A Circular Economy: Making Green the New Black in Sustainable Textiles
As society’s collective consciousness regarding the urgent need for greater sustainability continues to rapidly develop, sectors that were previously able to fly under the radar with unsustainable practices are now finding themselves under scrutiny: such is the case for the textiles industry. As one of the greatest contributors to climate change, the textiles industry needs to restructure the linear model of its supply chain, transforming it into a circular economy. In doing so, they will not only begin contributing to a more sustainable world but present increasingly compelling options for investors.
An unsustainable system
The textiles industry uses 98 million tonnes of non-renewable resources every year, according to estimates by the Ellen MacArthur Foundation – from oil in synthetic fibres production, to fertilisers to grow cotton, to chemicals to produce, dye and finish fibres and textiles. Similarly, 93 billion cubic metres of water are consumed annually in the name of growing and extracting raw materials for the textiles industry. The manufacturing and processing for fibre and fabric production also requires large amounts of energy and water, with the added requirement of wastewater processing.
The ‘end of life’ challenge is another obstacle to sustainability for the textiles industry, which has historically followed a linear supply chain model of “take, make, use, dispose”. It’s clear that a new, circular model must be adopted if the industry is to become more sustainable.
Investor interest on the rise
For investors, this presents a number of emerging opportunities. One of the major breakthroughs in recent years has been the rapid growth of the alternative protein industry, which raised US$3.1 billion in investments in 2020 according to the Good Food Institute – three times more than the US$824 million invested in the previous year. Having entered the mainstream via the food industry, alternative proteins are now approaching a point where they’re of a high enough quality and low enough cost to compete with traditional animal products.
Now, in the same way that alternative proteins are being used to manufacture foods, they are being used to produce new materials that are biodegradable and, as such, sustainable. This evolving space is already attracting investment capital. The Materials Innovation Initiative estimates that more than almost US$1.3 billion has been invested just in next generation materials alone since 2015 – with over US$500 million of this just in 2020 – and this trend is predicted to continue rising steeply.
However, it’s important to acknowledge that, in spite of significant developments when it comes to novel materials, questions still remain. Do the environmental impacts of production lessen from these next-gen materials? Can they drive down plastic pollution? And perhaps most crucially, do they fit in with the principles of a circular economy?
The other, equally significant opportunity for investors interested in the transformation of the textiles industry is the growth of the resale market. In fact, this is one of the expected high growth sectors over the next decade: forecasts predict growth from US$7 billion in 2019 to US$36 billion in 2024 (from 2% to 8% market share) – a 39% compound annual growth rate (CAGR), compared to the traditional second-hand market expected CAGR of 6%.
Technology has been the key driver of the success of this new market. The likes of eBay, Facebook Marketplace and Gumtree have made selling and buying second-hand items easier than ever and have paved the way for new platforms aimed specifically at reducing waste in this way.
Extending the post-sale life of a garment via resale platforms presents enormous potential for investors. The success of resale-as-a-service providers marks the beginning of a new approach to the shopping experience. For example, Poshmark, an online peer-to-peer marketplace for second-hand clothes, went public in January this year with an IPO price of US$42 and ended its first day of trading at US$101.50, with a current valuation of US$3 billion.
Transitioning to a circular economy
Both of these practices hold exciting opportunities – both for investors and for the textiles industry. Such innovations could be truly disruptive, drastically reducing the need for resource-hungry materials like wool, leather, and cotton.
Undoubtedly, uncertainty remains. It is yet to be seen how these next generation materials can fit into a circular economy. Whether they can truly drive down pollution and lessen environmental impacts is still unproven – and broader consequences, like the impact on worker rights, add further layers of complexity.
However, one thing is clear: business as usual is no longer an option for the textiles industry. And exploring these nascent industries may be the key to its survival.
