The new EU Strategy aims to tackle problems in the textile industry by decoupling economic growth from the consumption of finite resources. by making steps towards a circular European fashion landscape. In a clear vision, the European Commission states:

“By 2030 textile products placed on the EU market are long-lived and recyclable, to a great extent made of recycled fibers, free of hazardous substances and produced in respect of social rights and the environment. Consumers benefit longer from high quality affordable textiles, fast fashion is out of fashion, and economically profitable re-use and repair services are widely available. In a competitive, resilient, and innovative textiles sector, producers take responsibility for their products along the value chain, including when they become waste. The circular textiles ecosystem is thriving, driven by sufficient capacities for innovative fiber-to-fiber recycling, while the incineration and landfilling of textiles is reduced to the minimum.”

This vision reflects Triodos Investment Management’s vision, as stated in our position paper “Dress to Change”: “the fashion industry needs to move from a business model based on low value and high volume (fast fashion) to high value and low volume (slow fashion), and an intrinsically sustainable business purpose.”   

Fast fashion out of fashion

While the EU Commission’s message is unmistakable, EU institutions and bodies will still have to endorse this strategy, and EU Member States, the industry and international partners will have to commit to concrete action for the implementation. Several binding requirements on products are proposed, such as banning hazardous chemicals from clothes, and clear product labeling on materials is mandatory to let enable consumers to make informed choices. The strategy, however, also assigns clear responsibility to companies, to embed circularity in their business models.

To assess current fashion business models, we propose that performance metrics and targets could include R&D expenditure for sustainable innovation, true price-accounting (including social and environmental costs of production and transportation), and appropriate budget allocation to implement corporate programmes. To date, public disclosure on important metrics ranges from very poor to patchy at best. For instance, the fast fashion business model is based on short lead times (quick response), frequent assortment changes (seasons or trends per year), and very low prices. Such indicators, as well as clear information about the value of their products in terms of usability, material, durability, up-cyclability and recyclability, allow for a clear indication of how purpose is pursued, and profit is generated. Further information on inventory management and overproduction, the percentage of production sold at a discount or dumped in sales campaigns, as well as data on waste generation and so-called unsellables and how these are dealt with are important indicators to understand fashion business models.

Regulatory power

Consumers and investors are unlikely to incite fashion companies to a transition to a circular and sustainable business model fast enough, so regulatory action is necessary. One of my favourite requirements in the EU strategy is, hardly surprising, the transparency obligation “requiring large companies to publicly disclose the number of products they discard and destroy.” As soon as this is a required reporting metric, the industry will surely feel a strong need to review their business practices, especially in connection with a ban on the destruction of unsold products.

Waste from discarded clothing items should also be taken into account, however. And furthermore, questioning fashion companies’ marketing strategy for incentivizing overconsumption (appealing to the ‘fear of missing out’), being transparent about cost components in the prices of their products, and informing about the negative social and environmental effects of their products (no alienation of supply chain issues) are also important aspects that companies need to be encouraged to embed in their public disclosure and product information.

Another of my favourite proposals in the strategy are the “favourable taxation measures for the reuse and repair sector.” In addition to trade restrictions such as quotas and bans, fiscal stimuli such as taxes and subsidies could be explored to a larger extent. For instance, second-hand markets for valuable clothes or custom-made quality clothes could be a business opportunity for companies, and even be subsidised by governments to stimulate demand, while taxes could be introduced on non-valuable, mass-produced clothes, or on unused clothes to make their disposal more expensive.

Yet, regulators may also (involuntarily) be an obstacle to concerted efforts to transform the fashion industry. In May 2022, the EU antitrust watchdog reportedly raided fashion companies in several EU countries. Antitrust laws are regulations that encourage competition by limiting the market power of any particular company, and by preventing companies from colluding or forming a cartel to limit competition through practices such as price fixing. Yet, if the fashion sector were to take concerted action to reduce overproduction and price dumping by calling for changes in sales periods and discounts, they may be investigated for breaking antitrust rules. However, if concerted action is taken for the sake of sustainability, and not with the goal of taking advantage of consumers as is the underlying reasoning for antitrust rules, this legislation and the regulators should be clear about that sustainability and impact outweighs the ideology of free competition, and that such cooperation does not fall under competition rules, potentially scaring off companies to act.

Time for action

Beyond the ethical reasoning of well-informed consumers and the competing market dynamics of valuable and sustainable products, public policy may create clear business drivers and business risks to alter corporate strategies in the fashion sector. It is time for fashion companies to rethink their strategy in the current context in which they are operating and build their core business model around making sustainable profits. Consumers, investors, and regulators together should be able to exert enough pressure on companies to do just that.