The fashion industry is one of the world's worst polluters, yet many people are still unaware of its impact. In recent years the phenomenon of fast fashion has transformed the way we consume clothes and caused untold waste and emissions in the process.
Still, as climate change awareness grows, there comes a notable shift in consumer preferences. With a desire to be kinder to the planet, consumers are looking towards environmentally friendly and sustainable fabrics, reusing and recycling clothes and becoming more conscious of where our clothes come from.
To improve on the bad reputation of the fashion industry, there are four areas of social and environmental destruction demanding change.
The mass extraction of raw materials.
Textile production.
Dyeing, printing, washing and finishing the colors.
Biodegradability and recyclability.
Why is Sustainability in Fashion Important?
Sustainability in fashion is increasingly important as climate change awareness highlights the damage caused by the industry.
Environmental, Social and Corporate Governance (ESG) is an overarching theme guiding companies to a more transparent way of working. It's also leading investors to be choosier in the companies they put their money in.
Socially responsible investing is on the rise, and investors are using ESG scores to help them understand how sustainable the company looks long term.
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Negative Press is the Enemy of the Investor
The UK's fast-fashion e-commerce star Boohoo fell from grace in 2020 after an expose by the Sunday Times alleged workers at one of its Leicester factories were being paid £3.50 an hour and working in less than acceptable conditions.
Its share price plummeted around 55% in response. Since then, Boohoo stock has experienced extreme volatility. Nevertheless, Boohoo is attempting to fight back. In 2021 it appointed an ESG expert to its board. This story highlights the importance of maintaining good corporate governance and sustainable values.
Another example of less than stellar performance is the Chinese fast fashion brand Shein. In 2021, web design agency Rouge Media recently analyzed more than 30 of the biggest fast-fashion retailers in the UK and named Shein as the industry's 'most manipulative' company. The study found Shein's website awash with marketing tactics to get people to spend more and keep coming back. This hasn't stopped it rising through the ranks and becoming a firm favourite with young shoppers.
Meanwhile, eco-friendly footwear brand Allbirds (BIRD), rose to fame quickly after its 2015 launch. Despite early success, including a notable IPO in 2021 where its shares surged, the company faced challenges with declining novelty and stock prices. In response, Allbirds updated its strategy, focusing more on wholesale partnerships and revising its product lineup, including relaunching its iconic Wool Runner sneaker. This shift aimed to help the company regain momentum and move towards profitability.
Meanwhile, Nike (NYSE: NKE), Adidas (OTCQX: ADDYY), Ethletic, Genesis, Rothy's, TOMS, On, Puma, Woden, Baabuk, Tommy Hilfiger and Zara and many more, offer a range of sustainable products and direct-to-consumer marketing channels.
Zara has been fighting to create a more responsible future. Considered the founder of fast fashion (in 1990), the brand is no stranger to its fair share of criticism. But it's also paving the way to a better future.
Indeed, its parent company Inditex (BME: ITX), was named the most sustainable retailer by the Dow Jones sustainability index from 2016 to 2018. Since the pandemic hit, the company has faced mounting challenges with store closures and supply chain problems. Not to be deterred, Inditex is accelerating its sustainability targets, with a new aim to achieve net-zero emissions by 2040, ten years earlier than previously planned.
ESG Scoring and Reporting
According to the Governance & Accountability Institute, the proportion of S&P 500 firms reporting on their ESG performance surged from under 20% in 2011 to 90% by 2019. And the contents of their ESG reports have grown drastically during this time.
Now, more than ever, this applies to the fashion industry.
There is a growing desire for companies to strive for sustainability goals or lose consumer trust. In either case, profits are likely to take a hit as the road to sustainability will not come cheap.
Balancing Cost, Quality, and Eco-Consciousness
There's no doubt the fashion industry is facing a significant sustainability challenge. While 75% of consumers consider sustainability crucial when purchasing fashion, only a minority prioritize it over cost and quality.
High-quality and value for money still dominate consumer choices, indicating resistance to paying extra for sustainability. However, integrating sustainable practices without raising prices can offer companies a competitive edge.
Re:NewCell, a Swedish firm, exemplifies this by reducing sustainable material costs through innovative solutions like Circulose, used by H&M and Levi's. Similarly, Adidas leads in sustainability with a focus on circularity and emission reduction, replacing virgin polyester with recycled materials and partnering with environmental groups.
Despite these efforts, the industry struggles with standardizing sustainability metrics and transparency. Many companies report only a fraction of their carbon footprint, primarily the direct emissions from their operations and energy use. The challenge lies in fully disclosing the broader scope of emissions, including supply chain and product lifecycle impacts.
Growing Influence
Influential figures from the fashion world have been proposing solutions for environmental challenges.This includes accelerating the transition to sustainable products and the phasing out of fossil fuels in fashion policies.
Danish fashion company Bestseller and Swedish retailer H&M Group have partnered with Global Fashion Agenda and Copenhagen Infrastructure Partners to invest in an offshore wind project in Bangladesh. This collaboration aims to substantially boost renewable energy availability in the fashion manufacturing country, reflecting a commitment to sustainable energy in the fashion industry.
British designer Stella McCartney is pioneer of sustainable fashion. Indeed, she launched the first luxury brand to avoid animal-derived materials like leather, feathers, fur, and skins. Since 2006, following insights from the Livestock's Long Shadow Report linking animal agriculture to climate impact, she has adopted comprehensive sustainability practices. McCartney's COP28 Sustainable Market concept featured sustainable startups and circular solutions showcasing 15 pioneering initiatives including regenerative agriculture and plant-based alternatives.
Fashion Revolution, an influential participant in the fashion world, called for increased transparency and accountability in environmental and human rights issues within the industry. This includes addressing the lack of action in defunding new fossil fuel projects and ensuring that new commitments are effectively communicated and achieved.
Luxury conglomerate LVMH announced its commitment to environmental targets with various initiatives. These include a partnership with the Foundation For Amazon Sustainability to combat deforestation and efforts in soil preservation.
Italian fashion leaders, including CNMI chairman Carlo Capasa, discussed the country's sustainability roadmap. This includes collaborations with the Ellen MacArthur Foundation and the UN Ethical Fashion Initiative, focusing on defining ESG specifics for the fashion industry.
These developments illustrate the fashion industry's growing dedication to sustainable practices, renewable energy initiatives, and environmental stewardship, marking a significant shift towards a more responsible and eco-conscious approach.
Companies to Watch in Sustainable Fashion
Companies operating in the textile-to-textile recycling arena include:
Evrnu is a company that claims to be on a path to commercializing its recycling technology.
Infinited Fiber Company turns cellulose waste into a cotton-like fiber. Its customers include Patagonia, H&M Group and Bestseller.
Natural Fiber Welding (NFW) is recycling cotton, wool and other fibers into a man-made fabric replacement. It is working with Ralph Lauren to commercialize.
Circular Systems processes post-industrial textile waste into recycled cotton.
Circ turns pre-and post-consumer textile waste into new polyester. Its partners include H&M, Girlfriend Collective and Madewell.
Meanwhile, The Better Cotton Initiative (BCI) is encouraging businesses to opt for sustainable materials. For instance, fashion brand Rip Curl (a Kathmandu Holdings company) is taking the BCI's lead to get to 65% sustainable cotton by 2025.
The Mills Fabrica is a venture capital firm investing in techstyle startups around the world. Along with Algalife and Evrnu, Mango Materials is another investment, creating a biodegradable polyester replacement.
Other innovations in the fashion industry are also gaining traction.
The use of sustainable bast fibers such as flax, hemp, jute and ramie requires little irrigation or treatment to produce, and the soil impact is low.
Enzymatic detergents are biodegradable and can break down molecules in hard-to-remove stains such as blood and fat. Improvements in design reduce the washing temperatures, reducing the energy required to wash clothes.
Investing in Fast Fashion Alternatives
While some of the companies mentioned here are in their infancy and therefore still private, several of them are making their way through funding rounds. This means investors should keep an eye on them for potential IPO opportunities to invest.
In the meantime, another way to combat fast fashion is recycling and renting clothes. The following publicly-listed companies have hit the headlines in recent years.
Rent the Runway (NASDAQ: RENT) started trading on October 27, 2021. The IPO launched at its highest price point, but shares ended the session down 8%. Founded in 2008, Rent the Runway is a fashion rental platform offering members a subscription service.
Poshmark sells secondhand clothing. Its share price has collapsed over 75% since its IPO in January, 2021.
The RealReal, Inc.(NASDAQ: REAL) sells authenticated consigned luxury goods secondhand. It operates an online marketplace and physical stores. REAL stock is down 55% since its IPO in June 2019.
ThredUp (NASDAQ: TDUP), all of which sell secondhand clothing and other accessories. TDUP stock is up 7% since its IPO in March 2021.
Reflaunt is still a private company but gradually growing its footprint. Its disruptive Resale-as-a-Service (RaaS) technology connects brands to secondhand marketplaces. Reflaunt's latest funding round was a Series A for $11M on August 25, 2022.
Can Resale Fashion Be Profitable?
While these secondhand clothing stores promote the cyclical economy, they're facing an uphill battle in getting consumers and investors on board.
This can be seen in their sliding share prices. They're also struggling to turn a profit. Rent the Runway lost 95% of its share price between IPO and January 2024.
But this may not be a fair depiction of their future considering the impact COVID-19 and global supply chain disruptions have had on retail.
According to Statista, in 2022, the global market for secondhand and resale apparel was valued at $177 billion. This market is expected to grow significantly, nearly doubling to $351 billion by 2027.
Some major players are throwing their hats into the ring. Etsy (NASDAQ: ETSY) bought peer-to-peer social e-commerce store Depop for $1.6 billion. Levi's launched a secondhand site, and Gucci launched a luxury secondhand online store. Plus, ASOS (LON: ASC) invested in luxury resale and permits the sale of secondhand clothing on the ASOS marketplace. Then there's Vinted, an online marketplace based in Lithuania, that allows users to buy, sell, and exchange new or secondhand items. It has gained significant popularity and holds the distinction of being Lithuania's first 'unicorn', a term used to describe startups valued at over $1 billion.
There's certainly a lot going on in the world of fashion, and in recent years ESG has been disrupting the sector with a vengeance.
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Investing in sustainable fashion represents a forward-thinking approach, aligning financial growth with environmental responsibility by supporting companies that prioritize eco-friendly production, ethical labor practices, and the longevity of apparel.
Circular Economy ETFs
Some investors prefer to invest in stocks via an exchange-traded fund for ease and reduced risk. There are ETFs focusing on the circular economy, which typically include stocks of companies promoting sustainable practices and products. They represent a growing interest in aligning investment strategies with ethical and sustainable practices.
Rize Circular Economy Enablers UCITS ETF (CYCL)
VanEck Circular Economy UCITS ETF (REUS)
BNP Paribas Easy ECPI Circular Economy Leaders UCITS ETF (REUSE)
Xtrackers MSCI Global SDG 12 Circular Economy UCITS ETF (XG12)
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Article Originally Published November 10th, 2021
