The fashion industry needs to decarbonize—and fast. The question is not so much whether it can afford to do so but whether enough money is getting to the right people.
Most of all, will we continue to see the same names over and over again or will other brands start coughing up, too? It was H&M Group, after all, that dropped $10 million into the Apparel Impact Institute’s (Aii) $250 million Fashion Climate Fund (FCF) for identifying and scaling the most promising climate solutions. And it was Bestseller that committed to underwrite the $100 million required to develop Bangladesh’s first utility-scale offshore wind project. The Fashion Pact’s network comprises more than 160 brands, representing one-third of the total industry, including the aforementioned four names, in addition to the likes of Adidas, Kering, Prada, Ralph Lauren and Zara owner Inditex. For collective financing to work, conventional wisdom requires there to be a collective.
Aii, one of the FSI’s partners, said as much last month when it revealed that it has secured only $70 million, or 28 percent, of its funding goal, stymying its efforts to quash 100 million metric tons of carbon dioxide equivalent from the clothing and footwear supply chain by 2030—just five-and-a-half years away. But while it seems like there’s a finite amount of money that’s going around, Lewis Perkins, president of the California-based nonprofit said that the FCF aligns nicely with the FSI. The first is meant to bring solutions to suppliers, and the second will help those same suppliers finance those capital-intensive improvements. While there is bound to be some overlap in the distribution of dollars, he said, both models are very much and urgently needed.
The FSI could also address an existential quandary, Perkins said. To wit, financial institutions will only offer better funding terms if there’s a “robust pipeline” of suppliers ready to decarbonize, and suppliers will only feel motivated to make changes if the right funding conditions and production incentives are in place.
Negotiations with other would-be participants are still ongoing, which is why details might be scant. Different geographies might also require tailored strategies that can’t be condensed into sound bites. What Eva von Alvensleben, executive director and secretary general of The Fashion Pact, can reveal at this juncture, is that the project aims to reduce emissions at each factory by 20-50 percent over two years and that it will start in Bangladesh before—hopefully—rolling out elsewhere. The working group for Vietnam, for instance, is actively recruiting. The program also has its sights on China, India, Italy and Turkey.
How the FSI will work goes something like this: Participating brands will share the names, profiles and energy data of their Tier 1 and 2 factories with the risk management firm Guidehouse for analysis against a slew of parameters, such as the existence of climate targets and reduction potential. Brands will then decide which to prioritize and help “enable” their financing—however they end up doing it. The idea is to “bridge the investment gap” that prevents factories from, say, switching from fossil fuels to renewable energy, von Alvensleben said.
“A collective approach is about sharing costs; it’s about sharing risks; it’s about sharing responsibilities,” she said. “This whole industry has systematic issues that we need to overcome, that are bigger than one company alone can solve.”
Typical loans backed by brands could be in the $1 million to $2 million range apiece, though there isn’t a cap per se, von Alvensleben said. Brands and the OEMs that are contracted to implement the projects will also work with suppliers to address any concerns before the loans are disbursed. There will be “incentives” and “skin in the game” from brands over multiple years, though what these will entail is still unclear. The goal is to work with “as many suppliers of the cohort brands as permitted via supplier interest and financing,” she added.
But perhaps a bigger issue than the “how” is why collective action beyond the usual folderol about collaboration is still so novel. The FSI, for instance, is the first of its kind. Speaking at the Global Fashion Summit: Copenhagen Edition in the Danish capital last month, Paul Polman, co-chair of The Fashion Pact, offered an answer. While 90 percent of a brand’s carbon emissions lie in its supply chain, he said, a single factory can also produce for multiple companies.
“And in that case, who takes the responsibility?” he asked. “I do all the work and the investments [and] my competitor benefits. It’s just not a good situation.”
With legislation increasingly requiring companies not only to report their greenhouse gas emissions but also to do something about them, however, the cost-benefit calculus becomes a little more fraught. Despite any competitive disadvantage, the pressing need for brands to pare back their Scope 3 emissions, as well as achieve Science Based Targets, could be all the business case they require, von Alvensleben said.
H&M has developed its own green financing solutions, such as the Green Fashion Initiative, which unlocks funding for suppliers that wish to invest in impact-lowering technologies. It was the Swedish retailer, which was piloting a “proof of concept” loan with DBS and Guidehouse in India, that extended an invitation for others to join it during a Fashion Pact steering committee meeting last November. Helena Helmersson, CEO of H&M at the time was until this month also co-chair of The Fashion Pact. She has now been succeeded by Daniel Ervér and Inditex CEO óscar García Maceiras, respectively.
A variety of schemes are needed to “build an ecosystem of solutions,” said Leyla Ertur, H&M’s head of sustainability. She said that the FSI offers a brand-agnostic mechanism that gives brands and investors a way to “co-invest” so that supporting suppliers is financially sustainable for everyone until legislation or other policy-fueled systemic reforms take shape.
While proactive climate actions may still be voluntary today, Ertur said, they are “already a prerequisite for a successful and resilient business” because of the disruptive effects of extreme weather events stoked by climate change. “Taking active steps to lessen our industry’s impact on the climate and resource depletion can therefore be understood equally as a risk mitigation and as a business investment,” she said.
All of this is important, which is why brands need to do more than help their suppliers access loans, said Hakan Karaosman, assistant professor at Cardiff University, chief scientist at Fashion’s Responsible Supply Chain Hub and chair of the Union of Concerned Researchers in Fashion.
“Supply chain finance solutions are needed to ensure transition projects are conducted in just, equitable and fair ways,” he said. “However, equity must be the main principle. Facilitating loan schemes where suppliers are expected to bear all financial, emotional and technical costs does not align with the concept of a just transition”
Countless research shows that brands are driven, above all, by low costs and operational efficiency. Framing decarbonization around technology and innovation without challenging underlying business conditions such as poor purchasing practices, overproduction and top-down decision-making will “not help fashion brands decarbonize their supply chains in an equitable way,” Karaosman added.
Even so, there is a need to step up with partnerships like the FSI, said Polman. While it’s true that the “money must flow,” he said that the “real“ issue is willpower.
“We have the technology, we have the money, we know what needs to be done,” he told the audience in Copenhagen. “Frankly, everything that needs to be tested has been tested in this world. This is not a crisis of climate change or deforestation or human rights abuses. This is a crisis of greed, of apathy, of selfishness. It’s a human crisis.”
