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
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.
Brand accountability
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.
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Catherine Tubb is Senior Investment Analyst at Planet Tracker — a non-profit financial think tank aligning capital markets with planetary boundaries. She holds a Ph.D. in Organic Chemistry from Cambridge University.
Published Jan 4, 2022 7am EST / 4am PST / 12pm GMT / 1pm CET