Today, the global fashion industry accounts for an estimated 3 to 8 percent of total greenhouse gas (GHG) emissions, and the industry’s emissions are expected to increase by about 30 percent by 2030 if no further action is taken.
About two-thirds of brands, according to a new analysis, are behind on their own decarbonization schedules, and 40 percent have seen their emissions output increase since making their sustainability commitments. Intense and frequent weather-related events occur in primary manufacturing countries—such as Bangladesh, China, India, and Vietnam—which export bulk of apparel.
McKinsey research shows that most fashion brands could reduce their GHG emissions by more than 60 percent for less than 1 to 2 percent of their revenues. (This excludes levers related to reselling, renting, and repairing fashion, which would reduce a brand’s emissions intensity significantly but also be dependent on consumer behavior shifts).
As expectations from regulators, consumers, investors, and employees have shifted, fashion brands have made public sustainability pledges to reduce their GHG emissions. On average, fashion businesses included in McKinsey analysis have committed to reducing Scope 1 and 2 emissions by about 55 percent and Scope 3 emissions by about 35 percent by 2030. To assess each brand’s progress on Scope 3 emissions, we compared brands’ historical rates of emissions reduction with the pace of change required to reach their emissions targets. Despite ongoing efforts, we find that brands are struggling to keep pace with their decarbonization targets.
Analysis has found that two in five brands have seen their emissions intensity increase. Only 37 percent are on track to reach their 2030 decarbonization goals, assuming they continue to reduce their emissions intensity at their current paces.
Only about a third of fashion brands will be able to meet their sustainability targets by maintaining their current emission reductions. Twenty-three percent will need to increase their abatement progress by up to ten percentage points a year. The other 40 percent need to increase their abatement progress by more than ten percentage points a year to reach their 2030 targets, which represents a major acceleration in their progress. The need for renewed action is urgent, as 40 percent of brands have increased their emissions intensity since making their sustainability commitments.
Six challenges fashion brands can address to become more sustainable:
- Keeping sustainability a core priority even when times are tough
While most fashion executives have made public sustainability commitments, translating them into action continues to be a challenge. When finite resources become stretched and executives focus on tightening margins, sustainability initiatives can often take a back seat. This is propelled by the fact that sustainability measures may be seen as having a short-term cost, by consuming either financial resources or time and attention, while the positive impact on sales occurs over the long term and is difficult to directly measure. - Putting sustainability at the heart of the business
Achieving meaningful sustainability targets means that initiatives have to penetrate the entire operating model, from design and sourcing to marketing and retail operations. These are difficult changes to make because they require teams to adopt new ways of working and require more collaboration across business functions. - Charting a decarbonization path is complex
Decarbonization in fashion is not straightforward. Charting an optimal path at minimal cost requires deep insights into a brand’s supplier footprint across tiers, as well as an understanding of technical topics such as emissions hot spots, production machinery, biofuels, renewable electricity, and energy efficiency. - The fashion industry needs more supply chain transparency
Emissions baseline setting and impact measuring are complex tasks and require primary data, such as that from a manufacturing facility, which demands new levels of supply chain transparency. Most brands don’t have a direct relationship beyond their tier-one suppliers and rely on industry-average data for tier-two emissions. Relying on secondary data can be problematic, as we have found up to a 20 percent difference in emissions when comparing a brand’s life cycle assessments based on primary data with its assessments based on industry-average data. - Implementation is consistently underestimated
It’s not enough to identify the large-scale changes required to lower emissions. Executing these changes is often where fashion businesses may struggle. To implement decarbonization strategies quickly and at scale, fashion executives can approach them with the same force and rigor as they have with their digital transformations. This includes creating a rigid road map, reporting mechanisms, incentives, capabilities, and true business ownership. - The supplier landscape is fragmented
Big fashion brands work with hundreds or sometimes thousands of suppliers, which makes it difficult or even impossible to engage on sustainability initiatives with each one of them. For their part, suppliers have multiple competing brands as customers, and few suppliers have the scale and financial resources to make the capital investments needed to become more sustainable. Instead, they rely on brands to take an active role in facilitating change. Brands are disincentivized to finance production improvements since these improvements would also benefit their competitors.
Even with these six challenges, fashion may actually be well positioned to achieve its decarbonization goals. This is because most costs and value added in fashion come from low-carbon activities, such as design and marketing, while emissions are concentrated over a few activities, such as raw material production, shipping, and wet processing.
Six actions can help accelerate decarbonization in fashion: - Create commercial value from your sustainability strides
Understand precisely what your consumers care about with respect to sustainability to determine your distinct brand and value proposition. Work actively at every level—including corporate, brand, and product—to translate achievement of those sustainability goals into powerful, consumer-facing offers that can build brand equity. - Focus on the big two: material transition and tier-two-supplier energy transition
Because fashion businesses rely heavily on fossil-fueled energy in primary manufacturing countries, transforming fibers into garments represents about 70 percent of emissions; most of these emissions come from fabric production (mostly dyeing and wet processing) and fiber production. Innovative green materials—including cotton replacements, recycled materials, and bio-based leather alternatives—are becoming more widely available at lower costs. The most promising materials require minimal compromise in performance and little, if any, additional cost once supply - Build a carefully prioritized, robust road map
A well-defined road map could answer both the “what” and the “how” to transform a fashion business’s decarbonization strategy faster and at a lower cost. Start by creating a detailed view of emissions baselines and decarbonization levers. Then, prioritize and order actions based on abatement potential, cost, speed, and commercial value. Use a marginal abatement cost curve, which compares the abatement potential and cost of each lever. - Get granular on data
Access to reliable data is essential if fashion businesses are going to progress through their decarbonization journeys, comply with sustainability regulations, and provide sustainability information to consumers. Brands must move from industry-average data to primary data. Primary data offer more precise, brand-specific insights about emissions baselines, levers, and progress. This will require partnerships with leading traceability and impact measurement providers and close collaboration with suppliers. - Boost execution and transformation management
To overcome the execution challenges in a sustainability transformation, businesses could draw on the transformation playbook used for achieving higher margins or reducing costs. This means going from a softer approach, with top-level sustainability targets and a dedicated team but no solid transformation plan, to an action-based approach. - Make collaborations action oriented
The entire fashion ecosystem will need to collaborate if the industry’s decarbonization goals are to become a reality. Brands with meaningful supplier overlaps, for example, could jointly define decarbonization pathways and create a critical mass to invest in supplier decarbonization initiatives. Collaborating on initiatives, such as increasing suppliers’ access to renewable energy, could lead to more impactful changes than if a brand were to pursue smaller-scale initiatives on its own.
Not only will taking these actions help fashion executives achieve accelerated GHG abatement at a modest cost, but they can also create substantial business value in sustainable transformations. To capture the opportunity, time is of the essence. For the fashion industry, the hard part of becoming more sustainable isn’t deciding to begin the journey; it’s maintaining progress.
