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Textile Innovation Needs High-Risk, High-Reward Capital But Investors Are Holding Back

Textile innovations that improve the environmental footprint of the fashion industry make for splashy headlines. But without the ability to scale outside a lab, they also offer false hope.

Despite the “highly compelling investment proposition” of potentially disruptive technologies—think algae-based dyes, biodegradable bio-polyesters or finishes derived from agriculture waste—only a limited number of financial instruments are offering them the capital they need to grow.

But the lack of competition from venture funds or strategic investors is an opportunity ripe for seizing, according to Fashion for Good, an innovation platform headquartered in Amsterdam.

“The environmental and social impact of the industry is enormous, creating numerous opportunities to drive positive change,” wrote the authors of “Investing in Textile Innovation,” a report published last month. “The industry is clearly ready for innovative solutions, as evident in the ambitious sustainability targets set by many large brands and retailers, some of which are not attainable without innovation.”

As a whole, the fashion industry is slow—and loathe—to change. Any progress, the report noted, has been made “on the back of incremental, efficiency-focused initiatives” rather than the implementation of truly groundbreaking innovations. But the time for these technologies is now, the organization argues. Climate action is no longer something that’s nice to have but a business and moral imperative.

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“Over the last five years, we have seen a record number of European and U.S. brands commit to more sustainable operations,” the authors wrote. “In order to meet and exceed these ambitious commitments, new technologies and innovative solutions must be introduced and implemented in order for the industry to move beyond the current linear ‘take, make, dispose’ model, toward a model that is restorative and regenerative by design.”

Consumers, too, are demanding greater accountability from the brands they patronize. A survey of 1,000 U.S. consumers this past September, for instance, found that half of them self-identified as “very” or “extremely” environmentally conscious. Fifty-one percent of respondents said that companies shifting to eco-friendlier processes—more so than government or local regulations—are key to changing consumer behavior.

“A growing awareness amongst consumers with regards to social and environmental issues tied to apparel and footwear production further accelerates the drive to move the industry forward,” the report’s authors agreed. “Stricter environmental regulation, and policies integrating circular economy, are increasing pressure on the industry to change.”

Fashion for Good, which runs accelerator and scaling programs to give promising startups a leg up, says it has identified more than 1,500 innovators—”each developing much-needed innovation applicable to this industry”—in the past two years alone. They run the gamut from raw materials to processing to end of use.

There have been success stories as well, such as Jeanologia, whose laser technologies allow for increased productivity while reducing water and energy consumption and eliminating waste. The Spanish firm recently scored a 60-million-euro ($66-million) investment from the Carlyle Group. Kornit Digital, an on-demand textile-printing company that uses water-based and phthalate-free pigments, raised $150 million on Nasdaq just this year.

Investors, in other words, should stop “overlooking a promising investment theme” and join the handful of funds currently exploring the space, including The Mills Fabrica, Textile Innovation Fund, Closed Loop Partners, Alante Capital and Fashion for Good’s own Good Fashion Fund. The water’s fine, the report’s authors say, and the rewards innumerable.

“Disruptive innovations can only grow from lab to industrial scale if brands, manufacturers, innovators and investors work together,” they added. “For many of those disruptive technology ventures, high-risk and high-reward equity capital is required to pilot, implement and scale these solutions.”