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Manufacturing / Financial Divide Interview

Fashion’s Great Disconnect: Location of Sales, Profits & Capital vs. Location of Environmental Impacts

A Planet Tracker analysis—Following the Thread—recently underlined the significant disconnect between the location of the majority of the sales, profits and capital in the textiles industry and the location of the most significant negative environmental impacts. Richard Wielechowski, Senior Investment Analyst (Textiles) at Planet Tracker, tells texfash.com what this disconnect means.

By

28 June 2023

 4 minutes
Long Story, Cut Short
  • Retail brands have a moral obligation to do more to work with their suppliers to address the environmental impacts of the industry.
  • More collaboration is needed between brands who have capital and their suppliers who need capital to make investments to address things like greenhouse gas emissions or water usage.
  • Many brands have set science-based targets to reduce emissions in line with a +1.5C scenario & reaching net zero. This will not happen without radical action on their Scope 3 emissions (the supply chain) so they need to act now.
The report argued that frequent outsourcing of manufacturing leads to poor supply chain visibility and limited direct control of most of the negative environmental impacts of the industry by retail companies and investors.
See No Evil The Planet Tracker report argued that frequent outsourcing of manufacturing leads to poor supply chain visibility and limited direct control of most of the negative environmental impacts of the industry by retail companies and investors. Jingxi Lau / Unsplash

Earlier in June, a report from Planet Tracker emphasised that textile retailers need to actively engage with supplier and manufacturer efforts to reduce negative environmental impacts if brands want to claim ‘green’ credentials.

Analysing 3,897 companies from across the textile supply chain, the report Following The Thread revealed a significant discrepancy between the location of negative environmental impacts and the location of capital within the supply chain. 

The context: Fabric manufacturing and fibre production are associated with much of the textile supply chain’s environmental impact—76% of climate change impact, 74% of resource consumption and 61% of its water use, while only making up a collective 18% of its revenues and 7% of its market capitalisation. But, clothing retail on the other hand, represents 54% of revenues and 63% of market capitalisation, while only marginally directly contributing to environmental impacts.

The report argued that frequent outsourcing of manufacturing leads to poor supply chain visibility and limited direct control of most of the negative environmental impacts of the industry by retail companies and investors.

This report has four key takeaways:

  1. Visibility in supply chains is going to be increasingly important for fashion retailers in the future.
  2. The bulk of the industry’s sales, profits and capital is at the retail node of the supply chain.
  3. In contrast the environmental damage is focused upstream in the supply chain, notably at the fabric manufacturing node.
  4. To have a sustainable fashion industry, this mismatch needs to close. 

texfash.com: When you started on this project, what was the fundamental assumption that you had in mind? Were your findings radically different from what you had expected to find? Or, were the findings only a corroboration of your assumptions?
Richard Wielechowski: We started the project as a means of visualising the corporates active at different stages in the textile value chain and their financial statistics. This initial “universe” will form the basis of future work, for instance, adding in data on who are the major investors for different stages of the value chain.

We would say the findings from this work were in-line with our expectations. We expected the majority of capital to sit at the retail node and equally it is well known that much of the negative environmental impact of textiles happens during the manufacturing process.

A whopping 3,900 companies!  That's a huge number. How long have you been working on this project? How did you ensure that the progress on your project stayed up-to-date with the data that was coming in from over 3,900 companies?
Richard Wielechowski: This project has been in the works for over a year. Currently, the data presented is from 2019. This was chosen as it was the last year for which full data was available and which were pre-pandemic impacts. More detail is in the methodology report for the work which is on our website.

As I mentioned, we will follow up the initial report by adding more data (starting with who are the major funders), and when we do this we will probably update to 2022 as the financial year as data is now widely available for that period.

Your report talks about "a significant mismatch between financial value and emissions in the textiles industry." But wasn't this always known, certainly in terms of what one had always suspected. So, is the report a quantification of that suspicion?
Richard Wielechowski: We would agree that this mismatch is known. As you note, the report crystalises this with actual financial values and as noted, will be the foundation for further work looking at these issues in other ways.

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Young India Fashion Survey 2025
The Planet Tracker universe comprises close to 3,900 entities. Looking at the split by node, most were allocated to the garment production node (30%), followed by retail (29%) and fabric production (20%)
Part of the Universe The Planet Tracker universe comprises close to 3,900 entities. Looking at the split by node, most were allocated to the garment production node (30%), followed by retail (29%) and fabric production (20%) Pixabay

The report says that "fabric manufacturers and producers are responsible for 76% of textile’s impact on climate". The word "responsible" here is tricky. It can indicate that manufacturers and producers are doing this willingly; they are not—they are and have been producing for the West.
Richard Wielechowski: We would agree that suggesting that emissions are entirely a problem for the supply chain, and they should be the only ones addressing the issue is totally wrong. Not to get into semantics of word choice, but “responsible” here is merely used to refer the point of origin rather than as any moral judgment.

Indeed, a key point of the report is really to emphasise that retail brands have a moral obligation to do more to work with their suppliers to address the environmental impacts of the industry. We call for more collaboration between brands who have capital and their suppliers who need capital to make investments to address things like greenhouse gas emissions or water usage. For instance, brands could help suppliers access cheaper capital via guarantees or volume commitments.

Not absolutely, but very broadly it is brands/retailers who call the shots in the textiles-apparel-fashion industry. And by saying that clothing retail (mostly representing the Global North) are hardly responsible for climate impact, the report almost lets them off the hook and squarely rests the blame on the Global South. Comments, please.
Richard Wielechowski: As noted earlier, a key point in the report is that we believe brands should be doing far more than currently to address the environmental impacts of the supply chain. With work from the Apparel Impact Institute suggesting decarbonizing the supply chain will need at least $1 trillion, there is urgent need for brands to be more proactive in helping finance flow to address this issue.

Many major brands have set science-based targets to reduce their emissions in line with a +1.5C scenario and reaching net zero. This will just not happen without radical action on their Scope 3 emissions (the supply chain) so they need to act now. It is morally unjustifiable and unworkable for the entire problem to be pushed onto the supply chain to solve.

Richard Wielechowski
Richard Wielechowski
Senior Investment Analyst (Textiles)
Planet Tracker

We call for more collaboration between brands who have capital and their suppliers who need capital to make investments to address things like greenhouse gas emissions or water usage. For instance, brands could help suppliers access cheaper capital via guarantees or volume commitments.

Subir Ghosh

Subir Ghosh

SUBIR GHOSH is a Kolkata-based independent journalist-writer-researcher who writes about environment, corruption, crony capitalism, conflict, wildlife, and cinema. He is the author of two books, and has co-authored two more with others. He writes, edits, reports and designs. He is also a professionally trained and qualified photographer.

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  • Dated posted: 28 June 2023
  • Last modified: 28 June 2023
 
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