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Sustainable Investing Will Reward Fashion’s Problem-Solving Startups in 2020

Sustainability is very much in fashion—and in finance.

When Prada secured the luxury sector’s first sustainability-linked loan last year, that marriage of finance and eco-friendly operations signaled a new era for apparel companies increasingly incentivized to put bad behaviors to bed and take a broad-stroke approach to running their businesses in service of people and planet.

Though sustainability serves as a catch-all umbrella term for a variety of foci—from treating supply chain  workers well to making clothing sans sullying soil, rivers, ocean and air—apparel brands and the factories that supply the world with billions of garments have narrowed their scope to a few key areas of interest, experts say.

If there’s been increased chatter about recycling garments and textiles, it’s largely because fashion knows that castoff culture simply cannot continue to discard once- or twice-worn garments into the landfill, only to rinse and repeat the destructive cycle. And if the global population hits 8.5 billion by 2030 as the United Nations expects, and the middle class continues to pad its ranks, the business of clothing consumers will be hard-pressed to curtail its reliance on virgin raw materials and curb its nature-negative ways.

Although shoppers absolutely must evolve their thinking about consumption, says Alante Capital co-founder Karla Mora, the apparel industry also needs to nurture new business models that seamlessly integrate with the real-time behavioral patterns of modern-day connected consumers.

Good Fashion Fund, which launched at September’s Hong Kong Fashion Summit as a collaboration between the C&A Foundation, Hong Kong’s The Mills Fabrica and impact investment firm Fount, has observed considerable interest and activity in initiatives addressing the end-of-life aspects for clothing and footwear.

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“To us, end-of-use initiatives such as fabric recycling, and bio effluent treatment plants, are quite attractive, in terms of both, impact and payback periods,” Bernadette Blom, head of investor relations for the group that invests in supply chain initiatives at small- to mid-size apparel manufacturers, whose stated mission is to “create ‘more good’ instead of ‘less bad.’”

Mora agrees. The venture capital fund she co-launched three years ago with former JPMorgan Chase & Co. sustainable finance vice president Leslie Harwell made one of its first investments in Tyton BioSciences, a textile recycling startup she describes as “exciting” for its ability to manage “the most diverse waste.” In the hands of the Virginia-based tech firm, polycotton fabric blends turn the cotton component into a cellulosic fiber that can be diverted into the lyocell market, while the polyester gains new life as a component suited for the plastics sector.

Garment recycling is poised to become big business as both apparel brands and the consumers who continually replenish their wardrobes are taking a closer look at how clothing makes its way into the world. Blom says Good Fashion Fund, which launched with $12.5 million and targets a total fund size of $60 million, is keeping an eye out for up-and-coming “end-of-use production facilities that are collecting, sorting and recycling textile waste,” which are showing “a lot of promise.”

And to the surprise of no one, clothing rentals and resale have been a hot topic among brands, according to Mora. She’s most passionate about startups that have built “drop-in solutions” that enable labels to control their secondhand businesses, rather than ceding their shoppers to the heavyhitter recommerce platforms like ThredUp, Vinted, Vestiaire Collective and The RealReal.

“This is where the market is going,” Mora added, citing companies like CaaStle, URBN-owned Nuuly, subscription-box service Material World and Paris-based Lizee—which claims to help brands kickstart and validate their rental operations in as little as nine months—as promising prospects.

Brands have been quick to jump onto the recycled fibers bandwagon because “it’s an easy story to tell,” says Mora, whose firm is targeting a final fund size of $30 million.

Not only is the recycled inputs story uncomplicated for consumers to comprehend, she added, but it’s also dramatically less complex than explaining why a brand might be abandoning its chemical finishes for less toxic options. Eco-friendly dyes are a similarly straightforward story to tell, but Mora says the technology lags where recycling innovators are today.

Alternative materials that create viable new fibers from waste streams have been creating buzz for years, and Mora says Alante Capital’s first portfolio company, Mango Materials, follows this trend by turning a naturally occurring biopolymer into a biodegradable polyester replacement. Brands, she says, are eager to stay ahead of any potential regulation regarding microfiber pollution, when laundered garments made from plastic derivatives shed nanoparticles into the earth’s waterways.

Transparency is also on the tip of everyone’s tongue—but Mora wants to see supply chain visibility become the “output of another business model,” rather than a standalone system. One company on Alante’s radar: Powered by People, an artisan marketplace enabling brands to order product from global makers better empowered to control their workflow.

Globally, banks are embarking on a mass exodus away from fossil fuels, looking instead to future-facing alternatives like eco-friendly energies. Timed to Climate Week in September, 130 banks including Citigroup, Barclays and Deutsche Bank holding more than $47 trillion in assets signed onto the United Nations’ principles around responsible banking, in response to growing awareness of the science detailing climate change.

“Everybody wants a positive ESG footprint, which then pushes entities toward creating more transparency” because to date, there’s been no surefire way of verifying sustainability claims, according to Amy Seidman, who founded Noble Profit and spearheaded its BFlo blockchain-based platform to unearth the truth about companies’ eco-posturing.

Trying to pivot massive industries away from harmful legacies and toward a cleaner, kinder future is not unlike the Titanic attempting a U-turn, says Seidman, whose work revolves around “turning that ship a little bit at a time.”

The “fabric of the investment world,” Seidman says, wryly acknowledging the “apparel metaphor,” has steadily distanced itself from dirty investments including weapons, tobacco and adult entertainment, beyond atmosphere-clogging fossil fuels.

Global banking, she says, is pulling the finance industry in a new direction, and taking fashion along for the ride. “Fashion is so important because it’s such a massive, massive footprint. And it affects so many people, from slavery to pollution to the water,” Seidman says. “But when you talk about the movement of money, and what is propelling this, that’s a different story and not a fashion story.”

Changes upending fashion, she says, are “based on a bigger movement.”

At Alante Capital—which counts Eileen Fisher as a general partner and anchor investor and works with companies ranging from Levi Strauss and VF to Kering Group, Gap Inc. and Adidas—ensuring that startups have the capital to scale and make a meaningful difference is half the battle. The VC firm, Mora says, helps redirect brands from “direct thinking and obvious solutions” to explore what their options are for the here and now while they scale other initiatives.

“If there’s no capital to get these startups to grow, so many resources are wasted and we hear that continuously from brands,” says Mora, whose firm is also looking to invest in fit technologies like Canada’s foot-scanning innovator Ftsy and startups addressing hemp decortication and degumming techniques.