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disclosure index

Carter’s Climate Risks & Opportunities

We regularly conduct climate change risk assessments to better understand and mitigate physical and transition risks that may impact our stores, distribution centers, suppliers, and cotton sourcing, with our most recent update completed in 2023. Our assessments are aligned to the TCFD framework. Through these assessments, the long-term adverse impacts that climate change could have on our business and operations, along with the potential business and strategic opportunities. Our most recent risk assessment in 2022 led us to operationalize the findings by including climate risk assessments within our new store evaluation process, alongside financial and market considerations

Transition Risks

Policy, legal, technology, market, and reputation risks can impact our business in the short-, medium-, and long-term. For example, Carter’s could be impacted if global suppliers decide to pass additional costs from current and emerging regulation related to emissions reductions or global carbon tax schemes. Additionally, increasing consumer awareness of environmental issues has sparked industry pressure for companies to offer more sustainable products, allowing customers to make conscious decisions.

The failure to meet or properly report progress on our climate targets, public expectations, or regulatory requirements may result in reputational damage or other adverse effects. Public expectations for reductions in GHG emissions could also result in increased energy, transportation, and raw material costs, and may require us to make additional investments in facilities and equipment.

Transition Risk

Potential Impacts

Time Horizon

Management Strategies

Policy/Legal

There is potential for a significant cost burden to Carter’s if global suppliers decide to pass the additional costs from current and emerging regulation related to emissions reductions, utility/energy usage, etc., to their buyers.
China’s Emissions Trading Scheme is set to expand and could have a waterfall effect on costs for suppliers, and thereby increased raw materials costs for Carter’s.
Potential carbon taxes around the globe could affect upstream operations, including the import of materials and finished goods.

Carter’s continuously monitors emerging legislation on a global scale, such as from the United States Securities and Exchange Commission, and various U.S. states, like California, to determine its impact on our business. This legislation includes, but is not limited to, climate disclosure and extended producer responsibility.

Technology

Improvements in technology may influence the viability of the use of alternative materials.

Carter’s continuously evaluates alternative material options, using the principles of life cycle assessment to inform decision making.

Market

Increasing consumer awareness of environmental issues has sparked a trend in the industry of offering more sustainable products, allowing customers to make more conscious decisions. Companies that do not recognize this trend may be perceived to be behind market expectations.

Carter’s continuously monitors consumer expectations and trends to inform
decision-making Carter’s has also set ambitious climate and environmental goals.

Reputation

There is potentially a significant positive or negative financial impact associated with reputational impacts based on climate inaction or industry-leading climate action.
Public expectations for reductions in greenhouse gas emissions could also result in increased energy, transportation, and raw material costs.
If Carter’s is not proactive in setting and achieving its climate targets, there could be a negative impact on customer perception and a decreased ability to participate in the expanding low-carbon market.

Carter’s evaluated industry peers’ climate change commitments and reporting to better inform our own climate strategy.
We are taking steps to mitigate this risk through pledging to become net zero in our own operations by 2040 and having set a near-term target approved by SBTi.

Time horizon:

Short (1-2 years)

Medium (3-4 years)

Long (5-10 years)

PINCH TO ZOOM

Physical Risks

Our business is susceptible to natural conditions and severe weather events, which could influence customer demand, consumer traffic, and shopping habits, as well as disrupt production along the supply chain. For example, severe weather events and other acute and chronic climate-related risks could affect timing and demand for our products, and thereby have an adverse effect on our operational results, financial position, and cash flows.

Frequent or unusually heavy or intense snowfall, flooding, hurricanes, heat stress, and sea level rise, or other extreme weather conditions over an extended period could cause our stores or distribution centers to close for a period of time or permanently. They also could make it difficult for our customers and employees to travel to our stores or to receive products shipped to them, which in turn could negatively impact our operating results.

In addition, changes in weather patterns could result in decreased agricultural productivity in certain regions, which may limit availability and/or increase the cost of certain key materials, such as cotton.

Physical Risk

Potential Financial/Operational Impacts

Time Horizon

Management Strategies

Acute

Includes extreme weather events, e.g., severe flooding, droughts.

May disrupt production along the value chain (upstream, direct operations, and downstream).
May negatively impact consumer discretionary spending and negatively impact our sales and results of operations.
Flooding of high importance for retail stores due to potential merchandise damage and inability for customers/employees to travel to affected locations.
Could result in higher distribution expenses, revenue loss, and lower profit margins.

Continue to monitor and evaluate corporate climate risk, complete our annual GHG inventory, and develop and manage an ambitious climate strategy.
Retail, Real Estate, and Sourcing teams to incorporate climate risks into criteria for opening new stores and onboarding new vendors, based on location.

Chronic

Includes increased temperatures, extreme rainfall, sea level rise, water scarcity, etc.

May disrupt distribution activities in the southwest and southeast U.S., including retail and distribution centers.
Could result in higher operating costs, supply disruption, and property damages distribution centers.

Time horizon:

Short (1-2 years)

Medium (3-4 years)

Long (5-10 years)

PINCH TO ZOOM

Opportunity

Climate change presents an opportunity to offer carbon-reduced or carbon-neutral products that are growing in demand and expected to continue to grow in demand as consumers become more climate-conscious. Certain of our products (including Little Planet) are available with climate-related designations for certain wholesalers, which provides an opportunity to reach the growing customer segment seeking environmentally friendly products. These initiatives support Carter's development and expansion of product offerings that have sustainability attributes that resonate with consumers' shifting preferences. As Gen Z ages, they are rapidly replacing Millennials as the dominant generation to be in the prime age for becoming new parents. 58% of Gen Z are already adults, and the oldest of Gen Z are now 27². According to Deloitte, this emerging generation of new parents prioritizes sustainability and cares deeply about the environment³.

Opportunities

Potential Financial/Operational Impacts

Time Horizon

Management Strategies

Resiliency

Strong climate action and target setting can create resilience, in part by meeting stakeholder expectations.
Could lead to indirect operating costs.
Could avoid increased indirect operating expenses.

Carter’s set a science-based target to reduce 50% of Scope 1 and 2 emissions by 2030 from a 2019 base year and has also committed to becoming net zero in its own operations by 2040.

Products & Services

Offering more sustainable products can help meet customer demand and trends.
Expanding supplier engagement through their GHG emissions reporting and climate target would help develop more accurate accounting.

Carter’s set a goal to ensure 77% of our suppliers by spend covering purchased goods and services will have set their own science-based targets by 2027.
Little Planet products are made with sustainable materials. The majority of styles include GOTS certified organic cotton, and recycled materials, which are used in certain products, such as swimwear.
Our new PurelySoft baby and sleep collection, which launched in 2023, offers products that are made with wood-based fibers sourced from sustainably-managed forests.

Time horizon:

Short (1-2 years)

Medium (3-4 years)

Long (5-10 years)

PINCH TO ZOOM

² Insider Intelligence, Jan. ‘23. ³ 2023 Gen Z and Millennial Survey, Deloitte LLP, 2023.

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