The comprehensive analysis shines a spotlight on the critical role of innovative financing in the journey to decarbonising the apparel sector.
Titled "From Catwalk to Carbon Neutral: Mobilising Funding for a Net Zero Fashion Industry," the report is co-commissioned by apparel leaders Epic Group, TAL Apparel, NITEX, Pactics Group, Artistic Milliners, MAS Holdings, and Simple Approach.
With the industry under increasing scrutiny for its significant contribution to global greenhouse gas emissions, the report delves into the challenges and potential solutions for financing climate action in apparel manufacturing.
These are solutions it hopes will honour the 2015 Paris Agreement, a legally binding agreement to limit global warming to at least below 2°C above pre-industrial levels, and ideally 1.5°C, which the report cites has been signed by 400 apparel, footwear and textile companies.
According to the report, the apparel sector is responsible for an estimated 2-8% of the world's greenhouse gas emissions, with a majority stemming from the supply chain.
Despite this, manufacturers often operate on slim margins, making financing decarbonisation efforts a significant challenge.
"If we fail to devise new ways of financing decarbonisation, we will also fail to realise our climate goals," warned industry experts.
The report offers seven recommendations to draw focus to value chain decarbonisation, and enhance funding accessibility, availability and affordability:
- Policy advocacy that supports financing for decarbonisation
Manufacturers and brands must lobby governments for policies supporting apparel industry decarbonisation, including subsidies, tax incentives, and regulatory frameworks.
Fashion brands, supported by manufacturers and NGOs, should lobby the EU, UK and USA for policies generating funds for value chain decarbonisation as part of a just transition. The proposed strategy involves establishing a Just Transition Fund to aid underprivileged global South manufacturers, using specific tariffs and levies like the luxury tax for decarbonisation.
2. Impose transparency and reporting standards
The industry must adhere to strict transparency and sustainability reporting standards for value chain decarbonisation efforts, including direct and indirect financing schemes, emissions reductions, and additional reporting for Scope 3 emissions reductions, linking them to specific programmes created and supported.
3. Establish the Fair Climate Fund
Brands and retailers along with their value chain partners must pilot and scale up the Fair Climate Fund, backed by an independent operation and verification agency and built on Fairtrade principles.
4. Increase availability, accessibility and affordability of finance
Muli-stakeholder initiatives, National and international development finance institutions, large brands, retailers, and governments must increase funding for decarbonisation in manufacturing-located countries, including low-interest and SMEs-friendly schemes, and underwrite risks.
5. Seize the moment, by commercial banks and private sector lending institutions
Commercial banks can demonstrate climate leadership by increasing funding for decarbonisation projects in the apparel manufacturing industry's supply chain. Listed banks in the UK, US, Europe, Japan etc., can set a new industry standard by allocating a fixed percentage of their lending portfolios. We urge commercial banks to seize this moment to become pioneers in promoting a greener, more sustainable world.
6. Change the narrative
The conversation on value chain decarbonisation disproportionately burdens manufacturers, requiring a shift to focus on supply chain decarbonisation to achieve apparel sector targets. All stakeholders must echo this message.
7. Create an environment that facilitates value chain decarbonisation
Manufacturers face significant business risk in value chain decarbonisation, causing caution towards debt and sustainability investments. Value chain actors must reevaluate relationships with suppliers and find solutions that mitigate such risks so that decarbonisation investments are viewed in a positive light.
The report also urges the industry to embrace expansive and imaginative funding models beyond conventional debt-based solutions. Based on interviews with 21 apparel manufacturers and key stakeholders, supplemented by extensive desk research, the report offers insights from diverse geographical regions and business types.
Key questions investigated in the report include the funding needs of manufacturers for decarbonisation and the constraints they face, as well as innovative funding models the sector should consider addressing these gaps equitably and effectively.
One of the report's key findings is the industry's preference for smaller-scale, short-payback projects due to current funding models. However, there is a pressing need for solutions that address medium to long-term initiatives and account for challenges such as increased operational costs.
Supported by Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH, FABRIC Asia Project, and Transformers Foundation, the report has received endorsements from the International Apparel Federation and Fashion Producer Collective.
