New white paper on decarbonising the fashion industry is a good start but misses key issues

Decarbonising the fashion industry's supply chains is no longer a secondary sustainability goal, but a core financial necessity. This is the argument of the recently published white paper, “Accelerating Fashion Decarbonisation: An Efficient Approach to Unlocking Corporate Value and Financing the Supply Chain Transition”. It is co-authored by the H&M Group and professional services network Ernst and Young (EY), with contributions from HSBC and the Apparel Impact Institute.

The white paper summarises the necessary steps to effectively tackle decarbonisation in six key points. The first is the shift of responsibility for climate protection from the sustainability department to the finance department. The argument is that CFOs have a duty to protect a company's long-term resilience against climate risks, such as physical disruptions in production centres and stricter global carbon regulations. Decarbonisation is presented as a risk management strategy rather than a cost factor, essential for protecting corporate value and maintaining investor confidence in an increasingly ESG-regulated market.

From sustainability goal to financial necessity

The second point mentioned is closing the 'Scope 3' financing gap. A significant portion of the fashion industry's environmental footprint, up to 99 percent for some brands and retailers, lies in scope 3 emissions, which are those generated in the supply chain. The publication identifies a massive financing gap, as individual suppliers often lack the capital or incentives to invest in costly projects with long payback periods, such as factory electrification or renewable energy. The white paper calls for 'blended finance' models that combine private capital with public and philanthropic funds to reduce the cost of capital for these manufacturers.

A shift from individual action to collective action is cited as the third key point. The report highlights the 'free-rider problem': when one brand invests in the environmental modernisation of a supplier's factory, the CO2 benefits extend to every other brand that also manufactures there. To overcome this, the white paper advocates for 'aggregated multi-brand financing'. By pooling investments from multiple brands using the same suppliers, the industry can achieve economies of scale and distribute the financial burden more equitably, thereby increasing 'green' production capacity for everyone.

Also essential is the transition to renewable energy and material innovations. Technically, the proposed roadmap focuses on shifting the production base, primarily in South and Southeast Asia, away from coal towards renewable electricity and low-carbon thermal energy. This requires not only hardware upgrades, such as high-efficiency boilers, but also systemic changes like power purchase agreements (PPAs). The white paper emphasises that while 47 percent of the industry's net-zero target can be achieved with existing technology, the remaining 53 percent relies on scaling up next-generation innovative materials, which are currently underfunded.

According to the report, a key hurdle is the lack of standardised data. Suppliers are currently overwhelmed by the different reporting requirements of various brands. Therefore, the fifth key point calls for standardised impact metrics and a unified governance framework. By standardising the measurement and reporting of CO2 savings, financial institutions could more easily verify the impact of their 'green loans', making the fashion industry a more attractive target for the general climate finance market.

Finally, the whitepaper calls for the decoupling of growth from CO2 emissions to measure financial success. This involves moving beyond mere efficiency towards circular business models. The ultimate goal is a 'net-zero value chain' where growth is driven by the longevity and recycling of garments, rather than the volume of newly produced materials. This transition requires brands to act as 'active shapers' of their supply chains, not just as transactional customers.

Shortcomings

Although the white paper offers a robust framework and good starting points, it has several potential shortcomings and strategic blind spots. One is the volume problem, as it fails to address the current overproduction of clothing and its associated issues. This is hardly surprising, considering the authors include a company that profits from fast fashion.

Most of the decarbonisation efforts described are therefore 'efficiency measures', meaning producing more with less CO2. If the industry continues to increase its production volume at current rates, efficiency gains will likely be nullified by the sheer scale of output. The white paper does touch on the topic of decoupling, but it does not prescribe a reduction in production as a primary lever for decarbonisation.

Furthermore, it describes brands as 'shapers' but often overlooks the power dynamics of the fashion industry, particularly the power imbalance between suppliers and brands and retailers. Suppliers operate on razor-thin margins dictated by the latter. Expecting them to take on 'green debt', even on favourable terms, could lead to further financial fragility for manufacturers if brands do not offer long-term purchase guarantees to cover these debt repayments.

Another shortcoming is that blended finance relies heavily on public and philanthropic 'catalytic' capital to de-risk private investment. However, there is a global shortage of such capital. The white paper assumes that these funds will be readily available to the fashion industry while the sector must compete for limited public climate funds with priority areas such as infrastructure, health and energy.

Geopolitical and infrastructural barriers also present challenges. The proposed roadmap relies on 'Renewable Energy PPAs' and the 'decarbonisation of the power grid' in countries like Bangladesh, Vietnam and India. These are often state-controlled or subject to unstable political conditions. A brand's financial model can hardly overcome a national government's decision to continue subsidising coal or its inability to build a modern, flexible power grid.

Finally, data verifiability and 'greenwashing' risks need to be considered more carefully. The reliance on standardised metrics is a double-edged sword. As the controversy surrounding the Higg Index has shown, standardised tools can be manipulated or based on flawed life cycle assessments (LCAs). Without independent third-party verification of CO2 reductions at the factory level, the proposed financing models could inadvertently fund greenwashing projects that show savings on paper but have no real-world impact.

This article was translated to English using an AI tool.

OR CONTINUE WITH

Apparel Impact Institute

Carbon footprint

Climate protection

H&M

Sustainability

Whitepaper