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How to Finance Fashion’s Hard Tech Sustainability Revolution

How to Finance Fashion’s Hard Tech Sustainability Revolution

The report argues that disruptive innovation in the areas of new materials, processes, technologies, and business models | https://www.bcg.com/publications/2020/financing-transformation-fashion-investment-scale-innovation.aspx | will be necessary if the fashion industry is to become truly sustainable.
However, at present only a fraction of available capital is invested in fashion and textile technology. Digital platforms and other “soft-tech solutions” have attracted more funding than “hard tech” solutions, i.e. new raw materials | Learn more on Commonshare | and end-of-use technologies | Learn more on Commonshare | that can make a larger impact on sustainability.
This is what has to change, and that means fashion brands and their supply chain partners need to offer three things: 1) manageable risk, 2) attractive returns, and 3) measurable impact.
Hard tech is much more difficult to innovate than soft tech for a couple of reasons.
For one thing, innovators face considerable challenges securing financing to develop a minimum viable product. After all, there are plenty of unknowns and uncertainties when it comes to developing a new material.
A second issue is that even after an innovator comes up with a minimum viable product, they still need to attract sufficient financing to attain the volume required for commercial production.
Because the fashion industry’s financing landscape is still nascent, these challenges are especially difficult to surmount.
How can the fashion industry change the way it does financing? The report points to six key barriers. If these can be confronted and overcome in turn, the fashion industry’s financial landscape will look very different indeed.
Misaligned incentives constitute the first barrier. Fashion brands have the most incentive to innovate for sustainability. The trouble is that manufacturers have to deal with the costs and implementation risks, meaning the incentives for innovation are misaligned.
Limited awareness of the opportunity is the second barrier. Because the demand is so recent, private, public, and philanthropic investors are not widely aware of how much opportunity there is to invest in sustainable fashion.
The absence of a structured innovation process and orchestration is the third barrier. Without this structure, fashion deters investment instead of attracting it.
Lack of experience and technical expertise is the fourth barrier. Fashion brands and investors generally do not know much about the science of materials innovation, or the relevant manufacturing processes.
Fifth, incorrect perceptions regarding pricing and externalities are a barrier because companies benchmark against current costs and fail to consider changed costs in the future.
Finally, brands often seek exclusive access to innovations, and this can also block innovators who might want to invest in scaling and commercialization.
Overcoming these six barriers will require cooperation between stakeholders to make the risk manageable, the returns clear and attractive, and the impact measurable.
The report argues that brands, supply chain partners, innovators, and investors should work together in consortiums to concentrate resources and reduce the risks of investment. This is how the fashion industry will finance a sustainability revolution in hard tech.

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