Why Fashion Is a Risky Investment

Equally sustainability rises to the top of the mode manufacture'due south agenda, the question of how fashion companies will transform to accomplish a sustainable operating model becomes pivotal. Progress to date falls short—and winning in the next decades will crave disruptive innovation in the form of new materials, processes, technologies, and business models. Although an expanding innovation pipeline has emerged, only a fraction of all bachelor capital reaches fashion and cloth tech, leaving many innovators stuck in the financing gap, unable to advance their solutions to market place.

To bring the necessary innovations to scale, mode brands, supply chain partners, investors, and others need to step up to create the atmospheric condition that accelerate innovation. Financing volition menstruation into the manner space when investors are presented with manageable risk, attractive returns, and measurable touch. With its $ii trillion marketplace size, the fashion industry offers major untapped opportunities for investors and companies. BCG and Fashion for Good calculate a financing opportunity of $20 billion to $30 billion per year to exist directed toward developing and scaling the disruptive innovations and business models needed to achieve a step change in sustainability past 2030.

Strong Innovation, Emerging Support

The robust but still-emerging pipeline of innovations requires industry support and financing to advance from development to full commercial scale. Soft-tech solutions such equally digital platforms have attracted more financing than relatively asset-intensive forms of difficult tech, such as new raw materials and end-of-apply technologies, where more than half the financing opportunity is concentrated. Hard-tech solutions are essential to the industry'due south transformation and have special needs for back up in social club to advance to commercialization.

Hard-tech solutions are essential to the industry'southward transformation and take special support needs to accelerate to commercialization.

For all innovations, simply especially in difficult tech, ii phases in the innovation evolution procedure pose the greatest challenges for innovators on the path to commercialization. First, innovators struggle to secure financing to develop a minimum feasible product. Second, during the commercialization stage, they struggle to raise the larger financing rounds needed to reach commercial product book. This blazon of uppercase is especially hard to heighten in the fashion industry's still-nascent financing landscape, where growth equity, projection financing, lending vehicles, and R&D investments from large corporations are not all the same prevalent. A broader range of investors and lenders is needed to back up innovation: VC alone will not be enough to finance the transformation.

Six Barriers to Financing Innovation

Vi key barriers stand in the fashion of financing for sustainable fashion innovation and impede the industry's progress toward innovation and transformation.

Misaligned Incentives. Although brands have the greatest incentive and the about pressure level to drive toward sustainability, manufacturers must account for the costs and implementation risks, which results in a misalignment of incentives for major innovation along the supply chain.

Limited Awareness of the Opportunity. The demand for innovation in the fashion manufacture has accelerated only recently, so private, public, and philanthropic investors have had express exposure to the size and calibration of the untapped opportunity in the coming industry transformation.

Absence of a Structured Innovation Process and Orchestration. Unlike other tech-driven industries, fashion lacks clear stage gates, standardized processes, and commercialization paths for investors. The absenteeism of these structures causes greater doubt and misjudgment of risk, which deters investment.

Lack of Feel and Technical Expertise. Many brands and investors lack experience in and technical cognition of the science or manufacturing techniques that underlie innovations. Such expertise is essential to supporting, scaling, and investing in innovation.

Expertise in the science that underlies innovations is essential to supporting, scaling, and investing in innovation.

Incorrect Perceptions Regarding Pricing and Externalities. Competing with the commoditized prices of existing solutions is a challenge for innovations. Companies criterion against current costs and often fail to account for ascension prices and externalities such every bit carbon emissions when assessing business cases.

Inadequately Structured Exclusivity. Particularly in competitive areas, brands often seek exclusive contracts to secure access to emerging innovations. While this provides the benefits of focused support from a committed brand, it tin can also block innovators from broader scaling and rapid commercialization.

A Telephone call to Action for All Stakeholders

Financing will menstruation into the mode infinite if all stakeholders build toward conditions that promote manageable risk, bonny returns, and measurable impact. No single stakeholder operating on its own can provide all of the capabilities and factors needed to scale innovation, and then the way manufacture, investors, and financial institutions must join forces.

Orchestrators—Targeted Consortiums and a Structured Innovation Process. Multistakeholder organizations must drive collaboration and create a streamlined ecosystem for innovation. In addition, the industry needs bespoke consortiums of brands, supply chain partners, innovators, and investors with a shared applied science focus to concentrate resources and de-risk investments.

Brands—Stronger Advocacy and Hands-On Support. To de-take chances investments, brands must clearly signal their demand for technologies to investors. In addition, brands win by helping their preferred innovators develop through offtake agreements, airplane pilot projects, and straight investment.

Supply Chain Partners—Increased Engagement and Buying. Supply concatenation partners take a natural stake in innovation, and they benefit from strategic partnerships with innovators in which they can offer expertise, access to equipment, capital, and, ultimately, an exit for the startup through conquering.

Innovators—Focused Use Cases and Applied Implementation Plans. Innovators should approach customers and investors with efficiency-driven use cases, more realistic implementation plans for commercializing their solutions, and strong teams with a balance of technical and business concern skills.

Investors and Funders—Mobilizing More Investment and New Types of Uppercase. Investors must advance their industry expertise and join forces with brands, supply chain partners, and innovators to develop investment propositions that match their risk-return profiles. In addition, new sources and vehicles of investment—such equally blended finance combining public capital with private or philanthropic capital—demand to enter the space.

Public Sector—Strengthening Policy Framework and Mechanisms to Catalyze Individual Investment. Although regulatory activeness has begun to influence the industry's move toward sustainability, more is needed to provide a framework of policies and incentives that volition bulldoze systemic change. The public sector must increase its direct investments and support to catalyze investment from the individual and philanthropic sectors.

The public sector must increment its direct investments to catalyze individual and philanthropic investment.

The Imperative for Collaborative and Decisive Action

Indisputably, the fashion industry must accelerate its transformation to sustainable, circular practices. The clock is ticking, and success depends heavily on the development of new, disruptive solutions that will future-proof the industry. The growing innovation pipeline proves that such solutions tin can be plant, but the pace of evolution is as well slow, and the most significant innovations needed are non nonetheless available at calibration. Too many innovators still fall victim to the financing gap, in which they fail to receive the support they need from brands, investors, supply chain partners, philanthropy, and regulators.

A perfect storm of innovation and opportunity is forming in fashion—companies and investors that can capitalize on sustainability and impact-driven innovation will transform the manufacture and ultimately win.

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