(Illustration by Eric Nyquist)
Up for Debate: A Circle That Isn’t Easily Squared
Industries ranging from soft drinks to furniture to electronics to fashion follow a one-way path of “make, take, and waste.” This linear operating system is straining resources, polluting oceans, and generating mountains of waste. Unrelenting pressure for growth continues to stress biodiversity and accelerate atmospheric warming, thereby increasing the intensity and incidence of drought, flooding, and migration. As a result, the public’s consent to resource-consumptive industries is increasingly at risk.
Cue circularity, the latest win-win solution proffered by consultants, NGOs, and companies—a group that I refer to as Sustainability Inc.—that seeks to decouple economic growth from environmental impact. More than 100 definitions of circularity are in circulation. Advocates tout it as “a regenerative system in which resource inputs, waste emissions, and energy leakage are minimized by slowing, closing, and narrowing material and energy loops thanks to long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, and recycling.”
The promise of market-led delinking of economic growth and environmental impact has a long history, dating at least as far back as the UN’s Brundtland Commission’s introduction of “sustainable development” in 1987. A draft report published prior to the commission’s meeting defined sustainable development as “development [that] can be maintained indefinitely without damaging the environment, or, threatening development itself.” UN commissioners’ faith in sustainable development was based on technological progress accompanied by management tools such as measurement, reporting, and certification.
Since the commission’s report, Sustainability Inc. has developed and implemented a series of voluntary market-led solutions to advance sustainable development. Thousands of corporate social responsibility (CSR) reports, hundreds of certification schemes, and a sequence of win-win strategies testify to this effort. These strategies have included concepts such as creating shared value, the practice of generating profit while also generating value for society by addressing societal needs and challenges; and environmental, social, and governance (ESG) investing, the idea that investing in more sustainable companies can deliver better stock-market returns while improving social and environment outcomes. However, neither of these solutions explicitly addresses the skyrocketing demand for resources on a resource-finite planet.
Hence the ascension of circularity to the top of the win-win playbook. Encouraging progress is being made to advance circular systems for some commodities—including aluminum, cardboard, and plastic bottles—where the technology exists and the price of virgin materials can exceed the price of recycled inputs. Circularity has also gained popularity in the fashion industry, which consumes nearly 80 trillion liters of water and generates more than 90 million tons of waste each year. As the industry’s environmental footprint attracts increasingly negative media attention, circular business models are promoting opportunities to sustain growth by decoupling revenue streams from resource use.
The premise sounds promising. Yet my experience as a member of Sustainability Inc. and as the former Timberland COO leads me to question alleged solutions that run counter to industry incentives, physical laws, established patterns of consumer behavior, and economics. While circularity is appealing in theory, discrete, brand-specific initiatives in the fashion industry have no chance to upend the established linear system. In this article, I explain the industry’s turn to circularity and the barriers to its adoption. I conclude with a set of recommendations for more effective cross-sector collaborations beyond circularity.
Fashion’s Faux Pas
The magnitude of fashion’s environmental impact is easier to grasp than its path to sustainable development. To satisfy the dual imperatives of growth and profit, the industry has optimized a linear system that relies on innovation, fast product cycles, planned obsolescence, outsourced cheap labor, inflated marketing, and relative apparel deflation. So far, it’s worked. Since 2000, fashion unit sales have more than doubled. New styles are now introduced more frequently, beyond the traditional fall/winter and spring/summer seasons; some brands, like Chinese fast-fashion company Shein, launch thousands of new styles weekly. Most new purchases are worn only briefly and discarded, ending up incinerated, in landfills, or shipped to developing countries like Ghana and Chile that have historically allowed the import of excess clothing.
While circularity is appealing in theory, discrete, brand-specific initiatives in the fashion industry have no chance to upend the established linear system.
Almost all public fashion companies now produce CSR reports, and many have adopted green certifications, including bluesign (textile production), zero discharge of hazardous chemicals (ZDHC) (“sustainable chemicals”), and fair trade (production). While these certifications have gained in prominence and the industry has trialed a series of upcycling and recycling solutions, such as zero-waste or cradle-to-cradle design, the amount of waste and pollution the fashion industry produces continues to grow. Estimates size the industry’s carbon emissions at between 2 and 10 percent of global emissions—an inconceivable range for an industry that claims to be committed to sustainability. According to McKinsey & Company, fashion industry emissions exceed those of France, Germany, and the United Kingdom combined.
As the industry’s use of synthetics like polyester and nylon grows far faster than the rate of natural materials, fashion now consumes 70 million barrels of oil per year, or nearly 1 percent of global oil output. Chemical effluent, water consumption, land usage, and microplastics pollution also remain inexorable obstacles to sustainability.
At the same time that global warming intensifies and biodiversity loss accelerates, the fashion industry is projected to grow by more than 60 percent this decade. To maintain growth and avert regulatory mandates, companies like Swedish retailer H&M are setting scarcely credible targets—e.g., to double in size while reducing absolute carbon emissions by 50 percent—and leaning on circularity as the approach to deliver this goal.
H&M’s fast-fashion model has made it a target for environmental activists. The heightened criticism may be partly responsible for the fact that the company selected Helena Helmersson as its first non-founding family member CEO in January 2020. Among Helmersson’s many responsibilities during her 25-year career at H&M was a five-year stint as sustainability manager.
In October 2020, Helmersson participated in a conversation with fellow Swede Johan Rockström, the architect of the framework for planetary boundaries, about the future of the planet, fashion, and sustainability. A modern home in a Swedish forest was the conspicuous scene chosen for the event—an arrangement made by event host Global Fashion Agenda (GFA), an NGO founded and funded by several fashion companies, including Nike, Kering, and H&M. Rockström and Helmersson quickly aligned on the best path to address environmental challenges. “The circular model is, I think, quite frankly the future,” Rockström remarked, “for essentially all sectors actually, but certainly for the textile sector.” Helmersson agreed that “circularity … is the solution.”
It is no surprise, then, that H&M has made circularity the focal point of its sustainability strategy. Speaking at the 2022 GFA conference in Copenhagen, H&M CFO Adam Karlsson echoed Helmersson, noting that circularity is critical to delivering on H&M’s goal to double revenues and halve its total carbon dioxide emissions by 2030—no small feat for a company that is already generating more than $20 billion in sales.
H&M is investing across multiple fronts to propel its circularity agenda. It even has a head of circularity, whose job is to bridge divides between functions including merchandising, production, and sustainability. The company issued a €500 million ($548 million) sustainability bond linked to carbon emissions and recycled-materials targets; introduced new business models for rental, resale, and repair of its products; and operationalized the largest garment-collecting program in the world. The company collaborates with more than 60 partners, including the Ellen MacArthur Foundation, a UK-based nonprofit charity dedicated to accelerating circularity. H&M also creates conscious capsule collections showcasing fabric innovations; invests in new technologies, including recycling companies Infinited Fiber, Spinnova, and Ambercycle; and financially supports other regenerative agricultural technology and innovative materials companies.
H&M has impressive company in the pursuit of circularity. Gucci, Apple, Adidas, IKEA, Patagonia, Amazon, PepsiCo, and Kering have all anointed circularity as the solution to decoupling revenue growth and resource consumption. Sustainability Inc. is fully activated across sectors. The Ellen MacArthur Foundation and McKinsey & Company have produced several studies that promote circularity as a multitrillion-dollar opportunity. More recently, a 2022 report commissioned by industry NGOs GFA and Fashion on Climate, “Scaling Circularity: A Policy Perspective,” concluded that “roughly 25 percent of [the fashion industry’s] emissions could be reduced through circular models.”
Inspired by these studies, the Council of Fashion Designers of America (CFDA), one of the industry’s largest trade associations, is also betting on circularity. Recently, CFDA CEO Steven Kolb noted that “we believe in a strong future for our industry through embracing innovation and circularity, including upcycling, recycling, recommerce, resale, and bespoke materials and processes.” The European Union has also adopted a Circular Economy Action Plan proposing a series of measures to advance fashion circularity, including a new product eco-design framework; improved regulations, including extended producer responsibility (EPR) and standards for product labeling; a path to deliver high degrees of waste separation; advances to foster repair, reuse, and recycling of textiles; and limits on the number of collections.
Seven Barriers to Circularity
Between the fashion industry’s hopeful circularity’s narrative and the delivery of targeted results lie several technical, physical, scientific, and financial barriers. The following are the most consequential hurdles that must be overcome for circularity to deliver on its promise.
Unchanged system goals and incentives | Public company CEOs and CFOs report their financial results to their shareholders every 90 days. Their incentives remain tied to revenue growth, profitability, and cash-flow generation. As a result, leaders tend not to advocate for regulatory intervention, pay for externalities such as carbon emissions or textile waste, or advance innovations that compromise short-term financial results. While they are likely aware of systemic issues like resource scarcity or climate change, executives ultimately focus their limited energies on achieving financial targets.
Outsourced supply chains also create systemic challenges. Short-term relationships between brands and suppliers are most often focused on quality, delivery dates, and costs. According to a 2020 Boston Consulting Group (BCG) report, “this fragmented and fundamentally transactional setup has fostered an environment that is not conducive to investing in R&D and innovation projects” with longer payback periods. Suppliers are often tasked with delivering on sustainability objectives, BCG notes, with “little guarantee that they will be in a position to capitalize on their investment” via additional orders. This scenario often leads to a stalemate and next to no environmental improvement.
Discretionary or absent metrics | No standard measures for circularity exist. One company might set targets for the percentage of recycled material, while another may measure waste reduction. National circularity policies have been developed by the United Kingdom, Norway, and the Netherlands—yet the Netherlands’ 2021 circular economy report admitted that they lack “metrics by which we can really steer action.” This admission is consistent with the findings of a recent meta-study of circularity metrics that none of the many circularity metrics currently in use presents a comprehensive assessment of progress. Even worse, the study found that some of the measures used to gauge progress shift the burden from reduced material consumption to other environmental or social impacts. It is also problematic that many circularity metrics track outputs versus impacts, making progress hard to assess.
In addition, analysis of the potential environmental impacts of the conversion from a linear to a circular system is notably lacking. No peer-reviewed academic life-cycle analysis comparing the environmental impact of the two models exists. This dearth seems odd, given the industry’s enthusiasm for circularity. That said, McKinsey’s “Scaling Circularity” report does claim that for textiles, recycled output has a lower environmental impact than virgin materials. However, results will depend on the processes used to recycle, recycling location, energy source, collection logistics, and other assumptions used in the analysis.
Energy loss and product degradation | An infinite loop, where products are upcycled into new garments, is a fantasy. Each loop around the circle consumes energy, and as energy is transferred or transformed, its quality diminishes. While more energy may one day come from renewable sources, today only about 10 percent of global energy is derived from them. In addition, for textiles, most recycling debases quality by shortening fibers, making garment-to-garment upcycling a challenge. Consequently, less than 1 percent of all fashion products are circular, or made from one garment into another.
Unscalable or questionable business models | Circularity is reliant on new business models to extend the life of garments, including rental (e.g., Rent the Runway, Fernish), resale (e.g., thredUP, The RealReal), and repair (e.g., Arc’teryx, Dyson). However, many of these models have yet to prove profitable and are subsequently difficult to scale. For example, the highly publicized Patagonia Worn Wear program, a resale program launched nearly a decade ago, generates less than half of 1 percent of company sales. Renewal Workshop, a well-funded repair house, ran out of cash and had to be sold to remain afloat. Rent the Runway managed to go public, but its market capitalization hovers at less than half of its invested capital, and thredUP has lost money and trades at close to one-tenth of its peak market capitalization.
While rental may work for certain businesses, like vacation homes with low occupancy and high up-front costs, it has yet to work at scale for fashion. And even were it to work, the environmental impact of resale in fashion remains unknown, as it is not yet clear whether these models reduce the purchase of new products. Interestingly, for sales of both new and used clothing, resale company The RealReal’s senior director of merchandising Sasha Skoda reported that “consumers are addicted to newness, regardless of whether it is from the primary market or secondhand.”
At the same time, the financial case for recycling may not pan out. The starting point for recycled textiles is often more expensive than for virgin materials. However, according to GFA’s “Scaling Circularity” report, costs can decline with time, volume, and experience, thereby making recycled materials more cost effective. Here, too, projections depend on assumptions, including who funds the capital for recycling infrastructure, the price of virgin inputs, and collection and transportation costs. Ultimately, if circularity costs more than the standard linear take, make, waste model, it will not be broadly adopted.
(Illustration by Eric Nyquist)
Plastic or finite feedstocks for bio-based materials | Industry publications are increasingly promoting the circular virtues of bio-based biodegradable materials. Innovations include “leather” from pineapple leaves, cactus, and mushrooms, and new fibers created from natural feedstocks like corn or sugar. In the past six years, bio-based materials have attracted more than $2 billion of investment capital.
The hype, however, does not always yield sustainable solutions. Consider, for example, Desserto, a leather substitute made from cactus, a natural material that would seem to be a great candidate for circularity. However, the company’s marketing materials neglect to mention that the product is backed with plastic (polyurethane), a compound that takes generations to biodegrade. And any mass adoption of bio-based materials relying on sugar and corn will compound demand for commodities that already face price pressure due to the need to produce more food to meet population growth. In addition, none of these inventions possesses the capacity and well-honed supply chain that delivers consistent production and low prices for commoditized petroleum derivatives.
Even so, several emerging bio-based materials companies are developing promising sustainable solutions. For example, Natural Fiber Welding (NFW) has created a process to treat and lengthen recycled fibers and another formulation, which produces plastic-free, plant-based leather. NFW has received funding from fashion brands Ralph Lauren and Allbirds. Another example is the French company Fairbrics, which is developing a process that converts waste carbon dioxide into polyester fabric.
Capability gaps and costly infrastructure | Recycling technologies for blended, multicolor fabrics are far from being ready to scale. Though recycling of products made from cotton and polyethylene terephthalate (PET) bottles are technically and commercially viable, their output represents less than 10 percent of fashion production. Increasingly, garments and footwear are made with blends, dyes, and coatings in different colors and with different trims. For example, stretch denim jeans likely contain elastane, a long-chain synthetic polymer. While promising start-ups such as Ambercycle and CIRQ are developing technologies that appear to work on blends, until such recycling technologies are ready to scale, fashion circularity will remain limited.
Even if the technology were ready and cost competitive, it would take a Herculean effort to finance and build the recycling infrastructure necessary to meet the demand to recycle more than 100 billion units of fashion each year. A recent study estimated the capital costs at between $6 and $7 billion to build out infrastructure to support one-third of the recycling capacity for Europe alone. These capital costs need to be weighed in light of the cheap costs of virgin fibers. According to Georgia Institute of Technology materials engineer Youjiang Wang, “It’s so cheap to produce polyester, cotton, and other fabrics that there’s little profit margin unless the recycling processes are very inexpensive.”
Finally, expensive recycling infrastructure is not likely the biggest challenge to achieving circularity. Instead, the largest barriers are the absence of collections infrastructure and the norms of consumer behavior. According to Zalando’s head of circularity, Laura Coppen, “the behavior gap is really big and particularly large in the circular space. And that’s predominantly because there are just not accessible solutions at scale for customers.” Even when T-shirts and sneakers are returned to collections destinations, an additional challenge awaits: connecting waste streams to recycling production.
A lack of precompetitive and cross-sector collaboration | My position as the former COO at Timberland secured me an invitation to a 2022 MIT conference on footwear circularity. The meeting featured representatives from more than 10 competing brands and dozens of suppliers. The final report from the meeting concluded that the standard “closed” approach to innovation and intellectual property will fail if applied to a transition toward a circular footwear economy. Yet each participant noted that this was the first time they had gotten together to discuss how the industry might work together to implement circularity.
While collaboration among fashion competitors in areas ranging from product design to preferred materials is a necessary precursor to circularity, it is far from sufficient. Investments in sorting and collections infrastructure all sit outside the traditional definition of the fashion industry. Collaboration among policy makers, investors, and operators is essential for these capabilities to scale to support the capacity needed to begin a conversion to a circular fashion system. The EU’s new Circular Economy Action Plan and new efforts in China are aimed at launching such cooperation.
Better Answers Elsewhere
Humanity doesn’t have decades to address the planet’s many fast-moving crises. Water scarcity and biodiversity loss are pressing challenges. At the same time, carbon emissions must decline by more than 7 percent annually for the next seven years to have a chance to limit warming to less than 1.5 degrees Celsius. This compares to the largest ever global carbon emissions decrease of 2 percent, which occurred during the 2008-2009 global recession.
Given the urgency, it is well past time to concede that market-led voluntary solutions will not adequately address negative environmental externalities. The theory that measurement and reporting would empower consumers and investors to pressure companies to address climate change has proven ineffective. The sooner Sustainability Inc. recognizes the limits of voluntary action, the sooner it can devote more attention to transformative measures.
While fashion is but one sector of the economy, its negative environmental impact is outsized, and growing. The absence of progress alongside formidable obstacles suggests that putting excessive faith in circularity will not yield anything approaching sustainability. Instead, I offer four recommendations that the fashion industry can pursue to address more directly its consequential negative environmental impacts.
Given the urgency, it is well past time to concede that market-led voluntary solutions will not adequately address negative environmental externalities.
Address overconsumption | The source of the greatest leverage is the hardest to change. Fashion’s marketing and fidelity to a model based on planned obsolescence—the practice of designing products that are hard to repair or become obsolete quickly—have created a well-honed, dopamine-inducing addiction machine that delivers uninterrupted growth. In the United States, the average consumer now buys one item of clothing each week. If the past is a prologue, developing countries are likely to seek to emulate this behavior.
More dire warnings of imminent environmental chaos have done little to change consumption patterns. In fact, the fashion industry’s push toward the use of “preferred materials” (deemed less environmentally damaging) and sustainability labels is intended to increase brand preference and spur demand. It is illogical to claim that sales of more units of “sustainable” shoes and shirts—75 percent of which are landfilled or incinerated—will lead to a sustainable future.
If people in the developed world committed to less consumption and based their purchases more on need, we might be able to revert to living within natural limits. Projecting such a change in the zeitgeist is impossible. As such, more blunt instruments are needed to reverse fashion’s growing environmental impact. Perhaps lawmakers should consider a fast-fashion tax to fund remediation for the industry’s footprint, just as cigarette taxes were enacted to shrink consumption while also funding public health programs. This tax could also slow unit growth were the tax large enough to increase prices.
Regulate effectively | Though EU laws to achieve circularity are well intended, it is not yet clear how effective they will be. A more straightforward approach is for the government to set limits on environmental impacts such as carbon emissions but allow companies to determine how to deliver these reductions. Proposed legislation in New York—the Fashion Sustainability and Social Accountability Act—does just that. It asks fashion companies that sell in New York state to deliver emissions reductions in keeping with the goal of restricting the global temperature rise to within 1.5 degrees Celsius. If companies fail to adhere, they can be fined up to 2 percent of their revenue.
In addition, elected officials should regulate and validate product claims. Fashion companies ought not to be able to use terms such as “circular,” “green,” or “sustainable” in connection with products until legal definitions are established (akin to organic foods) and compliance is assured. Norway has such laws in place, and H&M recently ran afoul of authorities for using incomplete and misleading sustainability information. As a result, H&M agreed to suspend claims and donate €500,000 ($548,000) to causes linked to fashion sustainability. Both the United Kingdom and the European Union are also addressing false claims via legal remedy.
Finally, extended producer responsibility (EPR) laws make brands pay for the end-of-life costs of a product. France has had an EPR law in place for textiles since 2007, and EPR rules are part of the EU’s circular plan. Studies have shown that these laws are effective at increasing recycling rates and, depending on their design, can create incentives for more benign and reusable inputs. Consideration ought to be given to higher EPR charges on mixed-materials garments to increase the percentage of recyclable clothing. Mandated digitization of garments’ provenance would also improve EPR efficacy and recycling uptake.
Support breakthrough solutions | The 2022 US Inflation Reduction Act allocated $27 billion to fund a Greenhouse Gas Reduction Fund to make equity investments in promising decarbonization technologies. A similar global vehicle for funding promising solutions in fashion would enable the best regenerative ideas to be commercialized with greater frequency. According to BCG’s 2020 study “Financing the Transformation in Fashion,” the industry needs to invest $20 billion to $30 billion per year to achieve a step change in sustainability. Such funding would likely have to come from both the public and the private sectors. The investment firm Closed Loop Partners is an example of a private investment firm that supports innovative sustainability solutions with funding from industry competitors. This promising model, wherein investors also act as new technology validators and users, could be amplified in the fashion space.
That said, the bulk of the innovation funding in fashion is not aimed at the biggest sources of emissions. Capital is currently allocated primarily to new materials—which represent about 15 percent of a product’s greenhouse-gas footprint—or new-business-model solutions, while the bulk of greenhouse gases from fashion are emitted during the processing stages of materials production. These occur far from the developed world in the weaving, dyeing, and finishing factories of contractors located primarily in East Asia. These facilities are often powered by coal. Were cost not a consideration, emissions from clothing would decline by more than one-quarter by shifting production from China to places with a cleaner energy mix, such as Turkey and the European Union.
In fact, one recently concluded financing deal will likely do more to temper fashion-industry carbon emissions than all of the commitments to circularity. With backing from a mix of public institutions and private banks, Vietnam announced a Just Energy Transition Partnership (JETP) financing commitment of $15.5 billion to be invested over the next three to five years. These funds will be used to accelerate the country’s transition from coal to renewable sources of energy, thus reducing carbon emissions from Vietnam supplier factories, which are the world’s second-largest exporters of apparel.
Accelerate industry and cross-sector collaboration | The fashion industry has long been a bastion of creativity. Directed differently, creativity energized by boundaries can advance progress. A cross-competitor consortium of leading brands could, for example, adopt tools, standards, and preferred materials to assure that designs start with a focus on what happens when each product is disposed at the end of its life.
Recent design decisions by competing soda brands Mountain Dew and Sprite to swap their trademark green plastic bottles for clear bottles are instructive. Both companies chose to increase the supply of recyclable content to help address the industry shortage of recycled PET. Notwithstanding the fears of their respective commercial teams, the clear packaging did not hurt sales. And, though acting independently, Italian outdoor brand Napapijri recently introduced a jacket made entirely from one polymer, while French brand Salomon debuted a sneaker from one material that is designed to be upcycled into a new pair of ski boots. Both brands’ constrained design decisions were made with an eye toward reuse of materials at the products’ end of life.
To reverse its growing environmental footprint, the fashion industry must collaborate with competitors, cross-industry operators, investors, and the public sector. One idea for such a partnership is for fashion’s top CEOs to lobby for a second JETP public-private partnership with a major Southeast Asia production hub, such as Bangladesh, to speed transformation of the energy base from fossil fuels to renewable energy. Fashion-industry executives could create momentum by agreeing to help finance the deal alongside their partner banking institutions.
A Collective Effort
Innovation and investment in materials and recycling solutions are positive steps toward reducing the fashion industry’s negative environmental effects. However, when it comes to sustainability, rhetoric is ahead of reality and environmental damage continues to outpace the speed of circular transformation. Given the obstacles to and the nascency of circularity, genuine progress toward fashion sustainability will come only from a combination of regulation and industry investment in cross-sector partnerships—not brand-specific, far-fetched targets.
At the same GFA conference where H&M outlined its goals for decarbonization, a moderator for a session focused on circularity asked panelists about the timeline for achieving circular economy. “It’s going to take forever,” quipped panelist William McDonough—an ominous sign, given that McDonough is author of the book Cradle to Cradle, which is one of the founding manifestos of the circular movement.
Rather than wait an eternity, a skeptic might argue that the focus on circularity is a diversion intended to preserve the status quo and that the biggest obstacle to achieving sustainability is unbridled consumption fueled by the industry itself. It’s time to address this diversion.
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Read more stories by Ken Pucker.
