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There’s a $30B Opportunity to Redress Fashion in Sustainability’s Image

Brainstorming the innovations that will improve the fashion industry is one thing. Financing them so they achieve market scale is quite another.

Indeed, the challenge isn’t the lack of disruptive ideas, but rather a “need to accelerate the pace of change” with the inflow of capital, according to a report unveiled at the World Economic Forum in Davos, Switzerland on Wednesday.

Published by innovation platform Fashion for Good and management firm Boston Consulting Group, “Financing the Transformation in the Fashion Industry: Unlocking Investment to Scale Innovation” suggests that only disruptive innovation in the form of new materials, processes, technologies and business models, coupled with robust support, will shift the $2-trillion fashion industry toward a sustainable operating model.

But while financing opportunities to develop and scale such innovations ring in at an annual $20 billion to $30 billion, the fashion industry’s “cost-driven race to the bottom” means attentions are frequently diverted elsewhere.

Many investors, too, are overlooking the “immense” investment opportunities in fashion and textile innovation, the report’s authors wrote. Only a fraction of all available capital has been invested in fashion and textile technology, leaving many innovators struggling to bridge the “missing middle” of finance between early venture capital and late-stage funding. This prevents solutions from reaching market scale, they said.

To achieve a “step change” by 2030, the study noted, investments need to increase by a factor of three or more over their current levels so emerging ventures can “succeed or fail on their own merits.”

But venture capital alone will not be enough to finance the transformation. Supporting and accelerating innovation requires a “broader range” of investors and leaders, including fashion brands and other supply-chain partners, to extend and structure the marketplace beyond individual relationships.

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“Here, targeted consortiums would have the power to accelerate progress by combining resources from multiple parties and aligning the key players needed for success in a focused effort,” the study’s authors wrote.

Regulatory bodies can also play a crucial role in the fashion industry’s march toward sustainability. They can establish policy frameworks comprising economic incentives, policies, regulations and standards necessary to “empower systemic change and create pressure for the fashion industry to accelerate the transformation.”

The clock is ticking for the industry to advance, they added, and companies and investors that act quickly and boldly will “lead the transformation and ultimately win.”

“While the first steps have been taken, fashion needs to embrace and accelerate innovation to future-proof the industry,” Sebastian Boger, a Boston Consulting Group managing director and partner, said in a statement. “Doing so opens up major untapped returns for those who can capitalize on the upcoming technological disruption.”

From technologies promoting waterless or closed-loop processing to retail models exploring rental and resale, solutions that can offer “major leaps” toward circularity already exist today, added Katrin Ley, managing director of Fashion for Good.

Equally vast are the opportunities to invest and scale them within the industry.

“It is a unique time in the fashion industry right now,” Mike Jackson, developer in residence at San Francisco investment firm Generate Capital, said. “With growing consumer demands for sustainability, regulatory shifts and the emerging innovation landscape, it is forming a perfect storm for opportunity.”