The white paper, titled ‘From Catwalk to Carbon Neutral: Mobilising Funding for a Net Zero Fashion Industry’, was commissioned by Pakistan’s denim fabric and apparel manufacturer Artistic Milliners; Hong Kong-headquartered Epic Group; Sri Lankan apparel manufacturer MAS Holdings; Nitex, an end-to-end supply chain platform in Bangladesh for small and medium apparel brands and individual entrepreneurs; Hong Kong-based TAL Apparel; the Pactics Group based in Cambodia and Simple Approach, a supply chain software solution provider based in Hong Kong.

Manufacturers said that, on one hand, the full burden and risk of capital investments tended to fall on them while, on the other, they struggled to raise the requisite funding.

Many manufacturers, especially in the small and medium enterprise (SME) sector, said their high leverage and limited company size placed debt out of reach. Without other (non-traditional) funding options, and the sharing of climate action risk-reward, industry-wide decarbonisation will lag and falter, they noted.

When decarbonisation projects add to their operating costs without the option of sharing these among value chain participants, including consumers, manufacturers worry they cannot invest without making unworkable margin cuts.

Interviewees said they typically do not have much visibility into the order pipelines beyond a season. The fashion industry’s cyclical nature, thus, reduces the span during which investment practically occurs.

Lack of access to lower-cost US dollar or euro funds keep domestic financial markets in manufacturers’ countries from supporting decarbonisation. Other obstacles are high double-digit interest rates applicable in local currencies and, to a degree, the absence of financial system transparency and depth resulting in poor local capacity and resources.

An estimated 45 per cent of tier-1 entities and nearly 30 per cent of tier-2 entities are in developing countries where adverse macroeconomic conditions have led to elevated country and equity risk premiums, making them riskier to potential lenders. Some manufacturers cannot raise funds because of the risk profile of their organisation or of a given project.

Some respondents in certain jurisdictions lamented the lack of reliable legal frameworks, the adverse impact of certain domestic energy policies and the absence of physical infrastructure to support specific decarbonisation strategies.

Available solutions for decarbonisation projects are grossly inadequate compared with the requirement and are only accessible to a narrow group of manufacturers. Consequently, manufacturers are overwhelmingly likely to implement short-payback, smaller-scale projects, the white paper noted.

The white paper suggested several innovative funding solutions that could meet these challenges. These include establishing a Fair Climate Fund, repaying brand-supplied debt via product discounts, cost-sharing with consumers, mitigating business cycle risk, credit guarantees and a Just Transition Fund.

Fibre2Fashion News Desk (DS)