for Social Justice, which was recently renamed the Steven A. Davis Scholarship for Social Justice in honor of AEO’s late board member. This is a $5 million commitment to advance educational opportunities for AEO associates who are actively driving anti-racism, equality and social justice initiatives.

We continually strive to listen, learn, grow and do good together. This includes ensuring candidate diversity in our recruiting process, fostering a culture of inclusion where associates feel valued and appreciated for their contributions, and improving our talent development process to ensure our associates achieve personal and career growth while at AEO.

RTP: What are some of the key learnings uncovered with the development of this report? And what lessons would you share with your retail peers as they strive to actualize their ESG goals?

Rempell: This report outlines two decades of ESG achievements and demonstrates that our work in protecting the planet, caring for our people and maintaining the very best business practices has been deeply integrated within the fabric of AEO for decades. Working on our report enabled us to take a deeper look at our programs and determine where we want to lean in as a company, which has been a tremendous benefit in helping us continue to broaden our Building a Better World strategy.

It is important to continue raising the bar to deliver consistent and meaningful progress. In working toward ESG goals, every milestone achieved presents new opportunities to do more. AEO is proud to lead by example and inspire all of our stakeholders to join us on our journey to Build a Better World.