Financing Fashion’s Future: A Blueprint for Decarbonization

Why Decarbonization Matters in Fashion

The fashion industry is a formidable force in the global economy, but its environmental footprint is equally significant. According to McKinsey & Company, today fashion accounts for an estimated 3 to 8 percent of global greenhouse gas (GHG) emissions, making it one of the largest industrial polluters. If no decisive action is taken, the industry’s emissions are expected to increase by approximately 30 percent by 2030, reaching 2.7 billion tonnes of CO2 equivalent annually.

This rise in emissions not only threatens climate stability but also endangers the very regions that form the backbone of fashion’s supply chain. Key manufacturing countries such as Bangladesh, China, India, and Vietnam—together exporting over $65 billion worth of apparel—are already experiencing severe and frequent weather-related events due to climate change. The urgency for decarbonization is clear: fashion must act now to protect both the environment and the communities that sustain it.

But the industry’s impact goes beyond emissions. Globally, textile production generates an estimated 92 million tonnes of waste annually, much of which ends up in landfills or is incinerated, releasing additional GHGs and toxins into the atmosphere. Water usage is another critical issue, with the fashion industry consuming approximately 79 billion cubic meters of water per year—enough to fill nearly 32 million Olympic-sized swimming pools.

The Urgency:

Decarbonization is not just an environmental imperative; it’s a business necessity. Aligning with global climate goals, such as the Paris Agreement’s target to limit warming to 1.5°C, is crucial for the industry’s long-term viability. Failure to decarbonize could result in stricter regulations, higher costs, and increased reputational risks, particularly as consumers become more aware and demand transparency and action from brands.

A growing number of consumers are advocating for sustainable fashion, with 73% of Gen Z willing to pay more for eco-friendly products. This shift in consumer behavior presents an opportunity for brands to align their business models with sustainability, capturing market share while driving positive environmental impact.

Total Investment Required

According to Fashion Revolutions report, ‘What Fuels Fashion 2024’, achieving net-zero emissions by 2050 will require over $1 trillion in investment across the fashion industry. This includes both existing and innovative solutions throughout the supply chain:

Existing Solutions: $639 billion (61% of total funding required)
Innovative Solutions: $405 billion (39% of total funding required)

These investments will need to be distributed among various stakeholders, including brands, manufacturers, investors, governments, and philanthropic organizations (What Fuels Fashion report). This level of funding is critical not only for reducing emissions but also for advancing sustainable practices that can redefine the future of fashion.

Overview of the Trillion Dollar Opportunity

Decarbonizing fashion is not just a moral obligation but a significant economic opportunity. With a strategic investment of over $1 trillion, the industry can achieve net-zero emissions by 2050, while creating new value across the supply chain. This investment is divided between:

Existing Solutions: $639 billion for scalable technologies like renewable energy and energy efficiency measures.
Innovative Solutions: $405 billion for next-generation materials, circular business models, and advanced manufacturing processes.

The majority of fashion’s emissions (96%) are Scope 3 emissions, originating from upstream and downstream activities such as raw material production, processing, and transportation. Reducing these emissions requires coordinated efforts and transformative investments that go beyond individual brands to encompass the entire value chain.

Financial Barriers

Misaligned Incentives: A Structural Challenge

The fashion industry’s fragmented and global supply chain presents significant challenges to decarbonization. A core issue is the misalignment of incentives between brands and manufacturers. Brands, driven by the need to meet short-term financial targets and consumer demand for fast fashion, often prioritize cost and speed over sustainability. This focus on short-term profitability makes it difficult to justify investments in long-term sustainability projects, especially when the benefits—both environmental and financial—are realized downstream in the supply chain.

Manufacturers, who are primarily responsible for the production processes that contribute the most to Scope 3 emissions, bear the brunt of the financial burden required for decarbonization. Upgrading factories to use renewable energy, implementing energy-efficient technologies, or transitioning to sustainable materials often involves high upfront costs. However, most manufacturers operate on thin margins and have limited access to capital, making such investments financially unfeasible without external support or incentives from brands.

This imbalance creates a vicious cycle: manufacturers cannot afford to invest in sustainable practices without financial backing, and brands are reluctant to provide this support without clear evidence of financial return or consumer demand. As a result, critical decarbonization efforts are stalled.

Risk vs. Reward: The Reluctance of Financial Institutions

Traditional financial institutions have been slow to finance sustainability projects within the fashion industry due to perceived high risks and uncertain returns. Key barriers include:

Lack of Reliable Data: Financial institutions often lack reliable data on the financial and environmental performance of sustainable investments in fashion. This makes it difficult to assess the risk-return profile of these projects.
Perceived Technology and Market Risks: Innovations in sustainable textiles, recycling technologies, and alternative materials are still in early stages. The risk of technological failure or lack of market adoption can deter investors.
Short-term Focus of Brands: Many brands do not commit to long-term purchase agreements, which are essential for providing financial security to suppliers and justifying investment in sustainable practices.

Renewcell to Circulose: Financing the Future of Textile Recycling

The story of Renewcell, which aimed to transform textile waste into new fibers through its innovative Circulose technology, highlights the financial challenges faced by sustainable startups in fashion. Despite its potential, Renewcell filed for bankruptcy in early 2024, largely due to financial constraints and market pressures.

Even after raising nearly $200 million from a NASDAQ offering, Renewcell struggled to secure continuous revenue. Its reliance on high-cost fiber production and the lack of long-term commitments from brands left the company with unsold inventory, straining cash flow. Brands hesitant to absorb the higher costs of Circulose compared to cheaper, conventional fibers, exacerbated this issue, leading to a liquidity crisis.

A consortium of brands and investors came together to save Renewcell, recognizing the critical role it plays in sustainable fashion. This intervention underscores the need for collaborative funding models that spread financial risk. By sharing investment burdens, stakeholders can support high-risk, high-reward innovations like Circulose, ensuring their continued development and market adoption.

The Renewcell case highlights the importance of structured financial models in supporting sustainable innovation. Blended finance and sustainability-linked loans, which tie financial returns to environmental outcomes, are vital in de-risking investments and fostering long-term growth for pioneering solutions in the fashion industry.

H&M’s Syre Project

In an attempt to address these financial barriers, H&M announced the Syre project, a new recycled synthetics venture in collaboration with the engineering firm Vargas. Backed by the largest offtake agreement in fashion to date, worth over $600 million, Syre represents a significant commitment to sustainable innovation (Sustainabelle). By securing long-term purchasing commitments, H&M is reducing financial uncertainty for its partners, making it possible to attract investment in sustainable materials and technologies. This approach demonstrates how brands can leverage their purchasing power to de-risk investments in sustainable projects, providing a model for the industry. Such initiatives are crucial for enabling manufacturers to make the necessary upgrades to their facilities, ultimately reducing Scope 3 emissions, which constitute the majority of fashion’s carbon footprint.

Unequal Burden on Suppliers

Suppliers, particularly in developing countries, face significant challenges in accessing the capital needed to invest in sustainable practices. Often operating on razor-thin margins, they are unable to finance the upgrades required to meet brands’ sustainability targets. This is particularly concerning given that the majority of Scope 3 emissions—up to 96%—come from these very production processes. Without access to affordable financing, suppliers are left with few options but to continue using carbon-intensive methods, further perpetuating the industry’s environmental impact. The burden of decarbonization is thus unfairly skewed towards those with the least capacity to bear it.

Lack of Available Financial Products: A Market Gap

The lack of tailored financial products for the fashion industry exacerbates these issues. While sectors such as renewable energy or technology have well-established financial mechanisms—such as green bonds, impact investing, and public-private partnerships—fashion has yet to see widespread adoption of such tools. This gap raises several questions: Is there a lack of available capital, or is it a matter of willingness to invest? The reality is nuanced. While capital is available, financial institutions are hesitant to front the money due to the high-risk nature of the investments and the lack of standardized, reliable data to assess project viability. This has created a paradox where manufacturers willing to decarbonize are unable to access the necessary funds, and brands that could facilitate financing are unwilling to shoulder the cost without clear, short-term benefits.

Opportunities to Align Incentives

To break this deadlock, the industry must explore innovative financial models that align incentives across the supply chain. Potential solutions include:

Shared Investment Funds: Brands, financial institutions, and philanthropic organizations can establish shared investment funds dedicated to financing sustainable upgrades in the supply chain. This approach would distribute the risk and ensure that the benefits of decarbonization are shared across all stakeholders.
Long-term Purchasing Agreements: As demonstrated by H&M’s Syre project, long-term purchasing agreements can provide the financial security needed for suppliers to invest in sustainable practices. Brands must commit to purchasing sustainable products at agreed-upon prices to reduce market risk for suppliers.
Public-Private Partnerships: Governments can play a crucial role by providing grants, subsidized loans, or tax incentives to de-risk investments in sustainable fashion. Such partnerships have been successful in other industries and could catalyze similar progress in fashion.
Sustainability-linked Loans and Bonds: These financial instruments, which tie loan terms to the achievement of specific sustainability targets, can incentivize both brands and suppliers to meet decarbonization goals. For example, lower interest rates or reduced repayment requirements could be offered if specific emissions reductions are achieved.

The Role of Brands in Driving Change

Brands and Manufacturers: Facilitating Low-Carbon Finance

Brands play a pivotal role in shaping the fashion industry’s approach to decarbonization. Their influence extends beyond their own operations to the entire supply chain, where the majority of emissions occur. By leveraging their financial power, brands can support suppliers in adopting sustainable practices, ensuring that decarbonization is not just a top-down mandate but a collaborative effort.

One effective approach is through long-term purchasing agreements and preferred financing terms. For instance, Levi Strauss & Co. has partnered with the International Finance Corporation (IFC) to provide its suppliers with access to lower-cost financing for sustainable upgrades. This initiative, known as the “Global Trade Supplier Finance Program,” allows Levi’s suppliers to receive financing based on the company’s credit rating, rather than their own. This reduces borrowing costs and enables suppliers to invest in energy efficiency, water-saving technologies, and cleaner production methods (What Fuels Fashion Report).

This model not only helps reduce Scope 3 emissions but also aligns the financial interests of both brands and suppliers. Brands secure a more sustainable and resilient supply chain, while suppliers benefit from improved access to capital, enhancing their long-term viability.

Collaborating Across the Industry: Collective Action for Greater Impact

No brand can decarbonize the fashion industry alone. Industry-wide collaboration is essential for addressing shared challenges, such as supply chain emissions, material innovation, and circularity. Initiatives like the Sustainable Apparel Coalition (SAC) and the UN Fashion Charter for Climate Action provide platforms for brands to work together towards common goals.

The Sustainable Apparel Coalition: The SAC’s Higg Index is a suite of tools that enables brands, retailers, and facilities to measure and score a company’s or product’s sustainability performance. Brands like H&M and Nike use the Higg Index to benchmark their progress and share best practices, fostering a collaborative approach to sustainability.
The UN Fashion Charter for Climate Action: This initiative brings together over 100 companies and organizations committed to aligning with the goals of the Paris Agreement. Signatories, including Burberry and Stella McCartney, pledge to reduce emissions across their supply chains and support industry-wide decarbonization.

Leadership Role: Leveraging Financial Power to Support Decarbonization

Brands have significant financial leverage that can be used to drive sustainability in their supply chains. By committing to long-term purchase agreements, investing in supplier sustainability, and supporting innovative financial models, brands can help reduce the financial barriers to decarbonization.

The Importance of Next Gen Materials

For brands to meet their climate and impact goals, adopting Next Gen materials is essential. According to the Sustainabelle report, up to 80% of a product’s environmental impact is determined during the design phase and is largely influenced by the materials and dyes used. Next Gen materials—such as bio-based fibers, lab-grown leathers, and innovative recycling technologies—are critical to achieving the industry’s decarbonization goals. Fashion for Good estimates that there are now over 650 innovations in the material innovation space, up from just 130 in 2017, representing an increase of 400 percent. This rapid growth underscores the potential for these materials to transform the industry, but also highlights the need for brands to invest in and adopt these solutions to scale them effectively.

The Role of Financial Institutions

Financial institutions are pivotal in bridging the funding gap required for the fashion industry to achieve its decarbonization goals. By providing access to capital, structuring innovative financial products, and setting ESG (Environmental, Social, and Governance) standards, they can accelerate the transition to a more sustainable fashion system. With the right financial tools and commitments, these institutions can support every stage of the decarbonization process, from early-stage innovations to large-scale implementation.

Blended Finance Models: Catalyzing Collaboration

Blended finance models, which combine public and private capital, can significantly de-risk investments in sustainable fashion projects. These models allow brands, financial institutions, and NGOs to pool resources, reducing the financial burden on any single entity and creating a more attractive risk-return profile for private investors. Blended finance can also include mechanisms like guarantees, subordinated debt, or grants from philanthropic organizations, which can absorb initial losses or provide additional security to attract private investment. This structure is particularly useful for early-stage innovations and high-risk projects in areas like next-generation materials and recycling technologies.

The IFC and Levi Strauss & Co. Partnership: Levi Strauss & Co. partnered with the International Finance Corporation (IFC) to create the “Global Trade Supplier Finance Program.” This initiative offers lower-cost financing to Levi’s suppliers, enabling them to invest in sustainable practices such as energy-efficient machinery and water-saving technologies. The program uses Levi’s credit rating to reduce the cost of capital for suppliers, demonstrating how brands and financial institutions can collaborate to drive decarbonization throughout the supply chain.

Development Banks & Philanthropy: Early-Stage Funding

Development banks and philanthropic organizations are critical in providing the initial capital required to pilot and scale sustainable fashion innovations. Their role is to catalyze investment by de-risking early-stage projects that may be too risky for traditional investors. Philanthropic organizations can also play a role by offering grants for research and development or by funding initiatives that build the capacity of suppliers to meet sustainability standards. For instance, organizations like Fashion for Good provide grants and mentorship to startups developing sustainable solutions, creating a pipeline of innovation for the industry.

The European Investment Bank (EIB) supported Renewcell with significant funding to build a full-scale textile recycling plant in Sweden. This investment was crucial in scaling Renewcell’s innovative technology, which recycles textile waste into new fibers. By stepping in at the early stage, the EIB de-risked the project, making it more attractive for private investors to join later.

ESG Criteria: Attracting Institutional Investment

The integration of ESG criteria into investment decisions is becoming a standard practice for institutional investors. For the fashion industry, strong ESG performance can attract capital from ESG-focused funds and impact investors who are seeking both financial returns and positive environmental outcomes. Financial institutions can further incentivize sustainable practices by offering sustainability-linked loans, where the terms of the loan are tied to the borrower’s achievement of specific ESG targets. For example, a brand might receive a lower interest rate if it meets pre-defined emissions reduction targets, thereby aligning financial and environmental incentives.

Impact of ESG on Investment Flows: The global green economy’s market capitalization reached $7.2 trillion in Q1 2024, driven by strong ESG investment flows. Fashion companies that demonstrate robust ESG practices—such as transparent reporting, commitment to reducing emissions, and responsible sourcing—are better positioned to attract investment from these funds.

Financial Institutions Leading the Charge

Goldman Sachs
Goldman Sachs has committed to a $750 billion sustainable finance initiative over the next decade, focusing on financing, investing, and advisory activities related to sustainable development. This commitment encompasses areas like clean energy, sustainable transport, and climate adaptation. For the fashion industry, Goldman Sachs’ focus on these areas can be leveraged to support investments in sustainable materials, energy-efficient manufacturing processes, and waste management systems.
Climate Transition Fund: Goldman Sachs has partnered with French investment firm Amundi to launch a $2.3 billion fund aimed at supporting companies transitioning towards greener operations. This could be adapted for fashion brands looking to decarbonize their supply chains or invest in next-generation sustainable technologies.
Urban Investment Group: This group focuses on financing sustainable urban development, including green housing and energy-efficient infrastructure. For fashion companies, similar structures could support the development of sustainable retail spaces or manufacturing hubs.
J.P. Morgan Chase
J.P. Morgan has committed $2.5 trillion over the next decade, with $1 trillion dedicated to green investments, including renewable energy, sustainable development, and clean technologies. For the fashion industry, these funds can support projects like renewable energy installations in manufacturing facilities, sustainable transport solutions for logistics, and clean technologies for reducing waste.
Green Bonds: J.P. Morgan has been active in underwriting and issuing green bonds. This financial tool can be utilized by fashion companies to finance large-scale sustainability projects such as water-efficient manufacturing technologies or sustainable material production.
Paris Alignment: J.P. Morgan is aligning its financing activities with the Paris Agreement, committing to decarbonizing its lending portfolio and supporting clients in their carbon transition. Fashion companies can benefit by aligning their projects with these criteria to access funding and technical support.
Morgan Stanley
Morgan Stanley has established the Sustainable Investing Institute to drive thought leadership and research in sustainable investing. Their Climate Impact Pledge aims for net-zero financed emissions by 2050, with a focus on sustainable development projects. Fashion companies can leverage Morgan Stanley’s research and financing options to explore innovative solutions in areas like sustainable fabrics, circular fashion, and carbon-neutral supply chains.
Bank of America
Bank of America’s Environmental Business Initiative commits $1.5 trillion to sustainable finance by 2030, targeting areas such as renewable energy, clean transport, and water management. The fashion industry can tap into this commitment to finance projects related to sustainable manufacturing processes, clean energy adoption, and water-saving technologies.
Sustainable Bond Issuance: Bank of America has issued multiple sustainable bonds, including green bonds focused on low-carbon projects. Fashion companies can explore issuing their own sustainable bonds to fund specific decarbonization projects and attract ESG-focused investors.
Deutsche Bank
Deutsche Bank’s Sustainable Finance Strategy aims to facilitate at least €200 billion in sustainable finance and investments by 2025. Their focus on renewable energy financing is particularly relevant for fashion companies looking to invest in renewable energy solutions within their operations or supply chains.
Renewable Energy Financing: Involvement in financing renewable energy projects across Europe and Asia can provide a blueprint for fashion brands to follow in integrating renewable energy into their own production processes.

Challenges and Solutions in Implementing Financial Tools

Despite the growing commitment from financial institutions to support sustainability in the fashion industry, several challenges persist. Regulatory inconsistencies across different regions pose a significant obstacle. The lack of standardized global regulations complicates the issuance of green bonds and the structuring of sustainability-linked loans. Harmonizing green finance regulations internationally, similar to the frameworks developed for the energy and automotive sectors, could streamline these processes and foster greater investment in sustainable fashion. Market acceptance also remains a hurdle. Concerns about greenwashing—the practice of making misleading claims about environmental benefits—and doubts regarding the actual impact of funded projects can deter investors and brands from engaging with sustainable financial products. Transparent reporting and third-party verification are essential to building trust and ensuring that these financial tools are perceived as credible and impactful. Another barrier is the general lack of awareness within the fashion industry about the availability and potential benefits of these financial tools. Many companies, particularly smaller suppliers, may not know how to access funding for sustainable initiatives. Increased education and outreach efforts from financial institutions, combined with simplified application processes, can help bridge this gap and enable more widespread adoption of sustainable finance options.

Bridging the Gap: What Financial Institutions Can Do

To address these challenges, financial institutions can play a proactive role by developing sector-specific financial products tailored to the unique needs of the fashion industry. For instance, creating green bonds specifically for sustainable textile production or structuring sustainability-linked loans that reward companies for meeting emissions reduction targets can provide the necessary financial support for brands and suppliers aiming to decarbonize. Enhancing ESG (Environmental, Social, and Governance) integration is another crucial step. By setting specific benchmarks for fashion companies within their ESG criteria, banks and investment firms can incentivize brands to adopt more robust sustainability practices. This approach not only supports environmental goals but also aligns financial incentives with sustainable business performance. Moreover, financial institutions can support capacity building by offering training and resources to help fashion companies navigate the complex landscape of sustainable finance. Workshops, advisory services, and partnerships with industry associations can provide the necessary knowledge and tools for brands and suppliers to access funding for sustainable projects effectively. Collaborating with the public sector and NGOs through public-private partnerships can also play a transformative role. Such partnerships can co-finance sustainable initiatives, sharing the risks and accelerating the deployment of innovative solutions. This collaborative approach is vital for overcoming the high costs and uncertainties associated with early-stage sustainable technologies and business models. Ultimately, by leveraging their capital, expertise, and influence, financial institutions can significantly drive the decarbonization of the fashion industry. Their involvement is not merely beneficial but essential in building a more sustainable and resilient ecosystem for fashion, one that can thrive while meeting the urgent environmental challenges of our time.

Overcoming Challenges: Practical Steps for Brands

Decarbonizing the fashion industry requires a multifaceted approach, addressing both structural challenges and specific industry dynamics. For brands, this means not only implementing sustainable practices within their own operations but also influencing and supporting their supply chains, engaging with consumers, and advocating for systemic change. This section outlines practical steps that brands can take to overcome these challenges and lead the industry towards a sustainable future.

Aligning Internal Teams: Breaking Down Silos

A key obstacle to effective decarbonization is the disconnect between departments. Finance, sustainability, and sourcing teams often work independently, leading to conflicting priorities that slow down sustainability efforts. To address this, companies should set unified sustainability goals tied to measurable KPIs. This ensures that all departments are aligned with the company’s decarbonization strategy. Forming cross-functional teams with representatives from each department can further enhance collaboration, ensuring decisions consider both financial and environmental impacts. Implementing an internal carbon pricing mechanism can also drive alignment. By assigning a cost to carbon emissions, departments are financially incentivized to prioritize projects that reduce emissions, fostering a coordinated approach to sustainability.

Incentivizing Producers: Financial Support for Supply Chain Transformation

Producers, especially those in developing countries, often lack the funds needed to adopt sustainable practices. Brands can help by offering financial incentives that support these crucial changes. One approach is providing direct funding or grants to suppliers for projects like installing renewable energy systems or upgrading to more efficient machinery. Brands can also partner with financial institutions to offer lower-cost financing options, such as sustainability-linked loans. These loans, with favorable terms, can encourage suppliers to meet specific environmental criteria. Another effective method is securing long-term contracts with suppliers committed to sustainability. This financial stability enables suppliers to make significant investments in greener technologies. For example, H&M’s Sustainable Impact Partnership Programme (SIPP) provides financial and technical support to suppliers for projects that improve energy efficiency and water usage. This initiative has successfully reduced emissions and promoted sustainable practices within their supply chain.

Challenges Specific to Fashion: Navigating Complexity

The fashion industry faces unique hurdles in its quest to decarbonize. Its highly fragmented supply chain, spread across numerous regions and involving multiple tiers of suppliers, makes it difficult to standardize sustainable practices and ensure compliance. This complexity is compounded by the demand for fast, inexpensive fashion, which drives brands to prioritize cost and speed over sustainability. Meeting consumer expectations while reducing environmental impact often comes at a higher cost, posing a significant challenge. Additionally, the lack of universally accepted metrics for measuring environmental impact creates further difficulties. Unlike sectors such as energy or technology, fashion struggles with inconsistent standards, making it challenging to set and achieve decarbonization targets. To address these issues, brands can implement digital tools like blockchain to enhance supply chain transparency, tracking the environmental impact of materials and processes to ensure compliance with sustainability standards. Educating and engaging consumers is also crucial. By promoting sustainable practices—such as buying fewer, higher-quality items or supporting rental and resale platforms—brands can shift consumer behavior and build a loyal customer base that values sustainability. Collaborating with industry bodies to adopt universal sustainability standards is another key strategy. Tools like the Sustainable Apparel Coalition’s Higg Index can help standardize measurement and reporting, enabling more effective management and communication of environmental performance across the industry.

Technology and Innovation: Leveraging Digital Tools and New Business Models

Technology is revolutionizing the fashion industry’s approach to decarbonization. Blockchain, for instance, offers unparalleled traceability by creating a permanent record of each step in the supply chain, from raw material sourcing to finished product. This transparency allows brands to verify the sustainability credentials of their suppliers, ensuring compliance with environmental and social standards. Artificial intelligence (AI) is another game-changer, enabling brands to optimize inventory management and production processes. By using predictive analytics, companies can more accurately forecast demand, reducing overproduction and minimizing waste, which are major contributors to the industry’s environmental impact. An example of this innovation in action is Burberry’s blockchain initiative. The brand uses blockchain to track the provenance of its materials, providing consumers with detailed information about the environmental and social impact of their purchases. This not only boosts transparency but also reinforces consumer trust in Burberry’s sustainability efforts.Navigating Policy and Regulation: The Need for Consistent Legislation The lack of globally adopted, clear, and consistent legislation is a significant barrier to decarbonization in the fashion industry. While some regions, like the European Union, have implemented stringent regulations, others lag behind, creating an uneven playing field and complicating compliance for global brands.

Inconsistent Legislation:

The fashion industry faces complex regulatory challenges due to fragmented legislation across different regions. This inconsistency leads to increased compliance costs and operational difficulties for brands operating globally. In some areas, key issues like textile waste, sustainable sourcing, and supply chain transparency lack adequate legislation, creating significant policy gaps. To address these challenges, brands should advocate for harmonized global standards. Working with industry bodies and governments, they can push for regulations that simplify compliance and create a more consistent framework across regions. Proactive engagement with policymakers is also crucial. By actively participating in the regulatory process, brands can help shape policies that support sustainable practices while ensuring they are feasible for the industry to implement.

Structural Barriers and Recommendations (What Fuels Fashion Report)

The “What Fuels Fashion” report highlights several structural barriers that hinder the financing of sustainable innovations in the fashion industry. These barriers include risk perception, misaligned incentives, and limited awareness among investors. Addressing these issues requires a collective effort from all stakeholders involved.

One major challenge is the perception of risk associated with sustainable investments. To attract more capital, it’s crucial to develop financial models that present appealing risk-return profiles. Approaches such as blended finance and public-private partnerships can distribute risk more effectively, making these investments more attractive to a broader range of investors.

Another key recommendation is to enhance awareness and education. Many investors remain unaware of the potential returns from sustainable fashion investments. Building awareness through case studies, investor briefings, and educational materials can highlight the financial viability of these projects and encourage more participation from the investment community.

Finally, aligning incentives across the supply chain is essential. Encouraging brands and suppliers to collaborate through joint investment funds or long-term agreements can create a shared commitment to sustainability goals. Such initiatives can help balance financial incentives and drive the entire supply chain towards more sustainable practices.

The Bigger Picture: Long-term Benefits for Brands

Investing in sustainability is no longer a choice but a strategic imperative for fashion brands. As the industry faces mounting pressure from consumers, regulators, and investors, those who take proactive steps towards decarbonization will be well-positioned to reap long-term benefits. This section explores how early investment in sustainability can drive supply chain resilience, enhance brand reputation, and deliver financial returns.

Beyond Compliance: The Strategic Advantage of Sustainability

Many brands approach sustainability from a compliance standpoint, seeking to meet regulatory requirements or avoid negative publicity. However, adopting a proactive sustainability strategy offers significant long-term advantages that go beyond mere compliance.

Supply Chain Resilience: Investing in sustainable practices can enhance supply chain resilience. Brands that prioritize renewable energy, resource efficiency, and ethical sourcing are less vulnerable to disruptions such as regulatory changes, resource scarcity, and geopolitical instability. For example, by investing in renewable energy sources and reducing reliance on fossil fuels, brands can mitigate the risks associated with volatile energy prices and future carbon taxes.

Reputation and Consumer Trust: Today’s consumers are increasingly discerning and value-driven. Brands that demonstrate genuine commitment to sustainability can strengthen their reputation and build consumer trust. According to a survey by Nielsen, 73% of global consumers say they would definitely or probably change their consumption habits to reduce their environmental impact. Brands that transparently communicate their sustainability efforts are more likely to attract and retain these conscious consumers.

Financial Returns: Decarbonizing the supply chain and investing in sustainable materials can yield financial benefits. Research shows that most fashion brands could reduce their GHG emissions by more than 60 percent for less than 1 to 2 percent of their revenues. This excludes initiatives related to reselling, renting, and repairing fashion, which would further reduce emissions but depend on shifts in consumer behavior. Properly structured financing can support these efforts, driving both environmental and economic benefits.

Unilever’s Sustainable Living Plan: Although not in the fashion industry, Unilever’s Sustainable Living Plan demonstrates the long-term financial benefits of sustainability. Since launching the plan, Unilever’s sustainable brands have consistently outperformed the rest of its portfolio, growing 69% faster and accounting for 75% of overall growth. This case highlights the potential for fashion brands to achieve similar success through strategic investments in sustainability.

Opportunities for Fashion in the Green Economy

The fashion industry is uniquely positioned to benefit from the broader shift towards a green economy. By investing in sustainable materials, circular business models, and technology integration, brands can reduce their environmental impact while creating new value streams.

Sustainable Materials: The development and scaling of sustainable materials, such as organic cotton, recycled polyester, and bio-based fibers, is crucial for reducing the industry’s reliance on carbon-intensive raw materials. These materials not only lower GHG emissions but also offer a compelling narrative for consumers seeking eco-friendly products.
The Organic Cotton Accelerator (OCA) has successfully supported organic cotton farmers by providing better pricing and transparency. By investing in the infrastructure for sustainable materials, brands can secure a stable supply of eco-friendly fibers and contribute to the development of a more sustainable agricultural system.
Circular Business Models: Adopting circular economy practices, such as recycling and waste management, can reduce the environmental footprint of fashion and create new revenue streams. Brands like Eileen Fisher and Stella McCartney have pioneered circular business models, offering take-back programs and using recycled materials in their collections.
Technology Integration: Advances in technology, such as blockchain for supply chain transparency and AI for sustainable design, can support decarbonization efforts. These technologies can help brands monitor their environmental impact more accurately, optimize production processes, and enhance traceability.
Burberry has partnered with IBM to implement blockchain technology in its supply chain. This initiative allows the brand to track the provenance of its materials and ensure that they meet its sustainability standards. Such innovations can enhance transparency, reduce risk, and support more sustainable business practices.

Financing Requirements by Solution Category

Achieving decarbonization goals will require substantial investment across various categories:

Renewable Electricity ($380 billion): The shift to renewable electricity is essential for reducing the carbon footprint of manufacturing and processing facilities. Given its predictable payback periods and established technology, renewable electricity is an attractive investment opportunity for both brands and investors.
Next-Generation Materials ($272 billion): Innovations in next-gen materials, such as bio-based fibers and advanced recycling technologies, require significant capital investment to scale. Brands and investors must collaborate to support these technologies and bring them to market.
Sustainable Materials ($218 billion): Investing in sustainable materials infrastructure, such as organic cotton farming or recycled polyester production, can reduce reliance on conventional, high-impact materials.
Coal Phase-Out ($153 billion): Phasing out coal and adopting alternative energy sources in production facilities is crucial for reducing emissions. This transition requires significant upfront investment but offers long-term environmental and financial benefits.
Energy Efficiency ($22 billion): Energy efficiency measures, such as upgrading machinery or retrofitting buildings, offer strong returns on investment with relatively short payback periods.

Strategies for Attracting Investment

Develop Clear Metrics and Reporting: The fashion industry needs standardized metrics for sustainability, similar to the FTSE Russell Green Revenue Classification System used in other sectors. This would help investors assess risk and impact more effectively, making sustainable fashion projects more attractive.
Leverage Government and Policy Support: Governments can incentivize investments through subsidies, tax breaks, or mandates for sustainable practices in fashion. Similar to the support seen in renewable energy and electric vehicles, such policies can stimulate private investment and accelerate the industry’s transition to a low-carbon future.
Collaborative Platforms and Coalitions: Fashion brands can join or form coalitions focused on sustainable innovation, attracting collective investment and sharing resources to meet decarbonization goals. Initiatives like the Sustainable Apparel Coalition and Fashion for Good provide platforms for brands, investors, and innovators to collaborate on scaling sustainable solutions.

Global Market Dynamics: Regional Leadership and Emerging Markets

Regional Leadership: Countries like Germany, China, and the US have shown leadership in green investments. Fashion hubs such as Italy, France, and the US could become centers for sustainable fashion innovation if investments align with regional green economy strengths.
Emerging Markets: Fashion’s global supply chain offers opportunities for investment in emerging markets, where sustainable production and renewable energy integration can have a high impact. By investing in these regions, brands can support sustainable development and reduce their overall carbon footprint.

H&M and the International Finance Corporation (IFC): H&M has partnered with the IFC to support sustainable practices in its supply chain, particularly in emerging markets. This collaboration provides financial support and technical assistance to suppliers, helping them adopt sustainable technologies and practices.

Key Takeaways for Fashion in the Green Economy

Fashion’s Potential in the Green Economy: With the right funding and innovation, fashion can significantly contribute to the green economy. By embracing new technologies, circular business models, and transparent supply chains, the industry can reduce its environmental impact and create new value for stakeholders.
Investment Opportunities: There is substantial potential for investment in sustainable materials, green technologies, and circularity within fashion. With proper alignment, fashion could follow in the footsteps of sectors like technology and energy in driving the green economy forward. Investment in areas such as renewable energy, next-generation materials, and supply chain efficiency will be critical for achieving long-term sustainability goals.
A Shared Responsibility: Achieving sustainable finance in fashion requires a collective effort from brands, financial institutions, governments, and consumers. By working together, these stakeholders can create a financial ecosystem that supports the industry’s transition to a low-carbon future.
Outlook and Predictions: Insights from the LSEG Report
The green economy is on an accelerated growth path, supported by a convergence of global policies, corporate commitments, and advancements in technology. As industries worldwide embrace energy efficiency and sustainable innovations, fashion has a unique opportunity to align with these broader economic trends and emerge as a leader in sustainable practices.
Green Finance Expansion
The market for green bonds and sustainable investment funds is projected to expand significantly, driven by increasing regulatory support and a surge in investor demand for ESG-compliant assets. For fashion brands, this means that those demonstrating robust ESG performance are not only likely to attract investment but can also leverage these financial tools to scale sustainable projects. Capitalizing on this trend requires brands to build strong ESG credentials and actively engage with investors to highlight their sustainability efforts and financial viability.
Technological Advancements in Sustainable Fashion
Emerging technologies such as artificial intelligence, blockchain, and digital currencies are set to transform the fashion industry. AI can revolutionize inventory management, helping brands predict demand more accurately and reduce waste. Blockchain technology offers unparalleled transparency, enabling brands to track every stage of their supply chain and verify the sustainability of materials and processes. Digital currencies, on the other hand, could streamline transactions within circular business models, making the exchange of value more efficient and transparent. These innovations not only support sustainable practices but also offer new business opportunities for brands willing to invest in technology.
Global Policy Alignment
With more countries adopting stringent climate policies, there is an increasing alignment in sustainability standards and regulations. This trend will create a more predictable regulatory environment for fashion brands, facilitating the scaling of sustainable practices across global supply chains. Brands that proactively adapt to these evolving regulations will be better positioned to navigate international markets and lead the industry towards a more sustainable future.
As the green economy continues to grow, fashion must seize this moment to innovate, invest, and integrate sustainability into its core operations. Those that do will not only contribute to environmental goals but also secure their place as pioneers in the new, greener economic landscape.

Final Thoughts: Unlocking Fashion’s Decarbonization Potential

The fashion industry has a unique opportunity to lead the transition to a sustainable future. Achieving decarbonization will require significant investment, but the potential benefits—for the environment, the economy, and society—are immense. With an estimated $1 trillion needed to decarbonize the fashion supply chain by 2050 (Fashion for Good), this challenge should be viewed as an investment in future growth and resilience. Brands that take proactive steps now will not only mitigate risks but also position themselves as leaders in a growing market for sustainable products. The Time to Act Is Now. By embracing innovative financial tools, forging strategic partnerships, and adopting sustainable practices, the fashion industry can transform its business model. Financial institutions, governments, and brands must collaborate to create a robust ecosystem that supports decarbonization and drives sustainable development. This is a rare moment where environmental responsibility and business opportunity align. The path is clear, and the rewards are significant—for those willing to lead the way.

Insights Courtesy of:

Bank of America: Environmental Sustainability

Business of Fashion: Renewcell Files for Bankruptcy

Deutsche Bank: Sustainability Day

Deutsche Bank: Sustainable Finance

Fashion Revolution: What Fuels Fashion

Fashion Takes Action & Apparel Impact Institute: Unlocking the Trillion-Dollar Fashion DecarbonisationOpportunity

Goldman Sachs: Sustainable Finance

H&M Group: Launch of Syre

H&M Group: Sustainable Impact Partnership Program

IBM: Burberry Product Traceability Prototype

JP Morgan: Environmental Sustainability Initiatives