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1、Sustainable Raw Materials Will Drive Profitability for Fashion and Apparel Brands October 2023Beth Jensen and Megan Stoneburner from Textile ExchangeCatharina Martinez-Pardo,Jocelyn Wilkinson,Haafizah Khodabocus,and Lidia Durbiano from Boston Consulting Group Mireille Faist,Stefan Frehland,Philipp M
2、eister,and Marcial Vargas-Gonzalez from QuantisQuantis,a BCG company,is a leading sustainability consultancy pioneering approaches to solve critical environmental challenges.We partner with leading consumer goods and financial services organizations who are serious about reducing their environmental
3、 impacts to future-proof their businesses and prosper in a new planetary economy.Our unique approach combines deep environmental expertise,strategic business knowledge,and enterprise transformation skills to help organizations shape policies,practices and business models that align with the planets
4、capacity while building resilience,unlocking innovation,and optimizing performance.Our dynamic and visionary team of environmental,business and communications experts will guide you on the journey from business as usual to business at its best.Discover QuantisBoston Consulting Group partners with le
5、aders in business and society to tackle their most important challenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it was founded in 1963.Today,we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholdersempoweri
6、ng organizations to grow,build sustainable competitive advantage,and drive positive societal impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change.BCG delivers solutions through leading-edge management c
7、onsulting,technology and design,and corporate and digital ventures.We work in a uniquely collaborative model across the firm and throughout all levels of the client organization,fueled by the goal of helping our clients thrive and enabling them to make the world a better place.Textile Exchange is a
8、global non-profit driving beneficial impacts on climate and nature across the fashion,apparel,and textile industry.It guides a growing community of brands,manufacturers,and farmers towards more purposeful production from the very start of the supply chain.Its goal is to help the industry to achieve
9、a 45%reduction in the emissions that come from producing fibers and raw materials by 2030.To get there,it is keeping its focus holistic and interconnected,accelerating the adoption of practices that improve the state of our water,soil health,and biodiversity too.For real change to happen,everyone ne
10、eds a clear path to beneficial impact.Thats why Textile Exchange believes that approachable,step-by-step instruction paired with collective action can change the system to make preferred materials and fibers an accessible default,mobilizing leaders through attainable strategies,proven solutions and
11、a driven community.At Textile Exchange,materials matter.To learn more,visit textileexchange.org.04 Pending Regulations Will Influence Operations The Multiple Impacts on Operations Investor and Consumer Perspectives Honing In on Lower-Impact Materials08 The Rising Materials Gap The Strain on Preferre
12、d Raw Materials What Drives the Materials Gap?Closing the Gap10 How to Capture the$100 Million Opportunity13 Navigating the Raw-Materials Landscape Figuring Out Your Raw-Materials Impact Figuring Out How to Change Your Raw-Materials Impact19 The Materials Manifesto Invest in and Embed Full Traceabil
13、ity to De-Risk Supply Chains and Fully Understand Materials Impacts Use a Science-Based Approach to Strengthen Decision Making and Satisfy Stakeholders Diversify the Materials Portfolio to Spread Risks and Future-Proof Operations Build a Business Case That Leads to a Triple Winfor Brands,for Supplie
14、rs,and for Nature Supply Chain Relationships Will Make or Break Brands Going Forward.Strengthen Them Diligently.Ensure That Knowledge,Tools,and Incentives Are Engrained Throughout the Company 24 Appendix:Explaining the Net Profit Opportunity26 About the AuthorsContents1 SUSTAINABLE RAW MATERIALS WIL
15、L DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSSustainable Raw Materials Will Drive Profitability for Fashion and Apparel BrandsGetting raw materials right,from a sustainability perspec-tive,can support regulatory complianceand lead brands to a new source of profitability.Failing to do so can l
16、eave them at a competitive disadvantage,especially given that a products final cost is largely determined by its raw materials.From orange haze in New York to flooding in Pakistan and record-breaking heat waves around the Mediterranean,the effects of the climate emergency are devastating communities
17、and supply chainsglobally.The fashion and apparel industry has a pivotal role to play in meeting global climate and GHG emission reduction targets,and the industrys impact has not escaped the attention of key stakeholders,including consumers,investors,and legislators.Never before has the industry fo
18、und itself the target of such intensifying regulation focused on the environmental impact of products and their materials.On the basis of BCGs conversations with experts,we believe that over the next two to four yearsa time frame that we can concep-tualize as just four cotton harvests or eight fashi
19、on weeks awaymore than 35 new pieces of sustainability-linked regulation are expected to go into effect around the world,targeting import restrictions,product design guidelines,labeling requirements,and more.(See Exhibit 1 and the sidebar“About This Report.”)Fashion and apparel brands must prepare t
20、o meet these upcoming regulations.The need is urgent,and the industry knows it:more than 85%of leading brands(by sales)have publicly declared decarbonization targets for their supply chains.2 To deliver,they need a strong raw-materials strate-gy.In formulating that strategy,one keyand thornyquestion
21、 is,Where do we place our bets when selecting the right raw materials,especially given that supply is often precarious and will remain so?(See the sidebar“Demysti-fying Sustainable and Preferred Raw Materials.”)Brands therefore face a broad two-part challenge:they must double down on driving carbon
22、reduction while pre-paring for upcoming regulations.Success on both counts relies on a robust strategy for preferred raw materialsone that helps brands lock in a supply of sustainable mate-rials for the future.Putting that strategy in place nowand putting it into immediate actionpromises to pay off.
23、Brands that act now to secure a preferred-raw-materials supply for the future will be positioned to capture an esti-mated average 6%profit uplift after five years.In fact,at the high end of the range in our model,a fashion brand with$1 billion in annual revenues has the potential to tap a cumulative
24、 opportunity of approximately$100 million over five years.Raw materials make fashion and apparel brands.And can break them,especially as the world confronts climate and sustainability challenges and especially because raw materials can constitute as much as two-thirds of a brands climate impact.1 Th
25、e industry must urgently accelerate its efforts to reduce its greenhouse gas(GHG)emissions by 45%by 2030.1.Quantis analysis based on expert insights,covering impacts from Tier 4 to Tier 2 within the corporate carbon footprints of fashion and apparel brands.2.BCG analysis based on 36 fashion and appa
26、rel organizations,including brands and parent organizations,representing more than 10%of the industrys revenues.BOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 2This publication is a joint initiative of Boston Consulting Group(BCG);Textile Exchange,a global nonprofit driving positive impact on fa
27、shions climate change;and Quantis,BCGs sustainability-focused consultancy.This publication offers a perspective on the challenges and opportunities for fashion and apparel brands as they transition to low-climate-impact raw materials to enable compliance with upcoming regulations and to meet Scope 3
28、 climate targets.Our assessment focuses on the top five raw materials,which together account for the largest GHG footprint in the industry:cotton,wool,bovine leather,manmade cellu-losic fibers(MMCFs),and synthetic materials.To provide an informed analysis,we conducted interviews with industry expert
29、s,gathered data and insights,devel-oped business models,and created a Materials Manifesto comprising six principles to guide brands in future-proof-ing their materials strategy.This report provides a valuable resource for fashion and apparel brands seeking to establish robust strategies in relation
30、to raw materials in a fast-evolving context.About This ReportExhibit 1-Fashion and Apparel Brands Will Contend with More Than 35 Pieces of Significant New Legislation in the Next Two to Four Years Source:BCG Research.Canada2UK2France2Netherlands2Norway1Japan1China1Germany1Switzerland15US9European Un
31、ion1Mexico1Brazil1SpainSocialTraceabilityEnvironment#of pieces of sustainability legislation within each region1India2AustraliaIncluding the regulation on supply chain transparencyIncluding the Modern Slavery ActNational action plan for climate changeIncluding the Green Claims CodeIncluding:Regulati
32、on on deforestation-free products Extended Producer Responsibility(from the Waste Framework Directive)3 SUSTAINABLE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSWhat are“sustainable”or“preferred”raw materials?The reality is,there are no absolute definitions at the moment.Even
33、 the material with the lowest environmental and social impact could have unintended tradeoffs or could put significant pressure on the planet if overused.In September 2023,Textile Exchange updated its holistic definition of preferred raw materials and fibers:those that“deliver consistently reduced i
34、mpacts and increased bene-fits for climate,nature,and people against the convention-al equivalent,through a holistic approach to transforming production systems.”(See Textile Exchange,“Preferred Fibers and Materials:Definitions,”2023,p.7.)While the wider nature and people considerations are absolute
35、ly critical to the positive impact the fashion and apparel industry can have,this publication focuses on reducing climate impact within the industry;thus,in this document the term preferred materials refers to materials with reduced climate impacts.There are two primary pathways toward GHG impact re
36、-ductions in relation to raw materials:Using sustainably sourced recycled raw materials (this goes for all nonrenewable materials but is also an increasingly important pathway for renewable raw materials)Using sustainably sourced renewable raw materials that are continually replenished at a rate equ
37、al to or greater than the rate of depletion.To enable a truly circular system and mitigate the risk of sourcing raw-materials inputs from outside the industry,sustainably sourced recycled materials should prioritize materials from textile waste,rather than from diverting waste from other industries
38、with their own robust collec-tion and recycling systems(such as plastic bottles).Credible third-party-certified materials can support brands in their preferred-raw-materials strategies,in terms of both impact and traceability.Although access to GHG reduction impact data associated with these materia
39、ls has often been limited in the past(partly because standards have traditionally been practice-based,rather than out-come-based),some certified solutions,including recycled and organic,have available impact reduction data.Recent efforts are beginning to further close the gap on the indus-trys under
40、standing of impact data related to standards and certifications;for example,Better Cotton released its first study of GHG emissions in 2021,and Textile Exchange is evolving its standards to more directly link practices to outcomes along with conducting new life cycle assessment studies on several of
41、 its existing standards.Energy use within the many textile-manufacturing process-es and facilities is another consideration from a GHG perspective.Obviously,renewable energy is preferable and the elimination of coal-fired power and other fossil-fu-el-powered sources is an immediate concern,with acti
42、on to be taken across the industry.Demystifying“Sustainable”and“Preferred”Raw MaterialsBOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 4The pending regulations have greater depth and breadth than the fashion and apparel industry has seen before,and it is anticipated that brands may struggle with
43、what is to come.A BCG review of brands in the luxury industry found that currently just 15%comply with all the guidelines of a flagship sustainability-linked regulation(the 2015 UK Modern Slavery Act).3 Such performance has signaled to policymakers that cer-tain industries,including fashion and appa
44、rel,are making limited progress in the transition toward a sustainable future.Consequently,policymakers have carved out an active role for themselves by setting clear directives for the industry on defining the future from a sustainability per-spective.Given the ever-evolving nature of the science a
45、nd data that inform these regulations,as well as ongoing global issues such as war,inflation,and economic uncer-tainty,these regulations are not perfect.However,industry leaders welcome the full ecosystem transformation that these directives demand.Many brands are looking to regulation as a way to e
46、nsure a level playing field across brands and to collectively raise the bar for all actors in the market,without disrupting competition.Pending Regulations Will Influence Operations3.BCG analysis conducted on 76 brands across luxury sectors(including fashion)to assess the adherence to the UK Governm
47、ent Modern Slavery Statement guidelines(taken as a representative sample for the worldwide industry).5 SUSTAINABLE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSThe Multiple Impacts on OperationsUpcoming regulations will cover every aspect of the opera-tions of manufacturers,b
48、rands,and retailers in the fashion and apparel space.All life cycle stages of the product will be regulated:The way products are sourced(for example,to exclude human rights challenges)The way they are designed(for instance,the EUs Ecode-sign for Sustainable Products Regulation)The way they are marke
49、ted(for example,the EUs Green Claims Directive)The way they are discarded(for example,the EUs Waste Framework Directive and the Extended Producer Re-sponsibility)Operationally,this will require organizations to know their impact,disclose a reduction plan(such as the one outlined by the EUs Corporate
50、 Sustainability Reporting Directive),inform consumers about the environmental performance of the product they are buying(as described in the French Climate Law),and take all necessary measures to improve their environmental and social performance(see the EU Corporate Sustainability Due Diligence Dir
51、ective).This will lead to a significant change in many industry players value chain operations,data flows,and IT systems.Within the automotive industry,the advent of sustainabili-ty-related regulations engendered rapid change similar to what the fashion and luxury industry might expect.“Regu-lation
52、has been a catalyst for circularity in the electric vehicle battery space and is challenging the traditional understanding of business as usual,”noted BCGs Johanna Puetz,who works in the industrial goods and climate and environment fields.“Currently,the ratio of recycled materi-als used in electric
53、vehicle batteries is effectively 0%,and by regulation it needs to reach more than 10%for many materials within ten years.There is high competitionleading to high costfor materials and technologies as automotive brands scramble to innovate,set up,and indus-trialize closed-loop recycling systems.”For
54、fashion and apparel brands,BCG predicts that regula-tions will most immediately target fiber-to-fiber recycling and the lowest-carbon-impact raw materials.Any regulatory infraction has the potential to harm a brands bottom line and,crucially,could tarnish a brands reputation.In some instances,brands
55、 may face lawsuits or significant fines.Said Baptiste Carriere-Pradal,a cofounder of 2BPolicy,a consultancy on EU policies,“The latest Ger-man regulationdue diligence as part of the Supply Chain Acthas changed the rules of the game by increasing the magnitude of penalties and setting the blueprint f
56、or even granular violations to be reviewed publicly and for brands to be held to account.”Worse,products may be denied entry to markets until brands can satisfy new requirements and labeling laws.This amounts to an overall maximum risk exposure of 8%of EBIT.4 Potentially losing earnings of this magn
57、itude poses a threat to the business model of any brand(espe-cially those that rely on wholesale channels).Investor and Consumer PerspectivesAcross the board,investors and consumers are welcoming the regulatory changes.To guide their decisions,whether about investing in brands or purchasing products
58、,they are watching how brands react.Investors expect brands to demonstrate a strong risk miti-gation strategy and a flexible approach to cater to upcom-ing regulatory requirements.“Even before considering consumer sensitivities,investors are becoming increasingly stringent in the face of tighter leg
59、islation and regulation.They are paying very close attention to how a brand orients itself around its environmental footprint,”said Luca Solca,a senior analyst at Bernstein.For consumers,who may have been perplexed by a myriad of sustainability claims in the past,clearer guidance should make purchas
60、ing decisions much easier,particularly given that several pieces of regulation relate directly to the prod-ucts and materials within a brands portfolio.Under the EUs Green Claims Directive,for example,brands will need to disclose the environmental performance and recycled content of their products.F
61、urthermore,although emerging regulations can be com-plex and even conflicting,policy experts agree that trace-ability will be a key delivery and compliance mechanism for all or most of these regulations.The origin of raw mate-rials will become a key data point to track and manage given that most reg
62、ulations will demand unprecedented levels of information about where and how products are made.For example,the French Climate Law obliges brands to show the“eco-performance”of all products.Conse-quently,by 2026,consumers on Parisian wholesale floors will be able to compare brands and products on the
63、 basis of a consistent methodology.4.BCG analysis,for an average-size fashion brand in the EU.BOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 6New and emerging regulations will help standardize messaging to consumers about products sustainability credentials,potentially allowing consumers to comp
64、are brand to brand at the point of purchase.7 SUSTAINABLE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSIndeed,brands must ready themselves for a level of scruti-ny not seen before given the increased empowerment of consumers in tandem with the steady increase in consum-ers ap
65、petite for sustainability.In 2023,65%of surveyed consumers said that sustainability influenced their pur-chasing habits(an increase of 4 percentage points since 2019);the percentage was even higher among Gen-Zers.Federica Licini,the head of sustainable business at the online fashion retail platform
66、Farfetch,can attest to con-sumers intensifying interest in sustainability.“Farfetch customers continue to intentionally engage with and ulti-mately purchase sustainable products,a trend that is reflected in the consistent growth of sales over time.Not only is this customer cohort expanding,but also
67、the spec-trum of consumers is broadening to include both early adopters of and newcomers to sustainable consumption.”Honing In on Lower-Impact MaterialsTo set themselves up to effectively respond to the coming regulations and to develop a competitive edge,brands must embed sustainability considerati
68、ons and require-ments across their businessesinto design,procurement,manufacturing,labeling,marketing,business models,and financial plans.From a materials perspective,beyond compliance and risk mitigation,brands must think carefully about their product and materials approach,including paying closer
69、attention to traceability and labeling.The regulatory push for the use of lower-impact materials will increase demand for these materials and,hence,potentially put pressure on growers and farmers to accelerate at the same rate.Therefore,securing supply is of the utmost importance for brands.But navi
70、gating the landscape of preferred materials can be complex given an abundance of claims from suppliers(with varying levels of robustness and impact measure-ment and delivery),lack of data regarding how specific materials link to the delivery of science-based targets(critical measures that we will di
71、scuss in more detail later),and the widespread lack of connectivity between raw-mate-rials suppliers and brands,which often leaves fiber origins unknown.Furthermore,although regulators are beginning to develop approaches to enable consumers understand-ing of the climate impacts of materials,the nuan
72、ces in-volved in trying to define what makes a material“pre-ferred”can leave brands in the lurch.Even if a brand has sincere intentions and is willing to invest and make operational changes,the solutions to these challenges may continue to elude them.But there are ways to close in on solutions,begin
73、ning with address-ing the“materials gap.”BOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 8In recent years,brands have been making pledges and setting targets aimed at reducing their climate impact,targeting GHG emissions.In this respect,the fashion and apparel industry is one of the most advanced
74、.Approximately 400 brands have com-mitted to set or have approved science-based targets through the Science-Based Targets initiative(SBTi)the highest representation of any industry,according to the Apparel Impact Institute.Then,moving beyond“carbon tunnel vision”(the tendency to focus only on CO2),b
75、rands have begun broadening their pledges to reduce their nature and social impacts by in-cluding factors such as worker well-being,animal welfare,and impacts to freshwater and land.Given the increasing number of impact goals(particularly related to climate)that focus on raw materials,its obvious th
76、at the demand for lower-impact materials is increasing in tandem.The Strain on Preferred Raw MaterialsTo hit shared global targets related to raw materials and fibers,such as reducing GHG emissions by 45%by 2030,and to comply with upcoming regulations,brands and retailers will need to convert the ma
77、jorityif not the en-tiretyof their raw materials to preferred sources.5 Howev-er,Tier 4 suppliers have yet to receive a strong enough signal that brands will commit to and invest in these mate-rials.Thus,raw-materials producers,farmers,and growers currently dont have an incentive to take on the risk
78、s asso-ciated with increasing the supply of preferred raw materi-als,especially when their livelihoods are at stake.Conse-quently,the supply of preferred raw materials constituted only about 19%of total global production in 2021.6The Rising Materials Gap 9 SUSTAINABLE RAW MATERIALS WILL DRIVE PROFIT
79、ABILITY FOR FASHION AND APPAREL BRANDSBased on modeling from Textile Exchange and BCG,the preferred-raw-materials demand-and-supply gap will rise to as much as 133 million tons in 2030.(See Exhibit 2.)This can be conceptualized as more than six times the Indian production of the same materials in 20
80、21.7What Drives the Materials Gap?In part,its the lack of a united front within the industry to achieve scaled financial investment and clear market demand.This makes it impossible to unlock economies of scale.Farmers,growers,and innovators are dependent on new ways of working that result in industr
81、y-wide account-ability and require financial investments,securities,and incentives to provide stability for businesses,livelihoods,and communities.This situation is not helped by the current global economic slowdown,the resetting of climate targets,and the lack of incentives for raw-materials produc
82、ers.One raw-material producer told us,“It is increasingly common to find brands reneging on sourcing commitments,cutting orders,chang-ing their sourcing strategies,or retracting their commit-ments as a result of challenged margins,limited budgets,and an ever-changing market.”These scenarios leave ra
83、w-materials producers in the lurch in already troubled economic times;its no surprise that they might be in-clined to decrease their(often more resource-intensive)production of preferred raw materials to sidestep losses.Additionally,climate-change-related supply issues(such as flooding in Pakistan a
84、nd India and drought in the US)leave producers with resource constraints and degraded land,hindering their ability to grow and provide raw mate-rials in line with the rapid scaling of economies that is needed to close the materials gap.Closing the GapThe solution is to invest in the supply of prefer
85、red raw materials now,thereby securing resources and future-proof-ing brands business models.This will be essential to accelerating the sustainability transition and ensuring that brands will realize their 2030 climate targets and other goals.5.Textile Exchange,“Material Pathways:Accelerating action
86、 towards Climate+goals,”2023,p.3.6.Textile Exchange data based on 2021 production volume of global fibers and leather.7.BCG analysis,where data is publicly available.Exhibit 2-Without Investment and Focus,the Preferred-Raw-Materials Gap Could Reach Some 133 Million Tons in 2030Sources:Textile Exchan
87、ge and BCG analysis.Note:See Textile Exchange,“Preferred Fiber&Materials Market Report,”October 2022,for more information.The exhibit shows the global produc-tion(all sectors)of leather,plant fibers,animal fibers,manmade cellulosic fibers,and synthetic fibers.It does not differentiate between their
88、usages(that is,it covers apparel,home,and footwear uses).Recycled leather and alternative leathers are not included.Key AssumptionsProjected supply and demand of global textile materials across all sectors(millions of tons)2021ConventionalPreferredSupplyDemand19%20302030Production volume of preferre
89、d raw materials in 2030 The annual growth rate for the conventional-and preferred-raw-materials supply is 3%.All brands and retailers have set ambitions of 100%preferred materials for 2030(based on our analysis of the top brands).The scale of preferred-raw-materials programs will remain largely unch
90、anged.The%of preferred-raw-materials production vs.total materials production will remain largely the same.23303163163BOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 10For the last century,the fashion and apparel industry has been primarily focused on driving down the cost of raw mater
91、ials.This objective has often come at the expense of the most vulnerable people,their livelihoods,and the planet.The world is now at a turning point.The underlying re-source and regulatory parameters that have shaped the industrys thinking over the last hundred years are trans-forming.Potential loss
92、es loom:Upcoming regulations could put 8%of EBIT at risk for brands that do not comply by adjusting their materials portfolio mix.8 Changing ecosystems(involving,for example,extreme weather),as a result of climate change,are jeopardizing the availability,accessibility,and price of raw materials.The
93、industry faces increased competition from the food sector,which also has land use needs as it seeks fertile ground for growing crops.9Brands business models must adapt and transform ac-cordingly,not only to avoid the cost of inaction but also to proactively build security and resilience within suppl
94、y chains.How to Capture the$100 Million Opportunity 8.BCG analysis,for an average-size fashion brand in the EU.9.Economic Research Service,“Cotton Sector at a Glance,”website(2022),accessed September 19,2023.11 SUSTAINABLE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSBrands t
95、hat act today by setting clear procurement targets with respect to their raw materials and by significantly increasing the share of preferred raw materials in their portfolio stand to capture a significant upside.BCG fore-casts that a midsize,high-street fashion brand with annual revenues of approxi
96、mately$1 billion can realize a net profit of approximately$100 million over a five-year period by investing more significantly in preferred materials.On average,by Year 5 this would result in a net profit uplift of 6%.(See Exhibit 3 and the appendix for more information.)This is Scenario 3 in our mo
97、del,and it is based on reducing the share of conventional virgin materials(including virgin synthetics;contentional cotton,wool,and leathers;and noncertified MMCFs)in the materials portfolio from 90%to 40%.The remaining portfolio share of 60%will be taken up by sustainably sourced renewable and recy
98、cled materi-als,which may account for lower fees under certain regula-tions.Thus,brands might find that tapping the$100 mil-lion opportunity also means initiating a virtuous circle in which they are able to generate even greater savings and revenues.This opportunity is the outcome of three drivers:A
99、nnual Growth.The brand in Scenario 1 has a slower annual growth rate owing to increased pressure on sales and product availability as a consequence of regulatory noncompliance(for example,products might be banned from entering markets)or lack of raw materials avail-ability.In contrast,the brands in
100、Scenarios 2 and 3 have invested to implement sustainability measures and have therefore secured access to core raw materials and will continue to grow,per industry standards,at approxi-mately 2%per year,according to data from Euromonitor.Preferred-Raw-Materials Prices.The increasing demand for prefe
101、rred raw materials is expected to affect the prices of those materials,especially if access and prices have not been locked in previously.The brand in Scenario 3 is able to guarantee preferred raw materials at the same price as conventional virgin materials or at a discount given its early,strategic
102、 commitment and agreements.Exhibit 3-Substantially Reducing the Use of Conventional Raw Materials Presents a Net Profit Opportunity of Approximately$100 MillionSource:BCG analysis.Note:Based on a sample fashion brand,which is a midsize,high-street brand with annual revenues of approximately$1 billio
103、n.57040Materials portfolio after 5 years Scenario 1Net profit increaseby Year 5+4%+8%No change to materials portfolioSmall change to materials portfolioSubstantial change to materials portfolioCumulative$100 million between Year 0&5Scenario 2Scenario 3%Conventional virginmaterialsSustaina
104、bly sourced renewable materialsSustainably sourced recycled materials+6%average upliftSubstantial changes to the materials portfolio(Scenario 3)can potentially unlock a cumulative$100 million opportunity by year 5-with a 4%8%,or an average 6%,net profit increase in that year.Assumptions:Considers on
105、ly the cost implications of improving a brands materials portfolio by heavily decreasing the share of conventional virgin materials Does not account for significant regulatory penalties,climate-change risk to land-based materials,and consumer behavior change in the face of more transparent sustainab
106、ility claimsBOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 12 Annual Regulatory Costs.Regulations such as the Extended Producer Responsibility(EPR),for example,will impose a fee on fashion brands;that fee can be reduced by investing more in sustainability.Scenarios 1 and 2 have higher regulatory
107、 annual costs related to noncompliance and limited investment in measures that would help reduce the fees to be paid.The brand in Scenario 3 would face reduced fees given its compliance with regulations.These scenarios do not account for:The potentially significant regulatory penalties of inac-tion,
108、such as lawsuits The risk that climate change poses to the production,availability,and quality of land-based materials Greater consumer uptake in the face of more transpar-ent sustainability claimsIndeed,consumer behavior change is likely to be a boon for companies that make the move to preferred ra
109、w mate-rials.“Across our markets,our customers consistently tell us they want to shop more sustainably but need guid-ance,”explained Christian Tnnesen,the group sustain-ability director at Selfridges Group.“We are responding to a customer need with our materials strategy.This covers our key material
110、s such as leather and cotton,identified by volume and impact.By the end of 2025,any of the materi-als in scope must come from third-party-certified,more sustainable sources.Looking to 2030,we will expand this list to include additional materials.”Even in a less ambitious scenario,in which the share
111、of conventional virgin materials in the materials portfolio is reduced by 20%and replaced with preferred materials,an opportunity of some$50 million is available,or a net profit uplift of 4%by Year 5.When brands are focused only on reducing costs related to raw materials,they leave innovators,farmer
112、s,and growers unable to provide the necessary supply of preferred materi-als;consequently,brands face the materials gap and cant adapt to the new regulatory landscape.And,inevitably,brands and the industry at large will significantly miss their climate targets.This materials“catch-22”results in lowe
113、r margins and revenue.Successful brands will abandon traditional cost-cutting approaches and sourcing strategies in favor of a new,equitable balance.Paying for preferred materials now means getting ahead of the curve and securing supply for the long term.This will reduce the risk of not having acces
114、s when it is really needed.Further,it will benefit the livelihoods of the most vulnerable people in the value chain.13 SUSTAINABLE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSSourcing preferred raw materials requires reimagining high-volume materials.“Brands need to make sur
115、e they address the core raw materials that speak to their DNA;this will be meaningful for their consumers and investors,”noted Luca Solca,the Bernstein senior analyst.The top five materials that are usedand that contribute to the largest GHG footprint in fashion and apparelare cotton,wool,bovine lea
116、ther,MMCFs(such as viscose),and synthetics(led by polyester and nylon).10 These can be categorized according to their origin and production pro-cesses,revealing similarities in their carbon impacts.(See Exhibit 4.)Figuring Out Your Raw-Materials ImpactGHG impact assessments for materials can be diff
117、icult,given variability across sourcing regions,the frequent lack of data availability,and the lack of fully aligned impact measurement methodologies.Major efforts to improve and standardize these variables are underway,but in the mean-time,brands should not hesitate to move away from using conventi
118、onal virgin materials and toward existing preferred solutions.Broadly,the options lie within two categories:sustainably sourced renewable materials(such as regenerative or organic materials)and recycled materials.Navigating the Raw-Materials Landscape10.Textile Exchange,“Material Pathways:Accelerati
119、ng action towards Climate+goals,”2023,p.4.BOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 14Within materials categories,significant variability in GHG impacts existsfor example because of farming methods(such as grazing practices used in relation to bovine leath-er or agricultural practices like
120、organic farming for cotton),among other factors.Regeneratively grown materialsthat is,materials that are grown in harmony with natural sys-tems and that focus on beneficial environmental,animal welfare,and social outcomes11are not a homogenous family of materials but a category that encapsulates mul
121、ti-tudes of scenarios.The durability and quality of the material and product are also important,and this consideration should be taken into account beginning at the design and development stage.Doing so has practical implications for brands given that the intrinsic characteristics of conventional vi
122、rgin materials are sometimes lost in recycled materials,creat-ing weaker substitutes.For instance,100%recycled cotton is not necessarily a direct substitute for virgin cotton and may require blending with virgin cotton to achieve the appropriate durability properties.To understand and navigate this
123、complex landscape,brands must carefully consider variations and challenges on a case-by-case basis to make informed choices that align with their targets and combat the climate crisis.One tool that can support brands as they make decisions about which lower-impact materials to select is the Pre-ferr
124、ed Fiber and Materials Matrix(PFMM),an interactive tool originally created by Gap and now further developed and published by Textile Exchange.The PFMM aims to create a standardized assessment of the impacts of mate-rials across multiple dimensions and serve as a way to inform and guide materials-sou
125、rcing decisions.The tool,an updated version of which was launched public-ly in September 2023,covers the following impact areas:climate,water,chemistry,land use,biodiversity,resource use and waste,human rights,and animal welfare.(See Exhibit 5 for an example based on one of the top five raw material
126、 types,cotton.Note that animal welfare is not included for the cotton assessment because it is not rele-vant to this material.)As the exhibit shows,the PFMM assesses certified cotton options against various parameters.The climate column within the PFMM,for example,includes criteria such as the manag
127、ement of GHG emissions,climate resilience actions,and the protection of ecosystems to capture and store carbon.11.Textile Exchange,“Regenerative Agriculture Landscape Analysis,”2022,p.16.Exhibit 4-The Climate Impacts of the Top Five Materials Used in the Industry Derive from Their Origins and Produc
128、tion Processes Sources:Textile Exchange;Quantis;BCG.Cultivated from farms,fields,and pastures Rely heavily on agricultural practices,which can vary widelyPre-and postconsumer(textile)waste as a feedstock originCottonPossibleoriginsProductionprocessWoolBovine leatherSyntheticsManmade cellulosic fiber
129、sProduction processes and manufacturing can heavily depend on chemicalsEnergy sources in production processes and manufacturing can be either renewable or based on fossil fuelsBiobased wood-derivedBiobased plant-derivedPetroleum based15 SUSTAINABLE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION
130、AND APPAREL BRANDSExhibit 5-Impact Data from the Preferred Fiber and Materials Matrix:Focusing on CottonSource:Textile Exchange.0002100000000CottonClimateWaterChemistryLand Use23320-22010-BiodiversityResource Use&WasteHumanRightsCotton options(n
131、onexhaustive;other cotton options remain under review)Better cottonFairtrade cottonCotton made in Africa(operates in Africa only)MyBMP(operatesin Australia only)EU Organic cotton,Fairtrade cotton,GOTSEU Organic cotton,GOTSRecycled cotton,GRSRecycled cotton,RCSResponsible Braziliancotton,ABRCotton wi
132、th nostandard systemEU Organic cotton,OCSNumbers refer to the level of impactBaselineFoundationalImprovedProgressiveTransformationalBOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 16Materials assessed in the PFMM receive a score from 0(which is considered the baseline,where not enough crite-ria a
133、re met or evidence is lacking to receive a level 1 score)to 4(which is transformational,characterized by regenera-tive or circular practices,or both,with long-term goals in place that are tracked over time and where beneficial outcomes and impacts are demonstrated).Full details of scoring can be fou
134、nd on the Textile Exchange website.Note that because the PFMM currently focuses on the assessment of standard systems at the field level,and because such standards do not yet exist for leather(the Leather Working Group program addresses impacts related to hide processing only),the tool doesnt curren
135、tly cover leather.Figuring Out How to Change Your Raw-Materials ImpactWhat does all this mean in practice?Brands can use the PFMM to make informed sourcing decisions and to identi-fy opportunities to improve the performance of their raw materials toward climate goals.To illustrate how brands can use
136、 the PFMM,we created three brand archetypes with different materials portfolios:One that is cotton rich(most likely a pure fashion brand)One that is leather rich(most likely a luxury brand)One that is polyester rich(most likely a sportswear brand)The PFMM can also help brands identify actions they c
137、an take to achieve immediate(within 12 months)and short-term(within 24 months)impacts;these actions are gener-ally tied to more frequently used material types and blends.(See Exhibits 6,7,and 8.)Longer-term solutions tied to less common types and blends can also be identi-fied;however,we do not show
138、 these solutions.We advise brands to act on the immediate and short-term opportuni-ties;these will provide the quickest and biggest payoffs and will inform longer-term moves.While each brand will have a different raw-materials focus depending on its materials portfolio,the industry should share an a
139、mbition:to fully eliminate fossil-fu-el-based virgin fibers and to use only sustainably sourced renewable or recycled materials.The Materials Manifesto,developed by BCG,Textile Exchange,and Quantis,details the key enablers for brands to set them-selves up for success.17 SUSTAINABLE RAW MATERIALS WIL
140、L DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSExhibit 6-A Lower-Carbon-Impact Materials Strategy for a Luxury BrandExhibit 7-A Lower-Carbon-Impact Materials Strategy for a Pure Fashion BrandSource:Textile Exchange,Quantis,and BCG analysis.1According to the Leather Impact Accelerator,the Leathe
141、r Working Group leather does not impact Tier 4 raw material production because the pro-gram benefits take place at Tier 3 during tanning and processing.Source:Textile Exchange,Quantis,and BCG analysis.Note:MMCFs=Manmade cellulosic fibers.Materials MixAct now for immediate impact(within 12 months)Sig
142、n up to the Textile Exchange Deforestation Free Call to ActionMove toward traceable leatherMove to certified leather(Leather Working Group-Gold)1 Invest in regenerative grazing practices with science-backed potential for scale and lower carbon impactExample actions:Build relationships with cattle pr
143、oducers and leather processors to invest in regenerative grazing practices and outcome measurement Support research and development of alternative leather options(e.g.,mushroom and fruit leather)Support research on vegetable-based,chrome-free tanning,etc.Transition to certified organic(e.g.,Organic
144、Content Standard or Global Organic Textile Standard)or regeneratively grown cottonExample actions:Incentivize the adoption of regenerative farming practices by sharing financial risks and opportunities with farmers and growersExample actions:Source from certified tanneries Advocate for tanneries to
145、adopt lower-impact production methods Explore options for recycling leather scraps and repurposing discarded products into new itemsLeatherAct now to see initial impact in the short term(within 24 months)+CottonLeather30%10%60%OtherCottonMaterials MixAct now for immediate impact(within 12 months)Tra
146、nsition to certified organic cotton(e.g.,Organic Content Standard or Global Organic Textile Standard),starting with investing in in-conversion cottonIncrease the share of organic and regenerative cotton in the materials supplyExample actions:Build direct relationships with cotton producers to invest
147、 directly in the implementation of regenerative farming practices and measurement of outcomes Invest in innovative technologies that use cotton waste as feedstocks Optimize the quality of recycled cottonIncrease share of certified MMCFs(e.g.,Forest Stewardship Council certification or Programme for
148、the Endorsement of Forest certification)Example actions:Ensure that deforestation is not present in the supply chain by investing in full end-to-end traceability Source from green shirt suppliers as deemed by CanopyStyle Hot Button ReportExample actions:Incentivize the adoption of alternative farmin
149、g practices by sharing financial risks and opportunities with farmers and growersCottonAct now to see initial impact in the short term(within 24 months)+MMCFCotton20%20%60%OtherMMCFBOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 18Exhibit 8-A Lower-Carbon-Impact Materials Strategy for a Sportswea
150、r Brand Source:Textile Exchange,Quantis,and BCG analysis.Materials MixAct now for immediate impact(within 12 months)Increase the share of credible certified recycled polyester in the materials supply(Global Recycled Standard)Invest in fiber-to-fiber recycling solutions and partnerships or membership
151、s that help to scale promising new technologies(e.g.,Fashion for Good)Example actions:Identify and invest in significant infrastructure investments to enable textile-to-textile recycling Partner with innovators producing polyester alternativesTransition to certified organic(e.g.,Organic Content Stan
152、dard or Global Organic Textile Standard)or regeneratively grown cottonExample actions:Incentivize the adoption of regenerative farming practices by sharing financial risks and opportunities with farmers and growersExample actions:Scale existing solutions that increase the durability of polyester Tra
153、in and upskill designers to ensure compatibility with recycling processes Explore options to transition from non-fashion PET feedstocks(e.g.,plastic bottles)to textile feedstocksPolyesterAct now to see initial impact in the short term(within 24 months)+CottonPolyester30%10%60%OtherCotton19 SUSTAINAB
154、LE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSA brands sustainability transformation can achieve impactful change in many waysthrough improved forecasting to combat the issue of overstock,for example,or through circular business models such as resale and rental services.But
155、 the BCG/Textile Exchange/Quantis Materials Manifesto has a sole and dedicated focus on raw materials.Its six principles show brands how to close the materials gap,demonstrating that in a space fraught with questions,some answers are in place to guide no-regrets moves.(See Exhibit 9.)Invest in and E
156、mbed Full Traceability to De-Risk Supply Chains and Fully Understand Materials Impacts The imperative for traceability is clear.As Chris Gaffney,the CEO of Johnstons of Elgin,put it,“No organization should expect to succeed and create transformational change without traceability.It just needs to hap
157、pen as a ground zero.”Traceability is a fundamental requirement and starting point in the transformation to preferred raw materials.It is critical for decision makers within brands to understand what type of materials are used,their origins,and how they are processed to gain a clear understanding of
158、 their im-pacts.The Materials ManifestoBOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 20Sustainability standards and certifications are pivotal in supporting these aims.Other key enablers include devel-oping cross-functional programs and systems to enable materials and product traceability and b
159、uilding direct relationships across the supply chain.These investments might be seen as a cost burden.They are not,really,when you consider their crucial role in a brands future and the potential returns,including reduced GHG impacts.They provide the foundation to monitor progress and formulate acti
160、on plans to achieve targets,meet regulatory requirements,identify risks,and better engage with stakeholders.Brands should consider establishing a head of traceability to lead collaboration across the sustainability,legal,IT,and marketing teams to ensure an aligned approach and en-able better data qu
161、ality to meet regulatory demands and evolving customer expectations.One sustainability professional from the luxury industry told us,“Our recently hired head of traceability has profes-sionalized our approach to de-risking the supply chain and has helped provide greater assurance to our many and var
162、ied stakeholders that any sustainability claims we make are credible.”Use a Science-Based Approach to Strengthen Decision Making and Satisfy Stakeholders Over the last ten years,the industry has begun to embrace science-based methodologies that allow brands to make decisions underpinned by facts,dat
163、a,and impact assessments.However,relying on perfect science can stymie brands.As Stefan Seidel,the head of corporate sustainability at Puma,warned,“Perfect data often doesnt exist.Brands cannot be inactive just because of that.Start with the available data and keep striving to improve,but dont let i
164、mperfection block progress.”To avoid inertia,brands should become comfortable with acting on imperfect data,understanding that data and impact factors will mature over time.They should select a methodology and use it to guidebut not dictatedeci-sion making.By scientifically assessing the benefits an
165、d tradeoffs of each materials option and using a holistic view of impacts across the product life cycle,brands can make informed,impact-oriented decisions and prioritize their investments.And a science-based approach to understanding impacts can work in tandem with traceability,enabling brands to me
166、asure and collect data specific to their supply chains.This in turn will allow them to make more quantifiable claims in line with forthcoming regulations.Exhibit 9-The Materials Manifesto:Six Principles for Brands to Future-Proof Their Materials StrategySources:Textile Exchange;Quantis;BCG.Invest in
167、 and embed full traceability to de-risk supply chains and fully understand materials impactsEnsure that knowledge,tools,and incentives are engrained throughout the companyUse a science-based approach to strengthen decision making and satisfy stakeholdersDiversify the materials portfolio to spread ri
168、sks and future-proof operationsBuild a business case that leads to a triple winfor brands,for suppliers,and for natureSupply chain relationships will make or break brands going forward.Strengthen them diligently.21 SUSTAINABLE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSNone
169、theless,brands should remain aware of the limita-tions of the methodologies used and be comfortable dis-closing these limitations publicly.A science-backed ap-proach should be complemented with transparency,accountability,and credible communication with stake-holders,providing regular progress updat
170、es.Diversify the Materials Portfolio to Spread Risks and Future-Proof Operations Because there is no one-size-fits-all solution to transform-ing for sustainability,a portfolio approach to sourcing raw materials is the best way for brands to prepare for the future.It recognizes that there might not b
171、e a single mate-rial or certification that meets the needs of the brand and that supply options will evolve over time.12 As Giovanni Marchi,the director of Marchi and Fildi,stated,“It is imper-ative for brands to find the right balance with their materi-als portfolio.They should avoid concentrating
172、all their sustainability efforts on a single fiber,a single source of a fiber,or a single technology.”Indeed,the shift away from conventional,virgin,fossil-fu-el-based materials is a positive first step.Across materials categories,brands should consider all alternative materi-als,including:Regenerat
173、ive,organic,and other certified,sustainably sourced renewable materials Sustainably sourced postconsumer recycled materials,prioritizing fibers recycled from textiles Materials created using carbon capture technologies,or other innovative renewable or recycled materials with demonstrated lower impac
174、tsAgain,taking a science-based approach and knowing mate-rials origins will help brands ensure that the impacts of alternative materials are lower than those of conventional materials without compromising on durability.The portfolio approach should avoid“carbon tunnel vi-sion,”ensuring that other cr
175、itical aspects of sustainabili-tysuch as biodiversity,human rights,and animal wel-fareare included.Build a Business Case That Leads to a Triple Winfor Brands,for Suppliers,and for NatureHeightened governance means that a resilient and robust business case is more critical than ever.As part of that,b
176、rands need to approach their raw-materials strategy with rigor and think one step ahead by considering second-and third-order consequences.Indeed,taking the long view is a must.The deputy manag-er of Far Eastern New Centurys filament division,Gloria Lien,emphasized the point:“Moving away from short-
177、term thinking around pricing is crucial.Brand decision making must consider long-term sustainability goals,which can provide stability to the supply chain.”The business case should comprise realistic,forward-look-ing financial and economic assumptions and consider:The cost of inaction,including no o
178、r small changes in the materials portfolio mix without reducing the fossil-fu-el-based and land-based conventional virgin materials The future cost of externalities currently taken for grant-ed,including the need to protect resources and better manage land in order to avoid raw-materials shortages b
179、rought on by natural disasters,which are projected to increase and intensify as a consequence of climate change Risk factors related to materialsit is imperative that brands acknowledge the decreasing availability of raw materials and the price increases that will result and thoroughly assess risk b
180、y analyzing potential scenarios,including the impact of climate change and social pres-sures on materials sourcing and the entire supply chain Trends in government policy developmentit is expect-ed that as the European Union and others find success in rolling out new sustainability-linked legislatio
181、n,other geographies will follow suit The business case should include plans to transition and diversify the materials portfolio,starting immediately and intensifying over the coming years.Brands could consider“forward contracting”to support their business case.This financially beneficial practice,co
182、mmon in the precious metals industry,involves locking in guaranteed raw-material prices for the future and supports longer-term change on the grounda true necessity given that a preferred-raw-materials strategy requires a multiyear perspective.12.Textile Exchange,“Companies can manage their climate
183、impact through the materials they use,”July 2023.BOSTON CONSULTING GROUP +TEXTILE EXCHANGE +QUANTIS 22And it should consider the cost of carbon within the various operations of the business and how it relates to materials costs and product margins;setting an internal price on carbon or setting“carbo
184、n budgets”within product teams are options.A risk assessment regarding materials should also be conducted,thoroughly and with analysis of multiple scenariosfor example,the impact of climate change and social pressures on materials sourcing and the entire supply chain.Supply Chain Relationships Will
185、Make or Break Brands Going Forward.Strengthen Them Diligently.Long-term commitments with farmers and growers,mills and spinners,and finished goods suppliers can help to de-risk the availability of preferred materials,increase the security of materials,and send a clear signal to the market about the
186、importance of such materials.Suppliers as well as industry players need long-term com-mitments to be able to invest in new practices or technolo-giesshifting to organic production is a matter of half a decade,for example,and cannot be switched on and off as the market demands.Brands should share str
187、ategic plans with such actors,prioritizing partners in core commodity supply chains.“To scale and advance new and innovative raw materials,”explained Kathleen Rademan,director of innovation at Fashion for Good,“full integration into and across the supply chain is critical.In doing so,costs associate
188、d with the integration should be shared across all vested stake-holders including,but not limited to,brands,supply chain partners,investors,and the innovator.”Direct investments are a smart way to create long-term partnerships;they provide farmers and growers with the stability of upfront funding.Th
189、e Asia-based manufacturing group TAL Apparel runs a direct-to-grower program,having recognized that“farmers and growers were not getting the message about the need for sustainable farming practices that reduce carbon impacts,”according to Delman Lee,vice chair at TAL.Similarly,in a deal valued at mo
190、re than 100 million,Inditex committed to buying 30%of Infinited Fiber Companys production volume of Inifinna,a textile created from 100%textile waste.Precompetitive initiatives can support brands in combating issues of performance,scalability,and costs associated with preferred raw materials.By pool
191、ing resources(invest-ment,time,and expertise),such initiatives engender a mutually beneficial ecosystem,expediting the industrys transition to sustainable growth.13 This can unlock no-re-grets solutions(such as regenerative materials and fi-ber-to-fiber feedstocks),thus helping to drive the produc-t
192、ion of lower-impact materials,with scaling and consistent performance improvement in mind.Furthermore,it can support the journey toward standardization within the industry.Standardization requires change.And as Ali Mize,the senior director for ESG,belonging,and corporate philan-thropy at Neiman Marc
193、us Group,pointed out,“Multibrand retailers play a unique role in standardizing and scaling the fashion industrys progress on sustainable raw materials.We collaborate with strategic partners to clearly define preferred materials and certifications for our brand part-ners,then we feature brands releva
194、nt products for custom-ers on the Neiman Marcus and Bergdorf Goodman web-site.”Brands should also consider engaging their key supply chain partners in discussions about setting SBTi targets to drive decarbonization efforts across the entire value chain.Proactive suppliers,among them TAL Apparel,have
195、 already submitted their own science-based targets(pending ap-proval),as have many other credible supply chain partners.This level of alignment across the supply chain will also assist in eliminating the use of coal power in supply chain facilities.Ensure That Knowledge,Tools,and Incentives Are Engr
196、ained Throughout the Company To drive tangible changes in preferred-raw-materials strate-gies,companies need to apply the sustainable transforma-tion lens across the organization by ensuring clear spon-sorship from the C-suite and embedding their preferred-raw-materials strategy across business unit
197、s.For example,every department that makes up the creative team working to develop products and bring them to mar-ket(design,innovation,procurement,financial planning,merchandising,marketing)should be engaged,empow-ered,and trained with enough expertise to make informed decisions about preferred raw
198、materials and understand the challenges that accompany GHG reduction efforts.They should have access to preferred-raw-materials selec-tion tools,like Textile Exchanges PFMM,that support these processes.Deeper technical expertise can be achieved through a dedicated internal team.13.B.Webb,“Key takeaw
199、ays from the Global Fashion Summit:More diversity,more collaboration,”Vogue Business,accessed July 31,2023.23 SUSTAINABLE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDS“Creative teams are sacrosanct,”as a sustainability profes-sional from the luxury industry put it.“Without th
200、eir buy-in,brands will not realize their sustainability goals.Creative teams hold the keys to the kingdom on decisions relating to which materials are used in collections.”Access to data,including real-time performance data,is critical to tracking impacts and cross-functional delivery.Sustainability
201、,legal,IT,marketing,supply chain,and fi-nance teams must work together to respond to regulatory expectations.These functions need to be equally involved and accountable.Brands should also consider establishing or bolstering their dedicated policy and public affairs teams to cope with the complexity.
202、Finally,money talks.Brands must find ways to drive sus-tainability performance at the board and C-suite levels and beyond.They should consider introducing dedicated incen-tives(such as bonuses linked to reaching carbon reduction targets)that are tailored to each job function so that em-ployees can d
203、irectly influence targets no matter what role they play.Leaders and employees need to be driving to-ward agreed upon,measurable,and actionable targets that will enable the changes needed within the company and across the industry.In the face of climate disaster,increasing regulations over the next t
204、wo to five years,and investor and consumer scrutiny,fashion and apparel brands cannot afford to un-derinvest in their raw-materials strategies any longer.In fact,doing so will be a competitive disadvantage.Theres plenty of room for brands to create advantage.Based on the current trajectory,only 19%o
205、f materials in 2030 will be preferred,given the current lack of economies of scale for preferred materials.To succeed in the longer term,brands should follow the six principles of the Materi-als Manifesto to secure a lower-impact supply of core raw materials and thus put those necessary economies of
206、 scale in motion.It will take years to seed and grow the supply of preferred raw materials that fashion and apparel brands need.Why not act boldly now and quickly win over regulators,inves-tors,wholesalers,and consumersand make a true im-pact on climate remediation?BOSTON CONSULTING GROUP +TEXTILE E
207、XCHANGE +QUANTIS 24Appendix:Explaining the Net Profit OpportunityAssumptionsSources:Textile Exchange;BCG analysis.1Slower year-on-year growth due to increased pressure on sales and product availability from regulatory noncompliance(e.g.,products being banned from entering markets)or lack of material
208、s availability.2Annual growth for industry set at 2%based on Euromonitor data where Western brands are expected to grow by 2%5%over the next five years.3 Where cost of material differs from the baseline,costs change only from year 2 onwards because of catalogue planning.AssumptionScenario 11.5%1223$
209、2.50$3.75$3.0090%5%5%2%$2.50$3.75$3.0070%15%15%2%$2.50$2.50$2.1340%30%30%Baseline,a brand that continues business as usual,making no changes to its materials portfolioScenario 2A brand that makes a small change to its materials portfolioScenario 3A brand that makes substantial changes to its materia
210、ls portfolioAnnual growth rateConventional virgin materialsSustainably sourced renewable materialsSustainably sourced recycled materialsSustainably sourced recycled materialsConventional virgin materialsSustainably sourced renewable materials Material priceper unitShare inmaterialportfolio25 SUSTAIN
211、ABLE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSCumulative Opportunity from Year 0 to Year 5 Exemplary Profit&Loss for a Fashion and Apparel Brand,in Three ScenariosSource:BCG analysis.Source:BCG analysis.Note:Based on a sample fashion brand,which is a midsize,high-street b
212、rand with annual revenues of approximately$1 billion.1Does not include any nonstandard costs such as exposure to regulatory risks or costs for potential legal action.Average of+6%YearYear 0Year 5Scenario 1Scenario 2Scenario 3Year 5Year 5OperatingexpensesTotal revenues(000s)$1,000,000$1,080,000$1,100
213、,000$1,100,000$300,000$700,000$770,000$780,000$790,000$200,000$200,000$200,000$200,000$40,000$40,000$30,000$20,000$10,000$10,000$10,000$10,000$90,000$110,000$110,000$120,000$360,000$410,000+4%+8%$430,000$440,000$310,000$320,000$310,000Cost of goods sold(000s)Gross profit(000s)Selling,general,and adm
214、inistrative expensesRegulatory fees1Financing costsTaxNet profit(000s)Net profitScenario 1(baseline)Scenario 2Scenario 3Cost of goods soldOperating expenses2,0961,8342,2992,0791,8542,3492,0541,8222,4066,2306,2826,282Does not account for Potentially significant regulatory penalties for inaction The r
215、isk climate change poses to the production,availability,and quality of land-based materials Greater consumer uptake in the face of more transparent sustainability claims+some$100 million in net profitin Scenario 3 vs Scenario 1+some$50 million in net profitin Scenario 2 vs Scenario 1 BOSTON CONSULTI
216、NG GROUP +TEXTILE EXCHANGE +QUANTIS 26About the AuthorsCatharina Martinez-Pardo is a partner in the Dsseldorf office of Boston Consulting Group.You may contact her by email at .Haafizah Khodabocus is an associate in BCGs London office.You may contact her by email at .Jocelyn Wilkinson is a partner a
217、nd associate director in the firms London office.You may contact her by email at .Lidia Durbiano is an associate in the firms London office.You may contact her by email at .Beth Jensen is the director of climate and impact at Textile Exchange.Megan Stoneburner is the director of fibers and materi-al
218、s at Textile Exchange.BCG Textile Exchange Quantis Mireille Faist is a principal sustainability expert at Quantis.You may contact her by email at .Philipp Meister is the global lead for fashion and sporting goods at Quantis.You may contact him by email at .Stefan Frehland is a senior sustainability
219、project manager at Quantis.You may contact him by email at .Marcial Vargas-Gonzalez is the global lead for science and innovation at Quantis.You may contact him by email at .27 SUSTAINABLE RAW MATERIALS WILL DRIVE PROFITABILITY FOR FASHION AND APPAREL BRANDSThis publication is a joint initiative of
220、Boston Consulting Group(BCG),Textile Exchange,and Quantis.The authors thank Javier Seara,managing director and senior partner at BCG;Sebastian Boger,managing director and partner at BCG;Claire Bergkamp,CEO of Textile Exchange;Libby McCarthy,global content lead at Quantis;Heath McKay,CMO at Quantis;a
221、nd Allon Zeitoun,managing director and global leader at Quantis for their valuable contributions to this report.The authors also extend their sincere appreciation to the following colleagues for their significant contributions to the report:BCG Graham Ackerman,Senior Director of Communications,Londo
222、n Kelly Bo,Senior Associate,London Josephine Chamberlain,Staffing Assistant,London Christy Gibson,Executive Assistant,London Prashansa,Consultant,London Tatiana Pansadoro,Project Leader,London Kushal Patel,Consultant,London Imogen Price,Global Sector Director,Fashion&Luxury,Sydney Winston Tan,Consul
223、tant,London Alexia Yeh Wilson,Global Marketing Director,London Emily Hinton,Consultant,LondonTextile Exchange Pe-Jae Brooks,Interim Head of Communications Sarah Needham,Senior Director,Stakeholder Engagement Sophia Opperskalski,Senior Manager,Data Intelligence Evonne Tan,Senior Director,Data&Technol
224、ogy Eleni Thrasyvoulou,Senior Manager,Impact Data Samantha Pettifer,Senior Manager,Climate+Impact ToolsQuantis Emanuela Boem,Fashion&Sporting Goods Marketing Lead Josephine Pratiwi,Sustainability Consultant Antonio Sodano,Sustainability Consultant Maria Luisa Toppi,Sustainability ConsultantInterview
225、ees The authors also thank the following industry experts,who are among those who contributed their time and expertise and are quoted in this report;they have not reviewed or approved the entirety of this report:Baptiste Carriere-Pradal(2B Policy),Chris Gaffney (Johnstons of Elgin),Delman Lee(TAL Ap
226、parel),Federica Licini(Farfetch),Gloria Lien(Far Eastern New Century),Giovanni Marchi(Marchi&Fildi),Ali Mize(Neiman Marcus Group),Johanna Puetz(BCG),Kathleen Rademan(Fashion for Good),Stefan Seidel(Puma),Luca Solca (Bernstein),and Christian Tnnesen(Selfridges Group).Acknowledgments Boston Consulting
227、 Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it was founded in 1963.Today,we work closely with clients to embrace a transformational approach aimed at benefiting a
228、ll stakeholdersempowering organizations to grow,build sustainable competitive advantage,and drive positive societal impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change.BCG delivers solutions through le
229、ading-edge management consulting,technology and design,and corporate and digital ventures.We work in a uniquely collaborative model across the firm and throughout all levels of the client organization,fueled by the goal of helping our clients thrive and enabling them to make the world a better place
230、.Textile Exchange is a global non-profit driving beneficial impacts on climate and nature across the fashion,apparel,and textile industry.It guides a growing community of brands,manufacturers,and farmers towards more purposeful production from the very start of the supply chain.Its goal is to help t
231、he industry to achieve a 45%reduction in the emissions that come from producing fibers and raw materials by 2030.To get there,it is keeping its focus holistic and interconnected,accelerating the adoption of practices that improve the state of our water,soil health,and biodiversity too.For real chang
232、e to happen,everyone needs a clear path to beneficial impact.Thats why Textile Exchange believes that approachable,step-by-step instruction paired with collective action can change the system to make preferred materials and fibers an accessible default,mobilizing leaders through attainable strategie
233、s,proven solutions and a driven community.At Textile Exchange,materials matter.To learn more,visit textileexchange.org.Quantis,a BCG company,is a leading sustainability consultancy pioneering approaches to solve critical environmental challenges.We partner with leading consumer goods and financial s
234、ervices organizations who are serious about reducing their environmental impacts to future-proof their businesses and prosper in a new planetary economy.Our unique approach combines deep environmental expertise,strategic business knowledge,and enterprise transformation skills to help organizations s
235、hape policies,practices and business models that align with the planets capacity while building resilience,unlocking innovation,and optimizing performance.Our dynamic and visionary team of environmental,business and communications experts will guide you on the journey from business as usual to busin
236、ess at its best.Discover QuantisFor information or permission to reprint,please contact BCG at .To find the latest BCG content and register to receive e-alerts on this topic or others,please visit .Follow Boston Consulting Group on Facebook and X(formerly known as Twitter).Boston Consulting Group 2023.All rights reserved.10/23