Fashion’s climate lag poses a financial threat, says a new report from the Apparel Impact Institute. The report, “The Cost of Inaction,” doesn’t mince words: if brands and manufacturers drag their feet on cutting emissions, they’re not just hurting the planet, they’re putting their own bottom lines on the line. This isn’t just about the environment anymore; it’s a serious financial threat. Fashion is responsible for at least 2 percent of global carbon emissions, and almost all of that 99 percent comes from the supply chain. If the industry keeps delaying action, profits will take a hit, and supply chains could start to unravel.

Cumulative Profit Losses by 2030 and 2040

According to the report, if adequate reductions in emissions are not made, there could be a loss of 3 percent in operating margins and 34 percent in profits by 2030. The situation is expected to be worse by 2040, with a possible loss of up to 67 percent in case climate change adaptation and mitigation strategies are not adopted on a large scale.

There are three major cost drivers that contribute to this financial risk, which include carbon pricing, material costs, and energy costs. The carbon price is expected to increase from an average of $10 per ton to $350 per ton by 2040, which alone could increase the cost of goods sold by 13 percent.

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Under Climate Stress, Cotton Production is Vulnerable

Cotton is one of the world’s most highly used fibres, comprising approximately 19% of the global supply; however, it is also very vulnerable to changes in climate due to its sensitivity to weather conditions. Cotton production is already experiencing volatility as climate change has caused increased incidence of drought, heat waves, and erratic precipitation.

The volatility of cotton and its pricing due to extreme weather events, heavy rains in India, heat waves in China, and drought in the US, is already evident through a 30% increase in the price of cotton over one year (2022). According to forecasts for 2040, approximately 50% of the regions producing cotton will see increased temperatures and limited water availability; meanwhile, 40% of regions will have shorter growing seasons, impacting the reliability of supply and prices.

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Energy and Carbon Pricing Pressures

The use of energy in textile manufacturing adds to the risks. A large part of the emissions comes from Tier 2 processes like dyeing and finishing, which are highly dependent on coal-based power grids in major Asian manufacturing countries. Without investment in renewable energy and electrification, suppliers will be under pressure from increasing fuel prices and government regulations that will eventually be passed on to the brands.

Industry leaders are encouraged to understand that delaying climate change mitigation will eventually affect their competitiveness. As is evident from the analysis, fashion’s climate lag poses a financial threat not only to climate change mitigation but also to the financial sustainability of the industry.

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