Fashion industry’s profits could divebomb amid growing environmental scrutiny says Moody’s

Fashion retailers are set to face huge challenges over the coming years as increasing scrutiny over environmental issues from customers, regulators, governments and investors hammer margins.

According to a new report from Moody’s, at its current growth rate the fashion industry will consumer 25 per cent of the world’s carbon budget by 2050.

This means that without significant change it is unlikely to comply with global warming limits set by the Paris Climate Change Agreement, leading to massively increased regulation and production costs for the industry.

Figures from consulting firm BCG suggest that the fashion industry’s profit before tax could divebomb more than 300 basis points by 2030 if the industry continues to adopt the “take-make-dispose” model.

Brands will be forced to move towards a “reduce-reuse-recycle” model, hitting smaller brands harder as they will likely struggle to make the initial investment.

Not only will greater scrutiny surrounding sustainability be a major challenge for brands moving forward, but climate change itself will also begin to impact production costs.

For example cotton production in regions like India and Asia, which rely on huge amounts of water, are already being impacted by dryer weather.

The fashion industry is already the second largest user of water globally after agriculture, using 10 per cent of total industrial supply, while dyeing and finishing textiles are also responsible for 20 per cent of global industrial water pollution.

READ MORE: Retailers need to provide proof of sustainability claims as shoppers “no longer willing to take them at face value”

“Adopting sustainability strategies, including communicating and meeting specific sustainability targets, will increasingly become a differentiating factor when it comes to raising debt and targeting investors,” the report stated.

“Social media is increasing the influence and importance of consumers’ opinions. As a result, apparel companies will have to more clearly show where and how they make their products

“Despite growing interest in sustainability, its move to the mainstream will be gradual. Affordability and keeping up with fashion trends remain the main reasons for a purchase, with support for sustainability not necessarily reflected in shoppers’ actual behaviour.

“This is illustrated by the continued success of value brands like Primark, which sell very cheap clothing.”

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