Financing Sustainable Fashion: Part 2: Financing Sustainability and Innovations
The Sustainable Consumer Shift
Understanding the transformation required to finance sustainability, requires an understanding of consumer behavior. Make no bones about it-- sustainable fashion is taking off, with consumer commitment to sustainability at an all-time high. Arguably, this behavior change has been perpetuated even further during the COVID-19 pandemic, driving many to refocus on environmental priorities. According to McKinsey’s recent report, titled 'Consumer sentiment on sustainability in fashion, about 60% of the population have made lifestyle changes to reduce their impact on the environment. About 65% of respondents reported they have become more mindful about recycling and buying products with non-polluting packaging.
The Path to Financing Sustainable Fashion
In other research, Boston Consulting Group (BCG) and the Fashion for Good platform presented during the World Economic Forum in Davos 2020 their new report 'Financing the Transformation in the Fashion Industry: Unlocking Investment to Scale Innovation'. It stated that promoting sustainability requires investments between $20 and $30 billion dollars annually. This amount would drive a sustainable model for 2030, with the development and implementation of disruptive innovations. This would be represented through new materials, technologies, and business models.
Currently, the sustainability movement is already present in all industries. Clean energy has an important role in the energy sector, electric vehicles are a reality among us, and there is already a reduction in the use of plastic in food packaging. However, sustainable involvement in the textile industry remains quite low, in spite of it in a perfect position to spur a global movement.
Although some fashion companies have made some progress, the industry as a whole has not taken on the change that is really necessary to meet climate targets, stakeholder demands, and state regulations. Making this shift necessitates greater investment in fashion and textile technology through the available capital. As the graph below indicates, this causes an imbalance in areas of investment, leaving many innovators trapped in a funding gap that hinders their ability to develop and expand innovations. In addition, innovators are enacting the most effort to bridge the gap between initial venture capital and financing in the final phase.
“While the first steps have been taken, fashion needs to embrace and accelerate innovation to future-proof the industry. Doing so opens up major untapped returns for those who can capitalize on the upcoming technological disruption,” said Sebastian Boger, a BCG Managing Director, and Partner.
“Disruptive solutions that can offer major leaps forward toward circularity exist today, and the opportunities to invest and scale them within the industry are vast. This seminal study provides powerful insights and a clear call to action for all players to collaboratively drive innovation,” said Katrin Ley, Managing Director of Fashion for Good.
Finding Solutions for Every Level of Investment
Currently, brands are positioning themselves to be of more assistance to innovators. In this way, they are developing and increasing commercialization opportunities, achieving an exchange of taking agreements or direct investments. The BCG and Fashion for Good report confirmed that a union and an orchestration could help innovators to obtain these financial supports and can contribute to the brands with more efficient access to the scalable technologies, offering a win-win situation. The goal of the financing must be to achieve attractive returns and measurable impact with manageable risk, through the help of all participating actors in the textile sector.
We must not forget that the fashion industry has historically been very engaged in cost reduction and has paid little interest to new technologies, which has hindered its development in the medium to long term. However, we are at a perfect time for innovation driven by investors and companies to achieve a balance between costs and sustainability.
As for solutions, the study points out several interesting initiatives: a superstructural collaboration, including brands, supply chain partners, investors, and innovators, focused on creating an innovation-focused ecosystem. Other initiatives include adjusting investments to risk-return profiles and creating mixed financing with public capital. Having brands leading the way in technology demand; or for example, creating closer collaboration between supply chains and innovators, exchanging equipment knowledge, or even capital. Undoubtedly, the fashion industry must accelerate its transformation towards sustainable, and above all, circular practices.
References and where to learn more
Boger, S. et al., 2020. Financing the Transformation in Fashion. BCG. Available at: https://www.bcg.com/en-ao/publications/2020/financing-transformation-fashion-investment-scale-innovation [Accessed November 3, 2020].
Cernansky, R., 2020. How to mend sustainable fashion's multi-billion dollar funding gap. Available at: https://www.voguebusiness.com/sustainability/how-to-mend-sustainable-fashions-multi-billion-dollar-funding-gap-adidas-prada-stella-mccartney [Accessed November 4, 2020].
Granskog, A. et al., 2020. Survey: Consumer sentiment on sustainability in fashion. McKinsey & Company. Available at: https://www.mckinsey.com/industries/retail/our-insights/survey-consumer-sentiment-on-sustainability-in-fashion [Accessed November 6, 2020].
Ley, K., Van Mazijk, R., Boger, S., Watten, D., Martinez Pardo, C., & Zuo, C. (2020). FINANCING the Transformation in the Fashion Industry. Retrieved November 04, 2020, from https://fashionforgood.com/wp-content/uploads/2020/01/FinancingTheTransformation_Report_Digital_FINAL_Embargo_compressed.pdf
Preuss, S. (2020, September 06). Bridging the billion-dollar gap: How to fund sustainable fashion. Retrieved November 01, 2020, from https://fashionunited.com/news/business/bridging-the-billion-dollar-gap-how-to-fund-sustainable-fashion/2020012431824