The covid pandemic offered an unprecedented opportunity to take a step back from consumerism as economies shut down, and struck again when supply chain issues led to shortages. As uncertainty loomed, consumers took another look at their spending habits, carefully evaluating their shopping carts. Shifting attitudes, particularly regarding sustainability, also triggered behavioral changes.
For instance, approximately two-thirds of consumers surveyed by McKinsey & Company reported that limiting climate change has become more critical since the beginning of the pandemic. Furthermore, a whopping 88% of respondents in a US and UK survey want brands to help them be more environmentally friendly. Meanwhile, 57% of consumers have made “significant” lifestyle changes to reduce their impact, while 60% go out of their way to buy recycled or sustainable products.
As a society, we’re confronting a longer-term climate change crisis and many experts predict that future generations will pay the price unless we act now. According to the United Nations, climate change should be considered a code red for humanity.
Scientists overwhelmingly agree that humans are the culprit behind the current crisis. Climate change exacerbates weather patterns, with disastrous effects for the planet’s inhabitants, both human and otherwise. Warming temperatures have caused more frequent and severe weather events, including flooding, fires, droughts and storms, all accompanied by subsequent knock-on socioeconomic effects.
Far from being merely a long-term issue, climate change has created impacts that are already being felt. After Hurricane Ida battered Louisiana, the Biden administration warned that similar extreme weather events cost U.S. taxpayers over $100 billion in 2021 alone.
The United Nations has called upon the world to combat the climate crisis with a mix of technological and behavioral changes. The public and private sectors are answering the call with a sense of urgency and creating investment opportunities in the process. An IFC study estimates nearly $23 trillion in opportunities for climate-smart investments in emerging markets between now and 2030.
Unfortunately, one sector in particular has been a little late to the party: the fashion industry. Appearing trendy doesn’t always mean endorsing sustainability. Here are a few fast facts about the fashion industry’s abysmal environmental impact.
If the status quo persists, the fashion industry could produce a shocking 26% of the world’s carbon footprint by 2050. The industry has significant steps to take before being able to account for its role in the climate crisis.
Fortunately, some brands are making genuine efforts to change their practices and adopt renewable, sustainable product cycles. Investors can also take part in (and profit from) the rise of sustainable fashion.
Historically, the fashion industry is one area that hasn’t seen tremendous climate reform (even when it tries). But due in part to Covid-19, many consumers and investors have begun to engage with the fashion industry to demand change.
For instance, 67% of consumers surveyed by McKinsey & Company now consider sustainable sourcing in their purchasing decisions. 63% also factor in whether a brand promotes sustainability. Younger generations – particularly millennials and Gen Z – are willing to experiment with smaller brands, pumping dollars into sustainable options.
Moreover, consumers now consider their clothing’s newness as one of its least important attributes. As a result, approximately 50% of millennials and Gen Z’ers expect to make more secondhand purchases, curbing materialism and increasing the lifespan of clothing.
It’s not just consumers making their voices heard. 50% of polled fashion executives have expressed that sustainability is a rising issue on their agendas. Meanwhile, an increasing number of investment managers are prioritizing investments that pass sustainability metrics. Politicians around the globe are also tackling sustainability efforts with their political agendas.
As consumers, politicians and companies become more involved in sustainability efforts, fashion brands have a significant opportunity for improvement. Consumers and investors have already proven they’re ready to open their wallets and fund these much-needed changes.
In the long run, brands that don’t hit the pandemic’s built-in “reset” button will fall behind. The apparel, footwear and luxury brands that invest in strengthening their commitment to sustainability will help enact industry-wide changes and experience greater success. Ultimately, these brands are more likely to thrive and survive.
Brands have discovered ways to support sustainability efforts by shifting manufacturing practices and limiting fossil fuel usage.
Around 70-80% of the fashion industry’s greenhouse gas emissions occur during the manufacturing process. The remaining 20-30% are emitted during shipping and transportation.
The disconnect between messaging and reality occurs due to the fashion industry’s dirty little secret: few clothing brands manufacture (or ship) their own products. Instead, even “eco-friendly” brands partner with manufacturing facilities that rely heavily on coal. And there’s not a single major global shipping company on the planet that doesn’t burn fossil fuels to transport goods.
This doesn’t mean it’s impossible to achieve change. Let’s examine Nike, which has committed to removing fossil fuels from its supply chains. In the last few years, Nike has shifted 100% of its North American electricity needs to renewable energy sources. Between 2015 and 2020, the company transitioned over 40 factories from coal boilers to electrical sources.
Other brands like Levi’s, Puma and VF Corp (which owns brands like Timberland and North Face) are also actively shifting supply chains away from fossil fuels. Levi’s advocates for more renewable energy in countries where it manufactures products. The denim they sell is notorious for requiring vast amounts of water to create jeans. In response, Levi’s created a newer collection called Water<Less that uses up to 96% less water during the manufacturing process.
Patagonia famously began converting old water bottles into fashionable polyester clothing in 1993. The company uses sustainable materials in their outerwear and makes a concerted effort to help customers repair clothing instead of buying new items. The company also follows fair-trade practices and closely monitors its supply chain to make it environmentally friendly and safe for workers and consumers alike.
In 2012 H&M launched its Conscious collection, which is comprised of eco-friendly materials like organic cotton and recycled polyester, and is produced through more sustainable methods. Going forward, H&M’s goal is to use only sustainably sourced materials by 2030.
And it’s not just the bigger players that are making waves. Newer, smaller companies are often more flexible with their processes, allowing them to make bigger changes more quickly.
For instance, Mammut, considered one of the greenest fashion brands, plans to be 100% renewable by 2030. Its process prioritizes renewable energy manufacturing, zero-emissions shipping vessels and the reduction of fossil fuel-based materials.
Lululemon is determined to transition from fossil fuel-based synthetic fibers like polyester and nylon to natural, plant-based synthetics.
Allbirds, another eco-friendly fashion company, has vowed to offset their storefront and office space carbon footprints.
Ultimately, transforming an entire supply chain is challenging and time-consuming. Brands investing in change now may prove more profitable later as they won’t have to switch tactics midstream.
Sustainable fashion has a natural crossover with the broader ESG (environmental, social, governance) investment focus sweeping the globe. In fact, the top 50 asset managers (with over $60 trillion in combined assets) are signing onto sustainability codes like the United Nations Principles for Responsible Investment, which is a major force in integrating ESG factors into investments. Market attention naturally consolidates around institutional capital flows, triggering further interest in the space.
The flood of capital is unlikely to slow, with Bloomberg reporting that assets with strong ESG principles could hit $53 trillion assets under management (AUM) by 2025. That accounts for a third of the world’s AUM. Morgan Stanley also forecasts ESG-focused investments to drive as much as $67 trillion of inflows over the next decade.
In 2019, the global ethical fashion market reached over $6.3 billion in revenues. By 2030, if growth trends continue to accelerate, the ethical clothing market alone could be worth $15.2 billion.
The fashion industry pumps out approximately 80 billion garments per yearfor just 8 billion people. Not only does this drive up greenhouse gas emissions, but an estimated 40% of these garments end up sold at markdowns or tossed into landfills. In the race to stay on top of the competition, companies who meet consumer needs, including the increasing demand for sustainability, stand to attract the most market share.
Just by demanding greater transparency, investors can ensure that companies follow through on their initiatives and prod fashion leaders toward a cleaner future. By voting with capital, investors have the unique opportunity to affect change and also stay ahead of ESG investment trends.
Contact The Spaventa Group today to learn more about investing in sustainable fashion, including opportunities in the pre-IPO private market.