Major report calculates that $1tr will be required to decarbonise resource and carbon-intensive sector, of which just $50bn needs to be covered by government and philanthropy
There is a major opportunity for savvy investors to cash in on the fashion sector’s efforts to decarbonise, with the majority of the $1tr-worth of investments required to transform the sector offering attractive financial returns.
That is according to a new report, published this week by sustainable fashion platform Fashion for Good and the Apparel Impact Institute, which breaks down the investments that will be required to decarbonise the hugely resource, carbon, and waste intensive industry.
Estimating that $1tr in total will be required to decarbonise the sector, the report argues the lion’s share of financing will offer an attractive financial return to investors and should therefore be funded through financial capital.
However, it notes that critical barriers to unlocking the necessary financial capital remains, despite soaring interest in Environmental, Social and Governance (ESG) investments, and calls on industry, financiers, governments, and philanthropists to work together to mobilise increased flows of green finance.
Government and philanthropic funding of roughly $50bn will be required to catalyse flows of industry and financial capital into the sector’s decarbonisation, it notes.
“This report reframes decarbonisation as an investment opportunity rather than a cost,” said Lewis Perkins, president of the Apparel Impact Institute. “These proven, investable solutions require a tremendous amount of capital, and we now need to create the pathways for all forms of financial capital in order to bring them to scale.”
The United Nations Environment Programme estimates the fashion industry is responsible for 10 per cent of global carbon emissions due to its long supply chains and energy intensive production methods, as well as 20 per cent of global wastewater pollution. The sector is also the cause of mountains of waste, with a recent EU report calculating that that 87 per cent of clothing material ends up incinerated, landfilled, or dumped in nature.
The new analysis, which was sponsored by HSBC, claims to be the first to set out how the sector could practically reach net zero emissions, exploring a variety of different solutions, ranging from the purchase of renewable energy to the development of new materials and energy efficiency upgrades. It also breaks down the most appropriate type of funding for different solutions, from government and philanthropy, to industry, venture capital, and bank debt and bonds.
The report calculates the total costs of implementing key low carbon solutions across the sector would reach $1.04tr, with $639bn going towards existing solutions and $405bn towards innovative new solutions.
It notes that nearly half of CO2 reductions in the sector could be generated from implementing existing solutions, whereas 39 per cent would come from scaling innovative solutions and 14 per cent from reducing overproduction, scaling a circular business model, and delivering material efficiency improvements.
Zoe Knight, managing director and group head of the HSBC Centre of Sustainable Finance, said the fashion industry was increasingly aware of its environmental impact and the need to transition to net zero.
“This report shows that, while there are challenges to overcome, this transition is possible and will open up new opportunities for businesses in this sector,” she said “Collective action is critical. The financial system must play its part by providing the investment to fund net zero solutions at scale.”