In the textile industry, one area ripe for investment is making wet processing more sustainable. As with most pots of gold, it’s not without its challenges — but data indicate that the returns are well worth the effort. Investors keen to seize this nascent opportunity should consider three primary steps.
There is a persistent perception in the financial markets that making businesses more environmentally sustainable looks good on the surface but requires a sacrifice on returns.
From this perspective, it’s easy to see how greenwashing became a popular modus operandi — all ‘green’ talk, minimum investment.
However, the rainbow that is environmental sustainability actually has a pot of gold at the end of it: a treasure trove of financial gains, just waiting for investors to find it.
And in the textiles, apparel and clothing (TAC) industry, one identified pot of gold is making wet processing more sustainable. As with most pots of gold, there are a few obstacles in the way of reaching it — namely a lack of external pressure, education and funding in the sector. But data indicate that the returns are well worth the effort.
The role of wet processors
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In the TAC industry, wet processors play a vital role in fabric manufacturing, dyeing and printing ‘greige’ fabric.
Yet the negative impact they pose on the environment because of their high energy, water and chemicals usage (making them one of the greatest contributors to climate change in the TAC supply chain), as well as the global scale of this issue, means they are currently not set up for longevity. They are highly dependent on the finite and costly nature of the planet’s resources.
Fortunately, there are plenty of simple sustainability-improvement wins for wet processors, especially when it comes to lowering energy and water use and shifting to safer chemicals.
However, a historic dearth in education, financing and understanding of the potential financial and environmental savings — coupled with insufficient pressure from both regulators and consumers — has meant any changes to the sector have been slow to be implemented.
With the rise in corporate greenhouse gas (GhG) accounting, and to avoid growing awareness around greenwashing, brands must put their money where their mouths are and invest quickly and heavily in the sustainability of their supply chains.
Brands must lead their suppliers by example and not only incentivise suppliers to transition to better practices but help them, too — a carrot-and-stick approach. This may mean that traditional, transactional brand-supplier relationships need to change (for example, by incentivizing improved environmental performance with the reward of longer-term contracts) — and, for strategic suppliers, to become one of mutual risk mitigation, which can be perpetuated through the whole supply chain.
Another option is to facilitate funding through sustainability bonds issued by the brands themselves, which can directly fund the factories supplying them.
For wet-processing companies, the opportunity for reducing costs in the supply chain is there and translates directly into reduced costs for those brands that help with funding.
Blank space for investors
While there is significant incentive for brands to assist their suppliers in becoming more sustainable, the fact that suppliers often serve several companies can make brands reluctant to fund the transition cost on their own.
They can, however, enable suppliers to seek investment. And investors can and should meet them at the table.
According to our research, these investment opportunities are presently in the range US$200,000-2 million (with the average being US$455,000). Even a small, one-off investment in processes that lower the environmental footprint of wet-processing facilities — such as installing meters, reusing cooling water and wastewater, maintaining steam traps and improving insulation — could give an average annual cost saving of US$369,500, with an average payback period of just 13.8 months and an average annualised ROI of 68 percent. And that’s on top of the environmental benefits, with an annual water saving of 11.5 percent and average GhG reduction of 10.8 percent.
Investors keen to make the most of this nascent opportunity should be looking at three primary steps. The first involves actively seeking opportunities to directly invest in the supply chain of textile producers and taking advantage of joint ventures (JVs) or pooled debt to affect change. Secondly, investors should continue to pressure brands to increase transparency in the supply chain and urge them to invest in supply chain improvements. Finally, they should seek partners such as Apparel Impact Institute to help aid external investment opportunities.
Win-win for climate and financial markets
In August 2021, the IPCC re-emphasised the urgent need for action across business sectors due to climate change. The implications for the textiles industry are stark: The industry is moving too slowly to combat climate change and needs to move faster.
The financial markets have long had an influence in funding publicly listed companies across the TAC sector. Unfortunately, this has meant that they have been funding fast fashion — the creation of cheap and abundant clothing globally.
The natural capital cost has been high — with toxic production practices, degradation of natural resources, massive and growing waste, as well as widespread labour injustices.
Investors now have the chance to be involved in remedying this situation, while also reaping financial returns. But the situation is urgent. While initial changes are being implemented, and already producing significant savings in water and energy use and drastically reducing GhG emissions, more is needed. These wet-processing improvements are just the minimum the industry needs to do. The entire textiles industry needs to see more radical changes in order to improve its environmental impact.
The silver lining is that transitioning to more environmentally friendly practices will bring about much more sustainable financial returns as we move towards the more circular (and net-zero) economy of the future.