Purpose - With the ongoing rise of product returns in the fashion industry, exacerbating its GHG footprint when it should be lowered, this paper aims to provide a measurement tool for companies to improve the environmental impact of product returns while considering the economic costs. Companies do not have an understanding of the impact of these returns on their performances, resulting from a gap in research where an accurate measurement method lacks that includes all activities and return methods. Design/methodology/approach - The returns process and the return methods were analyzed using a literature study and interviews with experts, resulting in a set of environmental and economic indicators. These indicators were aggregated in a Composite Indicator (CI) by rescaling, analytical hierarchy process, and multiplicative aggregation techniques. A benchmark for target performance was developed based on reduction targets of the European Commission, using rescaling, equal weighting, and multiplication and integrated into the CI. An uncertainty- and sensitivity analysis confirmed the model’s robustness. A case study of a fashion retailer verified the model. A scenario analysis based on the PESTLE framework was used to validate the CI and benchmark. A company’s performance measured was compared against the verified benchmark by calculating the performance gap. Findings - The environmental and economic impact of the return methods for the base case was measured. The impact of the return methods was compared against the benchmark, which shows that home pick-ups have the smallest performance gap with the benchmark for this retailer. Instore returns have the largest gap with the benchmark, indicating worse company performance and lower compliance with the EC targets. The scenario analysis showed how companies could use this CI to compare return improvement strategies with each other and provided potential solutions for companies to improve their performance. Research limitations/implications - This research provides a tool for fashion companies to measure, analyze, and improve the environmental impact of returns on their performances with EC reduction targets while considering their costs and providing transparency. Customers and governments are provided with transparent information on what- and how a company measures the environmental impact of returns. Governments can use the CI and benchmark proposed in this paper as a transparent tool for environmental reporting and compare the performances of companies sector-wide. For academics, this research provides multiple research opportunities. Originality/value - This paper contributes by creating a new CI for company performance measurement for fashion companies on the environmental and economic impact of product returns. A new measurement method that assesses the environmental and economic impact of the return activities is developed and gives insight into the differences between the return methods. Also, a new benchmark expressing target performance is developed and incorporated in this CI based on reduction targets of the EC to combat climate change.