What's Happening?
The Apparel Impact Institute has released a report indicating that the fashion industry could face a 34 percent decline in profits by 2030 if it fails to address its climate footprint. The report highlights the financial risks associated with climate change, such as supply-chain disruptions and increased operating costs. Key pressure points identified include higher carbon prices, rising raw-material costs, and more expensive energy, which threaten to erode profit margins and competitiveness. The report emphasizes the need for fashion brands to incorporate climate risks into their cost planning and investment strategies. It also notes that most emissions in the textile industry are Scope 3, meaning they are tied to supply chains, which brands do
not own but share, complicating efforts to reduce emissions.
Why It's Important?
The potential 34 percent drop in profits underscores the urgent need for the fashion industry to take climate action seriously. With the industry valued at $1.8 trillion, a significant portion of its value could be at risk if current trends continue. The report suggests that without proactive measures, the industry's long-term viability could be compromised. This situation presents both a challenge and an opportunity for fashion companies to innovate and invest in sustainable practices. The financial implications extend beyond individual companies, potentially affecting global supply chains and economies reliant on the fashion sector. The report calls for collaboration across the supply chain and the use of financial tools like sustainability-linked loans to fund necessary transitions.
What's Next?
Fashion companies are encouraged to co-invest with suppliers to decarbonize supply chains and to integrate climate costs into their financial planning. The report suggests that redirecting capital spending towards low-carbon investments could unlock significant funds for clean-energy transitions. However, convincing finance chiefs to prioritize these investments remains a challenge, as they must balance shareholder expectations with sustainability goals. The industry may see increased regulatory pressures, such as carbon pricing mechanisms, which could further incentivize climate action. Companies like H&M Group have expressed support for accelerating supply chain decarbonization, indicating a potential shift towards more sustainable practices.
