How Will Fashion Wrangle a 133-Million-Ton Preferred Materials Gap?
“These aren’t suggestions; suggestions are over,” Philipp Meister, global lead for fashion and sporting goods at Quantis, quipped from a sun-drenched meeting room overlooking the Thames River one October afternoon.
Meister was speaking at a lunchtime media briefing on the first day of Textile Exchange’s annual conference in London’s O2 hotel. A large flat-screen TV flashed the headline “Materials Manifesto,” and, in slightly smaller type, six “principles” for creating a “robust” materials strategy, such as strengthening supply chain relationships, diversifying one’s portfolio mix and investing in end-to-end traceability.
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“We wanted to make sure these were actively listed and not just a ‘roadmap’ or ‘call to action,’” said Catharina Martinez-Pardo, a partner at Boston Consulting Group, or BCG. “We want people to print them out, put them on the coffee machine.”
The recommendations—nay, mandates—are part of a joint analysis by BCG, Textile Exchange and Quantis, one that concluded that the fashion industry must move urgently and decisively to increase the share of so-called “preferred” raw materials or risk facing a 133 million-ton deficit by 2030.
The idea behind the report, said Jocelyn Wilkinson, partner and associate director at BCG, and a former Burberry executive, was to put “sort of a new lens” on the raw materials “storyline,” particularly in reducing impacts for the broader sector. While clothing and footwear purveyors have started to commit to science-based targets to whittle their carbon emissions, the “big unlock” is Scope 3, which involves the part of the supply chain not within their direct control.
There’s also a regulatory twist to the issue. Worldwide, the next two to four years will usher more than 35 new pieces of sustainability-linked legislation involving product design guidelines, labeling requirements and more. That’s two cotton harvests and three to four fashion weeks away or “right around the corner,” as Martinez-Pardo would tell the larger Textile Exchange audience at a closing plenary the following evening.
“This is new, this is scary for the industry,” she told a group of reporters. “Because for the first time, there are penalties and there are fees. And there is a financial implication if you’re not getting it right.”
Indeed the first complaint under the newly enforced German Supply Chain Act relates to fashion. In April, the African Women’s Development and Communication Network—better known as FEMNET—the European Center for Constitutional and Human Rights and the National Garment Workers Federation filed a grievance against Amazon, Ikea and Tom Tailor for what they described as a “failure” of corporate due diligence to identify and mitigate labor rights abuses. What this shows, Wilkinson noted, is that civil society is more than willing to wield whatever legal instruments it has at its disposal to hold brands accountable.
“That is the trend,” she said.
The ‘what’s next’ in next-gen
The gap isn’t something that’s coming—it’s already here. The study found that the volume of preferred raw materials was 23 million tons in 2021, versus 102 million tons of their conventional counterparts. By 2030, both amounts will increase by 30 percent, creating an impasse.
The global economic slowdown and climate-change-related supply issues, such as flooding in Pakistan and drought in Texas, have not helped narrow that gap. And despite many brands pledging to use only preferred versions of raw materials—which can contribute to as much as two-thirds of their climate footprint—by 2030, Tier 4 suppliers say they have yet to receive a powerful enough signal that their buyers will commit to and invest in them.
“Brands aren’t necessarily giving clarity to the market,” Wilkinson said. “And so we have that gap opening up. As a result, the brands are not going to be able to meet their targets in the timeframes that they have publicly stated. It doesn’t turn overnight, so the more we see that gap widening, the more frightening it becomes from an impact perspective.”
But even signals aren’t enough. Throughout the week, conferencegoers were abuzz over Renewcell, which had just replaced its CEO following a lower-than-expected sales warning, sending its stock into free fall. Like it or not, the Swedish textile recycler had become the poster child for what happens when brands don’t provide strong commitments and incentives, such as long-term offtake agreements, to companies that are poised for primetime.
And the knock-down effects could be just as destructive.
“Next-gen is the future of fashion,” Nicole Rycroft, founder and executive director of environmental nonprofit Canopy, said just before she joined a Chatham House Rule-bound discussion about transforming textile-to-textile recycling. “So when ventures like Renewcell, the first commercial-scale, next-gen facility in the world, their success is critical, not just for Renewcell but for Circ, Infinited [Fiber Company], Evrnu—all of the other innovators behind them, as well as for brands [that are] trying to secure a stable supply of low-carbon alternatives.”
Between the brands and producers in Canopy’s network, there are letters of intent, which are not legally binding, to purchase 700,000 tons of next-gen alternatives, she said. Now it’s time for brands to translate these commitments into purchase orders and displace an explicit percentage of conventional raw materials.
This is important even from a business continuity standpoint alone, Rycroft said. Climate-change-related events, such as water shortages, have begun shutting down textile mills for weeks, even months. Millions of hectares of forests in Canada went up in flames this year. Record-breaking wildfires are also smothering Brazil in smoke.
“We’re literally going to run out of runway for forest fibers,” she said. “And so I think that increasingly, our conversations with brands are moving to decoupling that financial performance from a reliance on virgin raw materials. A part of that is redesigning new ways to structure their business model. And a big part of that is the accelerated scaling of next-gen.”
Rycroft estimates that the industry needs $78 billion in investments to build and retrofit the necessary infrastructure. While angel and venture capital support is critical to get start-ups on their feet, more—much more—is needed to keep them going.
‘I need something that’s financeable’
Letters of intent don’t allow producers to obtain the financing they need, said Stacy Flynn, CEO of Evrnu, which makes its NuCycl regenerated lyocell from cotton textile waste, during a break in the programming.
“What I need is something that is financeable, which means it’s a commitment from companies that they will either take or pay within a certain volume over a certain period of time at a certain price,” Flynn said. “That binding commitment allows us to go to a financier and say, ‘We’ve got the commitments lined up. Here’s what they look like.’”
The problem is that brands are not investing in innovation with the capital that’s needed, she said, adding that “you can’t put $100,000 on a $4 trillion problem…it just doesn’t add up.”
“They want commodity pricing today,” she said. “They don’t have a culture of committing to innovation that isn’t tested. They don’t have the budgets; they have stated objectives, but they’re not funding them appropriately. And without funding, you get what you pay for. If you don’t pay for it, you don’t get it. So this has been a constant loop for the last 10 years: It’s a lot of talk.”
Flynn said that companies are trying to shoehorn innovations into a “flawed model,” rather than create, say, new forecasting tools linked to environmental impact reduction modeling that would allow brands to make their commitments with confidence. Instead, they’re just crossing their fingers that the circular economy will somehow “magically appear.”
“Right now we need the language of finance to step in and help these brands and retailers plan better businesses,” she said. “We’re past the proof of concept stage at this point; we’re past the capsule collection stage. What we’ve got to sit down and do is get creative with our partners…[and] figure out how there’s equitable distribution of value between us. …Because a launch without bringing any money into our balance sheet doesn’t really show much value to incoming investors.”
Flynn said that her biggest fear is that many of the most promising firms, including her own, will go out of business before legislation forces brands to dig deeper into their pockets.
“We have the technologies to recycle all garments, all blends in our labs,” she said. “They’re just sitting there unfunded.”
Beyond lip service
Mara Hoffman has a modest materials portfolio on purpose, Dana Davis, its vice president of sustainability, product and business strategy, told Sourcing Journal, shortly after she spoke on an on-background panel about the cult-favorite label’s adoption of Circ’s regenerated lyocell.
“That ensures that we have access to the materials when we need them,” she said. “It only helps us with the challenge of [minimum order quanties], price, all of those things.”
Davis said that by inking a two-year commitment with Circ—and that’s just for starters—Mara Hoffman is getting itself to a place of knowing that it has a viable solution as one of the main materials in its lineup. The womenswear company takes a “very strategic” approach, she said, by looking at the challenges it faces (for example, a lack of recycled nylon for swimwear), zeroing in on the innovators who might be working on the problem (perhaps through textile-to-textile recycling), and then figuring out how to “recreate systems” around the new inputs.
“I think that it’s time for brands to stop just putting pen to paper,” she said. “I mean, we have Renewcell saying they have fiber available and sitting there. So when I look at these brands, I’m like, ‘O.K., are you demanding your suppliers to use that fiber?’ I think offtake agreements are extremely important.”
Because Mara Hoffman’s stature allows it to only do so much, part of Davis’s job is to get other brands to buy into the innovations it’s looking at.
“We can’t do it alone. Our supply chain partners need [quantities] at a larger scale in order for it to be profitable for them as well,” she said. “So the way we approach the majority of the materials we work with is, how do we work collectively with [other] brands and [perhaps in turn] support their [own] material investments.”
Things have progressed beyond pitch meetings that showed “a fiber and a vial,” Davis said. Brands should be “jumping up” to help innovators build industrial-scale facilities and yet they’re not.
“This industry is notorious for not embracing change,” she said. “And change is hard, but [something] you’ll hear from Mara constantly is ‘change or die.’ So how we try to continuously step up in this space is to generate FOMO [i.e., fear of missing out] and [show that] this can be done. But collective action is the only path forward. The collaboration thing is getting a little exhausting at this point.”
Renewcell would get a stay of execution that week after Inditex revealed that it would be buying 2,000 metric tons of its Circulose fiber, though a representative from the former declined to say if the agreement came before or after its sales forecast. On Tuesday, however, Renewcell’s third-quarter results reported a net loss of 94.5 million Swedish kronor, or nearly $9 million, contributing to a net debt of 905 million kronor, or close to $86 million. While it produced 2,043 metric tons of Circulose in October, only 129 metric tons were delivered to customers.
“This is not sustainable,” interim CEO Magnus Håkansson said in an earnings call to analysts. “The real demand has to come from the big brands and for the big brands to take leadership in buying sufficient volume for this to hold all the way to become sustainable.”
Profiting from preferred
There’s at least one carrot for buyers to embrace preferred raw materials today rather than tomorrow. By BCG, Textile Exchange and Quantis’ estimates, companies that act now stand to secure an average 6 percent net profit increase over a five-year period. A brand with $1 billion in annual revenues, to give an example, could reap an extra $100 million over five years if it executes an appropriate materials strategy that doesn’t penalize its products within certain markets or put it at the mercy of post-2030 trading prices.
“That’s, I think, a really important message and not [only] for the sustainability team,” Martinez-Pardo said. “It’s a message to the sourcing team, it’s a message to the financials team, it’s a message to the CEO to take sustainability seriously because it has a serious numerical bottom-line impact on your company. …Regardless of your risk appetite, it’s going to hit you.”
What brands require to close the gap is “genuine” engagement from senior leadership so that there are no compromises and “these things have to happen,” Wilkinson said.
“The change is not happening at the speed it needs to happen,” she said. “The truth is, if we really take a sort of a Rolls Royce approach to how to deliver preferred materials and reduce the impacts, brands, [by] doing these things, will move that forward by leaps and bounds.”
One of the manifesto’s points is to build a business case that leads to a triple win—for brands, for nature but also for suppliers. As wonderful as innovation is, Martinez-Pardo said, innovation alone is not the answer.
“It really needs to be an interplay with the supply chain partners, because they feel the impact of climate as well, and I think they haven’t been put into the right conversations to also show what they have been innovating and thinking about,” she said. “And I think there’s a lot of missed opportunity.”
