The Apparel Impact Institute (Aii) has released a new analysis that indicates the global fashion industry may experience a decline of up to 34% by 2030 and an alarming 67% by 2040 due to escalating costs associated with climate risks.
The report, titled ‘The Cost of Inaction – The Financial Risks of Delaying Decarbonization in the Apparel Industry,’ delves into how increasing costs related to carbon pricing, raw materials, and energy could significantly impact operating margins for companies that hesitate to reduce their emissions.
Utilizing data from ten prominent apparel brands, the report highlights three main elements that contribute to the anticipated decline: rising carbon prices, surging raw material costs, and increased energy expenses.
Additionally, the report emphasizes the importance of early investments in decarbonization strategies, especially at the supplier level, to help mitigate future financial risks.
Lewis Perkins, Aii president and CEO, stated: “Collaborative investment remains a crucial pillar to maintaining business stability in the face of climate change. Mitigating these impacts will take effort from players in the industry ecosystem working together to scale deployment-ready decarbonisation strategies while investing in long-term operation stability.”
Key Findings from the Report
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In a net-zero scenario, inaction could slash the value of the $1.77 trillion fashion industry by 70% by 2040 for a standard conventional player.
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Delaying the transition towards clean energy could inflate costs and heighten risks, particularly related to fluctuations in fossil fuel prices (notably coal) and raw material pressures.
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Taking incremental steps can produce immediate savings, enhance resilience, and facilitate future, larger decarbonization efforts.
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Strengthening supply chains and reducing reliance on climate-sensitive inputs can lower risk exposure by approximately four to five times by 2040.
The report also identifies actionable measures at the supplier level—including electrification and the adoption of renewable energy—as ready investment options that can help safeguard short-term profit margins. It points out the potential benefits of collective funding and cooperative investment approaches.
Furthermore, the analysis underscores the critical role of chief financial officers (CFOs) and finance teams in grappling with climate-related risks, suggesting that early investments may yield enhanced financial stability and competitiveness in the long run.
Recommendations
The report calls upon business leaders across various sectors to recognize the financial implications of postponing climate action and to take proactive measures that strengthen resilience while protecting long-term business sustainability.
Aii’s senior director of sustainable finance, Kristina Elinder Liljas, remarked: “The Cost of Inaction puts a clear price tag on the risks and losses of a delayed net zero transition, demonstrating the importance of decarbonisation for long-term value.”
“From boardrooms to CFOs, this report is a call to action to accelerate impact across the entire supply chain through collaboration and co-financing, and leverage resources like Aii’s Fashion Climate Fund.”