Fashion on climate

FASHION ON

CLIMATE

HOW THE FASHION INDUSTRY CAN URGENTLY ACT

TO REDUCE ITS GREENHOUSE GAS EMISSIONS

IMPRINT

This report is authored by McKinsey & Company (McKinsey)

in partnership with Global Fashion Agenda (GFA). Through

a multi-year strategic knowledge partnership, Global

Fashion Agenda and McKinsey aim to present research and

a fact base on the priorities of the CEO Agenda and to

guide and mobilise fashion executives in taking bold

action on sustainability.

PUBLISHED BY

AUTHORS: Achim Berg and Karl-Hendrik Magnus are Senior

Partners and leaders of McKinsey & Company’s Global

Apparel, Fashion & Luxury practice Sara Kappelmark is a

partner in the Apparel, Fashion & Luxury practice. Anna

Granskog is a Partner, Libbi Lee and Corinne Sawers are

Associate Partners and Poorni Polgampola an Engagement

Manager in McKinsey & Company’s Global Sustainability

Practice.

Morten Lehmann is Chief Sustainability Officer at Global

Fashion Agenda, where Holly Syrett is Senior Sustainability

Manager and Gizem Arici is Sustainability Manager.

COPYWRITER: David Wigan

ART DIRECTOR: Thomas Blankschøn

GRAPHIC DESIGN: Daniel Siim

and Global Fashion Agenda

IMPRINT

effort has been made to trace the copyright holders for this publication. Should any copyright holders have been

inadvertently overlooked, McKinsey & Company and Global Fashion Agenda will make the necessary changes.

ABOUT GLOBAL FASHION AGENDA

Global Fashion Agenda is the foremost thought leadership

and advocacy forum for industry collaboration and

public-private cooperation on sustainability in fashion.

The non-profit organisation is on a mission to mobilise

and guide the fashion industry to take bold and urgent

action on sustainability. Global Fashion Agenda is

behind yearly guidelines, reports such as the CEO

Agenda and the leading business event on sustainability

in fashion, Copenhagen Fashion Summit, which has been

spearheading the movement for over a decade.

ABOUT MCKINSEY & COMPANY

McKinsey & Company is a global management consulting

firm deeply committed to helping institutions in the

private, public and social sectors achieve lasting

success. McKinsey supports clients in fashion and beyond

on a wide range of sustainability related themes with

a strong impact orientation. This ranges from executing

broader sustainability transformation programmes to more

targeted efforts on decarbonisation, circular business

models and sustainable packaging. McKinsey & Company is

a Strategic Knowledge Partner to GFA, with the joint

aim to accelerate the pace and impact of the fashion

industry’s transformation towards sustainability.

ACKNOWLEDGEMENTS

The authors would like to thank all of those who

contributed to this publication. Special thanks go to

Global Fashion Agenda’s Strategic and Associate Partners,

as well as the industry experts and the broader fashion

community who have contributed their time, insight and

expertise to this report. We would also like to thank

David Schmelzeisen and Amrei Becker from the Institut für

Textiltechnik, RWTH Aachen University.

We extend our thanks to several McKinsey & Company

colleagues for their contributions to this report:

Victoria Benbassat, Anja Bühner-Blaschke, Adriana

Clemens, Michel Foucaurt, Eric Hannon, Kimberly

Henderson, Saskia Hedrich, Kristen Jennings, Nimalan

M, Mihael Maljak, Tomas Nauclér, Althea Peng, Mohammed

Rahamatulla, Cristina Schaub, Ewa Sikora, Marie

Strawczynski, Heidi Van Dyck, Jan Vlcek, Daan Walter,

Jop Weterings, Annikka Wong, Waris Ziarkash.

At Global Fashion Agenda, we extend our thanks

for their contributions, to: Eva Kruse, Thomas

Tochtermann, Kerry Huang, Marie Louise Wedel Bruun,

Molly Polk Hannon, Cleshawn Montague, Maria Luisa

Martinez and Beatrice Perlman Ewert.

CONTENTS

PREFACE 02

EXECUTIVE SUMMARY 03

BASELINING THE FASHION INDUSTRY’S GHG EMISSIONS 05

THE INDUSTRY’S ACCELERATED ABATEMENT POTENTIAL 08

THE ECONOMICS OF EMISSIONS ABATEMENT 17

ROLES OF ECOSYSTEM ACTORS TO REACH THE 1.5-DEGREE PATHWAY 22

APPENDIX: METHODOLOGY AND ENDNOTES 27

01 — 52

PREFACE

When COVID-19 erupted this year, it highlighted

the interconnectedness of our lives and the

inherent uncertainty surrounding global economies,

businesses and humankind. Similarly, the protests

associated with the Black Lives Matter movement

have increased the pressure to solve social

issues that pervade large parts of society and

the fashion industry. This turbulent year has

heightened awareness of the many challenges the

fashion industry is facing, including in supplier

relationships, greenhouse gas (GHG) emissions,

employment structures, overproduction and wastage.

These systemic issues are also apparent in the

looming threat of climate change, which is set to

create accelerating socioeconomic impacts over

the coming years. If we fail to take coordinated

action on the greenhouse gas (GHG) emissions

causing climate change, we can expect to see

increasingly common crises such as heatwaves,

rising sea levels and damage to ecosystems that

are vital to our future.

This year marks a milestone in the industry’s

journey to restrict global warming to the 1.5

degress targeted by the Paris Climate Change

Agreement.

To date, only around 50 fashion

companies have committed to the science-based

targets aligned with the agreement.

As a significant contributor to climate change,

the fashion industry needs to act now to cut

its GHG emissions.

The onus is on fashion

leaders to move from a moderate decarbonisation

trajectory to a significantly more ambitious one.

With that challenge in mind, it has never been

more important to explore the emissions status

quo and to understand in detail how various

decarbonisation scenarios may play out.

This report presents an analysis on the fashion

industry’s GHG emissions and outlines areas

in which players can focus their efforts to

meet climate targets. By triangulating GHG

emissions data, analysing current and accelerated

trajectories, and quantifying the gap to meeting

the Paris targets, it offers insight into the

industry’s potential for decarbonisation and

presents recommendations for moving forward.

The report addresses stakeholders that include

brands, retailers, manufacturers, citizens,

investors, and policy makers to play their part

in putting the fashion industry on the 1.5-degree

pathway. Only by daring to change, collaborate and

embrace new ways of operating can we, together,

transform the industry and create prosperity for

people and communities while working within planetary

boundaries, protecting biodiversity and minimising

the industry’s contribution to global warming.

02 — 52

“TWO THIRDS OF CONSUMERS

SAY IT HAS BECOME EVEN MORE

IMPORTANT TO LIMIT CLIMATE

CHANGE FOLLOWING COVID-19.”

RISING EXPECTATIONS ON SUSTAINABILITY

COVID-19 is having a significant effect on the fashion industry, disrupting value chains, closing many

of the world’s retail outlets and creating a new level of public awareness over health, safety and the

fragility of the planet. It has forced brands and upstream players to take difficult decisions every day,

from managing cash flows, to rethinking distribution models and acting to protect the health of employees

and consumers alike.

At the same time, consumers are becoming increasingly engaged with sustainability topics, including social

issues and climate change, as evidenced by movements such as Friday’s for Future.

Many are showing their

willingness to rethink how, when and what they buy.

Sustainability issues are also attracting increasing attention at executive level. Some 50% of fashion

executives in a recent opinion poll indicated that sustainability has moved up the agenda in recent months.

A rising number of asset and wealth managers have mandates that prioritise companies that pass sustainability

thresholds.

Moreover, COVID-19 has spurred policy makers to refocus on sustainability, with various regional

and national authorities tying post-COVID recovery efforts to sustainability objectives.

10, 11

03 — 52

EXECUTIVE SUMMARY

Since the Industrial Revolution, GHG emissions have

contributed to atmospheric warming that has lifted

global temperatures by around 1.1 degrees, with

significant regional variations.

The warming

has precipitated more frequent and severe risks,

including flooding, fires, droughts and storms,

leading to socioeconomic impacts on, e.g. liveability

and workability, food systems and natural capital.

With temperatures set to continue their upward

trajectory, it is likely these adverse impacts will

become more severe over the coming years.

This research shows that the global fashion industry

produced around 2.1 billion tonnes of GHG emissions

in 2018, equalling 4% of the global total.

This

is equivalent to the combined annual GHG emissions

of France, Germany and the United Kingdom.

Around

70% of the fashion industry’s emissions came from

upstream activities such as materials production,

preparation and processing. The remaining 30% were

associated with downstream retail operations, the

use-phase and end-of-use activities.

Adding to the challenge of reducing its GHG footprint

is the expectation that the fashion industry will

continue to grow as a result of shifting population

and consumption patterns. If no further action is

taken over the next decade beyond measures already

in place, the industry’s GHG emissions will likely

rise to around 2.7 billion tonnes a year by 2030,

reflecting an annual volume growth rate of 2.7%.

04 — 52

This research analyses two scenarios for the industry’s abatement efforts:

1. Current pace trajectory.

If the industry continues to embrace current decarbonisation

initiatives at the current pace, emissions will be capped at around 2.1 billion tonnes a

year by 2030, around the same as they are now. This would leave levels at nearly double

the maximum required to stay on the 1.5-degree pathway.

2. Accelerated abatement.

To align with the 1.5-degree pathway over the next 10 years,

the fashion industry should intensify its efforts. In practice, that means embracing

accelerated abatement, which is estimated to reduce annual emissions to around 1.1 billion

tonnes, around half of today’s figure.

The immediate focus of accelerated abatement

should be upstream operations, where around 60% of emissions savings are possible, in

particular from increased use of renewable energy, through collaborative efforts supported

by brands and retailers. Actions relating to brands’ own operations have the potential to

deliver around 20% of the reduction, with the remainder coming from changes in consumer

behaviour. By 2030, these efforts will need to have created a significantly reformed

fashion landscape, in which, for example, one out of five garmentsare traded through a

circular business model.

The good news for the fashion industry is that many of the required actions can be delivered at

a moderate cost. Around 90% of the accelerated abatement can be delivered below a cost of around

USD50 per tonne of GHG emissions.

Around 55% of the actions required will lead to net cost

savings on an industrywide basis. The remaining actions will require incentivisation in the form

of consumer demand or regulations to deliver abatement. Additionally, around 60% of the abatement

will require upfront capital, where brands and retailers will need to support and collaborate with

value chain players to invest for the long-term benefit of society and the environment.



The scale of change required implies a need for bold commitments. Stakeholders throughout the

value chain should be willing to make bold commitments, followed by equally bold actions,

transparency, collaboration and joint investment. Brands and suppliers need to step up engagement

with policy makers, support the roll out of renewable energy and drive end-of-use collections for

recycling.

Beyond 2030, the challenge becomes even greater. To stay on the 1.5-degree pathway, the industry

needs to go beyond this vision of accelerated abatement to fundamentally redefine business models

and current imperatives of economic growth and rising consumerism. For a prosperous future and an

habitable earth, the industry’s ingenuity and creative spirit will be required to decouple value

creation from volume growth and to move from commitments to actions.

EXECUTIVE SUMMARY

Material

Production

38%

Yarn

Preparation

Product Use

2O%

Retail

Transport

Fabric

Preparation

Cut

Make

Trim

Wet

Processes

15%

2,1O6 Mn

tonnes CO2eq

1OO%

APPAREL AND FOOTWEAR

VALUE CHAIN GHG EMISSIONS

IN 2018

Upstream Production

Brand Operations

Usage & End-of-use

End-of-use

05 — 52

BASELINING THE FASHION INDUSTRY’S GHG EMISSIONS

THE STATUS QUO ON INDUSTRY

EMISSIONS AND ABATEMENT EFFORTS

The fashion industry accounts for around 4% of

emissions globally, equivalent to the combined

annual GHG emissions of France, Germany and

the United Kingdom.

26,

More than 70% of

the emissions come from upstream activities,

particularly energy-intensive raw material

production, preparation and processing.

The remaining 30% are generated by downstream

activities such as transport, packaging, retail

operations, usage and end-of-use.

“THE FASHION INDUSTRY

ACCOUNTS FOR AROUND

4% OF GLOBAL GHG

EMISSIONS”

06 — 52

BASELINE CALCULATION METHODOLOGY

To determine the industry’s baseline emissions, we leveraged a bottom-up analysis

using proprietary data. The calculation took into account the entire fashion

industry’s value chain, including downstream usage and end-of-use stages. However,

it did not include secondary activities such as fashion shows or the back-office

emissions of individual companies.

The calculations considered the volume of garments produced, used and disposed

of in a given year to develop an annualised emissions baseline, rather than a

lifecycle analysis. The analysis is based on the annual volume of fibres used

to meet garment demand for the year 2018 and data on emissions intensity of raw

materials from various sources.

We analysed the energy consumption and emissions

intensity of key value chain stages across production and consumption countries,

using third-party data, as well as proprietary energy mix and emissions data from

McKinsey’s “Global Energy Perspective” and “Energy Insights” reports.

The baseline calculation was triangulated using a top-down analysis of reports on the

industry’s emissions. The triangulation exercise indicated emissions ranging from 3%

to 10% of global emissions. The disparity was largely driven by the sensitivity of

the baseline emissions calculation to energy consumption and energy mix assumptions,

as well as the scope of value chain stages included in the analysis.

2O18 2O3O 2O3O

Emissions Emissions

under no

further

action

Emissions

under

current

pace

Gap to

1.5-degree

pathway

2,74O

Mn tonnes

CO2Eq

1,OOO

1,1OO

2,OOO

3,OOO

2,1O6 2,1O4

~5O%

1.5-degree

pathway

EMISSIONS ABATEMENT ASSUMING NO FURTHER

ACTION OR INDUSTRY DECARBONISATION

CONTINUES AT CURRENT PACE

07 — 52

With no further abatement action beyond that

already taking place, emissions will rise by

around a third to some 2.7 billion tonnes in

2030,

assuming a relatively speedy post-COVID-19

economic rebound and continued growth thereafter

(in line with industry forecasts).

Current pace. If abatement efforts continue to

expand at the current rate, the industry can

maintain GHG emissions at 2.1 billion tonnes in

2030. In net terms, this represents an abatement

potential of around 636 million tonnes.

Around 43% of that potential is associated with

decarbonised production and process efficiency

improvements, including initiatives across

spinning, weaving and knitting; shifting away from

wet towards dry processing; transitioning from

coal to electric energy; and increasing use of

renewable energy across the value chain.

Other

elements include reduction of overproduction and

manufacturing process wastage, greater use of

circular business models, and consumer-led changes

such as reduced washing and drying. If emissions

reductions continue on the current trajectory,

these can offset the additional emissions that

will be created by the industry’s growth up to

2030. However, these will not be sufficient to put

the industry on a 1.5-degree pathway.

To track a path to 1.5 degrees, the industry

will be required to accelerate its efforts over

the coming decade, reducing emissions by half to

around 1.1 billion tonnes by 2030.

This will

require the industry to accelerate abatement

actions, including scaling up and intensifying

current decarbonisation approaches.

BASELINING THE FASHION INDUSTRY’S GHG EMISSIONS

“UNDER ITS CURRENT TRAJECTORY,

THE FASHION INDUSTRY WILL MISS

THE 1.5-DEGREE PATHWAY

BY 50%.”

08 — 52

THE INDUSTRY’S ACCELERATED ABATEMENT POTENTIAL

“OVER THE NEXT DECADE,

THE INDUSTRY CAN CUT ITS

COLLECTIVE GHG FOOTPRINT IN

HALF FROM CURRENT LEVELS.”

ACCELERATED ABATEMENT TO PUT

THE INDUSTRY ON THE 1.5-DEGREE

PATHWAY

Accelerated abatement. Under an accelerated

abatement scenario, the industry can reduce

emissions to around 1.1 billion tonnes in 2030,

putting it on the 1.5-degree pathway. We define

accelerated abatement as the effort required to

move the industry from 2.7 billion tonnes of

emissions under the no-further-action baseline to

1.1 billion tonnes in 2030.

Accelerated abatement is achievable through many

of the same levers that are currently being used

to cut emissions, but on an expanded scale or

with a higher level of adoption.

The primary

drivers of accelerated abatement will be brands

and retailers, which can affect change in their

own operations, support value chain participants

in their decarbonisation efforts and create

opportunities for consumers to make sustainable

consumption choices. It will require concerted

and committed action in three areas:

• Reducing emissions from upstream operations

• Reducing emissions from brands’ own operations

• Encouraging sustainable consumer behaviours

2O18 2O3O 2O3O

Emissions Emissions

under no

further

action

Emissions

under

current

pace

2,74O

2,1O6 2,1O4

2O3O

Emissions

under

accelerated

abatement

1,O64

Mn tonnes

CO2Eq

1,1OO

1,OOO

2,OOO

3,OOO

1.5-degree

pathway

EMISSIONS ABATEMENT ASSUMING

ACCELERATED INDUSTRY

DECARBONISATION

09 — 52

THE INDUSTRY’S ACCELERATED ABATEMENT POTENTIAL

“60% OF THE

ACCELERATED ABATEMENT

POTENTIAL LIES

IN DECARBONISING

UPSTREAM OPERATIONS,

20% LIES IN BRANDS’

OWN OPERATIONS,

AND 20% RELIES

ON ENCOURAGING

SUSTAINABLE CONSUMER

BEHAVIOURS”

18%

1,676 Mn

tonnes CO2eq

1OO%

61%

21%

Encouraging sustainable consumer behaviours

Reducing emissions from brands' own operations

Reducing emissions from upstream operations

KEY SOURCES OF EMISSIONS SAVINGS

UNDER ACCELERATED ABATEMENT

-2O5

-7O3

-24

-9O

1‚653

Decarbonised

material

production

Decarbonised

material

processing

Minimised

production

& manufacturing

wastage

Decarbonised

garment

production

1‚676

655

61%

Total

accelerated

abatement

potential

EMISSIONS SAVINGS WITHIN UPSTREAM PRODUCTION UNDER ACCELERATED ABATEMENT

Mn tonnes

CO2Eq

Upstream Production

Brand Operations

Usage & End-of-use

18%

21%

10 — 52

REDUCING EMISSIONS FROM UPSTREAM OPERATIONS

Decarbonised material processing

could deliver 703 million tonnes

of GHG emissions savings through

renewable energy and efficiency

improvements. This assumes a 5%

efficiency gain in spinning,

weaving and knitting stages,

for example through motor and

air pressure modifications in

machinery. It assumes a shift from

wet to dry processing and adoption

of processing technologies that

consume less energy.

Additionally, the analysis assumes

the use of 100% renewable energy

in processing stages, supported by

brands and retailers.

THE DECARBONISATION OF UPSTREAM VALUE

CHAIN ACTIVITIES HAS THE POTENTIAL TO

DRIVE 61% OF THE AMBITIOUS 1.7 BILLION

TONNES OF ACCELERATED ABATEMENT POTENTIAL

IN 2030.

Minimised production and manufacturing

wastage could deliver 24 million

tonnes of GHG emissions savings.

This assumes a 1-2 percentage point

improvement in the waste generated

in the transition from fibre to

textiles and in cutting waste in

the garment manufacturing stage

through better design and modern

cutting techniques.

Decarbonised garment manufacturing

could deliver 90 million tonnes of

GHG emissions savings. This assumes

a 30% energy efficiency improvement

across heating, ventilation and

air conditioning-related equipment

and an around 20% efficiency

improvement in sewing machines

through new technologies and

equipment upgrades.

Additionally, the analysis assumes

the use of 100% renewable energy in

the garment manufacturing stage,

supported by brands and retailers.

Decarbonised material production

could reduce annual GHG emissions

by 205 million tonnes. This assumes

around 20% of energy efficiency

improvements for polyester

production, based on technology

improvements within machinery,

and an around 40% reduction in

fertiliser and pesticide usage in

cotton cultivation, due to improved

farming practices such as targeted

spreading.

Fertilisers are a

significant source of nitrogen-

linked GHG emissions, while

pesticides emit carbon during

manufacturing. They account for

around 70% of GHG emissions in

conventional cotton cultivation.

11 — 52

ENABLE ENERGY EFFICIENCY IMPROVEMENTS

AND ENERGY TRANSITIONS

Under an accelerated abatement scenario, energy

efficiency and energy transition levers can deliver

around 1 billion tonnes of GHG emissions abatement

in 2030 across the value chain. Around 45% of savings

can be derived from efficiency improvements in raw

material production, preparation and processing,

while 39% will be associated with the transition

to renewable energy. The remaining 16% could be

delivered by switching from coal energy boilers to

electric boilers for synthetic material production.

Brands and retailers play a key role in supporting

the energy transition of upstream operations.

One promising avenue is through power purchase

agreements (PPA) in supplier countries. These

are long-term contracts to purchase energy during

the contract period. To make the investment case

viable and to secure financing for a new renewable

power asset and long-term (10-20 years) offtake

agreement, brands can offer their probable higher

credit rating to secure more favourable terms. Power

purchase agreements are currently not available in

Bangladesh and Turkey, but they are seeing rising

use in other major supplier countries, including

China, India and Vietnam.

Another option for brands is to support the purchase

of unbundled Energy Attribute Certificates.

These instruments verify that 1 MWh of renewable

electricity was generated by a sustainable power

source and fed back into the grid. While value chain

players are able to purchase these certificates,

brands can offer support by incentivising or

rewarding purchases. Widely available in China,

India and Turkey, they are starting to appear in

Bangladesh, Indonesia and Vietnam.

Overall, the longer-term picture on renewable

energy is encouraging. Corporate groups such as

the RE100 are driving the agenda to grow renewable

energy sourcing and brand-supported action could

significantly contribute to accelerating the energy

transition in supplier geographies.

“SOME 63% OF

ACCELERATED ABATEMENT

POTENTIAL LIES IN ENERGY

EFFICIENCY AND THE

TRANSITION TO CLEANER

ENERGY SOURCES.”

Emissions abatement due to energy related levers

Emissions abatement due to other levers

63%

37%

45%

1,O5O

39%

16%

Energy efﬁciency

improvements

1,676 Mn

tonnes

CO2eq

1OO%

Energy mix transition

(100% renewables transition

in material processing,

garment manufacturing and

retail operations stages)

Energy mix transition

(switching from coal to electric

in material processing stage)

ENERGY RELATED EMISSIONS ABATEMENT

-41

-39 -5

-52

-158

-12

Total

accelerated

abatement

potential

Improved

material

mix

Increased

use of

Sustainable

Transport

Improved

packaging

Decarbonised

retail

operations

Minimised

returns

Reduced

overproduction

1‚676

18%

61%

Mn tonnes

CO2Eq

Upstream Production

Brand Operations

Usage & End-of-use

EMISSIONS SAVINGS WITHIN BRAND OPERATIONS UNDER ACCELERATED ABATEMENT

21%

12 — 52

REDUCING EMISSIONS FROM BRANDS’ OWN OPERATIONS

DECARBONISATION LEVERS WITHIN BRANDS’

DIRECT OPERATIONS CAN DRIVE AS MUCH

AS 18% OF THE ACCELERATED

ABATEMENT POTENTIAL.

This is achievable through measures

that include rapid digitisation,

investments in more demand-

focused regional supply chains and

nearshoring.

Additionally, it

assumes 90% electrification of the

B2C light transport fleet, supported

by regulatory incentives and

improvements in battery technology.

Improved packaging could deliver

5 million tonnes of GHG emissions

savings. This assumes material

mix improvements, such as a

20 percentage point increase

in recycled content usage in

corrugated boxes and 80% recycled

low-density polyethylene content in

polybags through improved material

functionality and lower production

costs. Additionally, it assumes

weight reduction in corrugated

boxes based on a cut in the number

of layers from five to three, and

a reduction in polybag weight by

around 20% through improved design.

Decarbonised retail operations

could deliver 52 million tonnes of

GHG emissions savings. This assumes

a 40% reduction in energy consumption

across heating, ventilation and air

conditioning equipment in retail

operations, an 80% energy efficiency

improvement by switching to LED lighting

and a transition to 100% renewable

energy across retail operations.

Minimised returns could deliver

12 million tonnes of GHG emissions

savings. This assumes a reduction

in e-commerce returns rates from

35% to 15%, through a combination

of technological improvements on

predicting size and fit and consumer

behavioural change to reduce

purchases with an intent to return.

Reduced overproduction is a key

lever that could reduce emissions

by around 158 million tonnes in

2030. Due to overproduction, some

40% of garments are currently sold

at a markdown.

A 10 percentage

point reduction in industrywide

overproduction,

for example through

technology investment to support

demand forecasting and stock

management or regulatory incentives,

could deliver this abatement.

Improved material mix could

deliver 41 million tonnes of GHG

emissions savings. The impact of

this lever will be dependent on

the level of adoption assumed. Due

to limitations around economics

and scaling, this accelerated

abatement analysis assumes just 20%

of recycled polyester (rPET) usage

and an 11% adoption of alternatives

such as organic, recycled or bio-

based textiles by 2030 (see:

Embracing sustainable materials).

Increased use of sustainable

transport could deliver 39 million

tonnes of GHG emissions savings.

This assumes a recalibration to

90% sea transport and 10% air

transport across the industry,

compared with 83% sea transport

and 17% air transport at present.

13 — 52

EMBRACING SUSTAINABLE MATERIALS

Sustainable materials help reduce upstream emissions,

for example due to cleaner production processes or

use of recycled materials over virgin materials.

Organic cotton is around 50% less emissions intensive

than conventional cotton, due to the limited use of

pesticides and fertilisers and more advanced farming

practices.53 rPET is around 40% less emissions intensive

than regular polyester because of material recycling

and closed-loop production methods.54 Sustainable man-

made cellulose fibres like Modal and Lyocell produce

around half the emissions of conventional fibres of

this type due to closed-loop production methods.55

The net emissions abatement potential of sustainable

materials is dependent on the level of adoption, and

there are challenges in that respect. In the case of

organic cotton, the yields in the transition phase

toward organic certification are lower compared to

conventional cotton. This has a direct impact on

farmers’ revenues. If brands and suppliers cannot

compensate for that loss, organic cotton production

is unlikely to increase significantly over the

next decade. In the case of rPET, the industry has

historically been dependent on rPET from plastic

bottles, but supply is increasingly pressured by

demand from the packaging industry. This could limit

the fashion industry’s share of rPET to around 20% in

2030. Alternative material choices include bio-based

polyester and closed-loop rPET, but commercial-scale

solutions are nascent and cost prohibitive for many

players. Similarly, in the case of sustainable man-

made cellulose fibres, commercial-scale production is

limited due to nascent recycling technology.56

A key unlock over the coming years will be the ability of

industry players to scale up the adoption of sustainable

materials while driving down costs in comparison to

traditional materials, as well as fostering changes

in designer mindsets to promote sustainable materials

in product design. More frequent use of sustainable

materials will also have an impact on other factors,

including water consumption, water pollution, land

and fertiliser use, and eutrophication. That is why

it should continue to be a priority abatement lever as

the technology matures.

14 — 52

ENCOURAGING SUSTAINABLE CONSUMER BEHAVIOURS

half of loads at below 30

degrees,

and substituting every sixth dryer

usage with open-air drying. This

requires brands and retailers to

adapt their offerings, for example

through better care instructions

and sustainable material choices.

Increased recycling and collection

could drive annual emissions

abatement of around 18 million

tonnes. These levers would reduce

incineration and landfill, moving

the industry towards a closed-loop-

recycling (CLR) operating model. CLR

is a key topic within circularity.

Currently less than 1% of used

products are recycled back into the

fashion industry’s value chain.

To achieve accelerated abatement,

“AROUND 21% OF ACCELERATED ABATEMENT

POTENTIAL IS DIRECTLY RELATED TO

CONSUMER ACTIONS IN THE USE PHASE AND

END-OF-USE PHASE, ENABLED BY CONSCIOUS

CONSUMPTION AND NEW INDUSTRY BUSINESS

MODELS”

“BY 2030, WE NEED TO

LIVE IN A WORLD IN WHICH

1 IN 5 GARMENTS ARE

TRADED THROUGH CIRCULAR

BUSINESS MODELS.”

Circular business models, including

fashion rentals, re-commerce, repair

and refurbishment could enable the

industry to cut around 143 million

tonnes of GHG emissions in 2030.

Consumers are vital to realising

this abatement potential. The

analysis found that, to align with

the 1.5-degree pathway, by 2030 we

need to live in a world in which one

in five garments are traded through

circular business models (see:

Promoting circular business models).

Reduced washing and drying could

deliver an additional 186 million

tonnes of reductions if consumers

changed their behaviour in the use

phase, for example by skipping

one in six washing loads, washing

we expect advancements in chemical

textile-to-textile recycling, the

development of sorting and textile

blend identification technologies,

higher incentives for brands to

enable CLR and consumers to support

this adoption.

-143

-186 -18

Increased use

of circular

business models

Reduced

washing

and drying

Increased

recycling

and collection

1‚676 21%

Total

accelerated

abatement

potential

61%

18%

EMISSIONS SAVINGS WITHIN USAGE AND END-OF-USE UNDER ACCELERATED ABATEMENT

Upstream Production

Brand Operations

Usage & End-of-use

Mn tonnes

CO2Eq

15 — 52

PROMOTING CIRCULAR BUSINESS MODELS

Circular business models are key

decarbonisation levers because of

their ability to extend product

life, enable recycling and reduce

the need for new and finite resources

in production. Circular approaches

could deliver around 143 million

tonnes of GHG emissions savings in

2030, with every percentage point

increase in market share saving

around 13 million tonnes. Beyond

2030, the adoption of circular

business models will need to

continue to grow for the industry

to stay on the 1.5-degree pathway.

The primary vehicle for circular

models is currently re-commerce,

representing around 7% of

the market.

Still, over the

coming decade, resale segments,

including consignment shops,

managed marketplaces and peer-

to-peer marketplaces, could grow

at over 10% the compound annual

growth rate (CAGR),

amid soaring

demand among GenZ and Millennials

consumers who support the models’

eclecticism, value proposition and

sustainability.

Re-commerce will

likely represent 12% of the market

by 2030, based on the accelerated

abatement analysis.

GenZ and Millennials, particularly

those living in urban areas, are

expected to drive the demand for

rental models.

Conversely, brands

will be key players in driving

refurbishments as they innovate

around overstock and deadstock.

Similarly, the repair lever assumes

the willingness of brands and

retailers to introduce professional

repair services in select product

categories

and that consumers

will choose to repair products when

supported to do so.

The analysis assumes that re-

commerce models can extend average

product life by 1.7x, based on

average length of second-hand

ownership.

The rental model is

assumed to extend product life by

1.8x, based on the average number

of rentals during a product’s

lifetime.

Repair models offer a more

modest 1.35x extension, assuming

professional repairs.

Finally,

refurbishment has the potential

to double lifetime extension,

reflecting potential brand and

manufacturer collaborations around

up-cycling.

To achieve accelerated abatement,

brands will need to reimagine, and

potentially recalibrate, their

business models. Rental and re-

commerce models, for example, will

require new logistical capabilities.

Repair and refurbishment models

will require garment-making skills,

either inhouse or outsourced. As

demand grows, brands will need to

implement circular business models

in collaboration with retailers

and upstream value chain players or

risk losing both control of their

products and the value they hold

after sale

16 — 52

~7% ~2O% ~3O%

1% increase in

circular model market

share reduces emissions

by 13 Mn tCO2e

Circular model

market share

Circular model

market share

Circular model

market share

1,963

2,1O4

1,772

Mn tonnes

CO2Eq

1,OOO

2,OOO

EMISSIONS SENSITIVITY TO CIRCULAR

BUSINESS MODEL ADOPTION

“AS DEMAND GROWS,BRANDS WILL NEED TO

IMPLEMENT CIRCULAR BUSINESS MODELS

IN COLLABORATION WITH RETAILERS AND

UPSTREAM VALUE CHAIN PLAYERS OR

RISK LOSING BOTH CONTROL OF THEIR

PRODUCTS AND THE ADDITIONAL VALUE

THEY HOLD AFTER SALE.”

17 — 52

THE ECONOMICS OF EMISSIONS ABATEMENT

THIS REPORT QUANTIFIES THE ECONOMICS OF

ACCELERATED ABATEMENT, COMPARING NECESSARY

INVESTMENTS AND RESULTING SAVINGS, BASED ON

A HOLISTIC FASHION INDUSTRY GHG EMISSION

ABATEMENT COST CURVE.

THE CURVE, WHICH IS ALREADY WIDELY USED

IN OTHER INDUSTRIES, HIGHLIGHTS POTENTIAL

ABATEMENT LEVERS AND QUANTIFIES THEIR

IMPACTS AND COSTS.

IN ESTABLISHING THE COST CURVE, THE REPORT

AIMS TO SPARK INDUSTRY-LEVEL DIALOGUE AROUND

POWERFUL DECARBONISATION LEVERS AND SUPPORT

INDIVIDUAL BRANDS IN DEFINING THEIR OWN

ABATEMENT CURVES AND ROADMAPS.

+1OO

+2OO

USD/tCO2e

Mn tCO2e

-1OO

1OO

2OO 3OO 4OO 5OO 6OO 7OO 8OO 9OO 1OOO 11OO 12OO 13OO 14OO 15OO 16OO 17OO

-2OO

-3OO

-4OO

-5OO

-6OO

-49OO

Cost

Cost Savings

~3% rental

market share

from <1%

Reduced polybag

usage (1:2) and

corrugated box spec.

reduction to 3ply

8O% recycled

content in corru-

gated boxes from

current 5O% & 1OO%

recycled polybags

from current ~2O%

~15% e-commerce

returns rate

from 35%

Reducing over-

production rate

from 2O% to 1O%

~4O% energy

efﬁciency improve-

ment in HVAC & 8O%

improvement in

lighting in retail

operations

Reduction in wastage

during garment produc-

tion from 14 to 12%,

increased CLR rate

to 1O%

1OO% renewables

energy in consump-

tion countries

1OO% renewables

energy in garment

manuf. countries

~3O% rPET usage

from ~15%

Improvement in EOL recy-

cling rate from 17% to

3O% and increased CLR

rate from ~1% to 5%

~1O% organic cotton

usage from ~1% and

improved MMCF usage

~1O% from current 6%

~2O% energy efﬁcien-

cy improvements in

Polyester production

~15% reduction

in washing

frequency, 5O%

of washes <3O˚C

and reduced

dryer usage

~1% scrap reduction

in fabric manuf.

from currently 12%

9O/1O split

between sea

vs. air

transport from

83/17

14 15

~2% refur-

bishment

market share

from <1%

Extending

average

usage by 1yr

through

repairs from

3y to 4y

12 3b2

~8O% energy

efﬁciency

improvement in

wet processing

~3O% energy

efﬁciency improve-

ment in HVAC, 8O%

in lighting and 2O%

in sewing machines

during garment

production

3b1

~1O% energy

efﬁciency improve-

ment in spinning &

weaving & knitting

~4O% reduction

in fertilizer/

pesticides usage

in cotton manuf.

1OO% renewables

energy in production

countries

FASHION INDUSTRY COST CURVE UNDER ACCELERATED ABATEMENT

~12% re-com-

merce market

share from ~7%

~9O% electri-

ﬁcation of LM

transport to

BEVs from 3O%

Upstream Production

Brand Operations

Usage & End-of-use

18 — 52

19 — 52

THE ECONOMICS OF EMISSIONS ABATEMENT

HOW TO READ A COST CURVE

To understand the economics behind the decarbonisation levers, we use an industry-level cost curve analysis. This tool enables a visualisation

of lever abatement potential and economics, providing an integrated perspective on economic viability. The cost curve looks different for each

stakeholder and brand, depending on product mix, sourcing country, and historical abatement progress. It encompasses the end-to-end value

chain, from material and garment production to retail, product use and end-of-use. It does not incorporate effects such as the GHG emissions

from fashion shows and the back-office operations of individual companies.

Each bar on the cost curve represents a decarbonisation lever. The bar width represents the abatement under that lever in one year. The costs on

the y-axis are calculated as annual additional cost savings or spending required to save 1 tonne of GHG emissions through a given lever.

They

include an annualised depreciation charge relating to the upfront capital expenditure (capex) needed to implement the lever, where applicable.

A negative value on the y-axis indicates levers are cost savings (e.g. USD100 cost savings per every tonne of GHG emissions abated through

the lever), while a positive y-axis value indicates additional costs to achieve the level of abatement.

Width of the bar is the

emissions reduction poten-

tial by the newlever

in a given year

Abatement cost is calcu-

lated as the difference

of average costs between

new and replaced lever

divided by the displaced

emissions

Abatement cost

USD per tCO2e

Each ﬁeld represents

one abatement lever to

reduce emissions

Height of the bar is the

annual abatement cost to

reduce emissions by 1 tCO

with this lever

Levers are sorted by increasing

abatement costs for the reduc-

tion of emissions by tCO2e

Negative Y-axis

indicates levers are

cost savings for the

party implementing

the measures (e.g.

$1OO cost savings

per every tonne of

CO2e abated through

this lever)

Positive Y-axis indi-

cates additional costs

for the party imple-

menting the measures

(e.g. $8O additional

cost incurred per every

tonne of CO2e abated

through this lever)

-1OO

HOW TO READ A COST CURVE

20 — 52

The good news for the industry is that around

55% of the levers required to achieve the

accelerated abatement of 1.7 billion tonnes of

GHG emissions in 2030 generate savings on an

industrywide basis.

For example, using 90% sea and 10% air

transport, achievable through increased process

digitisation, better planning and regional

supply chains or nearshoring, could deliver

more than USD600 of cost savings per tonne of

GHG emissions abated. Reducing polybag use by

half and capping corrugated boxes at three ply

can deliver similar savings. Cutting the rate

of e-commerce returns from the current 35% to

15%, for example through data-driven analysis of

consumer purchasing behaviours and standardised

sizing guidelines, can save nearly USD360 per

tonne of GHG emissions abated.

Some abatement levers create costs that outweigh

their savings. The increased use of sustainable

materials is likely to incur positive costs

given current technologies and resulting

economics. Recycled polyester (rPET) fabric is

likely to incur costs in the range of USD60 per

tonne of GHG emissions abated. A 15 percentage

point improvement in end-of-use recycling is

likely to incur costs of around USD140 per tonne

of GHG emissions abated. Still, 89% of abatement

can be achieved at a cost of less than USD50

per tonne of GHG emissions, a relatively modest

amount compared with other industries.

“ABATEMENT

REQUIRES INVESTMENT,

BUT AROUND 55% OF THE

LEVERS SAVE MONEY

FOR THE INDUSTRY

OVERALL.”

THE ECONOMICS OF EMISSIONS ABATEMENT

21 — 52

The likelihood that any particular lever will

be implemented is not solely determined by

its cost. There may be other factors at play,

including misalignment of incentives, impact

on brand image, joint commitments or regulatory

requirements. The transition to renewable

energy is likely to incur around USD20 per

tonne of GHG emissions abated costs, mainly

due to the upfront capex required for back-up

battery storage and other infrastructure.

However, this could be offset by government or

brand-led incentives (see: Energy transitions).

End-of-use recycling requires sizeable upfront

capital investment, both to develop CLR

technology and to build recycling infrastructure.

Regulatory incentives such as the European

regulation on waste recycling and reuse under

the Waste Framework Directive may support

investment.

Equally, the promise of cost

savings is not a guarantee of implementation

feasibility. A requirement for significant

upfront capital allocation may, for example act

as a disincentive. In these situations, value-

sharing arrangements among value chain players

can help re-align the incentives required to

catalyse action.

On the fashion industry abatement cost curve,

around 60% of the accelerated abatement requires

upfront capex, of which around 30% leads to a

cost savings net of the investment requirement.

Most levers in this category are focused on

energy efficiency, where accrued savings outweigh

the initial investment. However, given the

fragmented nature of the value chain, individual

companies may not be able to afford sizeable

upfront investments by themselves. In these

THE ECONOMICS OF EMISSIONS ABATEMENT

“GIVEN THE FRAGMENTED

NATURE OF THE

UPSTREAM FASHION

INDUSTRY VALUE CHAIN,

COLLABORATION IS

NEEDED TO FINANCE

UPFRONT INVESTMENTS.”

scenarios, brands and retailers may consider

co-financing solutions or sharing financial

incentives to distribute the potential savings.

Despite the economics, around a fifth of abatement

measures, including the adoption of circular models,

reduction in washing and drying frequency, as well

as end-of-use recycling, are primarily contingent

on consumer choice. At a minimum, these levers will

require a change in behaviour beyond the intention

to support decarbonisation efforts. Recent consumer

sentiment surveys indicate growing support that

could lead to real action.

However, brands should

do as much as possible to offer a compelling

proposition, for example through innovative business

models to encourage participation in circular models

and end-of-use recycling.

22 — 52

ROLES OF ECOSYSTEM ACTORS TO REACH THE 1.5-DEGREE PATHWAY

BASED ON THE ANALYSIS, THERE ARE PRODUCTIVE AND COST-EFFECTIVE

STRATEGIES THAT CAN PROPEL THE INDUSTRY TOWARDS LOWER GHG

EMISSIONS. PLAYERS MUST CONTINUE CURRENT EFFORTS, FROM MODERNISING

AND DECARBONISING OPERATING MODELS, TO ENGAGING WITH CONSUMERS,

SUPPORTING VALUE CHAIN TRANSFORMATIONS AND PURSUING COLLECTIVE

SOLUTIONS. MOREOVER, BRANDS HAVE A ROLE TO PLAY IN DRIVING VALUE

CHAIN DECARBONISATION THROUGH EQUAL PARTNERSHIPS WITH OTHER

STAKEHOLDERS.

BRANDS AND RETAILERS

Prioritise emissions transparency and set targets.

In addition to continuing existing efforts to

drive decarbonisation, brands and retailers should

prioritise transparency and should track, analyse

and benchmark performance in their own operations.

As a starting point, brands and retailers should

analyse their own specific abatement curves, which

will help them focus on key levers and define

or adjust their decarbonisation roadmaps. They

should set science-based targets in line with

the Paris Agreement and develop clear timelines

and governance structures that will support

operationalisation of climate strategies.

Engage in transparent consumer communication.

Brands and retailers should leverage existing

joint initiatives to set standards on labelling

and provide digestible information to consumers at

point of sale.

Transparent communication about

challenges and successes are likely to increase

brand loyalty and foster consumer engagement.

Introduce circular business models. Brands and

retailers also have a role to play in enabling

levers such as circular business models. If brands

are able to engage with consumers about their

expectations and needs, for example in relation

to demand for durable, high-quality, recyclable

products, there is an opportunity to expand market

share in the growing circular business segment.

Drive sustainable product design and innovation.

Additionally, brands should drive sustainable

decision-making at the design stage, with the

aim of driving sustainable material usage,

minimising production waste and encouraging end-

of-use recycling. On an industrywide basis, brands

and retailers should consider pre-competitive

investment in research-dependent areas such as

alternative materials.

“TARGETS NEED TO BE

SET BY BRANDS AND

RETAILERS FOLLOWING A

COMMON STANDARD AND

IN COLLABORATION WITH

THEIR UPSTREAM PARTNERS

TO ENSURE CONSISTENT

ACTIONS ARE TAKEN TO

ACCELERATE INDUSTRY

DECARBONISATION

EFFORTS.”

23 — 52

UPSTREAM VALUE CHAIN PLAYERS

Coordinate decarbonisation efforts. Factories,

material producers and other upstream players

must be fully involved in and committed to

decarbonisation programmes. Brands and retailers

should support value chain players in tracking,

analysing and benchmarking their carbon emissions

and enhancing transparency. Useful tools include

abatement cost curves and the Higg Facility

Environmental Module.

Moreover, brands and

retailers should aim to coordinate their

decarbonisation efforts with key value chain

partners to ensure alignment in targets and actions.

Standardised target setting could help minimise

inefficiencies and help value chain players deliver

coordinated decarbonisation activities.

Develop equal partnerships. Brands and value chain

stakeholders have an opportunity to work closely

and develop equal partnerships, particularly by

assessing purchasing practices and incentivising

value chain players on decarbonisation activities.

Following COVID-19, all stakeholders have an

opportunity to re-prioritise relationships

with partners who are similarly committed to

sustainable practices.

Collaborate on energy transition efforts. Brands

have a key role to play in supporting the

implementation of efficiency improvements along

the value chain. Co-investment and sharing of

financial incentives through long-term partnerships

are potentially effective strategies to drive

change. Brand support can also be instrumental in

facilitating the transition to renewable energy,

particularly in key supply countries.

POLICY MAKERS

Drive sustainable practices and consumption.

Policy makers have a vital role to play in

driving decarbonisation across the industry, and

governments have already begun incentivising

sustainable practices and responsible consumption.

For example, in 2019, the European Commission

communicated the European Union (EU) Green Deal

policy framework to accelerate decarbonisation

across member states.

Also, in 2019, France

announced a ban on the destruction of unsold

fashion goods, to be implemented by 2023.

ROLES OF ECOSYSTEM ACTORS TO REACH THE 1.5-DEGREE PATHWAY

Incentivise key decarbonisation levers.

Additionally, policy makers can play a role in

supporting specific levers and driving investment.

For example, the 2020 EU Circular Economy Action

Plan lays out a policy framework to support

sustainable products, services and business

models that reduce waste production, including

levers such as landfill and incineration taxes

and requirements for recycled content that will

stimulate the development of the EU market for

secondary raw materials.

Engage with industry players. Going forward,

similar to efforts at the 2019 United Nations

Framework Convention on Climate Change (UNFCCC)

COP 25 conference in Madrid,

policy makers have an

opportunity to increase engagement with industry

players, enabling them to shape views on emissions-

related topics and to support policy making and

regulation that will enable accelerated abatement.

24 — 52

INVESTORS

Encourage decarbonisation efforts. Due to the

positive link between environmental, social

and governance (ESG) performance and financial

performance, ESG factors are playing an

increasingly prominent role in decisions around

mergers, acquisitions, and divestitures.

Investors therefore have an inherent interest in

driving their portfolio companies towards accelerated

abatement, adoption of science-based targets and

accountability on decarbonisation efforts.

Drive emissions transparency within portfolio

companies. Investors should encourage transparency

on full value chain emissions and promote the use of

standardised sustainability assessments such as the

Higg Brand and Retail Module within their portfolios.

Support sustainability focused innovation.

Additionally, investors can allocate capital

towards innovative players looking to develop

solutions towards key decarbonisation challenges

such as closed loop recycling (CLR), towards

sustainable material development and also demand

prediction models that can reduce overproduction.

CONSUMERS

Act on sustainability intentions. Consumers

must play their part in driving industry

decarbonisation efforts through their purchasing

decisions. When provided with information,

consumers may prefer products with lower emissions

footprints, such as those made with low-carbon

materials. Consumers can also embrace circular

business models to extend the life of fashion

products and reduce production-related emissions.

Adopt sustainable usage and end-of-use behaviours.

During the use-phase, consumers can take better

care of products by reducing washing and drying.

ROLES OF ECOSYSTEM ACTORS TO REACH THE 1.5-DEGREE PATHWAY

This improvement in behaviour can deliver as

much as an 11% abatement in emissions under the

accelerated abatement scenario. Consumers also

have a role to play in recycling products, which

can reduce incineration and landfill, and promote

CLR across global markets.

25 — 52

BEYOND 2030: DECOUPLING VALUE FROM VOLUME GROWTH

In 2030, almost 62% of remaining GHG emissions (659 million tonnes)

after accelerated abatement levers have been applied, are likely

to come from the raw material production of the value chain, where

abatement is especially difficult without a move towards fully

organic materials and at-scale adoption of sustainable materials.

To remain on the 1.5-degree pathway beyond 2030, the industry will

need to think radically and embrace business model transformation

to deliver sustainable outcomes.

Brands and retailers will need to decouple from the current volume-

driven measures of success and unlock new sources of value through

collaboration with their value chain partners. Increased investor

focus on companies with clear ESG value propositions is already

encouraging companies to consider new definitions of success.

For example, brands and retailers could offer products that are

made to order, which would reduce the volume of garments that can

only be sold at significant discounts and thereby add volume, and

emissions, without contributing much value. If the industry could

reduce the share of stock sold at a discount by 15 percentage

points, it would achieve a volume and emissions decline of about

10% without any impact on value growth.

Similarly, companies could decouple volume growth from value growth

by enabling the acceleration of circular business model adoption.

The accelerated abatement analysis assumes volume growth in line

with industry forecasts and an increase of circular business model

market share to around 20%. This implies a volume growth of around

2.1% per annum, compared with a 2.7% per annum if the circular

business model adoption stays at current levels. However, with

a clear consumer value proposition, which could drive margins

similar to existing business models, brands can continue to capture

value from the circular models without the growth in volume and

resulting emissions.

To remain on the 1.5-degree pathway, the industry would need to

imagine a world with smaller individual wardrobes consisting of

higher value, longer life pieces, complemented by a flourishing

re-commerce and rental market, and ample access to repair and

refurbishment services. While volume growth in this world could

taper, these new consumer needs provide significant value capture

opportunities for players who can combine deep customer insight

with the capacity to change their way of serving customers.

26 — 52

THE FASHION INDUSTRY’S SUBSTANTIAL CONTRIBUTION TO GLOBAL

GHG EMISSIONS ALSO CREATES AN OPPORTUNITY TO INSTITUTE REAL CHANGE.

IN A POST-COVID-19 WORLD, THERE IS A CHANCE FOR BRANDS TO TAKE

RESPONSIBILITY, UNDERSTAND THEIR OWN EMISSIONS AND ABATEMENT LEVERS,

COLLABORATE WITH PARTNERS TO DECARBONISE THE VALUE CHAIN AND WORK

WITH STAKEHOLDERS TO BUILD A LESS EMISSIONS-INTENSIVE PRODUCT

LIFECYCLE. THIS WILL BECOME CRITICAL BEYOND 2030, WHEN THE INDUSTRY

NEEDS TO FIND NEW WAYS TO DECOUPLE VOLUME GROWTH FROM VALUE GROWTH TO

STAY ON THE 1.5-DEGREE PATHWAY. IN AN HISTORIC YEAR, THE ECONOMIC AND

ETHICAL DRIVERS HAVE NEVER BEEN STRONGER. WHICH IS WHY NOW IS THE

TIME FOR DECISION MAKERS TO DEEPEN THEIR UNDERSTANDING OF GHG

EMISSIONS AND TO ACCELERATE THEIR RESPONSE.

27 — 52

APPENDIX: METHODOLOGY AND ENDNOTES

KEY DEFINITIONS

Fashion industry: The combined apparel and footwear industry

and its value chain players.

Industry value chain: The analysis looks at the fashion

value chain from raw material production, processing,

manufacturing, transport and retail to product use and end

of use. It does not take into account emissions related to

secondary activities such as fashion shows and the back-office

operations of individual companies in the value chain.

Timeframe: 2018 was established as the baseline year for the

emissions impact calculations. Analysis was then conducted to

forecast annualised emissions in 2030.

Production countries: The analysis uses the top five global

apparel production countries as a proxy for energy consumption

and processing. These countries are China (61% of production),

Vietnam (15%), India (11%), Bangladesh (7%) and Turkey (6%).

Consumption countries: The analysis uses USA and EU energy

consumption data across downstream and use phases as proxies

for the consumption countries.

GHG emissions: The report uses the CO2 equivalent (CO2eq)

metric measure to compare the emissions from various

greenhouse gases based on their global-warming potential by

converting amounts of other gases to the equivalent amount of

carbon dioxide with the same global warming impact. The metric

unit tonne was used to denote 1,000Kgs of CO2eq units.

No further action: Refers to estimates of potential GHG

emissions over the next decade if the fashion industry

continues production in line with growth forecasts and makes

no additional decarbonisation efforts beyond those in place

in 2018. This establishes a starting point to represent the

industry’s current GHG emissions intensity, scaled to 2030

industry volume growth expectations. It implies 2.7% industry

volume growth (CAGR) through 2030, adjusted for COVID-19

impact on growth.

Current pace trajectory: Refers to estimates of the potential

for emissions reduction if the fashion industry continues

its production in line with growth forecasts and continues

to scale its decarbonisation efforts at the current pace.

This implies 2.3% industry volume growth (CAGR) through

2030, reflecting volume reduction in new production due to

increasing market share from circular business models.

Accelerated abatement: Refers to estimates of the potential

for emissions reduction if the industry continues its

production in line with growth forecasts and significantly

accelerates its decarbonisation efforts across the selected

levers. This is not a forecast of where the industry is

heading but is an analysis of how much additional abatement

could be captured realistically by 2030. It represents the

levers stakeholders should consider today, to both reach the

current trajectory and to accelerate beyond it. The level of

abatement is calculated as the effort required to move from no

further action emissions levels to the accelerated abatement

trajectory. This implies 2.1% industry volume growth (CAGR)

through 2030, reflecting accelerated adoption of circular

business models.

Marginal abatement cost curve: An established tool used to

understand the decarbonisation potential of levers available

within an industry and the economics of the levers by comparing

investments needed against savings and gains. The analysis looks

at the cost curve from a fashion industry standpoint, rather

than the point of view of a single stakeholder.

28 — 52

OVERVIEW OF THE METHODOLOGY

Emissions baseline: This is calculated as a

bottom-up value-chain emissions baselining

exercise that takes into account the volume

of garments produced, used and disposed of in

a given year. The analysis uses the volume of

fibres used to meet garment demand for 2018 and

the energy consumption and emissions intensity

of raw materials per processes involved in each

stage of the value chain.

The apparel industry

emissions figure is scaled up to reflect

the combined apparel and footwear industry

emissions based on 2018 emissions split between

the two segments.

Industry growth analysis: The analysis is based

on post COVID-19 growth scenarios for the

apparel fashion and luxury sector by McKinsey

Global Institute. The analysis looks at several

growth scenarios, taking into consideration

the severity of the COVID-19 impact, potential

future resurgence, the public health response

and the effectiveness of government economic

interventions. The selected scenario (“virus

contained, growth rebound”) is expected to

have a limited negative impact, with growth

rebounding by Q1 2021. This results in a ~30%

drop in demand in 2020, followed by a growth

rebound of ~3% in 2021 compared to 2019.

2030 1.5-degree pathway target: The fashion

industry’s 2030 emissions pathway of 1.1

billion tonnes of GHG emissions was calculated

based on the 1.5-degree Intergovernmental Panel

on Climate Change (IPCC) report scenario

and the bottom-up calculation of the fashion

industry’s share in global emissions (see

Methodology section: Emissions baseline).

As per the IPCC report, half of available

1.5-degree pathways indicate that global

emissions in 2030 should be in the range of

25-30 billion tonnes of GHG emissions. The

mean of this range was used as a base for the

global 1.5-degree pathway. To calculate the

fashion industry’s target, a 4% share of global

emissions

was applied to the global target,

which resulted in the 2030 1.5-degree pathway

of 1.1. billion tonnes of GHG emissions.

Abatement cost: This is the cost required to

reduce emissions by 1 tonne of CO2eq using

a selected decarbonisation lever. This is

calculated as the difference of average costs

between a new and replaced lever divided by the

displaced emissions. This takes into account

the annual additional operating cost (including

annualised capex depreciation charges for the

upfront investments) and the potential cost

savings from operations, when compared to the

replaced lever. The calculations do not include

transaction costs, subsidies, explicit CO2

costs, taxes or impact on the economy.

Abatement potential: The analysis looks at

the abatement potential of 17 levers across

the fashion value chain. Within each lever,

assumptions are made about the level of

decarbonisation that could be achieved under both

the current trajectory and accelerated abatement

conditions (see below: Key assumptions).

29 — 52

1 – Fashion industry includes apparel and footwear industries, 2 – Total apparel volume (linear + circular volume demand). Emissions were modeled

under Quantis assumption that apparel makes 83% of total apparel and footwear emissions3 – established as a analytical reference for 2030 emissions

based on expected industry growth rate Source: Consolidated model on 22 June 2020

SUMMARY OF FASHION INDUSTRY

ABATEMENT POTENTIAL

Analysis

2O18

Baseline

2,1O6

2,74O

2,1O4

1,O64

+3O%

-5O%

-23%

-6O%

2.7%

2.3%

2.1%

2O3O

No Further Action

2O3O

Current Pace Trajectory

2O3O

Accelerated Abatement

Emissions,

Mn T CO2eq

Emissions %

change vs 2O18

Emissions % change vs

2O3O No Further Action

Implied Volume

CAGR

30 — 52

ABATEMENT CONTRIBUTION OF ANALYSED DECARBONISATION LEVERS

12%

42%

11%

-2O5

-41

-7O3

-24

-9O

-39 -5

-52 -12

-158

-143

-186 -18

Current pace trajectory

Accelerated abatement

1,O64

2,74O

2,1O6

Decarbonised material

production

2O18

Emissions

2O18

Emissions

under no

action

2O3O

accelerated

abatement

Improved material mix

Decarbonised material

processing

4, 6 Minimised production

& manufacturing wastage

Decarbonised garment

manufacturing

Sustainable Transport

Improved packaging

Decarbonised retail

operations

Minimised returns

Reduced overproduction

Increased use of circular

business models

Reduced washing and drying

Increased recycling

and collection

Mn tonnes

CO2Eq

EMISSIONS ABATEMENT UNDER ACCELERATED ABATMENT

31 — 52

KEY ASSUMPTIONS BEHIND THE ANALYSED LEVERS

GARMENT LIFE STAGES POTENTIAL LEVERS

Upstream

value chain

Transport

& distribution

Retail

Product use

End-of-use

Raw material production

Material preparation

& processing

Sustainable transport

Washing and drying

Recycling and collection

Product manufacturing

Decarbonised material production

Improvements across the production & cultivation

of key materials e.g. Cotton, Polyester & Viscose

Improved material mix

Decarbonization through improved mix of alterna-

tives for existing materials and introduction of

new materials

3 4

5 6

Decarbonised material processing

Improvements in energy mix and efﬁciency in

processing

Minimised production wastage

Reducing waste generated in the processing stages

Decarbonised garment manufacturing

Improvements in energy mix and efﬁciency across

manufacturing countries

Minimised manufacturing wastage

Reducing waste generated in the manufacturing

stages

7 8

Increased use of sustainable transport

Improvements in fuel mix, energy efﬁciency of

ﬂeets and operational improvements

Improved packaging (manufacturing through retail)

Decarbonization through carbon friendly material

mix and reduction of packaging usage

Operations

New business models

9 11

Decarbonised retail operations

Improvements in energy mix and efﬁciency across

retail

Minimised returns

Decarbonization by limiting retail returns

(retailer & consumer)

Increased use of rentals models

Promotion of subscriptions or one-time rental

offerings

Introduction of refurbished / upcycled products

Promotion of re-furbished / upcycled product

offerings

Increased use of re-commerce models

Promotion of 2nd-hand sales (direct or through

platforms)

Reduced washing & drying

Reduced washes and improved care (e.g. temperature

selection)

Increased recycling & collections

Increased recycling & collections to minimize

incineration without recovery and landﬁll

Introduction of product repair services

Promotion of repair services to extend product

life

Reduced overproduction

Reducing waste generated due to unsold stock in

retail

32 — 52

1. De-carbonised material

production: Improvements

across the production and

cultivation of key current

materials

Current pace trajectory

Polyester: ~20% energy efficiency improvements for polyester due to

switch from coal to electric boilers and condensate recovery with

an adoption rate of +20% from current levels

Cotton: ~20% reduction in fertiliser and pesticides usage due to

targeted pesticide use and improved farming practices

Accelerated abatement

Polyester: ~20% energy efficiency improvements for polyester due to

switch from coal to electric boilers with an adoption rate of +40%

from current levels

Cotton: ~40% reduction in fertiliser and pesticide usage due to

substantially improved sustainable farming practices

Institut für Textiltechnik, RWTH

Aachen University; Economic Research

Service, United States Department of

Agriculture

Economics

Increased operating costs in polyester production due to annual

capex charge for 100KW capacity boilers with 15-year lifetime,

partially offset by the efficiency gains in substituting coal

boilers (70% efficiency) for electric boilers (95% efficiency);

accelerated replacement rate assumed, with 50% of the lifetime

remaining on coal boilers.

Cotton: operating cost savings from reduced fertiliser and

pesticide use was incorporated

McKinsey & Company, Sustainability

Insights team; UK Department for

Environment, Food and Rural Affairs,

2007; Federal Reserve: Economic

Data, 2018

LEVER NAME KEY ASSUMPTIONS SOURCES

1. DE-CARBONISED MATERIAL PRODUCTION

33 — 52

2. Improved material mix:

De-carbonisation through the

use of alternative or new

materials

Current pace trajectory

Assumptions based on historic adoption rates and major player

commitments, i.e., organic cotton overall market share of ~1%,

recycled cotton market share of <1%, rPET market share of ~13% and

bio-based synthetics market share of <1%. Total man-made cellulose

fibres share of ~7%.

Accelerated abatement

Organic cotton overall market share of ~2%: this takes into account

reduced production and certification costs due to economies of

scale and significant leading player commitments to fund the

transition phase

Recycled cotton market share of ~1% assuming improvements in

recycling technologies. Sustainable man-made cellulose fibres (e.g.

Modal, Lyocell) market share of ~5%, replacing conventional cotton

demand due to lower yield arising from organic cotton transition

rPET market share of 20% assuming growth in mechanical recycling

and technology driven economies of scale in chemical recycling

Bio-based synthetics market share of ~3% assuming regulatory

interventions

Textile Exchange: Organic Cotton

Market Report, 2019; Institut

für Textiltechnik: RWTH Aachen

University; Citi Research: Global

Apparel Retail, 2020; Independent

Commodity Intelligence Services

Economics

Increased operating costs due to higher price of organic cotton

compared to regular cotton and rPET and bio-based synthetics

compared to regular synthetics

Federal Reserve: Economic Data,

2019; IHS Markit database,

historical data

2. IMPROVED MATERIAL MIX

LEVER NAME KEY ASSUMPTIONS SOURCES

34 — 52

3. Decarbonised material

processing:

Improvements in energy

efficiency, transition to

renewable energy and reduced

chemical use

Current pace trajectory

Energy efficiency assumes ~5% energy consumption improvement for

spinning, weaving and knitting through motor and air pressure

improvements with +20% adoption rate; ~80% efficiency improvement

in wet processing with an adoption rate of +15% of condensate

recovery improvements

Energy mix assumptions based on largest production countries

pursuing country-level base case 2030 energy transition scenarios

towards renewable energy

Chemical use assumes ~15 percentage point reduction in chemical use

due to more efficient technology usage (e.g. washing machine with

spraying unit) with an adoption rate of ~5% across the industry

Accelerated abatement

Energy efficiency assumes ~5% energy consumption improvement for

spinning, weaving and knitting improvements adopted across the

industry; ~80% efficiency improvement in wet processing technology

towards dry technology (e.g. laser dyeing jeans) with an adoption

rate of +60%

Energy mix assumptions based on suppliers in largest production

countries pursuing 100% renewables energy transition, assisted by

brands and retailers, more swiftly than the country-level energy

transition

Chemical use assumes ~50% percentage point reduction in wet

processing due to new advanced Econtrol dyeing technologies and

bifunctional or polyfunctional dyes, with an adoption rate of 20%

across the industry

McKinsey: Global Energy Perspective,

2019; EnerData: Energy transition

scenario analysis, 2019; Palamutcu:

Electric energy consumption in the

cotton textile processing stages,

2010; Kant: Textile dyeing industry

and environmental hazards, 2012;

Institut für Textiltechnik: RWTH

Aachen University

Economics

Increased operating costs for renewables energy usage: assumes

additional costs related to battery storage and other renewables

infrastructure, despite price parity in most markets

Assumes capex expenses for weaving, knitting and spinning

improvements (e.g. improvements in ring spinning, humidification

plants) and wet processing (e.g. automatic steam control valves,

recovery of condensate in wet processing plants)

Hasanbeigi: Energy-efficiency

improvement opportunities for the

textile industry, 2010; Palamutcu:

Electric energy consumption in the

cotton textile processing stages,

2010; Institut für Textiltechnik:

RWTH Aachen University

3. DECARBONISED MATERIAL PROCESSING

LEVER NAME KEY ASSUMPTIONS SOURCES

35 — 52

4. Minimised production

wastage: Reducing waste

generated in the processing

stages

Current pace trajectory

Assumes marginal 1% improvement in the current ~3% wastage from

fibre to textile stage as the practice is already relatively

optimised Improved wastage collection rate +10% to avoid landfill

and incineration

Accelerated abatement

Assumes better incentivisation in production markets to increase

wastage collection rate by +30%

The Fiber Year Consulting: The

Fiber Year Report, 2019; Institut

für Textiltechnik: RWTH Aachen

University; expert input

Economics

Reduced operating costs due to less disposal or incineration and

savings from using less virgin fibre

Institut für Textiltechnik:

RWTH Aachen University; Reverse

resources: Creating a digitally

enhanced circular economy, 2017

4. MINIMISED PRODUCTION WASTAGE

LEVER NAME KEY ASSUMPTIONS SOURCES

36 — 52

5. Decarbonised garment

manufacturing: Improvements

in energy mix and efficiency

across garment manufacturing

countries

Current pace trajectory

Assumes ~30% reduction in energy consumption across heating,

ventilation and air conditioning (HVAC) technology, with +15%

adoption rate; ~80% energy improvement in lighting by switching to

LEDs, with +20% adoption rate; ~20% energy improvement in sewing

machines through new technology, with +10% adoption rate

Energy mix assumptions based on country-level base case 2030 energy

transition scenarios towards renewable energy

Accelerated abatement

Assumes +30% increase in adoption rate in HVAC efficiency

improvements, +40% increase in adoption rate of LEDs and +30%

increase in adoption rate of improved sewing machine technology due

to increased upfront funding support availability

Energy mix assumptions based on suppliers in production countries

pursuing 100% renewables energy, assisted by brands and retailers

U.S. Department of Energy: Office

of Scientific and Technical

Information, 2018; Selco

Foundation: Energy efficiency &

energy conservation measures for

sewing machines, 2017; Institut

für Textiltechnik: RWTH Aachen

University; EnerData: Energy

transition scenario analysis, 2019;

McKinsey: Global Energy Perspective,

2019

Economics

Reduced operating costs due to lower energy consumption; initial

capex needed for energy improvement measures for lighting, sewing

machine and HVAC solutions

Selco Foundation: Energy efficiency

& energy conservation measures

for sewing machines, 2017; U.S.

Department of Energy: Office

of Scientific and Technical

Information, 2018; Institut

für Textiltechnik: RWTH Aachen

University

5. DECARBONISED GARMENT MANUFACTURING

LEVER NAME KEY ASSUMPTIONS SOURCES

37 — 52

6. Minimised manufacturing

wastage: Reducing waste

generated in garment

manufacturing stage

Current pace trajectory

2 percentage point improvement in wastage rate (from ~14% today

to 12%) due to better designer education and modernised cutting

machines; +20% improvement in waste collection expected, preventing

landfilling or incineration; +5% improvement in closed-loop-

recycling (CLR) driven by advancements in sorting technology

Accelerated abatement

Assumes wastage limitation to unavoidable scrap only (~5%) through

better design and fabrics; +40% improvement in waste collection

assuming better training and incentivisation of factory employees;

+10% improvement in CLR driven by better incentivisation, along with

investment in textile blend identification and recycling technology

The Fiber Year Consulting: The

Fiber Year Report, 2019; Institut

für Textiltechnik: RWTH Aachen

University; expert input

Economics

Reduced operating costs due to less disposal and incineration

Institut für Textiltechnik: RWTH

Aachen University

6. MINIMISED MANUFACTURING WASTAGE

LEVER NAME KEY ASSUMPTIONS SOURCES

38 — 52

7. Increased use of

sustainable transport:

Changes in modes of

transportation and

improvements in fuel mix

Current pace trajectory

Transport mode mix assumes 2% shift in sea vs air transport,

resulting in 15% air and 85% sea transport due to increased

digitisation of value chain practices

Electrification assumes the EU and China continue to lead the

transition, driven by regulation in the form of emission targets

(EU) and subsidies (China), resulting in battery electric vehicles

(BEVs) making up to 5% of heavy-duty trucks (HDTs), 12% of medium-

duty trucks (MDTs) and 30% of light commercial vehicles (LCVs) used

in B2B and B2C transport91

Accelerated abatement

Transport mode mix assumes ~7% shift in sea vs. air transport,

resulting in 10% air, 90% sea transport through rapid digitisation

and investments in more demand-focused regional supply chains or

nearshoring

Electrification assumes ~90% of LCVs used in last mile will be

electrified and ~7% of HDTs and 17% of MDTs will be electrified due

to continued incentives and improved battery life and suitability

for heavy payloads

IHS Markit database, historical

data; McKinsey: Global Energy

Perspective, 2019; McKinsey: Center

for Future Mobility; expert input

Economics

Reduced operating costs due to shift from more expensive air

freight (4x) to sea freight and operational cost savings from

moving to BEVs (upfront capex assumes 5-year lifetime and ~40%

salvage value)

McKinsey: Center for Future

Mobility; expert input

7. INCREASED USE OF SUSTAINABLE TRANSPORT

LEVER NAME KEY ASSUMPTIONS SOURCES

39 — 52

8. Minimised packaging:

De-carbonisation through

material mix improvements

and minimised material usage

(manufacturing through retail

stages)

Current pace trajectory

Material mix assumes +10 percentage point increase in recycled

content usage in corrugated boxes and 50% recycled LDPE content in

polybags through increased brand commitments

Material usage assumes ~20% weight reduction in corrugated boxes

by reducing number of layers from five to four and the use of two

garments per polybag among ~40% of the market through improved

folding techniques

Accelerated abatement

Material mix assumes +20 percentage point increase in recycled

content usage in corrugated boxes and 80% recycled LDPE content in

polybags through improved material functionality and economics

Material usage assumes ~40% weight reduction in corrugated boxes

by reducing number of layers from five to three and the use of two

garments per polybag among ~80% of the market; reduction in polybag

weight by ~20% through improved material functionality

Ellen MacArthur Foundation: New

Plastics Economy Global Commitment

Report, 2019; Weideli: Environmental

analysis of US online shopping,

2013; expert input

Economics

Operational cost savings due to price of recycled vs. virgin

corrugated boxes and reduction in polybag usage

Expert input

8. MINIMISED PACKAGING

LEVER NAME KEY ASSUMPTIONS SOURCES

40 — 52

9. Decarbonised retail

operations: Improvements in

energy mix and efficiency

Current pace trajectory

Assumes ~40% reduction in energy consumption across HVAC due to

new technology, with +40% adoption rate; ~80% energy consumption

improvement by switching to LEDs, with +20% adoption rate

Energy mix assumptions based on country-level base case 2030 energy

transition scenarios towards renewable energy in key consumption

countries

Accelerated abatement

Assumes +70% increase in HVAC improvement adoption rate; +30%

LED lighting adoption rate due to increased brand awareness and

transparency

Energy mix assumptions based on 100% renewable energy usage by

brands and retailers

U.S. Department of Energy:

Office of Scientific and

Technical Information; Institut

für Textiltechnik: RWTH Aachen

University; EnerData: Energy

transition scenario analysis, 2019;

McKinsey: Global Energy Perspective,

2019

Economics

Reduced operating costs due to lower energy consumption; some

initial capex needed for energy improvement measures for lighting

and HVAC at stores, warehouses and distribution centres

U.S. Department of Energy:

Office of Scientific and

Technical Information; Institut

für Textiltechnik: RWTH Aachen

University

9. DECARBONISED RETAIL OPERATIONS

LEVER NAME KEY ASSUMPTIONS SOURCES

41 — 52

10. Minimised returns:

Decarbonisation by limiting

wastage due to retail returns

Current pace trajectory

Assumes a 5 percentage point improvement in e-commerce returns

rate (from 35% to 30%) based on technological improvements to

reduce returns due to size and fit issues; ~20% e-commerce share of

apparel today and ~45% in 2030; ~3-5% of returns are not fit for

resale

Accelerated abatement

Assumes a 20 percentage point improvement in e-commerce returns

rate (from 35% to 15%) based on a combination of technological

improvements on predicting size and fit and behaviour changes from

consumers to reduce purchases with intent to return

Shopify: The plague of ecommerce

return rates and how to maintain

profitability, 2019; Zalando:

Returns management case study, 2020;

expert input

Economics

Lower operating costs due to reduced waste, incineration and return

handling costs

Expert input

10. MINIMISED RETURNS

LEVER NAME KEY ASSUMPTIONS SOURCES

42 — 52

11. Minimised stock wastage:

Reducing waste generated due

to unsold retail stock

Current pace trajectory

Assumes 5 percentage point improvement in industry average

overproduction (from ~20% to ~15%), defined as unsold stock

following sales and discounts, due to investments in forecasting

technology and better production planning tools; 5 percentage point

improvement in (up/down/re)-cycling (from ~75% to ~80%) through

increased awareness; ~5 percentage point improvement in CLR from 1%

to 5% driven by advancements in sorting technology

Accelerated abatement

Assumes 10 percentage point improvement in overproduction (from ~20%

to ~10%) due to investments in more demand-focused supply chains

and forecasting technology; 10 percentage point improvement in (up/

down/re)-cycling (from ~75% to ~85%) through improved availability

of in-house recycling technology, reduced recycling costs and better

recycling journey transparency; ~10 percentage point improvement in

CLR from 1% to 10% through technology advancement in textile blend

identification and recycling technology

Ellen MacArthur Foundation, A New

Textile Economy, 2017; Netherlands

Ministry of Foreign Affairs Centre

for the Promotion of Imports from

Developing Countries: The European

market potential for recycled

fashion, 2020; expert input

Economics

Lower operating costs due to reduced overproduction and reduced

cost of stock disposal

Dotdash: The balance small business

website; Ellen MacArthur Foundation,

A New Textile Economy, 2017; expert

input

11. MINIMISED STOCK WASTAGE

LEVER NAME KEY ASSUMPTIONS SOURCES

43 — 52

12: Increased use of rental

models:

De-carbonisation through the

adoption of subscriptions or

one-time rental offerings

Current pace trajectory

Assumes growth in market share at ~11% CAGR to ~0.2% based on

recent growth in market share; the rental model extends product

life by 1.8x based on the average number of rentals during product

lifetime

Accelerated abatement

Assumes market share growth to ~3% based on increased adoption of

rental models among urban population; ~60% of population will be

based in urban areas, with ~25% willing to rent clothes and a ~1/3

intention-action gap among consumers

Business of Fashion: Luxury fashion

rental platform Armarium to cease

operations, 2020; Harvard Business

Review: The elusive green consumer,

2019; Westfield: How we shop,

2020; Oxford: Our world in data,

urbanization, 2019; expert input

Economics

Calculated based on two segments: luxury (60%) and mainstream

(40%), subscription based with monthly fees ranging from USD50–135

for 4-6 garments rented per month; assumes garments are rented

10-20 times in their lifetime before being discarded; analysis

considers two revenue streams: rental and subsequent sale of items;

~20% of garments assumed to be sold at 60% of their original price

following rental; key cost drivers include garment acquisition

(~20–25% of total costs), customer acquisition and retention (25-

40%) and transportation (5–15%)

Business of Fashion: Luxury fashion

rental platform Armarium to cease

operations, 2020; expert input

12. INCREASED USE OF RENTAL MODELS

LEVER NAME KEY ASSUMPTIONS SOURCES

44 — 52

13: Increased use of re-

commerce models: Promotion

of 2nd-hand sales (direct or

through platforms)

Current pace trajectory

Assumes growth in market share to ~9%, largely based on accelerated

growth expected in resale sub-segment vs. thrift sub-segment;

resale currently represents quarter of the size of thrift, however

growing ~5x faster; the analysis assumes re-commerce models to

extend average product life by 1.7x based on average length of

secondhand ownership

Accelerated abatement

Assumes market share growth to ~12% driven by increased willingness

of younger generations to purchase more re-commerce garments;

~48% of GenZ and Millennials and ~35% of GenX are willing to buy

secondhand, with a ~1/3 intention-action gap

Thredup: Resale Report, 2019; Cline:

The Conscious Closet, 2019; expert

input

Harvard Business Review: The elusive

green consumer, 2019; McKinsey:

Consumer Sentiment on Sustainability

and Fashion in the COVID Crisis,

2020

Economics

Calculated based on three segments: B2C (30%), P2P handling (35%),

P2P no handling (35%); assumes garments are sold at ~60% of their

original price; key cost drivers include garment acquisition (~30%

of total costs), handling and transportation

Rent the Runway: public data; expert

input

13. INCREASED USE OF RE-COMMERCE MODELS

LEVER NAME KEY ASSUMPTIONS SOURCES

45 — 52

14: Introduction of

refurbished / upcycled

products: Promotion of re-

furbished / upcycled product

offerings92

Current pace trajectory

Assumes growth in market share to ~0.1% based on ~10-15% of brands

offering refurbished products representing ~0.5-0.7% of their

total revenues; the analysis assumes double lifetime extension,

reflecting the professional, potentially brand-led upcycling

inherent to the process

Accelerated abatement

Assumes growth in market share to ~2% based on ~20% of players

increasingly using deadstock and overstock to develop refurbished

products; deadstock levels of ~15% with ~30% being refurbishable

and overstock levels of ~20% with ~25% being refurbishable

The Waste and Resources Action

Programme (WRAP), Evaluating the

financial viability and resource

implications for new business

models in the clothing sector, 2013;

University of Michigan case study:

Patagonia - encouraging customers

to buy used clothing, 2012, Eileen

Fisher: public data

McKinsey: Consumer Sentiment on

Sustainability and Fashion in the

COVID Crisis, 2020; expert input

Economics

Assumes refurbished items are sold at par with new items; key cost

drivers include labour costs (~50% of total costs)

Eileen Fisher: public data; expert

input

14. INTRODUCTION OF REFURBISHED / UPCYCLED PRODUCTS

LEVER NAME KEY ASSUMPTIONS SOURCES

46 — 52

15: Introduction of product

repair services:

Promotion of repair services

to extend product life

Current pace trajectory

Assumes repair model adoption is largely driven by home repairs

under current trajectory; repairs performed on garments within

select categories, e.g. outerwear, jeans, dresses, shirts and

suits; ~10% (~3 month) lifetime extension potential through home-

based repairs (e.g. sewing a button, removing a stain and repairing

a hem); ~60% of consumers willing to perform repairs, however, with

a ~1/3 intention-action gap

Accelerated abatement

Assumes wider availability of repair models through professional

repairs offered by brands and retailers; lifetime extension of ~35%

(~1 year) driven by professional repairs; 15-20% of brands offering

repair services on the selected categories of garments

The Waste and Resources Action

Programme (WRAP): Valuing our

clothes, 2017; Harvard Business

Review: The elusive green consumer,

2019; expert input

The Waste and Resources Action

Programme (WRAP): Valuing our

clothes, 2017; expert input

Economics

Assumes the categories selected for repair are on average ~20-30%

more expensive vs. average garments, depending on the category;

key costs involve labour for repairing (~40-50% of costs),

transportation, material and handling costs

Expert input

15. INTRODUCTION OF PRODUCT REPAIR SERVICES

LEVER NAME KEY ASSUMPTIONS SOURCES

47 — 52

16: Reduced washing and

drying: Decarbonisation

through reduced washes and

improved care during the use

phase

Current pace trajectory

Assumes consumer awareness driven improvements across washing and

drying behaviours, largely in Western countries; ~10% reduction in

washing per kg of clothes, driven by behavioural changes; better

temperature selection driving ~5 percentage point improvement

in cold wash (below 300C) selection (from ~25% to ~30%); +10

percentage point improvement in average load size; ~2 percentage

point reduction in average dryer usage driven by reduction in US

consumer behaviour towards combination dryer or air dryer usage;

does not include ironing-related emissions

Accelerated abatement

Assumes accelerated consumer awareness and associated changes in

behaviour across major consumption markets; ~15% reduction in

washing per kg of clothes, driven by Asian consumers (currently the

highest washing frequency); ~25 percentage point improvement in

cold wash selection; +10 percentage point improvement in average

load size (washes at ~80% appliance capacity); +5 percentage point

improvement in dryer usage; does not include ironing related

emissions

Wilson College of Textiles:

Quantifying apparel consumer

use behaviour in six countries,

2019; Biointelligence Service:

Environmental improvement potential

of textiles, 2009; Procter & Gamble:

Sustainability Report, 2013; The

Waste and Resources Action Programme

(WRAP): A carbon footprint for UK

clothing and opportunities for

savings, 2012; Laitala: A literature

review for life cycle assessment,

2017

Economics

Reduced energy costs due to reduced washer and dryer usage

The Waste and Resources Action

Programme (WRAP): A Carbon footprint

for UK clothing and opportunities

for savings, 2012; Wilson College

of Textiles: Quantifying apparel

consumer use behaviour in six

countries, 2019; McKinsey: Energy

Insights team

16. REDUCED WASHING AND DRYING

LEVER NAME KEY ASSUMPTIONS SOURCES

48 — 52

17. Increased recycling &

collections: Decarbonisation

through increased recycling

and minimised incineration

without recovery and landfill

Current pace trajectory

Assumes +8 percentage point improvement in post-consumer garment

recycling rate (from ~17% today) through continued technology

investments and innovation; +5% improvement in CLR driven by

advancements in sorting technology

Accelerated abatement

Assumes ~30-40% post-consumer garments will be recycled through

a combination of changing attitudes, improved recycling

infrastructure and textile waste-related regulations; +10%

improvement in CLR driven by better incentivisation along with

investment in textile blend identification and recycling technology

Ellen MacArthur Foundation, A New

Textile Economy, 2017; Netherlands

Ministry of Foreign Affairs Centre

for the Promotion of Imports from

Developing Countries: The European

market potential for recycled

fashion, 2020; European Commission:

EU waste management and recycling

regulation, 2008; expert input

Economics

Assumes additional cost impact due to upfront capex related to

collection infrastructure, e.g. collecting bins, sorting or

recycling machines and associated labour costs

Institut für Textiltechnik: RWTH

Aachen University; Wittmann

Recycling, used clothing containers

and textile recycling, 2020

17. INCREASED RECYCLING & COLLECTIONS

LEVER NAME KEY ASSUMPTIONS SOURCES

49 — 52

ENDNOTES

1 Signed in 2016 the UNFCCC Paris Climate Change

Agreement deals with greenhouse gas emissions

mitigation, adaptation and finance. Its long-

term goal is to keep the increase in global

average temperature to well below 2°C above pre-

industrial levels and to pursue efforts to limit

the increase to 1.5°C

2 TheScience Based Targetsinitiative is a

partnership between CDP, UN Global Compact, WRI

and WWF that provides companies with a clearly

defined pathway to future-proof growthby

specifying how much and how quickly they need to

reduce their GHG emissions

3 Based on the science-based targets initiative

website data; companies filtered for “textiles,

apparel, luxury goods”, June 2020

4 Existing estimates indicate that the fashion

industry contributes between 3% and 10% of

global emissions

5 Friday’s for Future is an international movement

of school students who take time off from class

on Fridays to participate in demonstrations to

demand action from political leaders to take

action to prevent climate change

6 Consumer sentiment on sustainability and fashion

in the COVID-19 crisis, McKinsey, May 2020

7 Consumer sentiment on sustainability and fashion

in the COVID-19 crisis, McKinsey, May 2020;

Annual earth day survey, Kearney, April 2020

8 Participant poll: GFA – McKinsey ‘Sustainability

in Fashion’ Apparel, Fashion & Luxury Executive

Webinar, n >300, June 2020

9 Europeans make record investments in sustainable

funds, Financial Times, January 2020

10 European Commission: EU budget powering the

Recovery Plan for Europe, May 2020

11 Taiyang News: Renewables find mention in

COVID-19 economic Stimulus package of Japanese

government; April 2020

12 All mentions of GHG emissions in this report are

shown in CO2 equivalent (CO2eq) metric. This

is used to compare the emissions from various

GHG based on their global warming potential

by converting amounts of other gases to the

equivalent amount of carbon dioxide with the

same global warming impact

13 NASA GISTEMP (2019) and Nathan J. L. Lenssen et

al., “Improvements in the GISTEMP uncertainty

model,” Journal of Geophysical Resources:

Atmospheres, June 2019, 124(12)

14 Climate risk and response: Physical hazards and

socioeconomic impacts, McKinsey, January 2020

15 See appendix: Methodology, acknowledgements and

endnotes for further details on the bottom-up

calculation of the industry baseline

16 Oxford University: Our World in Data, using

emissions data from the global carbon project.

Refers to 2017 CO2 emissions figures from the UK

(0.5Bn tonnes), Germany (1.1Bn tonnes), France

(0.5Bn tonnes), converted to CO2 equivalent

units and scaled-up to 2018 using the population

growth rate from the World Bank

17 Based on annualized emissions baseline analysis,

use phase would represent a larger share in

lifecycle assessment analysis

18 See appendix: Methodology, acknowledgements and

endnotes for further details on industry growth

analysis and no-further-action analysis

19 See appendix: Methodology, acknowledgements and

endnotes for further details on current pace

trajectory

20 See endnote 1

21 See appendix: Methodology, acknowledgements and

endnotes for further details on accelerated

abatement

22 Throughout this report, we refer to the

additional abatement needed for the industry

to reach the 1.5-degree pathway as accelerated

abatement, which refers to the industry

accelerating beyond its current abatement

trajectory to meet the 1.5-degree target in 2030

23 See appendix: Methodology, acknowledgements and

endnotes for further details on industry cost

curve analysis

24 Analysis based on fashion industry cost curve

(see appendix: Methodology, acknowledgements and

endnotes), looks at the societal benefit of the

analysed decarbonisation levers, which means

it is not a view on financial impact from the

stakeholder point of view

50 — 52

25 Policy Hub – Circularity for Apparel and

Footwear: Recommendations for Green Recovery

in the European Apparel and Footwear Industry,

June 2020. The Policy Hub is a collaborative

effort between Sustainable Apparel Coalition,

Federation of the European Sporting Goods

Industry and Global Fashion Agenda

26 Further details on calculation methodology in

the deep-dive box

27 See endnote 16

28 Includes raw material cultivation and extraction

as well as yarn/fabric preparation and wet

processing stages

29 This is an annualised emissions analysis, not

a lifecycle analysis of a garment; as a result

the usage-phase emissions differ vs. lifecycle

analysis results

30 Fibre volumes based on the Fiber Year

Report, Material specific emissions based on

multiple sources, see appendix: Methodology,

acknowledgements and endnotes

31 Top production countries include: China,

Bangladesh, Vietnam, Turkey and India; major

consumption countries include US and EU; UN

Comtrade: Imports and exports of apparel

industry, 2019

32 We use this as the analytical starting point for

2030 emissions for both the current trajectory

and accelerated abatement scenarios. No further

action therefore represents the emissions level

due to industry growth assuming no further

action is taken

33 Post COVID-19 growth scenarios are based on

Apparel Fashion & Luxury sector, McKinsey Global

Institute analysis. The analysis is based on the

“virus contained, growth rebound” scenario and an

implied industry CAGR of 2% per annum till 2030.

See appendix: Methodology, acknowledgements and

endnotes for further details

34 See appendix: Methodology, acknowledgements

and endnotes for assumptions on each of the

levers analysed

35 The 1.1 billion tonne target was calculated

based on the 1.5-degree IPCC report scenario

and our bottom-up calculation of the fashion

industry’s share in global emissions, see

appendix: Methodology, acknowledgements and

endnotes on calculation of 1.5-degree target for

the fashion industry

36 See appendix: Methodology, acknowledgements and

endnotes for further details

37 The total required abatement is calculated from

the no-further-action emissions level, as the

2030 emissions abatement is based on a set of

assumptions around the levers, which may

not materialise

38 See appendix: Methodology, acknowledgements and

endnotes for a full list of the abatement levers

analysed and the assumptions behind accelerated

abatement scenario calculations

39 Targeted spreading is the targeted application

of fertilisers and pesticides, which increases

spraying efficiency to reduce the amount

of spillage

40 Such as laser technology and dry chemical dying

processes replacing wet processing

41 Such as machines with spraying units to optimise

dying processes, automatic steam control and

recovery of condensate in wet processing

42 Assumes brand-led support to implement on-

site renewable generation, on-site and off-site

corporate power purchase agreements and Energy

Attribute Certificates, in addition to ongoing

country-level transitions to renewable energy; see

energy transition deep dive for further details

43 Marginal improvements expected in fibre-to-

textile production phase as the lever is

already relatively well optimised (current

industry average is around 3% wastage), with

widespread usage of defect tracking and wastage

reduction systems. Improvements largely expected

in cutting waste improvement in the garment

manufacturing stage (current industry average is

around 14%)

44 HVAC and lighting represent ~70% of energy

consumption in manufacturing, and sewing

machines consume ~20% of energy. Jananthan:

Comparative study of energy assessment from

apparel industries, 2006

45 See energy transition deep dive for further details

46 A coalition of 240+ leading companies committed

to using 100 % renewable electricity

ENDNOTES

51 — 52

ENDNOTES

47 Currently estimated to be ~83% sea transport

and ~17% air transport across the value chain

Calculated assuming an air-freight CAGR of 5.5%

p.a. on the 2014 baseline (92/8 sea vs. air split)

from EU Commission. EU Commission: Environmental

improvement potential of textiles, 2014; Maritime

Executive: Global Freight demand, May 2019

48 The practice of transferring operations closer to

consumption countries. Popular nearshore markets

include countries in the Americas, Turkey and

Eastern Europe; McKinsey & Company: Is apparel

manufacturing coming home?, October 2018

49 52% of returns are due to size/fit concerns;

Shopify: Return Magic survey, N>800,000 Shopify

customers, 2017; Zalando: Returns management

case study, 2020

50 Edited.com 2019 analysis of share of product

offering sold at a discount

51 Defined as the level of stock that is unsold

following sales and discounts

52 In 2019 France introduced a ban on the

destruction of unsold fashion goods, to be

implemented by 2023, which prohibits discarding

unsold products that are non-perishable, such

as apparel and footwear. http://www.assemblee-

nationale.fr/dyn/15/dossiers/lutte_gaspillage_

economie_circulaire

53 University of California, Santa Barbara:

Reducing greenhouse gas emissions through

materials innovation in the apparel

industry,2019

54 Textile Exchange: Preferred Fibre and Materials

Market Report, 2017

55 Modal and Lyocell could potentially be produced

with up to 50% less emissions than generic

viscose. Lenzing Group: Sustainability Report,

2019; C&A Foundation

56 Citi Research: Global Apparel Retail -

Sustainability to challenge the fashion world

order, January 2020

57 Circular business models extend product life

and therefore reduce the need for new resources

in producing virgin materials. Refer to the

appendix: Methodology, acknowledgements and

endnotes on the replacement rates assumed for

garment in circular models

58 Ellen MacArthur Foundation: A new textile

economy, 2017

59 Calculated based on ThredUp 2019 Resale report

market values for 2018, adjusted for the US

share of the total apparel market

60 Compound annual growth rate

61 ThredUp: Resale market report, 2019

62 60% of the Gen-Z and Millennial population is

assumed to be based in urban areas, with 25% of

them indicating a willingness to rent clothes.

Westfield: How we shop, 2020; Oxford: Our World

in Data, Urbanization, 2019

63 GFA survey on deadstock and overstock during

COVID-19 crisis, N=24, April 2020

64 C ategories include outerwear, jeans, dresses,

shirts and suits

65 WRAP: Valuing our clothes, 2017

66 Elizabeth Cline: The conscious closet, 2019

67 Expert input from rental model executives

68 WRAP, Valuing our clothes, 2017; expert input

from circularity experts and repair business

executives

69 Costs do not include transaction costs,

subsidies or explicit CO2 costs, taxes or

consequential impact on the economy (e.g.

advantages from technology leadership).

70 Based on expert input on decarbonisation pathway

and the economics of industry-level cost curves

71 EU Directive on waste, May 2018 https://

eur-lex.europa.eu/legal-content/EN/TXT/

PDF/?uri=CELEX:32018L0851&from=EN

72 McKinsey & Company: Consumer sentiment on

sustainability and fashion in the COVID-19

crisis, May 2020

73 See endnote 1

74 For example, the Higg Tools from the Sustainable

Apparel Coalition

75 Consumer sentiment on sustainability and fashion

in the COVID-19 crisis, McKinsey & Company, May

2020

76 Higg Facility Tools by the Sustainable Apparel

Coalition for measuring the social and

environmental performance of their facilities

52 — 52

ENDNOTES

77 European Commission: EU Green Deal

communication, December 2019 https://eur-lex.

europa.eu/resource.html?uri=cellar:b828d165-

1c22-11ea-8c1f-01aa75ed71a1.0002.02/

DOC_1&format=PDF

78 French National Assembly: Law on Circular

Economy and the Fight Against Waste 2020,

http://www.assemblee-nationale.fr/dyn/15/

dossiers/lutte_gaspillage_economie_circulaire

79 European Commission, Circular Economy Action

Plan, 2020 https://ec.europa.eu/environment/

circular-economy/pdf/new_circular_economy_

action_plan.pdf

80 UNFCCC COP25 Communique: Fashion Industry

Invites Governments to Collaborate on Climate

Action https://unfccc.int/climate-action/

sectoral-engagement/global-climate-action-in-

fashion/fashion-industry-charter-for-climate-

action/communique-fashion-industry-invites-

governments-to-collaborate-on-climate-action

81 McKinsey & Company: Why ESG is here to stay, May

2020

82 Financial Times: Companies with strong ESG

scores outperform, study finds, August 2018

83 Includes recycled materials or innovative

materials with low emissions or other

sustainability dimension impact

84 McKinsey & Company: Why ESG is here to stay, May

2020

85 UN Comtrade Database, filtered for ‘textiles;

worn clothing and other worn articles’ and

‘articles of apparel and clothing accessories,

of leather or of composition leather’, 2018

86 UN Comtrade Database, filtered for ‘textiles;

worn clothing and other worn articles’ and

‘articles of apparel and clothing accessories,

of leather or of composition leather’, 2018

87 The Fiber Year Consulting: The Fiber Year

Report, 2019

88 Apparel assumed to represent ~82% combined

apparel and footwear industry emissions based on

Quantis: Measuring Fashion Report 2018

89 IPCC: Global warming of 1.5°C, 2018

90 4% share of apparel and footwear emissions in

global emissions is based on the bottom-up

calculation of fashion industry GHG footprint

91 Weight class definitions: US: Heavy-duty trucks

(HDT): class 8 (>15t), Medium-duty trucks (MDT):

class 4-7 (6-15t); Light commercial vehicles

(LCV): class 1-3 (<6t), excluding pick-up trucks

below 3.5t; EU: HDT >16t, MDT: 7.5-16t, LCV:

<7.5t; CN: HDT >14t, MDT: 6-14t, LCV: <6t – does

not include buses

92 Upcycling goes beyond simple enhancements like

adding a patch/personalisation

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