Financing the Future: Decarbonising the Fashion Industry??

This month, dangerously high temperatures in cities like Delhi, Athens, and New York highlighted the urgent need to address climate change. The fashion industry needs significant funding to cut emissions, but progress is slow due to financial challenges.

Image subjected to Copyright, Photography by Karina Tess / Unsplash

Big brands have promised to reduce their carbon output, but most pollution comes from factories they don’t own. These factories face constant price pressure and unstable cash flows, making it hard for them to invest in long-term climate projects. This creates a deadlock where the best opportunities for reducing emissions lack funding.

As mentioned in an article by BOF, a new initiative called the Future Supplier Initiative, backed by sustainability groups and major brands like H&M, Bestseller, Gap Inc., and Mango, aims to help suppliers get low-interest loans for decarbonization projects. Brands will underwrite the debt to reduce the risk for banks, allowing them to offer better rates.

The details are still unclear. Brands will either fully cover the loans or provide partial guarantees. This collective approach is important because suppliers often serve multiple brands, sharing the risks and benefits. The program will start in Bangladesh and aims to expand to other countries.

While this initiative is a positive step, challenges remain. It's still unclear what the exact loan rates will be, which suppliers will benefit, and how much money brands will commit. Also, the initiative doesn’t address the business volatility that makes debt risky for suppliers. Longer-term commitments from brands would likely encourage more investment in decarbonization.

In summary, the Future Supplier Initiative is a promising start, but many details need to be worked out to ensure it effectively reduces emissions in the fashion industry.