In 2024, sustainability is at the top of the fashion industry’s agenda. The industry’s environmental and social impacts are well documented. Under growing consumer and regulatory pressures, industry leaders are recognising the urgent need to move towards responsible practices. The question now is how the industry will transform to achieve a sustainable operating model.
Progress to date has been encouraging but still largely incremental. Transformation requires disruptive innovation, at scale, in the form of new materials, processes and business models. To bring the necessary solutions to market and mainstream implementation, the ecosystem of fashion brands, supply chain partners, investors and so on, need to step up to accelerate innovation.
This includes addressing a financing opportunity of $20 billion to $30 billion per year until 2030. Stakeholders need to actively engineer the conditions for strong ventures to emerge and succeed in order to future-proof a sustainable business model for the fashion industry.
Strong innovation, emerging support
An extensive pipeline of innovations has emerged from new, alternative raw materials right through to digital platforms. Bringing these innovations to scale requires industry support and financing to advance solutions from R&D to fully commercialized products.
“Soft tech” solutions such as digital platforms have attracted more financing than the more asset-intensive forms of “hard tech” such as new raw materials or recycling technologies. However, hard tech innovations will spark the larger transformation towards sustainability and therefore have a greater need for financing per year.
Across all technology types, two points in the innovation development process are most challenging to finance. First, innovators struggle to secure financing to develop a minimum viable product. Second, in the scaling phase they struggle to raise the (often substantial) financing needed to reach commercial volumes. This type of capital is difficult to raise from the still-nascent financing landscape, which needs to expand to include growth equity, project financing, lending vehicles and R&D investments from large corporations.
The barriers to financing innovation
So, what is causing the shortfall in financing for the fashion industry’s move into technological innovation?
The demand for innovation in the fashion industry is a recent development. As such, private, public and philanthropic investors have had limited exposure to the size and scale of the opportunity that lies in the industry’s impending technological transformation. The limited awareness of the opportunities, but also the lack of expertise in this new space, contributes significantly to the lack of capital flowing into fashion innovations.
In addition, misaligned incentives in the supply chain can hamper the advance of disruptive solutions. While brands have the most incentive and pressure to drive towards sustainability, manufacturers have to account for the costs and implementation risks.
New innovations also have to compete with the commoditized prices of today’s environmentally harmful production methods. Many brands and retailers benchmark against current costs of production and fail to account for things such as carbon emissions, when assessing business cases.
An industry-wide call to action
Considering the enormity of the challenge the industry faces and the barriers that must be overcome to drive this transformation, industry-wide collaboration with six specific actions is required. Financing will flow into the fashion space if all stakeholders build towards conditions that provide for manageable risk, attractive returns and impact that can be measured.