By the end of the decade, many of the world’s largest fashion brands need to dramatically increase their use of raw materials with a lower environmental impact in order to comply with incoming sustainability regulations and meet decarbonisation targets.

But unless things change, there just isn’t going to be enough recycled polyester and regeneratively farmed cotton to go around, according to a new analysis by trade group Textile Exchange and consulting firms Boston Consulting Group and Quantis.

In fact, if brands don’t make more meaningful investments and commitments to develop lower impact raw materials, the industry will face a 133 million-tonne shortfall by 2030, the report concluded — a situation that comes with new business risks.

“Compliance is coming like a train,” said BCG partner Jocelyn Wilkinson. “It’s a really big factor in the new operating environment … and a new factor of profitability.”

What’s the Issue?

Over the next few years the fashion industry will face an unprecedented increase in government regulation, with more than 35 new pieces of sustainability-linked legislation expected to go into effect around the world by 2027, according to the report.

These have implications for the way garments are produced, designed, marketed and disposed of, amplifying pressure already created by the industry’s voluntary environmental targets to shift sourcing of raw materials to fibres that align with climate ambitions.

But while supply of lower impact raw materials is expected to hit 30 million tonnes in 2030, up 30 percent compared to 2021, demand is expected to grow much, much faster, according to analysis by Textile Exchange and BCG.

Why Is Demand Expected to Outpace Supply?

Conventional raw materials are entrenched for a reason. Supply chains are set up to manage and process them at scale and they’re priced accordingly.

Changing this system requires time and investment on almost every level. For instance, switching a farm from conventional to organic practices takes about five years. Going a step further and layering on regenerative practices — the industry’s newest buzzword — comes with additional complexity because exactly what “regenerative” means and how it should be measured is still poorly defined. Upfront spending is also required to develop manufacturing capacity for new material and textile-to-textile recycling innovations.

The result is that lower-impact materials are typically more expensive than their conventional counterparts and long-term ambitions to increase supply are running up against a near-term economic reality that favours low-priced, easily accessible options.

And while some major brands, including H&M Group and Inditex, are putting money behind lower impact materials and making offtake commitments in an effort to help the market shift, it’s not enough to incentivise the majority of raw materials suppliers to take on the risks involved in changing the way they operate.

These tensions are already evident in the challenges facing businesses trying to bring new materials to market: Swedish textile recycler Renewcell replaced its CEO last week, after announcing weaker-than-expected sales that sent its share price plummeting.

“The outlook has been super short term,” said Wilkinson. “We’re seeing pausing on targets, movement away from targets and even [deadline] extensions in-house … All those signals are not going to drive change.”

What’s at Stake?

The risks for the industry aren’t simply reputational; the incoming wave of legislation will come with costs for companies that don’t comply.

Those could take the form of fines, but also fees for things like textile waste disposal that are likely to be higher for materials with a greater environmental footprint. Brands may also be unable to access certain markets if they can’t prove the materials they’re using are aligned with the rules — a situation that could put as much as 8 percent of a brand’s earnings before interest and tax at risk within the European Union, which is leading efforts to toughen oversight of the fashion industry, according to BCG’s analysis.

On the flip side, brands that do make strategic moves to lock in access to lower impact raw materials could see a meaningful uplift in net profits, assuming tougher regulation imposes meaningful and substantive burdens on businesses that don’t comply and early movers are able to secure materials at a competitive price, according to BCG.

The industry, whose sustainability efforts to date have largely rested on voluntary standards and initiatives, does not have a good track record when it comes to compliance and delivery.

Furthermore, increasingly frequent and intense weather extremes are threatening fashion’s traditional supply chains. At the moment brands don’t price those externalities into the cost of doing business, but failing to build resilience is ultimately likely to be far more costly than investing in lower-impact materials today.

What Needs to Change?

As regulations and companies’ own commitments push the fashion industry to tackle its environmental impact, supply chain relationships will become “make or break” for brands, the report found. Companies that provide suppliers with long-term commitments that enable them to invest in growing supply of lower-impact materials will benefit from access in the future.

There’s also work that needs to be done to build brands’ understanding of where their materials come from and set clear strategies to support delivery of climate goals. And these changes can’t take place in a sustainability silo. Sourcing teams and senior executives need to buy in to long-term goals that may take time to pay off and are not instantly marketable.

“Brands sometimes look for a silver bullet that feels exciting and sexy, and they need to look at what’s actionable now,” said Wilkinson. “You can’t leave sustainability teams alone shouting as loud as they can in empty rooms. It’s not working.”