Interview with Rogier Van Mazijk & Catharina Martinez Pardo
Rogier Van Mazijk & Catharina Martinez Pardo
Finance Director & Principal Fashion for Good & BCG respectively
A Call for Transformation
Innovations emerging in the fashion industry in response to sustainability pressures present unprecedented investment opportunities, which Boston Consulting Group (BCG) and Fashion for Good estimate at $20 billion to $30 billion annually, according to their new report. In conversation with Richa Bansal, Fashion for Good's Finance Director Rogier Van Mazijk and BCG Principal Catharina Martinez Pardo throw light on the findings.
The clock is ticking for Planet Earth and the imperative on the integrated textile value chain to check its carbon footprint, nay, cut it down to its basic minimum gets all the more urgent. But this demands disruptive innovations in the form of new materials, processes, technologies, and business models, and very deep pockets to fund them all. And it was with this need in mind that the Netherlands headquartered Fashion for Good along with the Boston Consulting Group came up with the report Financing the Transformation in The Fashion Industry: Unlocking Investment to Scale Innovation which highlights the investment opportunities that could future-proof the industry.
The report estimates the financing opportunity to develop and scale innovations to transform the fashion industry at $20 billion to $30 billion annually. The growing innovation pipeline proves that such solutions can be found, but the pace of development is too slow, and the most significant innovations needed are not yet available at scale. Too many innovators still experience the financing gap, in which brands, investors, supply chain partners, philanthropy and regulators fail to provide them with the support they need. The report was launched at the World Economic Forum (WEF) at Davos this January where some key stakeholders discussed how a perfect storm of innovation and opportunity is forming in fashion-companies and investors that can capitalise on sustainability and impact-driven innovation will transform the industry and ultimately win. Fashion for Good's Finance Director Rogier van Mazijk and BCG Principal Catharina Martinez Pardo talk about the business of sustainability.
When you talk of opportunities-who / which are the entities being considered to finance these opportunities? Are the stakeholders of this study also looking to approach financers for such innovations or is this just a study that could beget financers?
Mazijk: We mostly talk about financing solutions that have not yet scaled up- that means bank financing is generally not yet available to such innovators. Therefore, we are primarily looking for equity capital, which traditionally comes from venture capital investors, corporate investors (e.g. brands investing), and upstream (e.g. large polymer producers or manufacturers) investors. As this study is first of its kind, it can be used to increase awareness of this opportunity / problem, but can also be used to target individual financiers to get them to focus on this space. Already, Fashion for Good actively maintains dialogues with many investors globally to allow easy access to fashion tech opportunities.
Pardo: In an industry where even the biggest players alone cannot achieve the scale of change needed, all stakeholders must step up. To overcome the barriers to financing innovation in sustainable fashion, all parties must step up individually and collaboratively. Financing will flow into the fashion space if risk is manageable, returns are attractive, and impact is measurable.
Financing for these innovations comes from various sources, depending on the stage and type of innovation. Philanthropic, public and private investors all play a key role in providing the required financing to develop and scale innovation and at the same time can benefit from the greatly untapped financing opportunity.
How did this idea come about-a study on the opportunities in financing to transform the fashion industry? And how was the figure $20-$30 billion arrived at?
Mazijk: We have been experiencing the large demand for more financing since the inception of Fashion for Good (March 2017) and its Accelerator and Scaling Programmes. We see many, very promising, innovators struggling to get the financing they need in order to grow and scale. This is important as unlocking the potential of innovation is crucial in this time of critical pressure on current (unsustainable) operations in the fashion supply chain. The $20 billion to $30 billion per annum figure was arrived at through triangulation of top-down and bottom-up analyses. For the bottom-up analysis, we were able to leverage Fashion for Good's 2000+ innovator database and a large number of case studies that we have tracked over the last few years.
Pardo: Sustainability rises to the top of the fashion industry's agenda-and the question of how the fashion ecosystem will transform to achieve a sustainable operating model becomes pivotal. Progress to date falls short-and succeeding in the next decades will require disruptive innovation in the form of new materials, processes, technologies, and business models. We are seeing the need for innovation in our daily work with leading fashion brands and manufacturers and also in the research we are continuously conducting.
Winning in the next decades will require disruptive innovation toward sustainability-but innovation needs to accelerate to reach a step change transformation. One of the main reasons why innovation is not accelerating fast enough is the lack of capital. Only a fraction of all available capital has been invested in fashion and textile tech, leaving many innovators stuck in the financing gap. In the report we quantified the financing need and found that in order to achieve a step change in sustainability by 2030 deploying $20 billion to $30 billion in financing per year to develop and scale disruptive innovations and business models is needed.
To calculate the financing needed to scale innovations, we analysed a comprehensive set of factors, triangulating across multiple top-down and bottom-up methods. These methods take into account the fashion industry's share of the global UN SDG investment needed to reach the 2030 goals, and benchmarking against R&D spending in other industries and calculate a bottom up view of financing needs across the innovation pipeline.
Does this study look at developing and scaling innovations only in terms of sustainability / circularity? Which are the other prime areas where innovation is being looked at?
Mazijk: Most innovations in the fashion space have an element of sustainability. Especially when it comes to "hard technology" (new raw materials, dyeing / finishing processes, end of use solutions) it is unlikely that innovation gets adopted at scale if it is less sustainable than the status quo.
That said, there are fields of innovation that are less directly focused on sustainability, which are primarily found in technologies to increase sales (mostly focused on e-commerce). Even some of those, for example fitting optimisation, which may primarily be focused on increasing e-commerce sales, could have sustainability benefits (e.g. decreasing returns).
Pardo: In this study, we mainly focus on innovations that have an impact on the social and environmental performance of companies. These innovators have identified many impactful venture opportunities and have started developing solutions to address these key possibilities along the entire fashion value chain.
Analysing these innovators and especially their financing need closely, we found that in fashion, nearly half of the financing opportunity lies at the beginning and the end of the value chain, where raw materials and end-of use solutions have the highest impact potential.
The increasing need of the hour is circularity and to that end sustainability now is just step one in that direction. How many such proposals does Fashion for Good receive annually? Following this report, how easy do you think will it be to get the right and adequate financing?
Mazijk: Circularity is high on the agenda of many fashion brands and the industry in general. Financing the circular solutions is important, and there is a lack of financing available. It is unlikely that the significant gap will be filled without significant efforts of all stakeholder groups-this problem is not to be solved by one organisation or even one stakeholder group but requires true cross-industry collaboration. However, we believe this does not come without reward: those who will focus on innovation and make it a strategic priority will ultimately win.
Both sustainability and circularity mean disseminating the message to the end consumer. Any proposals towards this?
Mazijk: Circularity and sustainability are both increasingly marketable to consumers, given the increasing consumer demand for sustainable materials and increasing awareness of the severe environmental and social problems in the fashion industry. In the last decade we have already seen examples of how companies able to market sustainable / circular raw materials and production processes to consumers were able to capitalize on those in terms of brand building, sales and margins. This effect will only become stronger in this decade.
What about linkages with governments, fashion / textile stakeholders specially in the manufacturing hubs of the world like say Southeast Asia which need to work harder towards a circular process from seed to shelf and everything in between?
Mazijk: This industry has become very global and it has become impossible to consider one geography separately from another. That means that brand (or even consumer) preferences in the West have almost direct impact on the manufacturing operations in the East. Manufacturers and other upstream participants (material producers and chemical companies) are required to participate in this shift-fortunately most of the large operators are realizing this and investing time and financial resources in innovation focused on circularity and sustainability themselves, and / or developing solutions in collaboration with their clients (brands).
Pardo: Supply chain partners across all geographies as well as the public sector play a key role in our call to action. The public sectors: although regulatory action has begun to influence the industry's move toward sustainability, more is needed to provide a framework of policies and incentives that will drive systemic change. The public sector must increase its direct investments and support to catalyse investment from the private and philanthropic sector.
Supply chain partners in all geographies need to play a more active role. They have 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 acquisition.
This interview was first published in the February 2020 edition of the print magazine.
Published on: 03/02/2020
DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.
