The last couple of months and years have been marked by the COVID-19 pandemic and the war in Ukraine. Such issues highlight the interconnectedness of our lives as well as the inherent uncertainty surrounding societies and global economies, Camille Vial writes in an essay for finews.first.
This article has been published on finews.first, a forum for authors specializing in economic and financial topics.
Systemic challenges are also seen in the imminent threat of climate change, which is expected to have dramatic socioeconomic consequences in the future years. The recent shift from an abstract threat to extreme weather changes and temperature records emphasizes the need for coordinated action to reduce greenhouse gas (GHG) emissions that cause climate change.
While some sectors and industries such as energy, industrial and transportation are in the frontline as main contributors to the environmental issues that pervade our world, other industries, less pointed at are vital in achieving the global transition and reaching the needed low carbon economy. The global fashion industry, for instance, accounts for about 8-10 percent of global carbon emissions, and nearly 20 percent of wastewater.
«By 2030, textile products placed on the EU market will for example need to be long-lived and recyclable»
A 2021 report from the World Economic Forum identified fashion, and its supply chain, as the planet’s third-largest polluter (after food and construction). Recently, and in addition to voluntary initiatives, governments and policymakers started joining efforts to promote sustainable practices and conscious consumption in the fashion industry.
For instance, in March 2022 the EU Commission adopted a «Strategy for Sustainable and Circular Textiles» with the aim to create a coherent framework for the transition of the textiles sector. By 2030, textile products placed on the EU market will for example need to be long-lived and recyclable, made largely by recycled fibers or produced in respect of social rights and the environment.
«The growth of such models is also driven by demand from Gen Z and Millennials»
Rethinking fashion models is thus necessary for sustainability, but it also provides the sector with unparalleled potential. By decoupling revenues from production and resource use, circular business models generate considerable environmental savings while expanding to billion-dollar values. The growth of such models is also driven by demand from Gen Z and Millennials, particularly those living in urban areas.
According to the World Economic Forum, switching production to renewable energy sources alone reduces emissions by 45 percent, as emissions in the textile and garment manufacturing process are primarily driven by high shares of fossil-derived energy (e.g., lignite, hard coal, gas, and oil) in production countries' domestic energy mix. This reflects the interrelation between sectors and how driving meaningful policy change in fashion requires cross-sectoral collaboration and coordination by policy and government bodies.
Investors play a pivotal role in this collaboration and are expected to join efforts in redirecting capital flows to finance the transition to a more sustainable and low-carbon economy. Indeed, thanks to its direct involvement in holding companies, private equity allows a concrete and measurable impact on the real economy.
«The market wants to support companies that can make a measurable contribution»
For example, some asset managers are taking an investment approach focused on sustainable capital growth, supporting the development of pioneering lifestyle companies, from digital and technology pioneers to the most promising global brands, considering ethics and governance as well as the responsible use of natural resources. The strong demand for dedicated investment products shows that the market wants to support companies in the real economy that can make a measurable contribution both through sustainable internal processes and corresponding products and services.
Through the direct involvement that the private equity investment models allow, investors can establish mid, and long-term relationships with the companies invested in. Financing and accompanying disruptive business models that meet the needs of current generations and those to come to ensure financial returns and the achievement of extra-financial additionality and truly sustainable development.
Camille Vial is a Managing Partner and the CEO of the Swiss private bank Mirabaud.
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