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The fashion industry is at a turning point, driven by regulatory changes, shifting consumer preferences, and investor pressure to embrace sustainability. The hype of ‘fast fashion’ appears to be slowing down, with many consumers wanting to shop for quality over quantity. But with big brands like Temu and Shein encouraging quick fixes to fashion, the industry still has a long way to go if it is to tackle its sustainability issues.
The industry’s reliance on polyester, linked to microplastics and high carbon emissions, is under scrutiny and the environmental impact of polyester is becoming a financial liability for fast fashion brands, as consumers and investors demand greener alternatives.
At the same time, consumers are keen to ensure that their items are being manufactured in a sustainable way that does not exploit people or damage the environment. Investors must take heed.
Investor Divestment Trends
Investor needs are changing. Many are actively seeking out more impactful ways of putting their money to use. They are sending a strong market signal by divesting from brands that fail to meet sustainability standards. In August, ASN Impact Investors announced it was pulling out of fast fashion after implementing a new sustainability policy. It sold stakes in 12 companies including fashion brands Asos and H&M which have been accused of partaking in fast fashion.
With ethical investing predicted to hit $50 trillion by 2025[1],representing more than a third of the total global assets under management[2], companies that ignore sustainability not only face diminishing investor support but also risk long-term financial instability.
The problem of polyester
The production of polyester textiles alone generated approximately 1.5 trillion pounds of greenhouse gases in 2015. High levels of BPA can be found in polyester clothing and the average polyester product degrades over 200 years, meaning it will clog up landfills for centuries.
Investors have a responsibility to engage with these companies and while some big brands, like H&M, Puma, On Running and Eileen Fisher are already committing to moving away from synthetic material use, the cost of inaction is huge.
(Source: Just fashion Transition 2024, The European House/Ambrosetti)
Consumer Shifts and Brand Accountability:
McKinsey’s State of Fashion report emphasises that consumers are increasingly favouring brands that align with their values on sustainability. Brands that fail to provide transparency on their environmental impact risk losing consumer trust and market share.
According to Mintel, over half of UK and German consumers regard sustainability as an important purchase factor. While in the states two in three say they pay attention to eco-friendly claims from brands[3].
While fast fashion faces mounting pressure to address its sustainability shortcomings, luxury brands are increasingly seen as leaders in sustainable innovation. Such brands have greater financial flexibility to invest in long-term, sustainable practices, and are integrating these initiatives into their brand identity.
Regulatory changes
Despite progress, The European House’s Just Fashion Transition 2024 report highlights that the EU fashion sector is unlikely to meet its 2030 decarbonization targets on time. At current rates, the industry will miss these targets by 8 years.
(Source: Just fashion Transition 2024, The European House/Ambrosetti)
Key challenges include the fragmented nature of supply chains, slow adoption of renewable energy, and inconsistent national policies on emissions reduction. There are many regulatory changes that have already come into place, with more on the way, that impact the way the world consumes fashion.
The Sustainable Productions Regulation (ESPR) for example which was enforced by the EU this year ensures brands are transparent with the kind of ethical impact their products are having, including energy consumption, use of recycled materials and emissions.
In the next few years, it will be mandatory for firms to comply with these rules and any that don’t could face scrutiny.
European regulations like the EU Taxonomy and Corporate Sustainability Reporting Directive (CSRD) are also driving change, ensuring companies report on sustainability practices, or risk financial penalties and reputational damage.
In 2025, the UK will adopt the International Sustainability Standard Board’s disclosures, meaning companies will need to report any sustainability risks caused by the materials they use. The Green Claims Directive and Empowering Consumers to Green Transition Directive are further tightening rules around environmental claims, curbing greenwashing and ensuring brands back their sustainability statements with verifiable evidence.
There’s also The Fashion Pact, which was set up by French President Emmanual Macron, focusing on combating climate change, biodiversity loss, and ocean protection, brings together brands across the spectrum. The Unlock program, a key initiative, connects brands with suppliers of sustainable materials, promoting a transition away from polyester. For example, the Fashion Pact initiative has defined the following goals:
– Eliminating problematic and unnecessary plastic in B2C packaging by 2025 and B2B by 2030;
– Ensuring at least half of all plastic packaging is 100% recycled content, by 2025 for B2C and by 2030 for B2B
Conclusion: Sustainability as Financial Viability
The industry’s financial health now depends on embracing sustainability, with both fast fashion and luxury sectors undergoing transformations to respond to consumer demands and regulation constraints. While some initiatives are in place, the sector needs to speed up to meet the 2030 pre-defined targets.
Investors have a duty to take action to invest in companies seeking to do good and moving away from unethical practices. Or they can act by supporting brands to move into a more sustainable market, which will inevitably be the long-term beneficiaries.
[1] Bloomberg – https://sponsored.bloomberg.com/article/mubadala/the-future-of-esg-Investing
[2] Times Money Mentor – https://www.thetimes.com/money-mentor/investment-
strategies/ethical-investing#:~:text=According%20to%20data%20from%20Bloomberg,ethical%20label%20of%20some%20kind.
[3] https://www.mintel.com/insights/retail/the-growth-of-circular-and-sustainable-fashion-trends/#:~:text=Over%20half%20of%20UK%20and,claims%20when%20buying%20fashion%20items.
This article first appeared on PA Future
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