Spotlight: Due Diligence 2022

Due Diligence Partnerships Can Work Wonders for Circularity

The Circular Fashion Partnership (CFP) project that took place in Bangladesh from October 2020 to December 2021 presents a compelling business case to scale domestic textile recycling, with demand for recycled materials from global brands and to secure consistent access to high quality traceable post-industrial feedstock from local manufacturers.

Long Story, Cut Short
  • The CFP started with an ecosystem approach — developing circular commercial collaborations with partnerships between brands, manufacturers and recyclers.
  • It was found that Bangladesh could save 15%--half a billion dollars from just using its own cotton waste as a raw material for the industry again.
  • This was the first time textile waste quantified at a country level and showed that the opportunity is really huge for the circular economy. This project showed that there is a very strong and practical business case to work towards circularity.
Recycling textile waste is a USD4.5 billion opportunity across six major textile manufacturing markets--Bangladesh, Vietnam, Turkey, India, Malaysia and Indonesia.
Opportunity of Waste Recycling textile waste is a USD4.5 billion opportunity across six major textile manufacturing markets--Bangladesh, Vietnam, Turkey, India, Malaysia and Indonesia. Bicanski / Pixnio

Two seemingly disparate ideas can sometimes work together. Due diligence, at least at the cursory level, is about knowing all composite parts in a manufacturing system. Or, links in a value chain. Circularity, for its part, works best when all elements that make it work can be mapped out as a harmonious process that leaves little room for error.

That these two concepts can not just work in tandem, but become one composite project in itself is not abstract thinking--the Circular Fashion Partnership (CFP), which was run for a year in Bangladesh and is now in its next iteration, has the numbers to show that the idea works in practice.

The CFP was a cross-sectoral programme, led by Global Fashion Agenda (GFA) with Reverse Resources and the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) with the support of Partnership for Growth. The goal was to reduce dependency on virgin materials and increase the availability of recycled materials by establishing a long-term, scalable transition to a circular fashion system in garment manufacturing countries.

The data of the waste segregation, done by Reverse Resources, showed that virgin cotton imports in Bangladesh could be reduced by approximately 20%, saving USD750 million annually, if 100% cotton and cotton elastane waste streams were recycled domestically. At the moment, less than 5% of total textile waste is recycled domestically back into fibres suitable for the apparel industry.

Many manufacturers consider incineration of cotton as a sustainable, cost-efficient and reliable energy source. Additionally, advantageous characteristics of cotton such as high calorific value for incineration, it being cleaner to burn and easier to capture toxins through filtersmake cotton and cotton rich textile waste an appealing raw material for incineration. This has resulted in a system where large volumes of highly valuable and easily recyclable textiles are lost from the value cycle.
Energy Resource Many manufacturers consider incineration of cotton as a sustainable, cost-efficient and reliable energy source. Additionally, advantageous characteristics of cotton such as high calorific value for incineration, it being cleaner to burn and easier to capture toxins through filtersmake cotton and cotton rich textile waste an appealing raw material for incineration. This has resulted in a system where large volumes of highly valuable and easily recyclable textiles are lost from the value cycle. MPCA / Flickr 2.0

Making the Idea Work

The CFP was meant to achieve a long-term scalable transition to a circular fashion system, says Holly Syrett, Impact Programmes and Sustainability Director at GFA. This was meant to be done in two ways: first, a cross-sectoral project to support the development of the recycling industry in Bangladesh by capturing and directing post-production fashion waste back into the production of new fashion products; and second, creating a blueprint for upstream circularity that could be replicated across the manufacturing countries.

"We believe that circular fashion systems must be approached from a global supply chain approach and that manufacturers are key in being part of what that new circular system could look like so that we can redistribute value in a fair way and develop a new system that is not extractive, maintains the value of materials that are in it, and distributes value."

The CFP started with an ecosystem approach. "We started by developing circular commercial collaborations with partnerships between brands, manufacturers and recyclers to first segregate post-industrial textile waste within manufacturing facilities; then digitise the waste streams and track them to suitable recycling solutions; and then explore as a second stage how could those recycled materials be reincorporated into new products.

"We also started looking at the broader ecosystem and how we can create a conducive environment to enable these circular systems. We started exploring what the political barriers could be, and how we could make a business case for investment to increase domestic recycling capacity. This part focused on the business model--what can collaborations look like throughout the value cycle and how can we reframe business models to be more circular. What goes around comes around; so, how can we ensure this throughout those different chains of waste. And then, how can we aid those infrastructures by a supported policy and investment."

Syrett talks about the outcomes. "We saw the benefit of collaborating with a large group of stakeholders throughout the industry to create a unified voice and awareness, and also to see how it can address issues that can’t be addressed independently--such as the ownership of waste and how we can, for instance, create more awareness through a shared effort."

The CFP platform made it possible to trace the textile waste. Ann Runnel, CEO & Founder of Reverse Resources, hoped to quantify how much waste was captured from the factories, how much of that was distributed to different recycling partners. The numbers got big by the end of the year, and one and a half thousand tonnes of waste was registered on the platform. Majority of the waste registered on the platform that was traced was 100% cotton or very cotton rich, because this was what the recyclers were really looking for.

"There was a good traction on the platform. We got a lot of positive engagement from many stakeholders which seemed quite an impossible task a year before. As part of the project, we also quantified what would be the opportunity for Bangladesh; how much waste there is from general production; and, whether the material flows through the country.

"We concluded that 250,000 tonnes of waste from the readymade garment factories were cotton rich and could be recirculated back into the industry, and Bangladesh could save 15%--half a billion dollars from just using its own cotton waste as a raw material for the industry again.

"It was the first time we could quantify this at a country level and show that the opportunity is really huge for the circular economy. We also were able to show through this project that there is a very strong business case. It’s just not nice to dream, but it is a practical business case to work towards circularity."

Holly Syrett
Holly Syrett
Impact Programmes and Sustainability Director
Global Fashion Agenda

We believe that circular fashion systems must be approached from a global supply chain approach and that manufacturers are key in being part of what that new circular system could look like so that we can redistribute value in a fair way and develop a new system that is not extractive, maintains the value of materials that are in it, and distributes value."

Textile and garment manufacturing countries predominantly in the Global South are currently dependent on traditional fashion systems, wherein large quantities of products are created at relatively low cost, and then exported and retailed with a relatively high markup in the Global North.
South by North Textile and garment manufacturing countries predominantly in the Global South are currently dependent on traditional fashion systems, wherein large quantities of products are created at relatively low cost, and then exported and retailed with a relatively high markup in the Global North. Solidarity Centre / Flickr 2.0

Opportunities, and Also the Barriers to Scale

Besides all the positives, the project also identified a few barriers that really need to be addressed to further scale the work not only in Bangladesh but at the global level as well. This becomes important to make note of given the case at hand: a USD4.5 billion opportunity across six major textile manufacturing markets--Bangladesh, Vietnam, Turkey, India, Malaysia and Indonesia.

There were barriers in Bangladesh. Says Syrett, "In the first year, the main barrier was the need to formalise the informal waste handling sector which is currently informal and engage in the circular systems we were developing and testing. There was a need to create a closed loop and to digitise and capture the value. There needs to be a more formal approach. We also need to establish a common understanding of waste ownership.

"There was a need to adopt traceability to present waste value and flows. We didn’t know what the opportunities were without the work conducted by the manufacturers in the project and the Reverse Resources team."

There were issues that needed to be addressed: identifying and removing the opacity around the topic; addressing limits on waste generation and taxation in the country; balancing the conversation on post-used garments and post-industrial waste capturing; harnessing the potential of export processing zones.

"We believe that one of the main success criteria for the initial phase of this project was bringing together different players (recyclers and brands) to talk about material characteristics and exploring how recycled materials can be included in collections even if they might not meet a criteria that a brand currently has."

Ann Runnel
Ann Runnel
CEO & Founder
Reverse Resources

There was a good traction on the platform. We got a lot of positive engagement from many stakeholders which seemed quite an impossible task a year before. As part of the project, we also quantified what would be the opportunity for Bangladesh; how much waste there is from general production; and, whether the material flows through the country.

An apparel worker plies her trade while maintaining social distance with other workers as readymade garment (RMG) factories reopened amid the COVID-19 pandemic in Dhaka.
At the Centre of the Industry An apparel worker plies her trade while maintaining social distance with other workers as readymade garment (RMG) factories reopened amid the COVID-19 pandemic in Dhaka. UN Women / Flickr 2.0

The Backdrop is Significant

Copenhagen-based GFA has been guiding leaders around the world to take action on increased sustainable performance. Its vision is a net-positive fashion industry. One of the key strategic components in achieving this vision is the alignment with the UN SDGs.

Explains Jonas Eder Hansen, Chief Development & Policy Officer at GFA: "Because of the behaviour of fashion and textile companies, it is key to succeed and deliver on the UN SDGs, including its human rights and environment related objectives. Many companies today need to implement comprehensive mitigation processes for adverse human rights and environmental impacts in the value chain by integrating sustainability into corporate governance and management systems.

"Given the significant number of value chain partners and overall complexity in our industry, companies may encounter numerous difficulties in identifying and mitigating risks in their value chains linked to human rights and/or environmental impact. We believe that the connection of this industry to millions of workers around the world through the global value chains comes with a big responsibility in addressing what these adverse impacts have on the rights of these workers."

Laws have already come into place. On 23 February, even as the 2022 OECD Forum was under way, the European Commission adopted a proposal for a directive on corporate sustainability due diligence. The proposal aims to foster sustainable and responsible corporate behaviour throughout global value chains. "For businesses these new rules will bring legal certainty and a level playing field," the announcement said.

It also pointed out that "a number of Members States have already introduced national rules on due diligence and some companies have taken measures at their own initiative." Hansen points this out as well. In 2017, France published the Vigilante Act and in 2021 Germany introduced the Supply Chain Duty of Care Act. Other EU member states like Belgium, the Netherlands, Luxembourg, Sweden and others are said to be planning similar acts in the near future.

"Regulation is really upon us as an industry," contends Hansen, "and many will argue that for too long the industry has been relying too heavily maybe on self-regulation and voluntary agreements. That has brought us far, but maybe not far enough. Many companies have taken serious actions, but too many companies have been free riding under the radar. This is also why the GFA has put a strategic focus on policy engagement. As an industry, we need to collaborate much more with policymakers to achieve binding agreements that would dramatically increase the sustainability performance of our industry.

"When the GFA and BCG  launched the first policy report in 2017 (Pulse of the Industry report), one of the report findings was that 50% of the industry had not even started on their sustainability journey. Five years later this has changed somewhat. But we would most likely see alarming figures today. In essence, the GFA welcomes efforts from policymakers to enhance these due diligence efforts in the industry."

Jonas Eder Hansen
Jonas Eder Hansen
Chief Development & Policy Officer
Global Fashion Agenda

Regulation is really upon us as an industry. And many will argue that for too long the industry has been relying too heavily maybe on self-regulation and voluntary agreements. That has brought us far, but maybe not far enough. Many companies have taken serious actions, but too many companies have been free riding under the radar. This is also why the GFA has put a strategic focus on policy engagement.

Note: This report is based on the side session of the 2022 OECD Forum on Due Diligence in the Garment and Footwear Sector titled 'Exploring the potential to capture and reduce resource dependency through circular fashion systems in garment manufacturing countries'.
 

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  • Dated posted 23 March 2022
  • Last modified 23 March 2022