The fashion industry cannot meet its COP26 climate commitments, nor can brands meet their individual goals to decarbonise, if they don’t address the major lack of funding needed to overhaul the supply chain, experts say.
The industry is at least $1 trillion short of the total investment needed to decarbonise the industry by 2050, according to a Fashion for Good and Apparel Impact Institute report to be released next week and seen by Vogue Business. While brands are not responsible for putting up all or even most of that money, the report argues, they should be offering up some of it, and have a significant role to play in unlocking much of the rest of it. Yet brands are not doing enough of either, according to the authors.
Reducing the emissions generated across the supply chain, which are known as Scope 3 emissions and are responsible for the vast majority of fashion’s carbon footprint, requires sweeping changes with significant capital costs, such as factories switching to renewable energy and investments in technologies to advance and scale production of next-generation fibres. Currently, many brands’ public commitments lack specific funding strategies, as do the industry’s collaborations — including the Fashion Charter that was renewed on Monday and is signed by big players including LVMH, Kering and Chanel.
“The fashion sector in general is pretty switched on to these conversations. There’s a lot of collaboration and alignment. But some of the same broken dynamics in the industry remain — who's going to fund the transition towards a low-carbon industry?” says Michael Sadowski, a climate consultant with the World Resources Institute who helped develop guidance for apparel and footwear companies to set Science Based Targets.
Unless fashion is willing to fund some of these changes, and help identify and collaborate with other sources of funding to implement the rest, commitments and long-term plans won’t be reached, critics warn. While there is some research and development that needs to be funded, the majority of fashion’s emissions can be reduced or eliminated using existing technologies — if the funds are there to implement them. Some fashion companies, such as Kering and, just last week, Burberry, have established funds to assist farmers in their supply chain transition to regenerative practices, but they are in the minority and there does not seem to be a parallel surge in funding for other stages of the supply chain. Experts would like to see similar efforts from more companies, as well as in other stages of the supply chain beyond the agricultural realm.
The majority of signs point to stalled progress. Up to two-thirds of brands and retailers with Scope 3 emissions targets are not on track to actually reduce their total Scope 3 emissions, according to a report published last month by the Climate Board and Textile Change. The renewed UN Fashion Charter calls on companies to not only set more ambitious emissions targets, but also create “incentive mechanisms” for supplier engagement on decarbonisation. Much of the discussion, though, was light on details for how exactly brands plan to achieve their targets while also acknowledging the need for a rapid switch to renewables to be successful.
“We work with brands that are funding renewable energy, energy efficiency, coal phaseout work — but it’s very, very small dollar amounts,” says Ryan Gaines, finance director at the Apparel Impact Institute and one of the report’s authors. “My impression is that the funding from brands that’s gone towards the energy solutions is disproportionately lower compared to what’s been announced on the farming and materials side.”
There’s little confusion about what needs to happen. In another report released on Monday — the same day leaders convened in Glasgow to release an updated UN Fashion Charter — the AII and the World Resources Institute laid out a roadmap for how the industry can achieve 45 per cent emissions reductions by 2030 and net zero emissions by 2050. They outline steps, such as maximising material efficiency and energy efficiency, accelerating the development of innovative materials, eliminating coal in manufacturing and shifting entirely to renewable electricity, that they say would deliver over 60 per cent of the necessary reductions — and they coincide with much of what the “decarbonisation opportunity” report suggests is necessary.
Few brands include investment plans, though, when they announce climate goals, and while some release dollar commitments for specific initiatives such as helping to transition farmland to organic or regenerative practices, rarely do they spell out the full costs involved in achieving the ambitious goals they claim to be working toward.
Path forward
Implementing the solutions at scale and in the short timeframe that’s necessary to meet the relevant climate goals will require a number of changes.
Gaines is clear that brands don’t need to fund every initiative themselves — and the report spells out which types of funders are needed for each solution, with much of the need assigned to debt investments and private equity — but they do need to spend more than they are currently.
That will mean dedicated funds to help suppliers overcome the hurdles to making the initial transition to lower-carbon practices — funds to expand regenerative agriculture are a good example here, but should also include transitions in other parts of the supply chain as well, says Gaines.
Brands will also need to reallocate internal budgets so that the prices they pay their suppliers cover the full costs of their goods and manufacturing services, rather than the current economic model that often externalises environmental costs such as emissions and water pollution, says LaRhea Pepper, CEO and co-founder of Textile Exchange.
“We see those big grants as a really good sign — they’re investing company profits into changing the infrastructure. At the same time, they’re still not changing their purchasing practices. They want organic cotton at the same price as conventional. At some point, the brands are going to have to do both,” she says. “They’re going to have to invest in infrastructure, and they’re going to have to invest in their products and in their business model.”
Finally, brands need to serve as a catalyst to opening up the larger pools of funding that are needed. They can help suppliers finance investments by providing loan guarantees or signing long-term buying contracts, for example — which can facilitate a supplier’s immediate access to funding, but can also “dramatically de-risk” the project for lenders or investors, says Gaines, “and unlock the financing in a lot of cases where the banks are saying no right now”.
For many experts, that’s the bottom line. Brands need to put more of their own money on the line, but they also need to engage more proactively and exhibit leadership that the rest of the industry can follow.
“What we've seen recently with the likes of new funds being set up by brands is that they have an easier time accessing some of these capital markets than other types of institutions,” says Rory Hugill, innovation associate at Fashion for Good and co-author of the report. “They can leverage that, and use other financial structures that don't rely on funding just coming from them, but leveraging their position in the industry to allow for more finance to enter the industry.”
With additional reporting by Andrew Garthwaite.
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