Fashion industry urged to view decarbonisation as a finance challenge to meet climate targets

H&M and EY are arguing that the fashion sector will not decarbonise at the speed climate targets demand unless sustainability is recast as a finance problem rather than a purely operational one.

Their white paper, produced with contributions from HSBC and the Apparel Impact Institute, says the industry’s emissions are concentrated in sprawling supply chains made up of thousands of small suppliers, many of which cannot access the kind of capital needed to upgrade boilers, switch fuels or modernise production. The report says conventional lending and standard green finance structures are poorly suited to that reality.

That challenge comes against a worsening emissions backdrop. A report cited by Fashion Dive found apparel-sector greenhouse gas emissions rose 7.5% in 2023 from 2022, driven in part by higher production volumes and continued reliance on virgin polyester. More broadly, McKinsey has previously estimated that fashion accounts for 3% to 10% of global emissions, while the World Economic Forum has described the industry and its supply chain as one of the world’s largest polluters.

The H&M-EY paper argues that companies need to translate sustainability into language that chief financial officers can actually use, by putting risks, returns and avoided losses onto the balance sheet. In practice, that means treating decarbonisation more like research and development: uncertain in the short term, but essential to future value creation. EY and H&M say businesses that embed sustainability more deeply tend to be more confident about their outlooks, suggesting that climate strategy can support, rather than distract from, commercial performance.

The report also warns that the case for action is no longer confined to reputation. It points to growing exposure to regulation, physical climate shocks and supply-chain disruption, all of which can erode margins and business continuity. The World Economic Forum has estimated that companies failing to adapt to physical climate risk could lose as much as 7% of earnings by 2035, while firms investing in resilience could generate returns many times higher than the capital deployed.

But financing the transition in fashion remains structurally difficult. Suppliers are often too small and too dispersed to borrow directly for decarbonisation projects, and carbon accounting rules can dilute the benefits for any single brand that pays for improvements in its supply base. That creates a free-rider problem: one company funds the work, but multiple buyers share the emissions benefit.

To break that impasse, the paper calls for broader collaboration between brands, manufacturers, lenders, insurers and development finance institutions. Rather than relying on individual loans or bonds for isolated projects, it suggests blended finance vehicles that can pool smaller supplier upgrades into investable bundles. NGOs would help coordinate participants and structure the deals, limiting competition concerns while easing data-sharing.

The logic is already being tested. The H&M Foundation has backed the Fashion Climate Fund, led by the Apparel Impact Institute, to support suppliers in Asia with practical decarbonisation measures, including cleaner thermal energy and financing support. The fund aims to cut tens of millions of tonnes of carbon dioxide by 2030, underscoring how the sector’s climate ambitions are increasingly being tied to supplier-level capital.

The broader message from H&M and EY is that fashion’s net-zero challenge is less about technological possibility than about mobilising money at scale. One report cited by Modaes estimated the sector needs about $1.04 trillion to reach net zero by 2050. If that figure is even directionally correct, the industry’s biggest obstacle may be not what to do, but how to pay for it.