Emissions, 25-29 billion more needed to decarbonise European fashion

Between EUR 24.7 billion and EUR 29.1 billion are needed to invest in decarbonisation, in addition to the investments already made, so that European fashion companies can reach the emissions cut targets set by the European Union, which, with its Fit for 55 plan, imposes a -55% reduction on 1990 greenhouse gas emission levels by 2030. The alternative is to reduce production in order to stay within the emission limits, but this would entail a loss of revenue of around 156.7 billion and thus seven times the investment figure.

The data emerge from the 2024 edition of the 'Just fashion transition' report by The European House-Ambrosetti (Teha) and presented at the 3rd Venice Sustainable Fashion Forum ('Leading Re-generation') organised by Smi, Teha and Confindustria Veneto Est, currently underway at the Giorgio Cini Foundation in Venice.

The need for extra investment arises because of the delay that European fashion (as well as many other industries) has with respect to the objectives imposed by the EU on the decarbonisation front and that the Ambrosetti study quantifies in about eight years: the fashion system, which has made progress in the last six years by reducing the level of emissions in relation to the value of production (grCO2 per euro of turnover) by 9.7% per year, maintaining this pace would only reach the targets in 2038. To accelerate it would have to cut 76.1 million tonnes of greenhouse gases by 2030 (a volume equal to more than 60% of the 2022 footprint) and the cost would be between 25 and 29 billion.

This issue is particularly critical for two reasons: the first is that the general rate of investment in the sector has been falling steadily for at least six years (-7.9% on 2018). The second reason is that fashion is experiencing a challenging historical moment. Even the luxury companies that, until now, had proved anti-cyclical with respect to the great crises are recording drops in turnover - Lvmh posted -2% in the nine months; Kering archived the third quarter at -16% weighed down by the Gucci brand (-26%) - and this is having repercussions on the entire supply chain.

According to the survey by Teha - which carried out assessments of over 500 companies (373 in the Italian supply chain, 100 large European companies and 30 retailers) based on 775 data points and analysed the balance sheets of almost 2,700 companies - the investments required are unsustainable for 92% of Italian companies in the supply chain. Which would have to give up almost 6% of already reduced margins (they average between 7 and 11%) when compared to brands. And which are almost twice as indebted (54% vs. 31%) as large companies, with timescales twice as long as the average (12 months vs. 6.5) to repay these debts: "Small companies are too fragile, there is a need to promote integrations to address sustainable and digital transitions that need more solid economic-financial structures," explained Carlo Cici, partner and head of Sustainability at Teha. With this in mind, "we need national strategic plans for the sector with which to establish market rules in trade that enhance investments in sustainability," said Cici.