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Responsible Fashion Can Create €160 Bln Annual Value For World Economy by 2030

• By  Henry Dsouza
• June 30, 2017

Boston Consulting Group and Global Fashion Agenda have developed Pulse Score, a global and holistic baseline of sustainability performance in the fashion sector. It is based on the Sustainable Apparel Coalition's proprietary Higg Index. The Pulse extends the Higg Index by extrapolating the findings to include the entire industry

Global Fashion Agenda (GFA) and Boston Consulting Group (BCG) have developed the Pulse Score to assess the industry's performance on environmental and social issues across fashion companies and stages of the value chain. While the fashion industry has a weak pulse, the Pulse Score shows the opportunities that the industry has to improve its pulse ratings and its margins.

In its report, 'Pulse Of The Fashion Industry' released recently, GFA and BCG reveal that the industry scored a pulse of 32 out of 100 which is quite weak. "The good news is that by changing practices, the industry can both, stop the negative impact and generate a high amount of value for society, while also safeguard its long-term profitability. We estimate that the industry has the opportunity to create €160 billion in annual value for the world economy by 2030," according to the report.

The report warns, "Although many companies are making real progress in optimising business practices, it is clearly not yet enough. If the fashion industry continues its present course of incremental improvement, it will most likely see rising costs as well as regulation for materials, labour and processing. Based on conservative projections, fashion brands' profitability levels are at risk of at least 3 percentage points if they don't act determinedly, and soon."

How resource consumption will increase till 2030

BCG and GFA expect global apparel as well as footwear consumption to rise from 62 million tons to 102 million in 2030, which is the equivalent of 500 billion t-shirts. This translates to a 63% increase in consumption by 2030.

What is the impact of this on consumption of natural resources?

With current practices, this will result in water consumption going up by 50% from 2015 to 2030, energy emissions will be up 63%, 62% increase in waste creation, 52% increase in labour related costs, 7% increase in health and safety measures, and 35% increase in community engagement.

Water: BCG and GFA project the industry's annual water consumption under current practices will rise 50% by 2030 - a date when the World Bank expects the global shortfall between demand and supply to reach 40%. If fashion can innovate and overhaul its practices enough to keep its water consumption constant, it will generate €32 billion in annual value for the world economy - and protect itself from higher prices and disruption in supplies.

Energy Emissions: Atmospheric CO2 is 20% beyond what is considered safe, and fashion's annual emissions could increase 60% by 2030. Keeping fashion's emissions constant would represent €67 billion for the global economy.

Chemicals: Looking at occupational illnesses due to carcinogens and airborne particulates, analysts estimate an opportunity of US$ 7 billion annually that could be achieved through advanced chemicals management.

Waste: Continuing current practices, by 2030 fashion's annual waste from production and consumer disposal will increase by 60%. Today, only 20% of apparel is recycled at end-of-use, and most of that is downcycled into lower-value materials due to inadequate technology. Assuming a linear production model, the industry could save society €4 billion per year by keeping the total amount of waste constant. Far more is possible through closed-loop recycling.

Wages:  In major textile manufacturing countries, half of all workers are not paid the minimum wage, which in many areas is well below what can be considered a living wage. The International Labour Organization reports on 'extreme compliance' to minimum wages in the fashion industry, setting the threshold at 120% of what is legally required. If the industry manages to keep the number of workers paid less than 120% at a constant number, while expanding its workforce to support the projected volume growth, then it would add €5 billion annually to world economy through greater local consumption and private investments.

Health and safety: Annual recorded injuries are likely to rise by around 15% by 2030 - with each injury risking shortened life expectancy and diminished family support. If the industry succeeds in preventing nearly all injury, society would reclaim €32 billion per year.

Community engagement: For every euro spent by brands on local spending initiatives, society gains a greater return through multiplier effects. If the industry raised its community spending ratio from the current 0.2% of sales to 0.7%, the UN recommended level for governments in wealthy countries, then society would gain €14 billion annually by 2030.

"These improvements would reduce the industry's exposure to rising prices from scarce natural and human resources. Cost projections confirm that fashion brands' profitability levels are at stake if no counteracting measures are taken, due to price hikes in energy, labour and other input factors. Their EBIT margin could fall by 3 percentage points, equal to €45 billion in monetary value across the industry. Hence the opportunity and the need for the industry to intensify and combine its efforts," the agencies stress.

The Pulse Survey

To further confirm the findings, BCG and GFA conducted the Pulse Survey. By geography, European brands score higher on environmental dimensions, while their US counterparts are more likely to follow social best practice. By type of ownership, family-owned firms perform better on these issues, while most (not all) public companies tend to maximise short-term shareholder value.

As for stages in the value chain, the beginning and end have the most opportunity for improvement. Design scores 22 and raw materials only 17, while consumer use scores 23 and the end-of-use stage goes down to 9. Those areas typically get little attention by the media, consumers, or even industry participants such as the designers themselves.

As for the areas of impact, outside pressures drive success here as well. Brands perform relatively well within health and safety, which are regularly in the media and regulatory spotlight. Chemicals is also a relative bright spot, with a Pulse score of 37, due to regulatory restrictions, while waste and water management, which get little attention, are both at 20.

In areas where good technology already exists to address problems, large differences are visible: the gap between the top and bottom quartiles is 58 points in energy while it is only 12 in waste. Such gaps show that a great deal of improvement is possible using current technologies and practices.

According to the report, "Actions well beyond what individual players can accomplish are needed, in order to collectively move the industry to a whole new level of impact improvements. The main challenge to achieve this ambition is not individual commitment and actions, but leadership, collaboration, consolidation of resources and innovation. Many of these ideas will become practical only with widespread adoption. It's not enough for a few leading brands or sustainability champions to show proof of concept. The broad commitment and coordinated participation of the industry as a whole is needed."

The landscape for change

The landscape for change lays out a series of goals, each of which combines immediate actions with disruptive actions that depend on innovation & collaboration.

Environmental

1. Closed loop recycling - No value leakage, e.g., one garment recycled for every garment produced.

2. Sustainable material mix - 100% sustainable fibres

3. Reduced energy footprint - Minimised energy consumption and 100% carbon neutrality

4. Chemical and water optimisation - No hazardous chemicals and no water pollution

5. Production-to-demand - No overproduction

Social

1. Rebalanced industry economics - Fair and equal pay to worker and skill development for all workers

2. Health and safety excellence - 100% safe working places fostering well-being and morale

3. Advocacy of human rights - No human rights abuses and full rights advocacy

Overarching

1. Transparency and traceability - Full visibility on all tiers' supplier performance and conditions

2. Consumer engagement - Complete customer information on a garment's life-cycle impact, environmentally and socially

3. Novel business models - Full utilisation of purchased fashion products

4. Moving toward these goals will go a long way toward achieving the €160 billion a year opportunity for the world economy.

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