The key to long-term success in the fashion industry is to set trends and continually push the boundaries – a philosophy that also applies to its ESG priorities.
The $ 2.5 trillion industry accounts for about 8% of the world’s carbon emissions when you consider the entire value chain, more than the entire steel industry combined, as comparison. Without any intervention, this figure is expected to increase by over 60 percent by 2030. However, there is a growing and collective awareness of the environmental impact across the industry. Companies are discovering that sustainability is not just a fad, but a new standard that’s here to stay.
A proliferation of green initiatives by industry players has emerged with public announcements of policies to tackle this problem, measures to address their supply chain footprint, promotion circular economy practices and the encouragement of increasingly popular sustainable brands. However, despite these various green initiatives from several fashion industry pioneers, formidable challenges lie ahead on the path to sustainability development, especially with regard to supply chain strategies.
Lack of information on environmental impact and outdated technology are two pervasive issues that plague industrial supply chains in general, but they are particularly important in the context of the fashion industry.
Due to highly competitive pricing environments, upstream supply chain participants have little incentive to invest in improvements. Downstream actors in the supply chain who rarely have a personal interest, such as brands and powerful retailers, do little to encourage prioritizing upstream sustainability. These dynamics have led to the development of stagnant supply chains largely unable to respond to the urgency of the fashion industry’s large carbon footprint.
Since most emissions are produced throughout the supply chain, the inability of companies to monitor and track this data means there is no starting point to start improving their footprint. environmental.
In particular, insufficient data collection infrastructure throughout the supply chain has resulted in a dearth of environmental data and information transparency. According to the 2020 Fashion Transparency Index survey, while 78% of brands have policies on energy and carbon emissions, only 16% publish data on the annual carbon footprint of their supply chain. Since most emissions are produced throughout the supply chain, the inability of companies to monitor and track this data means there is no starting point to start improving their footprint. environmental.
The reluctance to switch to a new technology can be partly attributed to the low operating margins of fashion supply chains, resulting in inefficiencies throughout the chain. One of the most candid illustrations of the inefficiencies caused by outdated technology can be found in the manufacturing process, where conventional practices still require 2,700 liters – or three years of potable water – to make a typical cotton t-shirt. .
Mainstream manufacturers stick to the adage “if it ain’t broke, don’t fix it”, while the ultimate shirt retailer has no direct connection to the manufacturer. So even if the manufacturer had a sustainability policy, it would be difficult to enforce. When actors up and down the supply chain disagree with modernization, it prevents the changes needed to respond to the climate impact of the industry.
But all is not pessimistic. This is where green finance and technology come in. Their dual adoption can begin to fill gaps in environmental data and also improve the efficiency of production processes in the supply chain, which would usher in a much-needed shift in the fashion industry towards greater sustainability. .
Digital technology will play a central role in information transparency and environmental reporting in the fashion industry by facilitating data collection throughout the supply chain. Using blockchain and cloud-based technology, a number of startups are already paving the way.
For example, the Provenance blockchain platform helps trace and certify supply chains to enable ethical purchasing decisions. Another startup, Galaxius, offers a cloud-based system that tracks supply chain activity, from fabric orders to garment delivery.
Beyond startups, luxury fashion giant Kering Group has launched an app called My EP&L that tracks carbon emissions, water consumption, and air and water pollution throughout. its supply chain to educate designers and students on the principles of sustainable design. Recently, Stella McCartney and Google Cloud announced a partnership to determine the environmental impact of various types of raw materials. All of these efforts help advance data collection at different points in the supply chain and have the potential to provide unprecedented levels of transparency for the industry.
Outdated technology in the production phase of the supply chain creates significant challenges in two ways. The first concerns the innovation of more environmentally friendly product materials. New textiles, alternative raw materials and sustainable dyeing methods are made possible through scientific and technological ingenuity.
For example, Tencel, a super absorbent fiber made from wood pulp, offers a great alternative to synthetic sportswear. The Lenzing Group, producer of Tencel, also uses a closed-loop production process and sustainable dyeing technology in which the solvents needed to make the fiber are recycled endlessly to produce new fibers. But the higher costs associated with upgrading machines to produce more environmentally friendly materials typically associated with such innovations hamper their wider acceptance.
The second challenge relates to supply chain upgrades and updates that improve efficiency, promote better allocation of resources, identify potential cost savings, predict demand, and provide other mitigating benefits. the environmental impact of industry.
Startups like Optoro and ShareCloth are using artificial intelligence, machine learning, and other emerging technologies to digitize processes to reduce excess inventory and textile waste. However, like the cost barriers that prevent wider adoption of environmentally friendly materials, these new technologies depend on custom machinery or entirely new production facilities, which can be more capital intensive and require additional investment. significant new capital expenditure compared to traditional manufacturing processes.
Digital technology for improving the supply chain will not be enough. Fashion will need green finance to drive large-scale transformation. The Boston Consulting Group estimates that commercializing and scaling these innovations will require funding of $ 20 billion to $ 30 billion per year.
The Boston Consulting Group estimates that commercializing and scaling these innovations will require funding of $ 20 billion to $ 30 billion per year.
Promising green finance developments in the fashion industry are already underway. Traditional lenders have started signing green bonds and sustainability loans. In November, Prada became the first fashion company to sign a $ 59 million sustainability loan with Crédit Agricole.
Under the loan, Prada may pay a reduced interest rate if it meets targets related to the number of LEED Gold or Platinum certified stores, the number of hours of training employees receive and the use of Prada Re. -Nylon (regenerated nylon) in the production of goods. In February, VF Corporation closed its $ 591 million green bond, marking the first green bond issued in the industry.
Private equity investors are also interested in fashion start-up brands. Last year, The Carlyle Group made its first foray into the industry by acquiring a stake in Jeanologia, and Permira acquired a majority stake in ethical fashion brand Reformation. In September 2019, the $ 30 million Good Fashion Fund was launched, representing the first investment fund focused solely on implementing innovative solutions in the fashion industry.
Brands have also started forming corporate venture capital branches to create opportunities for green finance. Examples include Patagonia’s Tin Shed Ventures, launched as a $ 20 million fund in 2013, and H&M’s CO: LAB, which has made investments ranging from $ 1 million to $ 20 million in sustainable fashion.
Prada, by developing and promoting its regenerated nylon technology through its green financing partnership with Crédit Agricole, is acting as a pioneer for the industry. However, the solutions offered by technological advances and green finance will certainly need a greater buy-in from companies in the fashion world.
Some ideas that can move fashion in a greener direction include establishing long-term business strategies that incorporate plans for sustainable solutions, using creative approaches to apply sustainability across supply chains, and the development of best practices for the monitoring and communication of environmental data.
A recent press release from Google and WWF Sweden announcing their intention to create an environmental data platform, Moncler’s latest green funding deal for up to $ 472 million, tied to its targets to reduce pollution. ‘environmental impact and a similar arrangement by Salvatore Ferragamo up to $ 295 million is welcome steps in the right direction, even in the midst of a global pandemic.
The future is indeed bright, as sustainability continues to be championed across the industry and its supply chain. Green finance and digital technology will be increasingly critical drivers for the development of greener and more sustainable supply chains. The fashion industry has always been creative, innovative and daring in its designs; now is the time to channel these qualities to ensure a fashionable, green and sustainable future.
This article was adapted from the Paulson Institute’s three-part series on sustainability in the fashion industry.