(Finance) – In the next few Over 35 new regulations will come into force in 4 years for the f sectorashion around the world related to sustainability, which will aim, among other things, to limit product imports, create product design guidelines and establish labeling requirements. The sector then accelerated the move towards sustainability, and over 85% of leading sales brands have publicly declared decarbonisation goals for their supply chains.
In this context, as illustrated by the latest study by Boston Consulting Group (BCG), in collaboration with TExtile Exchange and Quantis by title “Sustainable Raw Materials Will Drive Profitability for Fashion and Apparel Brands”, raw materials play a fundamental role as they make up up to two thirds of a fashion brand’s climate impact. Ensuring companies have access to sustainable materials is urgent, however, the demand for raw materials with low climate impact (therefore defined as “preferable”) could exceed supply up to 133 million tonnes by 2030, equivalent to more than six times India’s production of these materials in 2021.
“Companies in the sector today face a double challenge: doubling their efforts to reduce carbon emissions and, at the same time, being able to quickly adapt to incoming regulations,” he said Guia Ricci, Managing Director and Partner of BCG. “Success on both fronts requires a structured strategy that not only takes into account the need for sustainable raw materials, but which is able to guarantee their supply for the future”.
The first need to address concerns the ability to significantly increase the share of “preferable” raw materials within one’s portfolio. In the analysis model proposed in the study, doing so could lead to a 6% increase in net profit over a five-year period. For example, a fashion brand with $1 billion in annual revenue, has the potential to leverage a cumulative opportunity of approximately $100 million over five years.
The study finds that the regulations which will be defined in the coming years have an unprecedented scope for the clothing industry and could therefore generate some adjustment difficulties. Taking the emblematic UK Modern Slavery Act of 2015 as an example, the report shows that, to date, only 15% of the luxury brands analyzed comply with all its guidelines. Not complying with current legislation poses a real threat to companies and their profits, as products may not enter markets until they meet required requirements, including labeling requirements, putting up to 8% of EBIT generated at risk.
Despite the growing number of decarbonisation commitments and targets across the fashion industry, however, this has not yet sent a strong signal to suppliers on the growing use of “preferable” raw materials, with the consequent misalignment with raw material producers and farmers, who do not yet feel ready to take on the risks associated with an increase in the supply of sustainable materials. The report estimates, in fact, that in 2030 only 19% of the materials produced will be sustainable, given the current lack of economies of scale.
(Photo: by fancycrave on Unsplash)