Sustainable and Responsible Investing

The circular economy takes on fast fashion

With the circular economy high on the political agenda, the European Commission's goal is to make all textile products recyclable by 2030. Given its negative impact on the environment, the fashion sector appears to be a prime target.

04.05.2022

Geneva - CH

Life-cycle product stewardship, otherwise known as the “circular economy”, is high on the political agenda, especially in Europe. This business model brings together a growing number of companies faced with the need to reduce their consumption of natural resources and render their products more sustainable and greener. Responsible investors, on the other hand, use this approach to assess the sustainability of the business models of companies in their portfolios. Given its negative impact on the environment, the fashion sector and the leading fast fashion brands in particular appear to be prime targets.

On 29 March, the European Commission unveiled its new strategy for sustainable and circular textiles. It has a clear main objective: to make all textile products recyclable by 2030. Brussels also wants to improve the traceability of clothing and introduce a compulsory digital passport, similar to the Nutriscore method used for industrial foods, so as to identify their environmental impact. This approach is not just for textile products, it represents a specific part of a more global political will to regulate the eco-design of almost all consumer goods, from smartphones to tyres to handbags. Hot on the heels of the Sustainable Textiles Strategy, the Circular Economy Plan was detailed on 30 March by Frans Timmermans, the Commission Vice-President responsible for the Green Deal. The Green Deal, which was passed in December 2019, builds on the circular economy’s ‘optimise and reduce’ consumption philosophy to achieve its ambition of a climate-neutral Europe by 2050. According to the Circularity Gap report, implementing the circular economy would reduce CO2 emissions by almost 40%.

Circular economy versus linear economy: new challenges for fashion brands

Less than 1% of textile production is now recycled and up to 35% of the microplastics released into the environment come from polyester or acrylic based clothing. Each European buys an average of 26 kilos of clothes per year and throws away 11 kilos. Despite growing consumer awareness, we buy twice as much clothing as we did 15 years ago. These figures alone illustrate the pattern of the linear economy, which intensively extracts and consumes natural resources to produce a garment, which is frequently of poor quality, is rarely worn and is quickly thrown out as waste. Circular fashion, on the other hand, is based on the famous three “Rs” at the core of the circular economy – Reduce consumption, Reuse products and Recycle waste. Circular fashion therefore aims to ensure that clothes are responsibly created (eco-design), their materials are used for as long as possible, and that they can be efficiently and cleanly recycled at the end of their life. These are the challenges and opportunities facing brands in the sector: fulfilling regulatory expectations that are taking shape, satisfying ever clearer customer expectations, as well as those of responsible investors closely monitoring the implementation of this approach.

Leaders in circular fashion where you might not expect them...

The entire sector, under scrutiny from responsible investors, is (slowly) moving towards circular thinking. Paradoxically, considering its status as a fast fashion giant, Hennes & Mauritz (H&M) appears to be one of the leaders in this field. H&M is a partner of the Ellen MacArthur Foundation, a pioneering circular economy organisation, and has recently revisited its business model with a focus on circularity. H&M uses artificial intelligence to predict customer behaviour, produce the right quantities and avoid unsold stock, which many brands still burn. The eco-design of products is an important pillar in rendering reuse or recycling easier: the goal is to recycle 30% of materials in clothing design by 2025 (18% in 2021). The company also offers repair services for used clothes and is developing rental platforms (these services are not yet widely available). It also allows customers to bring their used clothes back to its shops.

This commitment is sound ESG practice and consistent with society’s growing expectations. It should be noted, however, that the company is not making these efforts out of a pure desire to be a good corporate citizen, but rather out of necessity to distinguish itself from its peers and in particular from the threat of the 100% online ultra-fast fashion industry. Furthermore, let’s not forget that the brand’s priority remains that of selling as many garments as possible at affordable prices, over and above any efforts to make its products last longer and optimise its waste management. One can legitimately doubt the wish of a customer to rent, repair or frequently wear a t-shirt worth about 10 euros, however durable it may be.

¹https://www.circularity-gap.world/2021

²https://ellenmacarthurfoundation.org/a-new-textiles-economy

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