As the apparel sector continues to evolve, various factors are influencing the industry's environmental footprint. The rise of fast fashion, online sales, and ultra-fast fashion has brought about significant changes in how clothing is produced and consumed. According to a recent report by S&P Global Ratings, the European apparel sector is facing environmental challenges throughout its value chain.
The apparel industry's environmental footprint is substantial, with key issues including high energy, water, and chemical use during textile production, greenhouse gas emissions, clean water pollution, and the disposal of used clothes. Textile production alone is linked to about 20 percent of global clean water pollution, highlighting the industry's impact on the environment.
One of the major concerns is the low rate of recycling in the apparel sector, with only 5-10 percent of used clothes globally being recycled into new garments. This lack of circularity in the industry's business models poses challenges in reducing environmental impacts.
While some apparel companies, especially fast-fashion brands, have made efforts to reduce emissions, their business models centered around volume growth make it difficult to transition to more sustainable practices. The report emphasizes the importance of aligning business plans with environmental goals to mitigate credit risks associated with environmental factors.
Regulations and initiatives, such as the Corporate Sustainability Due Diligence Directive, are expected to influence the industry's environmental impact. However, the financial implications of these regulations remain uncertain, and the industry faces challenges in implementing circular economy principles.
Looking ahead, the apparel industry must address physical climate risks, supply chain disruptions, and changing consumer behaviors to secure its long-term sustainability. While regulations are becoming stricter, their immediate impact on the industry's credit metrics is limited, but future developments could reshape environmental practices in the sector.
