Shifting towards a circular economy in fashion
Investment
“Fast fashion is not free. Someone, somewhere is paying the price.” – Lucy Siegle, British journalist and writer.
This is our fourth blog in our circular economy series, where we seek to raise awareness on the topic and consider potential investor action.
In our previous blogs, we considered the benefits of transitioning from a linear to a circular economic model and their impacts on climate and nature. Continuing this examination, this blog investigates some of the social implications of the linear economy, focusing on fast fashion as a case study. We will delve into the social challenges and risks associated with the ‘make-take-waste’ model and highlight emerging circular opportunities that can mitigate some of these risks.
Why have we put fast fashion in the spotlight?
Fast fashion is a business model in the clothing industry characterised by the rapid replication and mass production of runway trends at minimal cost, allowing consumers to purchase trendy and affordable clothing almost immediately after new styles are introduced. This model is driven by consumption based on seasonality rather than functionality, resulting in a continuous cycle of buying and discarding. The combination of mass production, speed, cost-efficiency, and short product lifespans give rise to cheap clothing that comes at a high social cost. In fact, this approach presents significant social challenges. In the following section, we will explore the key social issues associated with fast fashion, including labour exploitation and social inequality.
1. Labour exploitation
Low wages
Garment workers in low-income countries often earn wages that are insufficient to meet basic living standards. While these labour costs vary, for most garments, wages for production will scarcely exceed 3% of the price you pay in the shop.2
Modern slavery
The fast fashion sector’s rapid turnaround gives rise to a supply chain that relies on outsourcing and subcontracting, which increases the susceptibility to modern slavery and forced labour because it complicates oversight and enforcement of labour standards globally. The industry remains the second highest value product at risk of forced labour imported by G20 countries.3
Health and safety
Factories within the fast fashion supply chain have been plagued with reports of substandard working conditions. Issues include extended work hours, limited job security, unsafe environments, and inadequate legal protections, contributing to economic and social disparities. High profile disasters such as the 2013 Rana Plaza building collapse where 1,134 lost their lives and 2,500+ were injured, cast a spotlight on fast fashion’s poor health and safety credentials.4
2. Social inequality
Gender disparities
Women constitute a significant proportion (estimated at around 60% globally and reaching 80% in some regions5) of the garment workforce and are disproportionately affected by labour rights violations, including harassment, discrimination, and unequal pay in the fast fashion industry.
International economic inequality
The economic benefits of fast fashion’s international value chains accrue disproportionately to multinational corporations and consumers in affluent countries. Meanwhile, workers in manufacturing nations bear the brunt of low wages and poor working conditions, exacerbating global economic disparities.
Local environmental impact
Fast fashion contributes substantially to local environmental degradation. Activities such as textile dyeing pollute waterways, while excessive consumption patterns exacerbate resource depletion and waste accumulation, disproportionately affecting manufacturing communities in developing nations. For example, it is estimated that 93 billion cubic meters of water – enough to meet the needs of five million people – is used annually for textile production7.
Whilst the primary focus of this blog is on the fast fashion industry, it is important to recognise that many of these social challenges are also relevant to other sectors that employ fast-paced, linear production models. Industries such as electronics, consumer goods, and even food production often prioritise speed and cost-efficiency, leading to similar issues like labour exploitation, inadequate wages, and poor working conditions.
Why should investors care?
We recognise the value of investing in circular practices within the textile industry, driven by their capacity to promote positive social and environmental impact, mitigate risks and lower resource intensity. Below, we consider why transitioning to circular production models presents risk management and value creation opportunities for investors.
Risks of maintaining a fast fashion approach
Impact on the bottom line The reputational damage and potential financial impact of dubious environmental and social practices has been well illustrated in the aftermath of regulatory and journalistic exposés on several mainstream fast fashion giants.
Stricter regulatory landscape The regulatory environment is increasingly targeting social issues in the fashion industry as part of broader efforts to increase circularity, particularly in the US and EU.
Increasing consumer awareness There is growing indication preferences are shifting towards sustainable and ethical products, exerting significant influence on market dynamics. Companies that lag on social standards risk being left behind.
BooHoo’s share price fell by 30% over two days, following a 2020 Sunday Times report of labour malpractice8.
The EU’s ‘Strategy for Sustainable and Circular Textiles’ includes new regulations to tighten control over labour practices, such as introducing ‘Digital Product Passports’ for tracing clothing origins.9
Gen-Z shoppers are increasingly concerned about the negative impacts of fast fashion and other linear industries on the environment and society.10
Emerging opportunities in the transition to circular fashion
The transition to circular fashion presents emerging investor opportunities. In our view, by transitioning from a linear to a circular model, the fashion industry can tackle key ESG issues while also discovering new pathways for growth and profitability. Like other sectors, segments of the fast fashion industry have already begun enhancing circularity efforts to capitalise on these opportunities. Below, we explore some of these initiatives.
Increasing demand for pre-owned garments and rental services: Consumer behaviour is shifting towards sustainability, driving the growth of wardrobe rental services and the market for pre-owned clothing. Platforms facilitating the resale of ‘pre-loved’ garments have shown exceptional growth rates, often outpacing new clothing sales.
Emerging technologies to improve textile recycling: Investors may seek opportunities across innovative technologies that are revolutionising textile recycling, aiming to regenerate recycled textiles into high-quality materials.
Investing in prolonging longevity: Investors can explore opportunities in prolonging the longevity of garments by acquiring used clothing items at lower costs and upcycling them. This approach not only promotes sustainability but also meets the growing consumer preference for durable and customisable fashion choices.
The pre-owned clothing market expanded by an impressive 18% in 202311. The Lithuanian unicorn Vinted achieved nearly €600 million in revenue in 2023, up 61% on 2022, underscoring the robust demand for pre-owned fashion solutions12.
Companies like Worn Again Technologies are pioneering advanced recycling methods that facilitate the closed-loop production cycle in garment manufacturing13.
Companies like The Seam offer ‘care and repair’ services by matching consumers with specialists for repairs and alterations, to extend the life of garments14.
While beneficial, initiatives like these tend to favour higher-priced market segments, raising concerns about a ‘sustainability premium’ that could exclude lower-income consumers. As such, the increasing adoption and investment in circularity-enhancing initiatives are expected to enhance availability and accessibility across various price points for consumers. This highlights the crucial role of capital flow into these evolving sectors.
Conclusion
The transition towards a circular economy is imperative for addressing the outsized social and environmental impact of linear-based production models, within such sectors as fast fashion. Together, investors and industry stakeholders can drive meaningful change towards more equitable and sustainable production and consumption, in the fashion industry and beyond.
Our next and final blog within our circular economy blog series will focus on broader investor actions in order to drive the transition to a circular economy.
Insight
Our blog series
This is our fourth blog in our circular economy series, where we seek to raise awareness on the topic and consider potential investor action.
Sources
[3] Walk Free: Global Slavery Index – 2023 – (Global Slavery Index | Walk Free)
[4] Rana Plaza — Clean Clothes Campaign
[9] Gen Z shoppers –What is fast fashion and why is it a problem? | McKinsey
[10] ThredUp_2024_Resale Report.pdf
[12] Worn Again – Home – Worn Again Technologies
[13] The Seam – The Seam | Care & repair services for people and brands
Get in touch
Head of Sustainable Investment
Deputy Head of Sustainable Investment Consulting
Get in touch
Talk to us today to see how our bolder thinking can get you better results.