In October of last year, The United Nations Environment Programme (UNEP) released a report titled “Financing Circularity: Demystifying Finance for the Circular Economy,” outlining how the financial sector can increase financing (lending) to help encourage and accelerate a global shift to circular business models in the industries of chemicals and plastics, manufacturing and industrial agriculture, electronics, real estate and construction, mining and energy sectors, and—of course—fashion and textiles. The report highlights potential strategies that financial institutions could implement to assess and manage the risks and rewards associated with investing in businesses that emphasize or are pivoting toward circularity. “There is an urgent need to transition to economies that embed circularity and are aligned with global sustainable consumption and production goals,” the report states, with the conclusion that transitioning to circular business models will help “keep resources at their highest value long-term and reduce waste.” Transitioning could also, it remarks, generate an estimated USD 4.5 trillion in annual economic output by 2030.
Apparel & Fashion are listed as predominant industries that need to adopt circularity. The report notes a number of faults, such as how the fashion industry is the second-biggest consumer of water—producing 20 percent of global wastewater, with textile dyeing being the second largest polluter of water globally—and is responsible for 10 percent of global GHG emissions (more than all international flights and maritime shipping combined) as well as tons of synthetic microfibers released into the ocean annually. While these are but a few of the statistics, the report continues: “The industry is ripe for the transition to circularity and halting its environmentally and socially destructive practices. The acceleration of fast fashion over the past years has increased reputational risk and there is growing liability risk due to lack of transparency and mismanagement in the fashion and apparel industry.” The conviction is that financial institutions should reward companies who prioritize circularity and resource-consciousness, and eventually direct funds away from businesses that do not consider a circular future. The report lists the following environment- and circularity-related metrics regarding the risk assessment of potential or existing apparel/fashion clients:
Reduction in water use and stronger wastewater management
Ask clients or portfolio companies about water use, wastewater management and plans to benchmark performance against peers. Water management is part of the license to operate for textile and fashion companies, especially in geographies where water is scarce.
Design for Recycling and Reuse
Assess the maturity of the deposit and collection schemes that enable the recycling of fibers in the textiles and garments industry. The circularity of a brand will be based on its ability to prevent textiles and garments from going to waste too early. Unused garments can be recycled into feedstock for new collections. Assess the company’s ability to design garments, textiles for optimal reuse. These secondary material streams have a clear residual value component, that affects the financial business case and creates secondary cash flows to those from sales.
Refuse toxins
In textiles, given their proximity to the skin, it is critical to avoid using chemicals harmful to humans and the environment. Recycling will require chemical substances to be kept to a minimum to avoid recycling toxins. The presence of toxic elements can reduce the residual financial value of secondary material streams.”
(Above suggestions quoted directly from Page 37) Indeed, we have addressed many of these metrics and improvements, particularly in the Sustainability 101 article series, which discusses water use, textile recycling, and the general toxicity of synthetic dyes and fabrics. Perhaps the report will lead to an investment and business development model that puts future progress ahead of immediate profit. However, the report concedes that financial institutions lack awareness of circularity, and still need to develop expertise, products, and services to harness opportunities. As the sector becomes more educated, they may invest with the future of circularity, and its efficiency of resources, in mind. Meanwhile, the report also identified the need for governments to provide the financial sector with incentives to invest in circularity. It suggests “an enabling policy and legislative framework in order to accelerate a systematic, concrete and scalable approach to integrating circularity into financial products and services.”
The UNEP’s main recommendation is that financial institutions begin to invest in companies that are completely rethinking the design and manufacturing of products and services, reducing inputs in agricultural production, adopting digital solutions to transform industries, and implementing waste management models designed to close material and resource loops. Its final recommendations for policymakers and the financial sector to address inevitable barriers and stimulate opportunities in circularity include:
Integrating measures to catalyze a just transition to a circular economy into climate policies, rules, and regulations
Building back better to embed circularity in economic growth and focus on a resilient and inclusive recovery
Implementing policies, laws, and related instruments to address systemic barriers to circularity and create incentives
We look forward to watching where the money goes.