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The global clothing industry is valued at over $1.7 tn and employs more than 300 million people across its value chains. Fast fashion in Asia has been a booming industry over the past two decades, but this is set to change as the European Union is concerned about the negative environmental and social impacts that are attached to fast fashion.
The fashion industry is responsible for about 20% of industrial water pollution, and contributes 35% to oceanic primary microplastic pollution, said a report by Asia-Europe Environment Forum. The industry also produces nearly 10% of global CO2 emissions as well as vast quantities of textile waste which makes it into a landfill.
Europe is the world’s biggest consumer of textiles, whereas Asia produces more than 50% of the world’s supply of fibres and fabric. Fast fashion — cheap trendy clothing that is mass-produced in Asia — is in the crosshairs of the European Union, forcing companies to overhaul their clothing supply chains to recycle fabrics and reduce the negative social and environmental impact.
Problems with Asia fast fashion
Over the past few decades, suppliers had shifted their manufacturing to Asia in the search of lower wages and cheap land. Garments make up 80% of Bangladesh and Cambodia’s exports. China has over 10 million people employed in the textiles industry. In India, the textile industry is the second biggest employer after agriculture.
Meanwhile, over 70% of imports of textile and clothing in Europe come from Asia. The European Parliament in a report back in 2014 had said that Asian workers work in sweatshop conditions with poor wages and scarce security. Long working hours, low wages, lack of regular contracts and systemic hazardous conditions are among the few problems faced by garment workers in Asia. Additionally, overproduction of clothes is rampant, with over 30% of stocks remaining unsold annually.
The EU’s executive arm has now called for mandatory minimum use of recycled fibres by 2030 and will ban the destruction of unsold inventory. “We want sustainable products to become the norm,” European Commission Vice President Frans Timmermans said. “The clothes we wear should last longer than three washes.”
However, the changes require a massive shift in an industry whose focus has been to keep costs and prices down. EU has tried to use the large market to push manufacturers to adopt green goals by levying carbon border tax and extending producer responsibility. Over 50% of textile imports in Europe come from China, Bangladesh, and Turkey, with Cambodia, Vietnam, India, the UK, and some other countries making up the rest of the textile imports figure.
And some of these countries are under criticism. The European Parliament in its report takes note of the Rana Plaza garment factory disaster in Dhaka, Bangladesh, in 2012 that killed over 1,000 people, and another accident in the same year in the Tazreen Fashion factory that killed over 100 people.
In Cambodia, garment factory workers are crammed into vehicles, and thousands have lost their lives in road accidents. Contractors use flatbed trucks to transport people, which is illegal according to Cambodia’s traffic laws, while a majority of these trucks are over 15 years old.
Overhaul of fashion supply chains
Europe’s love for fast fashion comes from retailer brands such as H&M, Primark, Decathlon, and Zara, among others. However, consumer tastes are changing, and they want sustainable, environment-friendly and traceable fashion choices. Upcycling and other methods to reduce the carbon footprint of clothing have also become a mainstay. Sustainability has also taken the centre stage with luxury brands; an example is the sustainability focus of UK designer Stella McCartney and more recently designer Gabriela Hearst.
The changing economics of the textile industry and the need for sustainable supply chains have manufacturers exploring new technology and methods of production. Brands that are unable to overhaul their strategy from disposable, low-margin retail clothing are becoming obsolete.
Retail giants such as H&M, or Inditex, owner of Zara, or Fast Retailing, parent firm of Uniqlo, have invested in new technology with a promise of recycled materials used in their clothing items. These companies, as well as other retailers, are also implementing better supply chain management practices and “smart logistics” systems to avoid waste of inventory.
Swedish retailer H&M has a target to reduce its emissions by 56% by 2030 and reach net zero by 2040. After the Rana Plaza disaster, H&M joined the Bangladesh Fire Safety Accord and has also pledged to use 100% recycled materials by 2030. However, Australia-based sustainable fashion rating firm Good On You says while the company has launched sustainable fashion collections such as ‘Conscious’, its workers still do not have adequate health and safety standards. Overall H&M is rated ‘It’s a Start’.
Irish fashion firm Primark in 2020 decided to provide additional support to its suppliers at the start of the pandemic and created a salary fund for factory workers in Bangladesh, Cambodia, India, Myanmar, Pakistan, Sri Lanka and Vietnam. The company has also pledged to improve the durability of its clothes by 2025 and halve emissions by 2030.
When Covid-19 hit, textile factories across Asia faced major issues as brands cancelled orders and refused to pay for ordered products, forcing many of them to shut down. The Worker Rights Consortium had reported that at least 13 clothing brands had cancelled orders from Asian factories. The crisis also laid bare the fragility of contracts between brands and suppliers, with human rights activists and trade unions calling out clothing brands to shoulder their responsibility.
What should investors do?
“Leading branded apparel companies can suffer market value destruction ranging up to 30% of their long-term margins and growth assumptions are reset at lower levels following a shake-up of their existing low-cost model,” says Devi Subhakesan, insights provider who writes on SmartKarma.
Subhakesan’s report analyses big ‘affordable’ fashion brands for their sustainability practices and sensitivity of valuations to changes in margins. The report makes the following suggestions for investors — pick stocks that will not just win the cost race but do so in sustainable ways. Monitor achievements closely, and stay clear of those who refuse to adapt and adopt sustainability goals.
